![]() | ![]() | |
(Mark One) | ||
x | QUARTERLY 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 |
(Exact Name of Registrant as Specified in Its Charter)
![]() | ![]() | |
Delaware | 43-2052503 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(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 registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesdays.Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes.Yeso Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
![]() | ![]() | ![]() | ![]() | |||
Large Accelerated Filero | Accelerated Filerx | Non-accelerated Filero | Smaller Reporting Companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
There were 45,112,60445,715,448 limited liability company interests without par value outstanding at November 4, 2009.August 3, 2010.
![]() | ![]() | |||||||
Page | ||||||||
PART I. FINANCIAL INFORMATION | ||||||||
Item 1. Financial Statements | 1 | |||||||
Consolidated Condensed Balance Sheets as of December 31, | 1 | |||||||
Consolidated Condensed Statements of Operations for the Quarters and | ||||||||
Consolidated Condensed Statements of Cash Flows for the | ||||||||
Notes to Consolidated Condensed Financial Statements (Unaudited) | ||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of | ||||||||
Item 3. Quantitative and Qualitative Disclosure About Market Risk | ||||||||
Item 4. Controls and Procedures | ||||||||
PART II. OTHER INFORMATION | ||||||||
Item 1. Legal Proceedings | ||||||||
Item 1A. Risk Factors | ||||||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||||||||
Item 3. Defaults Upon Senior Securities | ||||||||
Item 4. Submission of Matters to a Vote of Security Holders [Reserved] | ||||||||
Item 5. Other Information | ||||||||
Item 6. Exhibits |
Macquarie Infrastructure Company LLC 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 or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Infrastructure Company LLC.
i
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
September 30, 2009 | December 31, 2008 | June 30, 2010 | December 31, 2009 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 56,217 | $ | 68,231 | $ | 29,274 | $ | 27,455 | ||||||||
Restricted cash | 2,452 | 1,063 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $2,167 and $2,230, respectively | 54,495 | 62,240 | ||||||||||||||
Dividends receivable | — | 7,000 | ||||||||||||||
Other receivables | 20 | 132 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $1,481 and $1,629, respectively | 50,508 | 47,256 | ||||||||||||||
Inventories | 14,762 | 15,968 | 16,606 | 14,305 | ||||||||||||
Prepaid expenses | 9,096 | 9,156 | 6,218 | 6,688 | ||||||||||||
Deferred income taxes | 3,774 | 3,774 | 21,908 | 23,323 | ||||||||||||
Land – available for sale | — | 11,931 | ||||||||||||||
Income tax receivable | — | 489 | ||||||||||||||
Other | 11,203 | 13,440 | 9,559 | 10,839 | ||||||||||||
Assets of discontinued operations held for sale | — | 86,695 | ||||||||||||||
Total current assets | 152,019 | 193,424 | 134,073 | 216,561 | ||||||||||||
Property, equipment, land and leasehold improvements, net | 663,555 | 673,981 | 569,193 | 580,087 | ||||||||||||
Restricted cash | 16,016 | 19,939 | 13,780 | 16,016 | ||||||||||||
Equipment lease receivables | 34,031 | 36,127 | 34,574 | 33,266 | ||||||||||||
Investment in unconsolidated business | 201,585 | 184,930 | 213,858 | 207,491 | ||||||||||||
Goodwill | 516,182 | 586,249 | 516,182 | 516,182 | ||||||||||||
Intangible assets, net | 760,050 | 812,184 | 733,670 | 751,081 | ||||||||||||
Deferred financing costs, net of accumulated amortization | 18,385 | 23,383 | 14,931 | 17,088 | ||||||||||||
Other | 3,052 | 4,033 | 1,915 | 1,449 | ||||||||||||
Total assets | $ | 2,364,875 | $ | 2,534,250 | $ | 2,232,176 | $ | 2,339,221 | ||||||||
LIABILITIES AND MEMBERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Due to manager – related party | $ | 2,346 | $ | 1,977 | ||||||||||||
Accounts payable | 41,294 | 44,575 | ||||||||||||||
Accrued expenses | 18,920 | 17,432 | ||||||||||||||
Current portion of notes payable and capital leases | 233 | 235 | ||||||||||||||
Current portion of long-term debt | 53,153 | 45,900 | ||||||||||||||
Fair value of derivative instruments | 45,792 | 49,573 | ||||||||||||||
Customer deposits | 4,449 | 5,617 | ||||||||||||||
Other | 8,375 | 9,338 | ||||||||||||||
Liabilities of discontinued operations held for sale | — | 220,549 | ||||||||||||||
Total current liabilities | 174,562 | 395,196 | ||||||||||||||
Notes payable and capital leases, net of current portion | 1,267 | 1,498 | ||||||||||||||
Long-term debt, net of current portion | 1,127,391 | 1,166,379 | ||||||||||||||
Deferred income taxes | 149,078 | 107,840 | ||||||||||||||
Fair value of derivative instruments | 72,268 | 54,794 | ||||||||||||||
Other | 40,622 | 38,746 | ||||||||||||||
Total liabilities | 1,565,188 | 1,764,453 | ||||||||||||||
Commitments and contingencies | — | — | ||||||||||||||
Members’ equity: | ||||||||||||||||
LLC interests, no par value; 500,000,000 authorized; 45,714,368 LLC interests issued and outstanding at June 30, 2010 and 45,292,913 LLC interests issued and outstanding at December 31, 2009 | 964,426 | 959,897 | ||||||||||||||
Additional paid in capital | 21,167 | 21,956 | ||||||||||||||
Accumulated other comprehensive loss | (33,494 | ) | (43,232 | ) | ||||||||||||
Accumulated deficit | (282,610 | ) | (360,095 | ) | ||||||||||||
Total members’ equity | 669,489 | 578,526 | ||||||||||||||
Noncontrolling interests | (2,501 | ) | (3,758 | ) | ||||||||||||
Total equity | 666,988 | 574,768 | ||||||||||||||
Total liabilities and equity | $ | 2,232,176 | $ | 2,339,221 |
See accompanying notes to the consolidated condensed financial statements.
![]() | ![]() | ![]() | ||||||
September 30, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND MEMBERS’/STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Due to manager – related party | $ | 1,696 | $ | 3,521 | ||||
Accounts payable | 49,173 | 47,886 | ||||||
Accrued expenses | 27,750 | 29,448 | ||||||
Current portion of notes payable and capital leases | 9,585 | 2,724 | ||||||
Current portion of long-term debt | 315,549 | 201,344 | ||||||
Fair value of derivative instruments | 50,228 | 51,441 | ||||||
Customer deposits | 5,673 | 5,457 | ||||||
Other | 9,382 | 10,785 | ||||||
Total current liabilities | 469,036 | 352,606 | ||||||
Notes payable and capital leases, net of current portion | 1,990 | 2,274 | ||||||
Long-term debt, net of current portion | 1,152,985 | 1,327,800 | ||||||
Deferred income taxes | 51,998 | 65,042 | ||||||
Fair value of derivative instruments | 64,507 | 105,970 | ||||||
Other | 46,869 | 46,297 | ||||||
Total liabilities | 1,787,385 | 1,899,989 | ||||||
Commitments and contingencies | — | — | ||||||
Members’/stockholders’ equity: | ||||||||
LLC interests, no par value; 500,000,000 authorized; 45,112,604 LLC interests issued and outstanding at September 30, 2009 and 44,948,694 LLC interests issued and outstanding at December 31, 2008 | 958,258 | 956,956 | ||||||
Accumulated other comprehensive loss | (53,630 | ) | (97,190 | ) | ||||
Accumulated deficit | (331,260 | ) | (230,928 | ) | ||||
Total members’/stockholders’ equity | 573,368 | 628,838 | ||||||
Noncontrolling interests | 4,122 | 5,423 | ||||||
Total equity | 577,490 | 634,261 | ||||||
Total liabilities and equity | $ | 2,364,875 | $ | 2,534,250 |
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, 2010 | June 30, 2009(1) | June 30, 2010 | June 30, 2009(1) | |||||||||||||
Revenue | ||||||||||||||||
Revenue from product sales | $ | 125,177 | $ | 89,430 | $ | 245,195 | $ | 178,622 | ||||||||
Revenue from product sales – utility | 28,450 | 21,414 | 55,285 | 41,581 | ||||||||||||
Service revenue | 49,794 | 51,359 | 103,000 | 108,304 | ||||||||||||
Financing and equipment lease income | 1,271 | 1,205 | 2,516 | 2,397 | ||||||||||||
Total revenue | 204,692 | 163,408 | 405,996 | 330,904 | ||||||||||||
Costs and expenses | ||||||||||||||||
Cost of product sales | 79,887 | 50,645 | 156,941 | 100,411 | ||||||||||||
Cost of product sales – utility | 23,151 | 16,549 | 44,464 | 31,936 | ||||||||||||
Cost of services | 13,318 | 11,069 | 24,463 | 22,140 | ||||||||||||
Selling, general and administrative | 49,522 | 48,725 | 100,256 | 104,868 | ||||||||||||
Fees to manager – related party | 2,268 | 851 | 4,457 | 1,313 | ||||||||||||
Goodwill impairment | — | 53,200 | — | 71,200 | ||||||||||||
Depreciation | 7,202 | 9,270 | 14,924 | 22,420 | ||||||||||||
Amortization of intangibles | 8,740 | 12,532 | 17,411 | 42,797 | ||||||||||||
Total operating expenses | 184,088 | 202,841 | 362,916 | 397,085 | ||||||||||||
Operating income (loss) | 20,604 | (39,433 | ) | 43,080 | (66,181 | ) | ||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 4 | 34 | 20 | 101 | ||||||||||||
Interest expense(2) | (38,974 | ) | (2,103 | ) | (73,661 | ) | (35,669 | ) | ||||||||
Equity in earnings and amortization charges of investee | 5,774 | 10,028 | 11,367 | 15,477 | ||||||||||||
Loss on derivative instruments | — | — | — | (25,238 | ) | |||||||||||
Other (expense) income, net | (496 | ) | (186 | ) | (448 | ) | 850 | |||||||||
Net loss from continuing operations before income taxes | (13,088 | ) | (31,660 | ) | (19,642 | ) | (110,660 | ) | ||||||||
Benefit for income taxes | 13,488 | 4,822 | 14,577 | 37,387 | ||||||||||||
Net income (loss) from continuing operations | $ | 400 | $ | (26,838 | ) | $ | (5,065 | ) | $ | (73,273 | ) | |||||
Net income (loss) from discontinued operations, net of taxes | 85,212 | (3,159 | ) | 81,199 | (9,583 | ) | ||||||||||
Net income (loss) | $ | 85,612 | $ | (29,997 | ) | $ | 76,134 | $ | (82,856 | ) | ||||||
Less: net loss attributable to noncontrolling interests | (238 | ) | (1,039 | ) | (1,351 | ) | (872 | ) | ||||||||
Net income (loss) attributable to MIC LLC | $ | 85,850 | $ | (28,958 | ) | $ | 77,485 | $ | (81,984 | ) | ||||||
Basic income (loss) per share from continuing operations attributable to MIC LLC interest holders | $ | 0.02 | $ | (0.60 | ) | $ | (0.08 | ) | $ | (1.64 | ) | |||||
Basic income (loss) per share from discontinued operations attributable to MIC LLC interest holders | 1.87 | (0.04 | ) | 1.79 | (0.18 | ) | ||||||||||
Basic income (loss) per share attributable to MIC LLC interest holders | $ | 1.89 | $ | (0.64 | ) | $ | 1.71 | $ | (1.82 | ) | ||||||
Weighted average number of shares outstanding: basic | 45,467,413 | 44,951,176 | 45,381,413 | 44,949,942 | ||||||||||||
Diluted income (loss) per share from continuing operations attributable to MIC LLC interest holders | $ | 0.02 | $ | (0.60 | ) | $ | (0.08 | ) | $ | (1.64 | ) | |||||
Diluted income (loss) per share from discontinued operations attributable to MIC LLC interest holders | 1.86 | (0.04 | ) | 1.78 | (0.18 | ) | ||||||||||
Diluted income (loss) per share attributable to MIC LLC interest holders | $ | 1.88 | $ | (0.64 | ) | $ | 1.70 | $ | (1.82 | ) | ||||||
Weighted average number of shares outstanding: diluted | 45,604,064 | 44,951,176 | 45,513,864 | 44,949,942 |
(1) | Reclassified to conform to current period presentation. |
(2) | Interest expense includes non-cash losses on derivative instruments of $20.5 million and $31.7 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest expense includes non-cash gains on derivative instruments of $20.1 million and $13.1 million, respectively. |
See accompanying notes to the consolidated condensed financial statements.
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | September 30, 2009 | September 30, 2008 | |||||||||||||
Revenue | ||||||||||||||||
Revenue from product sales | $ | 103,017 | $ | 152,060 | $ | 281,639 | $ | 478,219 | ||||||||
Revenue from product sales – utility | 26,056 | 36,060 | 67,637 | 97,317 | ||||||||||||
Service revenue | 72,264 | 87,714 | 214,614 | 263,171 | ||||||||||||
Financing and equipment lease income | 1,190 | 1,164 | 3,587 | 3,537 | ||||||||||||
Total revenue | 202,527 | 276,998 | 567,477 | 842,244 | ||||||||||||
Costs and expenses | ||||||||||||||||
Cost of product sales | 61,349 | 109,801 | 160,624 | 337,819 | ||||||||||||
Cost of product sales – utility | 19,406 | 31,161 | 50,016 | 82,175 | ||||||||||||
Cost of services | 26,562 | 33,070 | 82,701 | 98,615 | ||||||||||||
Selling, general and administrative | 54,782 | 57,426 | 167,468 | 182,928 | ||||||||||||
Fees to manager – related party | 1,639 | 2,737 | 2,952 | 11,872 | ||||||||||||
Goodwill impairment | — | — | 71,200 | — | ||||||||||||
Depreciation | 7,177 | 7,101 | 29,597 | 20,139 | ||||||||||||
Amortization of intangibles | 9,126 | 10,563 | 51,923 | 32,206 | ||||||||||||
Total operating expenses | 180,041 | 251,859 | 616,481 | 765,754 | ||||||||||||
Operating income (loss) | 22,486 | 25,139 | (49,004 | ) | 76,490 | |||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 8 | 268 | 116 | 1,038 | ||||||||||||
Interest expense | (24,639 | ) | (26,114 | ) | (81,861 | ) | (77,616 | ) | ||||||||
Equity in earnings and amortization charges of investees | 1,178 | 4,051 | 16,655 | 10,603 | ||||||||||||
Loss on derivative instruments | (17,371 | ) | (765 | ) | (29,872 | ) | (1,651 | ) | ||||||||
Other income, net | 269 | 6 | 1,693 | 661 | ||||||||||||
Net (loss) income before income taxes and noncontrolling interests | (18,069 | ) | 2,585 | (142,273 | ) | 9,525 | ||||||||||
(Provision) benefit for income taxes | (327 | ) | (2,254 | ) | 41,021 | (3,254 | ) | |||||||||
Net (loss) income before noncontrolling interests | (18,396 | ) | 331 | (101,252 | ) | 6,271 | ||||||||||
Net loss attributable to noncontrolling interests | (48 | ) | (167 | ) | (920 | ) | (575 | ) | ||||||||
Net (loss) income | $ | (18,348 | ) | $ | 498 | $ | (100,332 | ) | $ | 6,846 | ||||||
Basic (loss) earnings per share: | $ | (0.41 | ) | $ | 0.01 | $ | (2.23 | ) | $ | 0.15 | ||||||
Weighted average number of shares outstanding: basic | 45,006,771 | 44,948,694 | 44,969,093 | 44,942,859 | ||||||||||||
Diluted (loss) earnings per share: | $ | (0.41 | ) | $ | 0.01 | $ | (2.23 | ) | $ | 0.15 | ||||||
Weighted average number of shares outstanding: diluted | 45,006,771 | 44,962,809 | 44,969,093 | 44,955,236 | ||||||||||||
Cash distributions declared per share | $ | — | $ | 0.645 | $ | — | $ | 1.925 |
See accompanying notes to the consolidated condensed financial statements.
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Nine Months Ended | Six Months Ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | June 30, 2010 | June 30, 2009(1) | |||||||||||||
Operating activities | ||||||||||||||||
Net (loss) income before noncontrolling interests | $ | (101,252 | ) | $ | 6,271 | |||||||||||
Adjustments to reconcile net (loss) income before noncontrolling interests to net cash provided by operating activities: | ||||||||||||||||
Net income (loss) before noncontrolling interests | $ | 76,134 | $ | (82,856 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities from continuing operations: | ||||||||||||||||
Net (income) loss from discontinued operations before noncontrolling interests | (81,199 | ) | 9,583 | |||||||||||||
Non-cash goodwill impairment | 71,200 | — | — | 71,200 | ||||||||||||
Depreciation and amortization of property and equipment | 43,227 | 28,359 | 18,195 | 25,385 | ||||||||||||
Amortization of intangible assets | 51,923 | 32,206 | 17,411 | 42,797 | ||||||||||||
Equity in earnings and amortization charges of investees | (16,655 | ) | (10,603 | ) | (11,367 | ) | (15,477 | ) | ||||||||
Equity distributions from investees | 7,000 | 10,603 | 5,000 | 7,000 | ||||||||||||
Amortization of debt financing costs | 4,998 | 4,941 | 2,256 | 2,514 | ||||||||||||
Non-cash derivative loss, net of non-cash interest expense | 29,872 | 1,897 | ||||||||||||||
Base management fee to be settled in LLC interests | 1,639 | — | ||||||||||||||
Non-cash derivative loss | 31,674 | 12,173 | ||||||||||||||
Base management fees settled in LLC interests | 2,189 | 851 | ||||||||||||||
Equipment lease receivable, net | 2,009 | 1,621 | 1,451 | 1,407 | ||||||||||||
Deferred rent | 1,265 | 1,535 | 145 | 87 | ||||||||||||
Deferred taxes | (41,892 | ) | 1,904 | (16,046 | ) | (38,131 | ) | |||||||||
Other non-cash expenses, net | 167 | 658 | ||||||||||||||
Other non-cash expenses (income), net | 2,112 | (350 | ) | |||||||||||||
Changes in other assets and liabilities, net of acquisitions: | ||||||||||||||||
Restricted cash | (756 | ) | 24 | 50 | — | |||||||||||
Accounts receivable | 7,188 | (3,436 | ) | (4,718 | ) | 6,881 | ||||||||||
Inventories | 776 | (2,027 | ) | (2,376 | ) | 1,598 | ||||||||||
Prepaid expenses and other current assets | 2,830 | 4,944 | 1,299 | 5,394 | ||||||||||||
Due to manager – related party | (2,613 | ) | (2,958 | ) | 2,263 | (3,493 | ) | |||||||||
Accounts payable and accrued expenses | 1,655 | (110 | ) | (1,281 | ) | (5,213 | ) | |||||||||
Income taxes payable | (537 | ) | (1,530 | ) | (406 | ) | 40 | |||||||||
Other, net | (2,635 | ) | 828 | (1,140 | ) | (1,628 | ) | |||||||||
Net cash provided by operating activities | 59,409 | 75,127 | ||||||||||||||
Net cash provided by operating activities from continuing operations | 41,646 | 39,762 | ||||||||||||||
Investing activities | ||||||||||||||||
Acquisitions of businesses and investments, net of cash acquired | — | (53,338 | ) | |||||||||||||
Proceeds from sale of investment, net of cash divested | — | 1,861 | ||||||||||||||
Purchases of property and equipment | (19,981 | ) | (52,587 | ) | (7,315 | ) | (11,864 | ) | ||||||||
Return of investment in unconsolidated business | — | 10,397 | ||||||||||||||
Investment in capital leased assets | (2,400 | ) | — | |||||||||||||
Other | 115 | 223 | 658 | 92 | ||||||||||||
Net cash used in investing activities | (19,866 | ) | (93,444 | ) | ||||||||||||
Net cash used in investing activities from continuing operations | (9,057 | ) | (11,772 | ) |
See accompanying notes to the consolidated condensed financial statements.
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Nine Months Ended | Six Months Ended | |||||||||||||||
September 30, 2009 | September 30, 2008 | June 30, 2010 | June 30, 2009 | |||||||||||||
Financing activities | ||||||||||||||||
Proceeds from long-term debt | 10,000 | 5,000 | ||||||||||||||
Proceeds from line of credit facilities | 9,250 | 87,800 | ||||||||||||||
Offering and equity raise costs paid | — | (65 | ) | |||||||||||||
Distributions paid to holders of LLC interests | — | (86,520 | ) | |||||||||||||
Net proceeds on line of credit facilities | $ | — | $ | 3,600 | ||||||||||||
Contributions received from noncontrolling interests | 300 | — | ||||||||||||||
Distributions paid to noncontrolling interests | (381 | ) | (363 | ) | (1,261 | ) | (314 | ) | ||||||||
Payment of long-term debt | (72,859 | ) | (120 | ) | (31,736 | ) | (60,620 | ) | ||||||||
Debt financing costs paid | — | (1,874 | ) | |||||||||||||
Change in restricted cash | 3,292 | (501 | ) | 2,236 | (33 | ) | ||||||||||
Payment of notes and capital lease obligations | (859 | ) | (1,629 | ) | (164 | ) | (94 | ) | ||||||||
Net cash used in financing activities from continuing operations | (30,625 | ) | (57,461 | ) | ||||||||||||
Net change in cash and cash equivalents from continuing operations | 1,964 | (29,471 | ) | |||||||||||||
Cash flows provided by (used in) discontinued operations: | ||||||||||||||||
Net cash used in operating activities | (12,703 | ) | (2,909 | ) | ||||||||||||
Net cash provided by (used in) in investing activities | 134,356 | (312 | ) | |||||||||||||
Net cash (used in) provided by financing activities | (51,557 | ) | 1,728 | (124,183 | ) | 2,513 | ||||||||||
Cash used in discontinued operations(2) | (2,530 | ) | (708 | ) | ||||||||||||
Change in cash of discontinued operations held for sale(2) | 2,385 | (945 | ) | |||||||||||||
Net change in cash and cash equivalents | (12,014 | ) | (16,589 | ) | 1,819 | (31,124 | ) | |||||||||
Cash and cash equivalents, beginning of period | 68,231 | 57,473 | 27,455 | 66,054 | ||||||||||||
Cash and cash equivalents, end of period | $ | 56,217 | $ | 40,884 | ||||||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash and cash equivalents, end of period – continuing operations | $ | 29,274 | $ | 34,930 | ||||||||||||
Supplemental disclosures of cash flow information for continuing operations: | ||||||||||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Accrued purchases of property and equipment | $ | 209 | $ | 1,226 | $ | 1,092 | $ | 1,238 | ||||||||
Acquisition of equipment through capital leases | $ | 129 | $ | 490 | ||||||||||||
Issuance of LLC interests to manager for payment of base management fee | $ | 851 | $ | — | ||||||||||||
Issuance of LLC interests to manager for base management fees | $ | 4,083 | $ | 851 | ||||||||||||
Issuance of LLC interests to independent directors | $ | 450 | $ | 450 | $ | 446 | $ | 450 | ||||||||
Taxes paid | $ | 1,167 | $ | 3,044 | $ | 1,508 | $ | 508 | ||||||||
Interest paid | $ | 72,265 | $ | 73,148 | $ | 40,015 | $ | 46,946 |
(1) | Reclassified to conform to current period presentation. |
(2) | Cash of discontinued operations held for sale is reported in assets of discontinued operations held for sale in the accompanying consolidated condensed balance sheets. The cash used in discontinued operations is different than the change in cash of discontinued operations held for sale due to intercompany transactions that are eliminated in consolidation. |
See accompanying notes to the consolidated condensed financial statements.
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 consolidated subsidiaries, is referred to in these financial statements as the Company.“Company” or “MIC”. 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 wholly-owned subsidiary ofwithin 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 also formed on April 13, 2004. Prior to December 21, 2004 and the completion of the initial public offering, the Trust was a wholly-owned subsidiary of the Manager. On June 25, 2007, all of the outstanding shares of trust stock issued by the Trust were exchanged for an equal number of limited liability company, or LLC, interests in the Company, and the Trust was dissolved. Prior to this exchange of trust stock for LLC interests and the dissolution of the Trust, all interests in the Company were held by the Trust. The Company continues to beis an operating entity with a Board of Directors and other corporate governance responsibilities generally consistent with thatthose of a Delaware corporation.
The Company owns its businesses through its wholly-owned subsidiary, Macquarie Infrastructure Company Inc., or MIC Inc. The Company’s businesses operate predominantly in the United States and compriseconsist of the following:
(i) | a 50% interest in a bulk liquid storage terminal business |
(ii) | a gas production and distribution business |
(iii) | a 50.01% controlling interest in a district energy business |
Atlantic Aviation — an airport services business providing products and services, including fuel and aircraft hangaring/parking, to owners and operators of private jets at 68 airports and one heliport in |
During the year ended December 31, 2008, the Company completed the following acquisitions:U.S.
The 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 condensed financial statements in conformity with GAAP requires estimates and assumptions. Management evaluates these estimates and judgmentsassumptions 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 and ninesix months ended SeptemberJune 30, 20092010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.2010.
The consolidated balance sheet at December 31, 20082009 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. Certain reclassifications were made to the financial statements for the prior period to conform to current period 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, 20082009 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 27, 2009.25, 2010.
In April 2009, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Codification (ASC)ASC 825-10-65Financial Instruments (formerly FSP SFAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”)., which is effective for interim reporting periods ending after June 15, 2009. This guidance requires disclosures about the fair value of financial instruments for interim reporting periods in addition to the current requirement to make disclosure in annual financial statements. This guidance also requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments and description of changes in the methodmethods and significant assumptions. The Company adopted this guidance during the second quarter of 2009. Since this guidance requires only additional disclosures, the adoption did not have a material impact on the Company’s financial results of operations and financial condition.
The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and variable rate senior debt, are carried at cost, which approximates their fair value because of either the short-term maturity, or variable or competitive interest rates assigned to these financial instruments.
In February 2008, the FASB issued ASC 820Fair Value Measurements and Disclosures(formerly FSP SFAS No. 157-1, “Application of SFAS No. 157 to SFAS No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under SFAS No. 13”, and FSP SFAS No. 157-2, “Effective Date of FASB Statement No. 157”) affecting the implementation of SFAS No. 157. This guidance excludes ASC 840-10Leases(formerly SFAS No. 13, “Accounting for Leases”), and other accounting pronouncements that address fair value measurements under SFAS No. 13 from the scope of SFAS No. 157. However, the scope of this exception does apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value in accordance with ASC 805-10Business Combinations(formerly SFAS No. 141(R), “Business Combinations”) regardless of whether those assets and liabilities are related to leases. This guidance delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS No. 157 for all nonfinancial assets and liabilities. Major categories of nonfinancial assets and liabilities to which this accounting standard applies include, but are not limited to, the Company’s property, equipment, land and leasehold improvements, intangible assets and goodwill. See Note 7, “Nonfinancial Assets Measured at Fair Value”, for further discussion.
In March 2008, the FASB issued ASC 815-10Derivatives and Hedging(formerly SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities — an amendment of SFAS No. 133”), which requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments; how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. This guidance is effective for periods beginning after November 15, 2008. The Company adopted this guidance on January 1, 2009. Since this guidance requires only additional disclosures concerning derivatives and hedging activities, the adoption did not have a material impact on the Company’s financial results of operations and financial condition. See Note 9, “Derivative Instruments”, for further discussion.
In December 2007, the FASB revised ASC 805-10Business Combinations (formerly SFAS No. 141(R)). The revised standard includes various changes to the business combination rules. Some of the changes include immediate expensing of acquisition-related costs rather than capitalization, and 100% of the fair value of assets and liabilities acquired being recorded, even if less than 100% of a controlled business is acquired. This guidance is effective for business combinations consummated in periods beginning on or after December 15, 2008. For any business combinations completed after January 1, 2009, the Company expects the revised standard to have the following material impacts on its financial statements compared with previously applicable business combination rules: (1) increased selling, general and administrative costs due to immediate expensing of acquisition costs, resulting in lower net income; (2) lower cash provided by operating activities and lower cash used in investing activities in the statements of cash flows due to the immediate expensing of acquisition costs, which under previous rules were included as cash out flows in investing activities as part of the purchase price of the business; and (3) 100% of fair values recorded for assets and liabilities including noncontrolling interests of a controlled business on the balance sheet resulting in larger assets, liability and equity balances compared with previous business combination rules.
On January 1, 2009, the Company adopted this guidance. Although the Company did not complete any new business combinations during the first nine months of 2009, the Company used the guidance from this pronouncement to perform goodwill impairment analysis. See Note 7, “Nonfinancial Assets Measured at Fair Value”, for further discussion.
Following is a reconciliation of the basic and diluted number of shares used in computing income (loss) earnings per share:
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Quarter Ended September 30, | Nine Months Ended September 30, | Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Weighted average number of shares outstanding: basic | 45,006,771 | 44,948,694 | 44,969,093 | 44,942,859 | 45,467,413 | 44,951,176 | 45,381,413 | 44,949,942 | ||||||||||||||||||||||||
Dilutive effect of restricted stock unit grants | — | 14,115 | — | 12,377 | 136,651 | — | 132,451 | — | ||||||||||||||||||||||||
Weighted average number of shares outstanding: diluted | 45,006,771 | 44,962,809 | 44,969,093 | 44,955,236 | 45,604,064 | 44,951,176 | 45,513,864 | 44,949,942 |
The effect of potentially dilutive shares for the quarter and ninesix months ended SeptemberJune 30, 20082010 is calculated by assuming that 14,115the 31,989 restricted stock unit grants provided to the independent directors on May 27, 2008 had been fully converted to shares on that date. These stock unit grants, along withJune 3, 2010 and the 128,205 restricted stock unit grants provided to the independent directors on June 4, 2009 had been fully converted to shares on those dates. However, the restricted stock unit grants were anti-dilutive for the quarter and ninesix months ended SeptemberJune 30, 2009, due to the Company’s net loss for those periods.
On June 2, 2010, the Company concluded the sale in bankruptcy of an airport parking business (“Parking Company of America Airports” or “PCAA”) resulting in a pre-tax gain of $130.3 million, of which $76.5 million related to the forgiveness of debt, and the elimination of $201.0 million of current debt from liabilities from the Company’s consolidated condensed balance sheet. As a part of the bankruptcy sale process, substantially all of the cash proceeds were used to pay the creditors of this business and were not paid to the Company. The Company received $602,000 from the PCAA bankruptcy estate for expenses paid on behalf of PCAA during its operations.
As a result of the approval of the sale of PCAA's assets in bankruptcy and the expected dissolution of PCAA during 2010, the Company has reduced its valuation allowance on the realization of a portion of the deferred tax assets attributable to its basis in PCAA and its consolidated federal net operating losses. The change in the valuation allowance recorded in discontinued operations was $10.0 million.
The results of operations from this business, for all periods presented, and the gain from the bankruptcy sale are separately reported as a discontinued operations in the Company’s consolidated condensed financial statements. This business is no longer a reportable segment. The assets and liabilities of the business being sold are included in assets of discontinued operations held for sale and liabilities of discontinued operations held for sale on the Company’s consolidated condensed balance sheet at December 31, 2009.
The following is a summary of the assets and liabilities of discontinued operations held for sale related to PCAA at December 31, 2009:
![]() | ![]() | |||
December 31, 2009 | ||||
($ in Thousands) | ||||
Assets | ||||
Total current assets | $ | 7,676 | ||
Property, equipment, land and leasehold improvements, net | 77,524 | |||
Other non-current assets | 1,495 | |||
Total assets | $ | 86,695 | ||
Liabilities | ||||
Current portion of long-term debt | $ | 200,999 | ||
Other current liabilities | 10,761 | |||
Total current liabilities | 211,760 | |||
Other non-current liabilities | 8,789 | |||
Total liabilities | 220,549 | |||
Noncontrolling interests | (1,863 | ) | ||
Total liabilities and noncontrolling interests | $ | 218,686 |
Summarized financial information for discontinued operations related to PCAA for the quarters and six months ended June 30, 2010 and 2009 are as follows:
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
For the Quarter Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
($ in Thousands, Except Share Data) | ||||||||||||||||
Service revenue | $ | 12,319 | $ | 17,439 | $ | 28,826 | $ | 34,046 | ||||||||
Gain on sale of assets through bankruptcy (pre-tax) | 130,260 | — | 130,260 | — | ||||||||||||
Net income (loss) from discontinued operations before income taxes | $ | 135,726 | $ | (4,026 | ) | $ | 132,709 | $ | (13,544 | ) | ||||||
(Provision) benefit for income taxes | (50,514 | ) | 867 | (51,510 | ) | 3,961 | ||||||||||
Net income (loss) from discontinued operations | 85,212 | (3,159 | ) | 81,199 | (9,583 | ) | ||||||||||
Less: net income (loss) attributable to noncontrolling interests | 302 | (1,213 | ) | 136 | (1,213 | ) | ||||||||||
Net income (loss) from discontinued operations attributable to MIC LLC | $ | 84,910 | $ | (1,946 | ) | $ | 81,063 | $ | (8,370 | ) | ||||||
Basic income (loss) per share from discontinued operations attributable to MIC LLC interest holders | $ | 1.87 | $ | (0.04 | ) | $ | 1.79 | $ | (0.18 | ) | ||||||
Weighted average number of shares outstanding at the Company level: basic | 45,467,413 | 44,951,176 | 45,381,413 | 44,949,942 | ||||||||||||
Diluted income (loss) per share from discontinued operations attributable to MIC LLC interest holders | $ | 1.86 | $ | (0.04 | ) | $ | 1.78 | $ | (0.18 | ) | ||||||
Weighted average number of shares outstanding at the Company level: diluted | 45,604,064 | 44,951,176 | 45,513,864 | 44,949,942 |
Property, equipment, land and leasehold improvements at SeptemberJune 30, 20092010 and December 31, 20082009 consist of the following ($ in thousands):
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
September 30, 2009 | December 31, 2008 | June 30, 2010 | December 31, 2009 | |||||||||||||
Land | $ | 71,899 | $ | 56,039 | $ | 4,618 | $ | 4,618 | ||||||||
Easements | 5,624 | 5,624 | 5,624 | 5,624 | ||||||||||||
Buildings | 29,728 | 34,128 | 24,796 | 24,789 | ||||||||||||
Leasehold and land improvements | 327,441 | 301,623 | 317,512 | 312,881 | ||||||||||||
Machinery and equipment | 335,046 | 321,240 | 332,064 | 330,226 | ||||||||||||
Furniture and fixtures | 10,860 | 9,952 | 9,441 | 9,395 | ||||||||||||
Construction in progress | 16,038 | 48,520 | 16,394 | 16,519 | ||||||||||||
Property held for future use | 1,561 | 1,540 | 1,561 | 1,561 | ||||||||||||
798,197 | 778,666 | 712,010 | 705,613 | |||||||||||||
Less: accumulated depreciation | (134,642 | ) | (104,685 | ) | (142,817 | ) | (125,526 | ) | ||||||||
Property, equipment, land and leasehold improvements, net | $ | 663,555 | $ | 673,981 | $ | 569,193 | $ | 580,087 |
(1) |
Includes |
The Company recognized non-cash impairment charges primarily relating to leasehold and land improvements, buildings, machinery and equipment and furniture and fixtures, which are summarized below for the following businesses ($ in thousands):
![]() | ![]() | ![]() | ||||||
Nine Months Ended September 30, 2009(1) | Quarter and Year Ended December 31, 2008(1) | |||||||
Airport Services(2) | $ | 7,521 | $ | 13,754 | ||||
Airport Parking(3) | 6,385 | 19,145 | ||||||
Total | $ | 13,906 | $ | 32,899 |
The Company recognized non-cash impairment charges of $2.2 million and $7.5 million during the quarter and six months ended June 30, 2009, respectively, primarily relating to leasehold and land improvements; buildings; machinery and equipment; and furniture and fixtures at Atlantic Aviation. These charges are recorded in depreciation expense in the consolidated condensed statements of operations. There was no impairment charge in the first six months of 2010.
Intangible assets at SeptemberJune 30, 20092010 and December 31, 20082009 consist of the following ($ in thousands):
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||
Weighted Average Life (Years) | September 30, 2009 | December 31, 2008 | Weighted Average Life (Years) | June 30, 2010 | December 31, 2009 | |||||||||||||||||||
Contractual arrangements | 31.3 | $ | 774,309 | $ | 802,419 | 31.1 | $ | 774,309 | $ | 774,309 | ||||||||||||||
Non-compete agreements | 2.5 | 9,515 | 9,515 | 2.5 | 9,515 | 9,515 | ||||||||||||||||||
Customer relationships | 10.7 | 78,596 | 78,596 | 10.6 | 78,596 | 78,596 | ||||||||||||||||||
Leasehold rights | 12.5 | 3,330 | 3,542 | 12.5 | 3,331 | 3,331 | ||||||||||||||||||
Trade names | Indefinite | 15,401 | 15,401 | Indefinite | 15,401 | 15,401 | ||||||||||||||||||
Technology | 5.0 | 460 | 460 | 5.0 | 460 | 460 | ||||||||||||||||||
881,611 | 909,933 | 881,612 | 881,612 | |||||||||||||||||||||
Less: Accumulated amortization | (121,561 | ) | (97,749 | ) | ||||||||||||||||||||
Less: accumulated amortization | (147,942 | ) | (130,531 | ) | ||||||||||||||||||||
Intangible assets, net | $ | 760,050 | $ | 812,184 | $ | 733,670 | $ | 751,081 |
As a result of a decline in the performance of certain asset groups during the firstquarter and six months ofended June 30, 2009, and the quarter ended December 31, 2008, the Company evaluated such asset groups for impairment and determined that the asset groups were impaired. The Company estimated the fair value of each of the impaired asset groups using eitherthe discounted cash flows or third party appraisals.flow model. Accordingly, the Company recognized non-cash impairment charges of $2.9 million and $23.3 million related to contractual arrangements at the airport services business during the first six months of 2009 and customer relationships, leasehold rights and trademarks at the airport parking businessAtlantic Aviation during the quarter and six months ended December 31, 2008.June 30, 2009, respectively. These charges are recorded in amortization of intangibles in the consolidated condensed statement of operations. There was no impairment charge in the first six months of 2010.
The change in goodwill frombalance as of June 30, 2010 and December 31, 2008 to September 30, 2009 is as followscomprised of the following ($ in thousands):
![]() | ![]() | |||
Balance at December 31, 2008 | $ | 586,249 | ||
Impairment of airport services business' goodwill | (71,200 | ) | ||
Prior period acquisition purchase price adjustments | 31 | |||
Other | 1,102 | |||
Balance at September 30, 2009 | $ | 516,182 |
![]() | ![]() | |||
Goodwill acquired in business combinations, net of disposals | $ | 639,382 | ||
Less: accumulated impairment charges | (123,200 | ) | ||
Balance at June 30, 2010 and December 31, 2009 | $ | 516,182 |
The Company tests for goodwill impairment at the reporting unit level on an annual basis and between annual tests if a triggering event indicates impairment. The decline in the Company’s stock price particularly over the latter part of 2008 and the first half of 2009 has caused the book value of the Company to exceed its market capitalization. TheIn addition to its annual goodwill impairment testing conducted routinely on October 1st of each year, the Company performed goodwill impairment teststesting during the firstquarter and six months ofended June 30, 2009 and fourth quarter of 2008. The goodwill impairment test is a two-step process, which requires managementdue to make judgments in determining what assumptions to use in the test. The first steptriggering event of the process consists of estimating the fair value of each reporting unit based on a discounted cash flow model using cash flow forecasts and comparing those estimated fair values with the carrying values, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. If the corresponding carrying value is higher than the “implied fair value”, goodwill is written down to reflect the impairment.Company’s stock price decline. Based on the testing performed, the Company recorded goodwill impairment charges of $53.2 million and $71.2 million at Atlantic Aviation during the airport services business duringquarter and six months ended June 30, 2009, respectively, which is included in the accumulated impairment charges in the above table. There was no goodwill impairment charge in the first six months of 2009 and the quarter ended December 31, 2008 and at the airport parking business to write off all of its goodwill during the quarter ended December 31, 2008.2010.
For the nine months ended September 30, 2009 and the quarter and year ended December 31, 2008, the following non-cash impairment charges were recorded at the following businesses ($ in thousands):
![]() | ![]() | ![]() | ||||||
Nine Months Ended September 30, 2009(1) | Quarter and Year Ended December 31, 2008(1) | |||||||
Intangible Assets(2) | ||||||||
Airport Services | $ | 23,326 | $ | 21,712 | ||||
Airport Parking | — | 8,134 | ||||||
Total | $ | 23,326 | $ | 29,846 | ||||
Goodwill | ||||||||
Airport Services | $ | 71,200 | $ | 52,000 | ||||
Airport Parking | — | 138,751 | ||||||
Total | $ | 71,200 | $ | 190,751 |
While management has a plan to return the Company’s business fundamentals to levels that support the book value per common share, there is no assurance that the plan will be successful, or that the market price of the common stock will increase to such levels in the foreseeable future. Discount rates used in recent cash flow analyses have increased and projected cash flows relating to the Company’s reporting units generally declined in the latter half of 2008 and first half of 2009 primarily as the result of negative macroeconomic factors. There is no assurance that discount rates will not increase or that the earnings, book values or projected earnings and cash flows of the Company’s individual reporting units will not decline. Management will continue to monitor the relationship of the Company’s market capitalization to its book value, the differences for which management attributes to both negative macroeconomic factors and Company specific factors, and management will continue to evaluate the carrying value of goodwill and other intangible assets. Accordingly, an additional impairment charge to goodwill and other intangible assets may be required in the foreseeable future if the Company’s common stock price continues to trade below book value per common share or the book value exceeds its estimated fair value of an individual reporting unit.
The following major categories of nonfinancial assets at the impaired asset groups were written down to fair value during the firstquarter and six months of 2009:ended June 30, 2009 at Atlantic Aviation ($ in thousands):
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||
Fair Value Measurements Using | Total Losses | |||||||||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Quarter Ended September 30, 2009 | Nine Months Ended September 30, 2009 | |||||||||||||||||||
($ in Thousands) | ||||||||||||||||||||||||
Property, Equipment, Land and Leasehold Improvements, net | $ | — | $ | 55,433 | $ | 5,122 | $ | — | $ | (13,906 | ) | |||||||||||||
Intangible Assets | — | — | 14,430 | — | (23,326 | ) | ||||||||||||||||||
Goodwill | — | — | 377,343 | — | (71,200 | ) | ||||||||||||||||||
Total | $ | — | $ | 55,433 | $ | 396,895 | $ | — | $ | (108,432 | ) |
![]() | ![]() | ![]() | ![]() | |||||||||
Total Losses | ||||||||||||
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)(1) | Quarter Ended June 30, 2009 | Six Months Ended June 30, 2009 | ||||||||||
Property, equipment, land and leasehold improvements, net | $ | 5,122 | $ | 2,200 | $ | 7,521 | ||||||
Intangible assets | 14,430 | 2,962 | 23,326 | |||||||||
Goodwill | 377,343 | 53,200 | 71,200 | |||||||||
Total | $ | 396,895 | $ | 58,362 | $ | 102,047 |
(1) | At June 30, 2009, there were no nonfinancial assets measured at fair value using quoted prices in active markets for identical assets (“level 1”) or significant other observable inputs (“level 2”). |
The Company estimated the fair value of each of the impaired asset groups using either discounted cash flows or third party appraisals.flows. Property, equipment, land and leasehold improvements for Atlantic Aviation with a carrying amountvalue of $74.5$12.6 million were written down to fair value of $60.6$5.1 million during the first six months ofended June 30, 2009. This resulted in aThe non-cash impairment charge of $13.9$7.5 million which iswas recorded in depreciation expense for the airport services business and cost of services for the airport parking business in the consolidated condensed statement of operations.operations for the six months ended June 30, 2009. There was no impairment charge in the first six months of 2010.
Additionally, intangible assets at Atlantic Aviation with a carrying amountsvalue of $37.7 million were written down to their fair value of $14.4 million during the first six months ofended June 30, 2009. This resulted in aThe non-cash impairment charge of $23.3 million which iswas recorded in amortization of intangibles expense in the consolidated condensed statement of operations. There was no impairment charge in the first six months of 2010.
As discussed in Note 6,7, “Intangible Assets”, the Company performed goodwill impairment analyses during the firstquarter and six months ofended June 30, 2009. As a result of these analyses, goodwill at Atlantic Aviation with a carrying amountvalue of $448.5 million was written down to its implied fair value of $377.3 million resulting in a non-cash impairment charge of $71.2 million. This non-cash impairment charge was included in goodwill impairment in the consolidated condensed statement of operations. There was no goodwill impairment charge in the first six months of 2010.
The significant unobservable inputs (“level 3”) used for all fair value measurements in the above table included forecasted cash flows of the airport services businessAtlantic Aviation and its asset groups, the discount rate and, in the case of goodwill, the terminal value. The forecasted cash flows for this business were developed using actual cash flows from 2008 and 2009, forecasted jet fuel volumes from the Federal Aviation Administration, forecasted consumer price indices and forecasted LIBOR rates based on proprietary models using various published sources. The discount rate was developed using a capital asset pricing model.
Model inputs included:
The terminal value was based on observed earnings before interest, taxes, depreciation and amortization, or EBITDA, and multiples historically paid in transactions for comparable businesses.
At SeptemberJune 30, 20092010 and December 31, 2008,2009, the Company’s consolidated long-term debt consistsconsisted of the following ($ in thousands):
![]() | ![]() | ![]() | ||||||
September 30, 2009 | December 31, 2008 | |||||||
MIC Inc. revolving credit facility | $ | 66,400 | $ | 69,000 | ||||
Gas production and distribution | 179,000 | 169,000 | ||||||
District energy | 150,000 | 150,000 | ||||||
Airport services | 872,029 | 939,800 | ||||||
Airport parking | 201,105 | 201,344 | ||||||
Total | 1,468,534 | 1,529,144 | ||||||
Less: Current portion | (315,549 | ) | (201,344 | ) | ||||
Long-term portion | $ | 1,152,985 | $ | 1,327,800 |
![]() | ![]() | ![]() | ||||||
June 30, 2010 | December 31, 2009 | |||||||
The Gas Company | $ | 179,000 | $ | 179,000 | ||||
District Energy | 170,000 | 170,000 | ||||||
Atlantic Aviation | 831,544 | 863,279 | ||||||
Total | 1,180,544 | 1,212,279 | ||||||
Less: current portion | (53,153 | ) | (45,900 | ) | ||||
Long-term portion | $ | 1,127,391 | $ | 1,166,379 |
Effective April 14, 2009,Until March 31, 2010, MIC Inc. elected to reduce the available principal on itshad a revolving credit facility from $300.0 million to $97.0 million. At March 31,with various financial institutions. The facility was repaid in full in December 2009 MIC Inc. reclassified itsand no amounts were outstanding under the revolving credit facility from long-term debt to current portionas of long-term debt inDecember 31, 2009 or at the consolidated condensed balance sheet, due to itsfacility’s maturity on March 31, 2010. The Company has accumulated the excess cash generated by the gas production and distribution and district energy businesses as a means of repaying a portion of the amount due under the facility.
On February 25, 2009, the airport services businessAtlantic Aviation amended its credit facility to provide the business additional financial flexibility over the near and medium term. Additionally, underUnder the amended terms, the business will apply all excess cash flow from the business to prepay additional debt whenever the leverage ratio (debt to adjusted EBITDA) is equal to or greater than 6.0x to 1.0 for the trailing twelve months and will use 50% of excess cash flow to prepay debt whenever the leverage ratio is equal to or greater than 5.5x to 1.0 and below 6.0x to 1.0. For the quarter and ninesix months ended SeptemberJune 30, 2009, the airport services business2010, Atlantic Aviation used $13.2$7.7 million and $80.5$34.9 million, respectively, of excess cash flow to prepay $12.0$7.0 million and $72.6$31.7 million, respectively, of the outstanding principal balance of the term loan debt under the facility and $1.2 million$695,000 and $7.9$3.2 million, respectively, in interest rate swap breakage fees. The Company has classified $53.2 million relating to Atlantic Aviation’s debt in current portion of long-term debt in the consolidated condensed balance sheet at June 30, 2010, as it expects to repay this amount within one year.
On November 4, 2009, the airport services businessIn August 2010, Atlantic Aviation used $9.9 million of excess cash flow from the third quarter of 2009 to prepay $9.0 million of the outstanding principal balance of the term loan debt under this facility and incurred $914,000$935,000 in interest rate swap breakage fees.
At September 30, 2009, the airport parking business had $201.1 million of total debt that was due on September 9, 2009. This debt is secured by assets
The airport parking business is currently in default under its credit facilities. In addition, the airport parking business does not have sufficient liquidity or capital resources to pay its maturing debt obligations and the Company does not expect that the airport parking business will be able to refinance its debt as it matures.
The airport parking business signed a forbearance agreement with the lenders under its primary credit facility on June 10, 2009 that was scheduled to expire on August 31, 2009, was extended through October 15, 2009 and was extended again through November 6, 2009. Material terms of the forbearance agreement are that during the forbearance period:
There is substantial doubt regarding the business’ ability to continue as a going concern. The business has engaged financial advisors to actively solicit a sale of the business. A letter of intent was signed during the quarter with a third party, which is conducting due diligence and with which the business is currently negotiating an asset purchase agreement. The business expects to close a sale transaction in 2010, which will likely occur in connection with a bankruptcy filing and consummation of a Chapter 11 plan. Proceeds generated as a result of the sale would be payable to the lenders of the business and not to the Company. Until an asset purchase agreement is signed and any conditions to closing have been met, including any approval of the sale needed as part of the bankruptcy process, the Company cannot provide assurance regarding the certainty or timing of a sale closing. As previously indicated, the Company has no intention of committing additional capital to this business and the Company’s ongoing liabilities are expected to be no more than $5.3 million in guarantees of a single parking facility lease.
The Company and its businesses have in place variable-rate debt. Management believes that it is prudent to limit the variability of a portion of itsthe business’ interest payments. To meet this objective, the Company enters into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk on a majority of its debt with a variable-rate component.
At SeptemberJune 30, 2009,2010, the Company had $1.5$1.2 billion of current and long-term debt, $1.1 billion of which was economically hedged with interest rate swaps $325.0and $83.9 million of which was unhedgedunhedged.
For the quarter and nine months ended September 30, 2009, the airport services business used $13.2 million and $80.5 million, respectively, ofAs discussed in Note 9, “Long-Term Debt”, Atlantic Aviation applies its excess cash flow to prepay $12.0 million and $72.6 million, respectively, of the outstanding principal balance of the term loan debt under the facility and $1.2 million and $7.9 million, respectively, in interest rate swap breakage fees.debt. As a result, of the future interest payments that are no longer probable of occurring due to the prepayment of debt, $6.9$4.9 million and $37.8$11.1 million of accumulated other comprehensive loss in the consolidated condensed balance sheet related to the airport services business’ derivatives wasAtlantic Aviation’s derivative instruments were reclassified to loss on derivative instrumentsinterest expense in the consolidated condensed statement of operations for the quarter and ninesix months ended SeptemberJune 30, 2009,2010, respectively. SubjectAtlantic Aviation expects to the mandatory debt prepayment conditions, under the amended debt terms, to the extent future cash flows exceed forecast, the airport services business will repay its debt more quickly than expected, which will result in additional interest rate swap breakage fees and correspondingrecord further reclassifications from accumulated other comprehensive loss to loss on derivative instruments. See Note 8 “Long-Term Debt” for further discussion.interest expense as the business continues to pay down its debt.
In March 2009, the airport services business, gas productionAtlantic Aviation, The Gas Company and distribution business and district energy businessDistrict Energy entered into interest rate basis swap contracts with their existing counterparties.that expired on March 31, 2010. These contracts effectively changed the interest rate index on the Company’seach business’ existing swap contracts through March 2010 from receiving the 90-day LIBOR rate to receiving the 30-day LIBOR rate plus a margin of 19.50 basis points for the airport services businessAtlantic Aviation and 24.75 basis points for the gas productionThe Gas Company and distribution and district energy businesses.District Energy. This transaction, adjusted for the prepayments of outstanding principal balance on the term loan debt at the airport services business, willAtlantic Aviation, resulted in $580,000 and $1.8 million lower the effective cash interest expense onfor these businesses’ debt by approximately $1.2 million from October 1,businesses for the quarter ended March 31, 2010 and the year ended December 31, 2009, through March 2010.respectively.
As ofEffective February 25, 2009 due to the amendment of the credit facility for the airport services business discussed above,Atlantic Aviation and effective April 1, 2009 for the Company’s other businesses, the Company elected to discontinue hedge accounting. In prior periods, when the Company applied hedge accounting, changes in the fair value of derivatives that effectively offset the variability of cash flows on the Company’s debt interest obligations were recorded in other comprehensive income or loss. From the dates that hedge accounting was discontinued, all movements in the fair value of the interest rate swaps are recorded directly through earnings. As interest payments are made, a resultportion of the basis swap contracts discussed above, together with the discontinuance ofother comprehensive loss recorded under hedge accounting theis also reclassified into earnings. The Company will reclassify into earnings the $82.2$56.9 million of net derivative losses, included in accumulated other comprehensive loss as of SeptemberJune 30, 20092010 over the remaining life of the existing interest rate swaps, of which $34.2approximately $24.1 million will be reclassified over the next 12 months.
The Company’s derivative instruments are recorded on the balance sheet at fair value with changes in fair value of interest rate swaps recorded directly through earnings since the dates that hedge accounting was discontinued. The Company measures derivative instruments at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations utilize primarily utilize observable (“level 2”) inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals.
The Company’s fair value measurements of its derivative instruments and the related location of the liabilities associated with the hedging instruments within the consolidated condensed balance sheetsheets at SeptemberJune 30, 20092010 and December 31, 20082009 were as follows:
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Liabilities at Fair Value(1) | Liabilities at Fair Value(1) | |||||||||||||||
Interest Rate Swap Contracts Not Designated as Hedging Instruments(2) | Interest Rate Swap Contracts Designated as Hedging Instruments | Interest Rate Swap Contracts Not Designated as Hedging Instruments | ||||||||||||||
Balance Sheet Location | September 30, 2009 | December 31, 2008 | June 30, 2010 | December 31, 2009 | ||||||||||||
($ in Thousands) | ($ In Thousands) | |||||||||||||||
Fair value of derivative instruments – current liabilities | $ | (50,228 | ) | $ | (51,441 | ) | $ | (45,792 | ) | $ | (49,573 | ) | ||||
Fair value of derivative instruments – non-current liabilities | (64,507 | ) | (105,970 | ) | (72,268 | ) | (54,794 | ) | ||||||||
Total interest rate derivative contracts | $ | (114,735 | ) | $ | (157,411 | ) | $ | (118,060 | ) | $ | (104,367 | ) |
(1) | Fair value measurements at reporting date were made using significant other observable inputs |
The Company’s hedging activities for the quarter and ninesix months ended SeptemberJune 30, 20092010 and 20082009 and the related location within the consolidated condensed financial statements were as follows:
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Derivatives Designated as Hedging Instruments(1) | Derivatives Not Designated as Hedging Instruments(1) | |||||||||||||||||||||||||||||||
Amount of Loss Recognized in OCI on Derivatives (Effective Portion) for the Quarter Ended September 30, | Amount of Loss Reclassified from OCI into Income (Effective Portion) for the Quarter Ended September 30, | Amount of Loss Recognized in Loss on Derivative Instruments (Ineffective Portion) for the Quarter Ended September 30, | Amount of Loss Recognized in Loss on Derivative Instruments for the Quarter Ended September 30, | |||||||||||||||||||||||||||||
Financial Statement Account | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009(2) | 2008 | ||||||||||||||||||||||||
($ in Thousands) | ||||||||||||||||||||||||||||||||
Interest Expense | $ | — | $ | — | $ | — | $ | (7,800 | ) | $ | — | $ | — | $ | (16,456 | ) | $ | — | ||||||||||||||
Loss on Derivative Instruments(2) | — | — | — | (701 | ) | — | (64 | ) | (17,371 | ) | — | |||||||||||||||||||||
Accumulated Other Comprehensive Loss | — | (14,858 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Total | $ | — | $ | (14,858 | ) | $ | — | $ | (8,501 | ) | $ | — | $ | (64 | ) | $ | (33,827 | ) | $ | — |
![]() | ![]() | ![]() | ||||||
Derivatives Not Designated as Hedging Instruments(1) | ||||||||
Amount of (Loss) Gain Recognized in Interest Expense for the Quarter Ended June 30, | ||||||||
Financial Statement Account | 2010(2) | 2009(3) | ||||||
($ In Thousands) | ||||||||
Interest expense | $ | (36,008 | ) | $ | 5,395 | |||
Total | $ | (36,008 | ) | $ | 5,395 |
(1) |
(2) |
(3) | Gain recognized in interest expense for the quarter ended June 30, 2009 includes $20.1 million in unrealized derivative gains, offset by $13.1 million in interest rate swap payments and $1.6 million in interest rate swap breakage fees. |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Derivatives Designated as Hedging Instruments(1) | Derivatives Not Designated as Hedging Instruments(1) | |||||||||||||||||||||||||||||||
Amount of Gain/ (Loss) Recognized in OCI on Derivatives (Effective Portion) for the Nine Months Ended September 30, | Amount of Loss Reclassified from OCI into Income (Effective Portion) for the Nine Months Ended September 30, | Amount of Loss Recognized in Loss on Derivative Instruments (Ineffective Portion) for the Nine Months Ended September 30, | Amount of Loss Recognized in Loss on Derivative Instruments for the Nine Months Ended September 30, | |||||||||||||||||||||||||||||
Financial Statement Account | 2009 | 2008 | 2009(2) | 2008 | 2009 | 2008 | 2009(3) | 2008 | ||||||||||||||||||||||||
($ in Thousands) | ||||||||||||||||||||||||||||||||
Interest Expense | $ | — | $ | — | $ | (17,953 | ) | $ | (17,654 | ) | $ | — | $ | — | $ | (33,853 | ) | $ | — | |||||||||||||
Loss on Derivative Instruments(2) | — | — | (25,154 | ) | (1,456 | ) | (84 | ) | (195 | ) | (4,634 | ) | — | |||||||||||||||||||
Accumulated Other Comprehensive Gain (Loss) | 2,549 | (19,930 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Total | $ | 2,549 | $ | (19,930 | ) | $ | (43,107 | ) | $ | (19,110 | ) | $ | (84 | ) | $ | (195 | ) | $ | (38,487 | ) | $ | — |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Derivatives Designated as Hedging Instruments(1) | Derivatives Not Designated as Hedging Instruments(1) | |||||||||||||||||||||||||||||||
Amount of Gain Recognized in OCI on Derivatives (Effective Portion) for the Six Months Ended June 30, | Amount of Loss Reclassified from OCI into Income (Effective Portion) for the Six Months Ended June 30, | Amount of Loss Recognized in Loss on Derivative Instruments (Ineffective Portion) for the Six Months Ended June 30, | Amount of Loss Recognized in Interest Expense for the Six Months Ended June 30, | |||||||||||||||||||||||||||||
Financial Statement Account | 2010 | 2009 | 2010 | 2009(2) | 2010 | 2009 | 2010(3) | 2009(4) | ||||||||||||||||||||||||
($ In Thousands) | ||||||||||||||||||||||||||||||||
Interest expense | $ | — | $ | — | $ | — | $ | (15,691 | ) | $ | — | $ | — | $ | (63,142 | ) | $ | (1,592 | ) | |||||||||||||
Loss on derivative instruments | — | — | — | (25,154 | ) | — | (84 | ) | — | — | ||||||||||||||||||||||
Accumulated other comprehensive loss | — | 2,848 | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | $ | — | $ | 2,848 | $ | — | $ | (40,845 | ) | $ | — | $ | (84 | ) | $ | (63,142 | ) | $ | (1,592 | ) |
(1) |
(2) |
(3) |
the change in fair value of interest rate swaps from the discontinuation of hedge accounting; and the reclassification of amounts from accumulated other comprehensive loss into earnings, as Atlantic Aviation pays down its debt more quickly than anticipated.
All of the Company’s derivative instruments are collateralized by all of the assets of the respective businesses.
|
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net (loss) income | $ | (18,348 | ) | $ | 498 | $ | (100,332 | ) | $ | 6,846 | ||||||
Unrealized (loss) gain in fair value of derivatives, net of taxes | — | (8,821 | ) | 1,498 | (12,236 | ) | ||||||||||
Reclassification of realized losses into earnings, net of taxes | 7,399 | 5,183 | 42,062 | 11,738 | ||||||||||||
Comprehensive (loss) income | $ | (10,949 | ) | $ | (3,140 | ) | $ | (56,772 | ) | $ | 6,348 |
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) attributable to MIC LLC | $ | 85,850 | $ | (28,958 | ) | $ | 77,485 | $ | (81,984 | ) | ||||||
Unrealized gain in fair value of derivatives, net of taxes | — | — | — | 1,498 | ||||||||||||
Reclassification of realized losses into earnings, net of taxes | 4,390 | 8,673 | 9,738 | 34,663 | ||||||||||||
Comprehensive income (loss) | $ | 90,240 | $ | (20,285 | ) | $ | 87,223 | $ | (45,823 | ) |
For further discussion on derivative instruments and hedging activities, see Note 9,10, “Derivative Instruments”Instruments and Hedging Activities”.
The Company is authorized to issue 500,000,000 LLC interests. Each outstanding LLC interest of the Company is entitled to one vote on any matter with respect to which holders of LLC interests are entitled to vote.
The Company’s operations are broadly classified into the energy-related businesses and the aviation-related businesses.
Atlantic Aviation. The energy-related businesses consist of two reportable segments: the gas productionThe Gas Company and distribution business and the district energy business.District Energy. The energy-related businesses also include a 50% investment in a bulk liquid storage terminal business, or IMTT, which is accounted for under the equity method. Financial information for IMTT’s business as a whole is presented below ($ in thousands) (unaudited):
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
As of, and for the Quarter Ended September 30, | As of, and for the Nine Months Ended September 30, | Quarter Ended, and as of, June 30, | Six Months Ended, and as of, June 30, | |||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Revenue | $ | 85,168 | $ | 104,494 | $ | 253,945 | $ | 261,118 | $ | 158,235 | $ | 81,974 | $ | 265,273 | $ | 168,777 | ||||||||||||||||
Net income | $ | 14,222 | $ | 22,423 | $ | 27,465 | $ | 35,686 | ||||||||||||||||||||||||
Interest expense (income), net | 25,774 | (17,671 | ) | 37,899 | (10,610 | ) | ||||||||||||||||||||||||||
Provision for income taxes | 10,750 | 14,959 | 20,356 | 23,898 | ||||||||||||||||||||||||||||
Depreciation and amortization expense | 14,916 | 13,454 | 29,534 | 26,278 | ||||||||||||||||||||||||||||
Unrealized gains on derivative instruments | — | — | — | (3,306 | ) | |||||||||||||||||||||||||||
Other non-cash expense (income) | 12 | 157 | 245 | (669 | ) | |||||||||||||||||||||||||||
EBITDA excluding non-cash items(1) | 36,767 | 40,882 | 108,713 | 100,439 | $ | 65,674 | $ | 33,322 | $ | 115,499 | $ | 71,277 | ||||||||||||||||||||
Interest expense, net | 7,378 | 6,909 | 21,990 | 16,801 | ||||||||||||||||||||||||||||
Depreciation and amortization expense | 13,457 | 11,303 | 39,735 | 31,960 | ||||||||||||||||||||||||||||
Capital expenditures paid | 24,638 | 48,160 | 106,062 | 161,340 | $ | 17,741 | $ | 41,482 | $ | 37,171 | $ | 81,424 | ||||||||||||||||||||
Property, equipment, land and leasehold improvements, net | 967,323 | 869,474 | 967,323 | 869,474 | 993,427 | 953,907 | 993,427 | 953,907 | ||||||||||||||||||||||||
Total assets balance | 1,040,796 | 950,889 | 1,040,796 | 950,889 | 1,127,169 | 1,041,219 | 1,127,169 | 1,041,219 |
(1) | EBITDA |
The aviation-related businesses consist of two reportable segments: the airport services business and the airport parking business. All of the business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered.
IMTT provides bulk liquid storage and handling services in North America through ten terminals located on the East, West and Gulf Coasts, the Great Lakes region of the United States and partially owned terminals in Quebec and Newfoundland, Canada. IMTT derives the majority of its revenue from storage and handling of petroleum products, various chemicals, renewable fuels, and vegetable and animal oils. Based on storage capacity, IMTT operates one of the largest third-party bulk liquid storage terminal businesses in the United States.
The revenue from the gas production and distribution business reportableThe Gas Company segment is included in revenue from product sales and includessales. Revenue is generated from the 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. The utility revenue of the gas production and distribution business includesThe Gas Company reflects fuel adjustment charges, or FACs, through which changes in fuel costs are passed through to customers.
The revenue from the district energy business reportableDistrict Energy 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 business’ various customers. The district energy businessDistrict Energy provides its services to buildings throughoutprimarily in the downtown Chicago, Illinois area and to a casino and a shopping mall located in Las Vegas, Nevada.
The airport services business reportable segment principally derives income from fuel sales and from other airport services. Airport services revenue includes fuel-related services, de-icing, aircraft hangarage and
The Atlantic Aviation segment derives the majority of its revenues from fuel sales and from other airport services, including de-icing, aircraft hangarage and other aviation services. All of the revenue of the airport services businessAtlantic Aviation is generated in the United States. The airport services business operated 72 FBOs as of September 30, 2009.
The revenue from the airport parking business reportable segment is included in service revenueStates at 68 airports and primarily consists of fees from off-airport parking and ground transportation to and from the parking facilities and the airport terminals. The airport parking business operates 31 off-airport parking facilities located in 20 major airport markets across the United States.one heliport.
Selected information by reportable segment is presented in the following tables. The tables do not include financial data for the Company’s equity investment in IMTT.
Revenue from external customers for the Company’s consolidated reportable segments was as follows ($
($ in thousands) (unaudited):
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||||||||
Quarter Ended September 30, 2009 | Quarter Ended June 30, 2010 | |||||||||||||||||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Energy-related Businesses | ||||||||||||||||||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | Total | The Gas Company | District Energy | Atlantic Aviation | Total | ||||||||||||||||||||||||||||
Revenue from Product Sales | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 18,680 | $ | — | $ | 84,337 | $ | — | $ | 103,017 | $ | 24,236 | $ | — | $ | 100,941 | $ | 125,177 | ||||||||||||||||||
Product sales – utility | 26,056 | — | — | — | 26,056 | 28,450 | — | — | 28,450 | |||||||||||||||||||||||||||
44,736 | — | 84,337 | — | 129,073 | 52,686 | — | 100,941 | 153,627 | ||||||||||||||||||||||||||||
Service Revenue | ||||||||||||||||||||||||||||||||||||
Other services | — | 832 | 39,843 | — | 40,675 | — | 803 | 36,552 | 37,355 | |||||||||||||||||||||||||||
Cooling capacity revenue | — | 5,224 | — | — | 5,224 | — | 5,295 | — | 5,295 | |||||||||||||||||||||||||||
Cooling consumption revenue | — | 9,400 | — | — | 9,400 | — | 7,144 | — | 7,144 | |||||||||||||||||||||||||||
Parking services | — | — | — | 16,965 | 16,965 | |||||||||||||||||||||||||||||||
— | 15,456 | 39,843 | 16,965 | 72,264 | — | 13,242 | 36,552 | 49,794 | ||||||||||||||||||||||||||||
Financing and Lease Income | ||||||||||||||||||||||||||||||||||||
Financing and equipment lease | — | 1,190 | — | — | 1,190 | — | 1,271 | — | 1,271 | |||||||||||||||||||||||||||
— | 1,190 | — | — | 1,190 | — | 1,271 | — | 1,271 | ||||||||||||||||||||||||||||
Total Revenue | $ | 44,736 | $ | 16,646 | $ | 124,180 | $ | 16,965 | $ | 202,527 | $ | 52,686 | $ | 14,513 | $ | 137,493 | $ | 204,692 |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||||||||
Quarter Ended September 30, 2008 | Quarter Ended June 30, 2009 | |||||||||||||||||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Energy-related Businesses | ||||||||||||||||||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | Total | The Gas Company | District Energy | Atlantic Aviation | Total | ||||||||||||||||||||||||||||
Revenue from Product Sales | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 23,495 | $ | — | $ | 128,565 | — | $ | 152,060 | $ | 18,390 | $ | — | $ | 71,040 | $ | 89,430 | |||||||||||||||||||
Product sales – utility | 36,060 | — | — | — | 36,060 | 21,414 | — | — | 21,414 | |||||||||||||||||||||||||||
59,555 | — | 128,565 | — | 188,120 | 39,804 | — | 71,040 | 110,844 | ||||||||||||||||||||||||||||
Service Revenue | ||||||||||||||||||||||||||||||||||||
Other services | — | 752 | 52,772 | — | 53,524 | — | 743 | 40,004 | 40,747 | |||||||||||||||||||||||||||
Cooling capacity revenue | — | 4,850 | — | — | 4,850 | — | 5,110 | — | 5,110 | |||||||||||||||||||||||||||
Cooling consumption revenue | — | 10,654 | — | — | 10,654 | — | 5,502 | — | 5,502 | |||||||||||||||||||||||||||
Parking services | — | — | — | 18,686 | 18,686 | |||||||||||||||||||||||||||||||
— | 16,256 | 52,772 | 18,686 | 87,714 | — | 11,355 | 40,004 | 51,359 | ||||||||||||||||||||||||||||
Financing and Lease Income | ||||||||||||||||||||||||||||||||||||
Financing and equipment lease | — | 1,164 | — | — | 1,164 | — | 1,205 | — | 1,205 | |||||||||||||||||||||||||||
— | 1,164 | — | — | 1,164 | — | 1,205 | — | 1,205 | ||||||||||||||||||||||||||||
Total Revenue | $ | 59,555 | $ | 17,420 | $ | 181,337 | 18,686 | $ | 276,998 | $ | 39,804 | $ | 12,560 | $ | 111,044 | $ | 163,408 |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||||||||
Nine Months Ended September 30, 2009 | Six Months Ended June 30, 2010 | |||||||||||||||||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Energy-related Businesses | ||||||||||||||||||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | Total | The Gas Company | District Energy | Atlantic Aviation | Total | ||||||||||||||||||||||||||||
Revenue from Product Sales | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 58,145 | $ | — | $ | 223,494 | $ | — | $ | 281,639 | $ | 49,546 | $ | — | $ | 195,649 | $ | 245,195 | ||||||||||||||||||
Product sales – utility | 67,637 | — | — | — | 67,637 | 55,285 | — | — | 55,285 | |||||||||||||||||||||||||||
125,782 | — | 223,494 | — | 349,276 | 104,831 | — | 195,649 | 300,480 | ||||||||||||||||||||||||||||
Service Revenue | ||||||||||||||||||||||||||||||||||||
Other services | — | 2,331 | 128,911 | — | 131,242 | — | 1,667 | 81,893 | 83,560 | |||||||||||||||||||||||||||
Cooling capacity revenue | — | 15,231 | — | — | 15,231 | — | 10,533 | — | 10,533 | |||||||||||||||||||||||||||
Cooling consumption revenue | — | 17,130 | — | — | 17,130 | — | 8,907 | — | 8,907 | |||||||||||||||||||||||||||
Parking services | — | — | — | 51,011 | 51,011 | |||||||||||||||||||||||||||||||
— | 34,692 | 128,911 | 51,011 | 214,614 | — | 21,107 | 81,893 | 103,000 | ||||||||||||||||||||||||||||
Financing and Lease Income | ||||||||||||||||||||||||||||||||||||
Financing and equipment lease | — | 3,587 | — | — | 3,587 | — | 2,516 | — | 2,516 | |||||||||||||||||||||||||||
— | 3,587 | — | — | 3,587 | — | 2,516 | — | 2,516 | ||||||||||||||||||||||||||||
Total Revenue | $ | 125,782 | $ | 38,279 | $ | 352,405 | $ | 51,011 | $ | 567,477 | $ | 104,831 | $ | 23,623 | $ | 277,542 | $ | 405,996 |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||||||||
Nine Months Ended September 30, 2008 | Six Months Ended June 30, 2009 | |||||||||||||||||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Energy-related Businesses | ||||||||||||||||||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | Total | The Gas Company | District Energy | Atlantic Aviation | Total | ||||||||||||||||||||||||||||
Revenue from Product Sales | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 70,177 | $ | — | $ | 408,042 | $ | — | $ | 478,219 | $ | 39,465 | $ | — | $ | 139,157 | $ | 178,622 | ||||||||||||||||||
Product sales – utility | 97,317 | — | — | — | 97,317 | 41,581 | — | — | 41,581 | |||||||||||||||||||||||||||
167,494 | — | 408,042 | — | 575,536 | 81,046 | — | 139,157 | 220,203 | ||||||||||||||||||||||||||||
Service Revenue | ||||||||||||||||||||||||||||||||||||
Other services | — | 2,201 | 170,990 | — | 173,191 | — | 1,499 | 89,068 | 90,567 | |||||||||||||||||||||||||||
Cooling capacity revenue | — | 14,484 | — | — | 14,484 | — | 10,007 | — | 10,007 | |||||||||||||||||||||||||||
Cooling consumption revenue | — | 18,495 | — | — | 18,495 | — | 7,730 | — | 7,730 | |||||||||||||||||||||||||||
Parking services | — | — | — | 57,001 | 57,001 | |||||||||||||||||||||||||||||||
— | 35,180 | 170,990 | 57,001 | 263,171 | — | 19,236 | 89,068 | 108,304 | ||||||||||||||||||||||||||||
Financing and Lease Income | ||||||||||||||||||||||||||||||||||||
Financing and equipment lease | — | 3,537 | — | — | 3,537 | — | 2,397 | — | 2,397 | |||||||||||||||||||||||||||
— | 3,537 | — | — | 3,537 | — | 2,397 | — | 2,397 | ||||||||||||||||||||||||||||
Total Revenue | $ | 167,494 | $ | 38,717 | $ | 579,032 | $ | 57,001 | $ | 842,244 | $ | 81,046 | $ | 21,633 | $ | 228,225 | $ | 330,904 |
In accordance with FASB ASC 280Segment Reporting(formerly SFAS No. 131 or “Disclosures about Segments of an Enterprise and Related Information”), the Company has disclosed EBITDAearnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items for the Company and each of the reportable segments as a key performance metric relied on by management in evaluating the performanceevaluation of the Company and its segments. EBITDA excluding non-cashCompany’s performance. Non-cash items is defined as earnings before interest, taxes, depreciation and amortization and non-cash items, principally goodwillinclude impairments, and unrealizedderivative gains and losses on derivative instruments. The Company’s management considers EBITDA excludingand adjustments for other non-cash items to be importantreflected in the overall assessmentstatements of the Company’s operating businesses individually and on consolidation.operations. The Company’s managementCompany believes the presentation of EBITDA excluding non-cash items provides additional insight into the performance of the operating businesses relative to each other and similar businesses without regard to their capital structure, and their ability to service or reduce debt, fund capital expenditures and/or support distributions to the holding company. EBITDA excluding non-cash items is reconciled to net income or loss.
During the quarter and six months ended June 30, 2009, the Company disclosed EBITDA excluding only non-cash gains (losses) on derivative instruments. The following tables, reflecting results of operations for the consolidated group and for each of the businesses for the quarter and six months ended June 30, 2009, have been conformed to current periods’ presentation reflecting EBITDA excluding all non-cash items.
Company’s operating businesses and their ability to service or reduce debt, to fund growth capital projects and/or support distributions up to the holding company.
In 2008, the Company disclosed EBITDA only. The following tables, for the quarter and nine months ended September 30, 2008, have been conformed to the current periods’ presentation reflecting EBITDA excluding non-cash items.
EBITDA excluding non-cash items for the Company’s consolidated reportable segments is shown in the tables below tables ($ in thousands) (unaudited). Allocation of corporate expense and the federal tax effect have been excluded from the tables as they are eliminated on consolidation.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||||||||
Quarter Ended September 30, 2009 | Quarter Ended June 30, 2010 | |||||||||||||||||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Total Reportable Segments | Energy-related Businesses | Atlantic Aviation | Total Reportable Segments | |||||||||||||||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | The Gas Company | District Energy | |||||||||||||||||||||||||||||||
Net income (loss) | $ | 694 | $ | (764 | ) | $ | (7,612 | ) | $ | (1,210 | ) | $ | (8,892 | ) | $ | 1,212 | $ | (2,705 | ) | $ | (8,538 | ) | $ | (10,031 | ) | |||||||||||
Interest income | (1 | ) | — | (5 | ) | (1 | ) | (7 | ) | |||||||||||||||||||||||||||
Interest expense | 2,213 | 2,554 | 15,870 | 3,193 | 23,830 | |||||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 446 | (500 | ) | (5,137 | ) | (907 | ) | (6,098 | ) | |||||||||||||||||||||||||||
Interest expense, net | 5,926 | 7,976 | 26,688 | 40,590 | ||||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 780 | (1,767 | ) | (5,764 | ) | (6,751 | ) | |||||||||||||||||||||||||||||
Depreciation | 1,508 | 1,541 | 5,669 | 1,011 | 9,729 | 1,511 | 1,636 | 5,691 | 8,838 | |||||||||||||||||||||||||||
Amortization of intangibles | 205 | 345 | 8,576 | — | 9,126 | 205 | 341 | 8,194 | 8,740 | |||||||||||||||||||||||||||
Unrealized losses (gains) on derivative instruments | 3,194 | 4,069 | 10,517 | (490 | ) | 17,290 | ||||||||||||||||||||||||||||||
Other non-cash expense | 531 | 232 | 558 | 1,321 | ||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 8,259 | $ | 7,245 | $ | 27,878 | $ | 1,596 | $ | 44,978 | $ | 10,165 | $ | 5,713 | $ | 26,829 | $ | 42,707 |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||||||||
Quarter Ended September 30, 2008 | Quarter Ended June 30, 2009 | |||||||||||||||||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Total Reportable Segments | Energy-related Businesses | Atlantic Aviation(1) | Total Reportable Segments | |||||||||||||||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | The Gas Company | District Energy | |||||||||||||||||||||||||||||||
Net income (loss) | $ | 1,813 | $ | 1,782 | $ | 253 | $ | (1,583 | ) | $ | 2,265 | $ | 4,518 | $ | 3,514 | $ | (30,876 | ) | $ | (22,844 | ) | |||||||||||||||
Interest income | (9 | ) | (9 | ) | (143 | ) | (28 | ) | (189 | ) | ||||||||||||||||||||||||||
Interest expense | 2,363 | 2,618 | 15,894 | 3,769 | 24,644 | |||||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 1,166 | 623 | 170 | (1,185 | ) | 774 | ||||||||||||||||||||||||||||||
Interest (income) expense, net | (1,249 | ) | (2,728 | ) | 4,936 | 959 | ||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 2,908 | 2,296 | (20,844 | ) | (15,640 | ) | ||||||||||||||||||||||||||||||
Depreciation | 1,463 | 1,402 | 5,638 | 1,307 | 9,810 | 1,520 | 1,502 | 7,750 | 10,772 | |||||||||||||||||||||||||||
Amortization of intangibles | 214 | 345 | 9,604 | 400 | 10,563 | 212 | 341 | 11,979 | 12,532 | |||||||||||||||||||||||||||
Unrealized losses (gains) on derivative instruments | 73 | (10 | ) | 578 | (88 | ) | 553 | |||||||||||||||||||||||||||||
Goodwill impairment | — | — | 53,200 | 53,200 | ||||||||||||||||||||||||||||||||
Other non-cash expense (income) | 564 | 172 | (430 | ) | 306 | |||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 7,083 | $ | 6,751 | $ | 31,994 | $ | 2,592 | $ | 48,420 | $ | 8,473 | $ | 5,097 | $ | 25,715 | $ | 39,285 |
(1) | Includes non-cash impairment charges of $58.3 million recorded during the second quarter of 2009, consisting of $53.2 million related to goodwill, $2.9 million related to intangible assets (in amortization of intangibles) and $2.2 million related to property, equipment, land and leasehold improvements (in depreciation). |
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Six Months Ended June 30, 2010 | ||||||||||||||||
Energy-related Businesses | Atlantic Aviation | Total Reportable Segments | ||||||||||||||
The Gas Company | District Energy | |||||||||||||||
Net income (loss) | $ | 3,466 | $ | (5,336 | ) | $ | (11,927 | ) | $ | (13,797 | ) | |||||
Interest expense, net | 10,733 | 14,004 | 48,674 | 73,411 | ||||||||||||
Benefit (provision) for income taxes | 2,231 | (3,487 | ) | (8,051 | ) | (9,307 | ) | |||||||||
Depreciation | 3,023 | 3,271 | 11,901 | 18,195 | ||||||||||||
Amortization of intangibles | 411 | 678 | 16,322 | 17,411 | ||||||||||||
Other non-cash expense | 1,065 | 387 | 605 | 2,057 | ||||||||||||
EBITDA excluding non-cash items | $ | 20,929 | $ | 9,517 | $ | 57,524 | $ | 87,970 |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||||||||
Nine Months Ended September 30, 2009 | Six Months Ended June 30, 2009 | |||||||||||||||||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Total Reportable Segments | Energy-related Businesses | Atlantic Aviation(1) | Total Reportable Segments | |||||||||||||||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | The Gas Company | District Energy | |||||||||||||||||||||||||||||||
Net income (loss) | $ | 8,327 | $ | 1,104 | $ | (88,094 | ) | $ | (8,263 | ) | $ | (86,926 | ) | $ | 7,633 | $ | 1,868 | $ | (80,482 | ) | $ | (70,981 | ) | |||||||||||||
Interest income | (14 | ) | (4 | ) | (83 | ) | (8 | ) | (109 | ) | ||||||||||||||||||||||||||
Interest expense | 6,723 | 7,593 | 52,635 | 11,681 | 78,632 | |||||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 5,359 | 721 | (59,467 | ) | (6,184 | ) | (59,571 | ) | ||||||||||||||||||||||||||||
Interest expense, net | 1,368 | 227 | 31,440 | 33,035 | ||||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 4,913 | 1,221 | (54,330 | ) | (48,196 | ) | ||||||||||||||||||||||||||||||
Depreciation | 4,504 | 4,506 | 25,093 | 9,124 | 43,227 | 2,996 | 2,965 | 19,424 | 25,385 | |||||||||||||||||||||||||||
Amortization of intangibles | 631 | 1,023 | 50,269 | — | 51,923 | 426 | 678 | 41,693 | 42,797 | |||||||||||||||||||||||||||
Goodwill impairment | — | — | 71,200 | — | 71,200 | — | — | 71,200 | 71,200 | |||||||||||||||||||||||||||
Unrealized losses (gains) losses on derivative instruments | 392 | 639 | 28,601 | (163 | ) | 29,469 | ||||||||||||||||||||||||||||||
Loss on derivative instruments | 327 | 1,378 | 23,331 | 25,036 | ||||||||||||||||||||||||||||||||
Other non-cash expense (income) | 1,015 | 276 | (367 | ) | 924 | |||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 25,922 | $ | 15,582 | $ | 80,154 | $ | 6,187 | $ | 127,845 | $ | 18,678 | $ | 8,613 | $ | 51,909 | $ | 79,200 |
(1) | Includes non-cash impairment charges of $102.0 million |
Reconciliations of consolidated reportable segments’ EBITDA excluding non-cash items to consolidated net loss from continuing operations before income taxes are as follows ($ in thousands) (unaudited):
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | |||||||||||||||
Nine Months Ended September 30, 2008 | ||||||||||||||||||||
Energy-related Businesses | Airport-related Businesses | Total Reportable Segments | ||||||||||||||||||
Gas Production and Distribution | District Energy | Airport Services | Airport Parking | |||||||||||||||||
Net income (loss) | $ | 5,395 | $ | 1,477 | $ | 9,595 | $ | (5,287 | ) | $ | 11,180 | |||||||||
Interest income | (33 | ) | (34 | ) | (475 | ) | (91 | ) | (633 | ) | ||||||||||
Interest expense | 7,058 | 7,795 | 47,507 | 11,468 | 73,828 | |||||||||||||||
Provision (benefit) for income taxes | 3,471 | 516 | 6,476 | (3,956 | ) | 6,507 | ||||||||||||||
Depreciation | 4,367 | 4,354 | 15,772 | 3,866 | 28,359 | |||||||||||||||
Amortization of intangibles | 642 | 1,027 | 28,594 | 1,943 | 32,206 | |||||||||||||||
Unrealized losses (gains) on derivative instruments | 223 | (28 | ) | 1,133 | (246 | ) | 1,082 | |||||||||||||
EBITDA excluding non-cash items | $ | 21,123 | $ | 15,107 | $ | 108,602 | $ | 7,697 | $ | 152,529 |
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Total reportable segments EBITDA excluding non-cash items | $ | 42,707 | $ | 39,285 | $ | 87,970 | $ | 79,200 | ||||||||
Interest income | 4 | 34 | 20 | 101 | ||||||||||||
Interest expense | (38,974 | ) | (2,103 | ) | (73,661 | ) | (35,669 | ) | ||||||||
Depreciation(1) | (8,838 | ) | (10,772 | ) | (18,195 | ) | (25,385 | ) | ||||||||
Amortization of intangibles(2) | (8,740 | ) | (12,532 | ) | (17,411 | ) | (42,797 | ) | ||||||||
Selling, general and administrative – corporate | (1,628 | ) | (1,417 | ) | (3,608 | ) | (4,348 | ) | ||||||||
Fees to manager | (2,268 | ) | (851 | ) | (4,457 | ) | (1,313 | ) | ||||||||
Equity in earnings and amortization charges of investees | 5,774 | 10,028 | 11,367 | 15,477 | ||||||||||||
Goodwill impairment | — | (53,200 | ) | — | (71,200 | ) | ||||||||||
Loss on derivative instruments | — | — | — | (25,238 | ) | |||||||||||
Other (expense) income, net | (1,125 | ) | (132 | ) | (1,667 | ) | 512 | |||||||||
Total consolidated net loss from continuing operations before income taxes | $ | (13,088 | ) | $ | (31,660 | ) | $ | (19,642 | ) | $ | (110,660 | ) |
(1) | Depreciation includes depreciation expense for District Energy, which is reported in cost of services in the consolidated condensed statement of operations. Depreciation also includes a non-cash impairment charges of $2.2 million and $7.5 million for the quarter and six months ended June 30, 2009, respectively, recorded by Atlantic Aviation. |
(2) | Includes a non-cash impairment charges of $2.9 million and $23.3 million for contractual arrangements recorded during the quarter and six months ended June 30, 2009, respectively, at Atlantic Aviation. |
Reconciliation of reportable segments EBITDA excluding non-cash items to consolidated net (loss) income before income taxes and noncontrolling interests ($ in thousands) (unaudited):
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Total reportable segments EBITDA excluding non-cash items | $ | 44,978 | $ | 48,420 | $ | 127,845 | $ | 152,529 | ||||||||
Interest income | 8 | 268 | 116 | 1,038 | ||||||||||||
Interest expense | (24,639 | ) | (26,114 | ) | (81,861 | ) | (77,616 | ) | ||||||||
Depreciation(1) | (9,729 | ) | (9,810 | ) | (43,227 | ) | (28,359 | ) | ||||||||
Amortization of intangibles(2) | (9,126 | ) | (10,563 | ) | (51,923 | ) | (32,206 | ) | ||||||||
Selling, general and administrative – corporate | (1,732 | ) | 55 | (6,080 | ) | (2,314 | ) | |||||||||
Fees to manager | (1,639 | ) | (2,737 | ) | (2,952 | ) | (11,872 | ) | ||||||||
Equity in earnings and amortization charges of investees | 1,178 | 4,051 | 16,655 | 10,603 | ||||||||||||
Goodwill impairment | — | — | (71,200 | ) | — | |||||||||||
Unrealized losses on derivative instruments | (17,371 | ) | (765 | ) | (29,872 | ) | (1,651 | ) | ||||||||
Other income (expense), net | 3 | (220 | ) | 226 | (627 | ) | ||||||||||
Total consolidated net (loss) income before income taxes and noncontrolling interests | $ | (18,069 | ) | $ | 2,585 | $ | (142,273 | ) | $ | 9,525 |
Capital expenditures for the Company’s reportable segments were as follows ($ in thousands) (unaudited):
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Gas production and distribution | $ | 1,334 | $ | 2,753 | $ | 4,915 | $ | 7,182 | ||||||||
District energy | 2,044 | 1,356 | 5,447 | 3,323 | ||||||||||||
Airport services | 4,366 | 7,728 | 9,246 | 27,310 | ||||||||||||
Airport parking | 61 | 775 | 373 | 14,772 | ||||||||||||
Total | $ | 7,805 | $ | 12,612 | $ | 19,981 | $ | 52,587 |
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
The Gas Company | $ | 1,555 | $ | 1,716 | $ | 3,886 | $ | 3,581 | ||||||||
District Energy | 500 | 1,784 | 846 | 3,403 | ||||||||||||
Atlantic Aviation | 1,247 | 1,635 | 2,583 | 4,880 | ||||||||||||
Total | $ | 3,302 | $ | 5,135 | $ | 7,315 | $ | 11,864 |
Property, equipment, land and leasehold improvements, goodwill and total assets for the Company’s reportable segments as of SeptemberJune 30 were as followfollows ($ in thousands) (unaudited):
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||
Property, Equipment, Land and Leasehold Improvements | Goodwill | Total Assets | ||||||||||||||||||||||
2009(1) | 2008 | 2009(2) | 2008 | 2009 | 2008 | |||||||||||||||||||
Gas production and distribution | $ | 143,269 | $ | 140,408 | $ | 120,193 | $ | 120,193 | $ | 347,269 | $ | 327,835 | ||||||||||||
District energy | 146,063 | 145,885 | 18,646 | 18,646 | 230,544 | 231,382 | ||||||||||||||||||
Airport services | 289,157 | 315,997 | 377,343 | 504,794 | 1,497,028 | 1,775,287 | ||||||||||||||||||
Airport parking | 85,066 | 101,552 | — | 138,722 | 191,017 | 299,828 | ||||||||||||||||||
Total | $ | 663,555 | $ | 703,842 | $ | 516,182 | $ | 782,355 | $ | 2,265,858 | $ | 2,634,332 |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||
Property, Equipment, Land and Leasehold Improvements | Goodwill | Total Assets | ||||||||||||||||||||||
2010 | 2009(1) | 2010(2) | 2009(2) | 2010 | 2009 | |||||||||||||||||||
The Gas Company | $ | 143,641 | $ | 143,251 | $ | 120,193 | $ | 120,193 | $ | 352,623 | $ | 336,565 | ||||||||||||
District Energy | 148,882 | 146,837 | 18,646 | 18,646 | 231,081 | 228,510 | ||||||||||||||||||
Atlantic Aviation | 276,670 | 289,275 | 377,343 | 377,343 | 1,452,519 | 1,505,430 | ||||||||||||||||||
Total | $ | 569,193 | $ | 579,363 | $ | 516,182 | $ | 516,182 | $ | 2,036,223 | $ | 2,070,505 |
(1) | Includes a non-cash impairment charge of $7.5 million |
(2) |
Reconciliation of reportable segmentssegments’ total assets to consolidated total assets ($ in thousands) (unaudited):
![]() | ![]() | ![]() | ||||||
As of September 30, | ||||||||
2009 | 2008 | |||||||
Total assets of reportable segments | $ | 2,265,858 | $ | 2,634,332 | ||||
Investment in IMTT | 201,585 | 201,209 | ||||||
Corporate and other | (102,568 | ) | (7,504 | ) | ||||
Total consolidated assets | $ | 2,364,875 | $ | 2,828,037 |
Reconciliation of reportable segments goodwill to consolidated goodwill ($ in thousands) (unaudited):
![]() | ![]() | ![]() | ||||||
As of September 30, | ||||||||
2009 | 2008 | |||||||
Goodwill of reportable segments | $ | 516,182 | $ | 782,355 | ||||
Corporate and other | — | (1,102 | ) | |||||
Total consolidated goodwill | $ | 516,182 | $ | 781,253 |
![]() | ![]() | ![]() | ||||||
As of June 30, | ||||||||
2010 | 2009 | |||||||
Total assets of reportable segments | $ | 2,036,223 | $ | 2,070,505 | ||||
Investment in IMTT | 213,858 | 200,408 | ||||||
Assets of discontinued operations held for sale | — | 95,148 | ||||||
Corporate and other | (17,905 | ) | (8,699 | ) | ||||
Total consolidated assets | $ | 2,232,176 | $ | 2,357,362 |
As of SeptemberJune 30, 2009,2010, the Manager held 3,322,9183,797,557 LLC interests of the Company, which were acquired concurrently with the closing of the initial public offering in December 2004 and also by reinvesting base management and performance fees in the Company. In addition, the Macquarie Group held LLC interests acquired in open market purchases.
The Company entered into a management services agreement, or Management Agreement, with the Manager pursuant to which the Manager manages the Company’s day-to-day operations and oversees the management teams of the Company’s operating businesses. In addition, the 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, the Manager is entitled to a quarterly base management fee based primarily on the Company’s market capitalization, and a performance fee, based on the performance of the Company’s stock relative to a U.S. utilities index. For the ninesix months ended SeptemberJune 30, 20092010 and September 30, 2008,2009, the Company incurred base management fees of $3.0$4.5 million and $11.9$1.3 million, respectively. The unpaid portion of the fees at the end of each reporting period is included in due to manager-related party in the consolidated condensed balance sheets. The base management fee for the first quarter of 2009 was paid in cash during the second quarter of 2009. The Manager elected to reinvest the base management fee of $2.2 million for the secondfirst quarter of 20092010 in LLC interests and the Company issued 149,795155,375 LLC interests to the Manager during the thirdsecond quarter of 2009.2010. The base management fee of $2.3 million for the second quarter of 2010 will be paid in cash during the third quarter of 2009 will be reinvested in LLC interests during the fourth quarter of 2009.2010.
The Manager is not entitled to any other compensation and all costs incurred by the Manager, including compensation of seconded staff, are paid by the Manager 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, acquisitions and dispositions and its compliance with applicable laws and regulations. During the ninesix months ended SeptemberJune 30, 20092010 and September 30, 2008,2009, the Manager charged the Company $192,000$169,000 and $186,000,$136,000, respectively, for reimbursement of out-of-pocket expenses. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is included in due to manager-related party in the consolidated condensed balance sheet.
The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited, or MBL, and Macquarie Capital (USA) Inc., or MCUSA, (formerly Macquarie Securities (USA) Inc.), have provided various advisory and other services and incurred expenses in connection with the Company’s equity raising activities, acquisitions and debt structuring for the Company and its businesses. Underwriting fees are recorded in members’/stockholders’ equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are expensed as incurred. Debt arranging fees are deferred and amortized over the term of the credit facility. Amounts relating to these transactions comprise the following ($ in thousands):
![]() | ![]() | ![]() | ||||||
Airport parking business restructuring advice | — advisory services from MCUSA | $ | 200 | |||||
— reimbursement of out-of-pocket expenses to MCUSA | 3 | |||||||
Airport services business debt amendment | — debt arranging services from MCUSA | 970 |
![]() | ![]() | |||
Strategic review of alternatives available to the Company – advisory services from MCUSA | $ | 500 |
During the third quarter of 2009,Until March 31, 2010, the Company has engagedhad a revolving credit facility provided by various financial institutions, including entities within the Macquarie Group to provide consulting services to improveGroup. The facility was repaid in full during 2009 and no amounts were outstanding under the efficiency on the recoveryrevolving credit facility as of accounts receivableDecember 31, 2009 or at the airport services business. The Company incurred approximately $159,000 in fees and approximately $70,000 in out-of-pocket expenses.facility’s
At September 30, 2009, MIC Inc. has a $97.0 million revolving credit facility with various financial institutions, including MBL.maturity on March 31, 2010. Amounts relating to the Macquarie Group’s portion of this revolving credit facility from MBL comprisecomprised of the following ($ in thousands):
![]() | ![]() | |||
Revolving credit facility commitment provided by Macquarie Group during the period January 1, 2009 through April 13, 2009(1) | $ | 66,667 | ||
Revolving credit facility commitment provided by Macquarie Group during the period April 14, 2009 through September 30, 2009 | 21,556 | |||
Portion of revolving credit facility commitment from Macquarie Group drawn down, as of September 30, 2009 | 14,755 | |||
Macquarie Group portion of the principal payments made to the revolving credit facility during the nine months ended September 30, 2009 | 578 | |||
Interest expense on Macquarie Group portion of the drawn down commitment, for the nine months ended September 30, 2009 | 491 | |||
Commitment fees to the Macquarie Group, for the nine months ended September 30, 2009 | 90 |
![]() | ![]() | |||||||
Revolving credit facility commitment provided by Macquarie Group during January 1, 2010 through March 30, 2010(1) | $ | 4,444 | ||||||
Revolving credit facility commitment provided by Macquarie Group at March 31, 2010(2) | — | |||||||
Portion of revolving credit facility commitment from Macquarie Group drawn down, as of March 31, 2010(2)(3) | — | |||||||
Interest expense on Macquarie Group portion of the drawn down commitment, for the quarter ended March 31, 2010 | — | |||||||
Commitment fees to the Macquarie Group, for quarter ended March 31, 2010 | 5 |
(1) | On |
(2) | The holding company’s revolving credit facility matured on March 31, 2010. |
(3) | On December 28, 2009, the Company repaid the entire outstanding principal balance on its revolving credit facility. |
The Company has derivative instruments in place to fix the interest rate on certain outstanding variable-rate term loan facilities. MBL has provided interest rate swaps for the airport services businessAtlantic Aviation and the gas production and distribution business.The Gas Company. At SeptemberJune 30, 2009, the airport services business2010, Atlantic Aviation had $827.4$786.6 million of its variable-rate term loans hedged, of which MBL was providingprovided the interest rate swaps for a notional amount of $317.8$278.8 million. The remainder of the swaps are from an unrelated third party. During the ninesix months ended SeptemberJune 30, 2009, the airport services business2010, Atlantic Aviation made net payments to MBL of $10.7$7.0 million in relation to these swaps.
As discussed in Note 8,9, “Long-Term Debt”, for the ninesix months ended SeptemberJune 30, 2009, the airport services business2010, Atlantic Aviation paid $7.9$3.2 million in interest rate swap breakage fees, of which $1.6$383,000 was paid to MBL.
In August 2010, Atlantic Aviation used $9.9 million of excess cash flow to prepay $9.0 million of the outstanding principal balance of the term loan debt and incurred $935,000 in interest rate swap breakage fees, of which $65,000 was paid to MBL.
At SeptemberJune 30, 2009, the gas production and distribution business2010, The Gas Company had hedged $160.0 million of its term loans hedged, of which MBL was providingprovided the interest rate swaps for a notional amount of $48.0 million. The remainder of the swaps are from an unrelated third party. During the ninesix months ended SeptemberJune 30, 2009, the gas production and distribution business2010, The Gas Company made net payments to MBL of $1.3$1.1 million in relation to these swaps.
On March 30, 2009, the gas production and distribution businessThe Gas Company entered into licensing agreements with Utility Service Partners, Inc. and America’s Water Heater Rentals, LLC, both indirect subsidiaries of Macquarie Group Limited, to enable these entities to offer products and services to the gas production and distribution businessThe Gas Company’s customer base. No payments were made under these arrangements during the ninesix months ended SeptemberJune 30, 2009.2010.
On August 29, 2008, Macquarie Global Opportunities Partners, or MGOP, a private equity fund managed by the Macquarie Group, completed the acquisition of the jet membership, retail charter and fuel management business units previously owned by Sentient Jet Holdings, LLC. The new company is called Sentient Flight Group (referred to hereafter as “Sentient”). Sentient iswas an existing customer of the Company’s airport services business.Atlantic Aviation. For the nine six
months ended SeptemberJune 30, 2009, the airport services business2010, Atlantic Aviation recorded $5.9$8.4 million in revenue from Sentient. As of SeptemberJune 30, 2009, the airport services business2010, Atlantic Aviation had a $359,000 receivable$132,000 in receivables from Sentient, which is included in accounts receivable in the consolidated condensed balance sheets. During the quarter ended June 30, 2010, Atlantic Aviation paid $15,000 to Sentient for charter services rendered.
In addition, the Company and variousseveral of its subsidiaries have entered into a licensing agreement with the Macquarie Group related to the use of the Macquarie name and trademark. The Macquarie Group does not charge the Company any fees for this license.
The Company expects to incur a net operating loss for federal consolidated income tax return purposes for the year ending December 31, 2009.2010. The Company believes that it will be able to utilize the projected federal and certain state 2009consolidated 2010 and prior year net operating losses. Accordingly, the Company has not provided a valuation allowance against any deferred tax assets generated in 2009,2010, except as noted below. Two of the Company’s businesses, IMTT and District Energy, are less than 80% owned by the Company, and those businesses file separate federal consolidated income tax returns.
In the first six months of 2010, the Company revised the valuation allowance from $20.6 million at December 31, 2009 to $8.0 million, a decrease of $12.6 million. Approximately $2.6 million of this decrease was recorded in benefit for income taxes from continuing operations in the consolidated condensed statements of operations during the six months ended June 30, 2010, and the remaining $10.0 million decrease recorded in discontinued operations.
As discussed in Note 5, “Discontinued Operations”, as a result of the approval of the sale of PCAA's assets in bankruptcy and the expected dissolution of PCAA during 2010, the Company has reduced its valuation allowance on the realization of a portion of the deferred tax assets attributable to its basis in PCAA and its consolidated federal net operating loss.
The Company and its subsidiaries file separate and combined state income tax returns. In calculating its consolidated projected effective state tax rate for 2009,2010, the Company has taken into consideration an expected need to provide a valuation allowance for certain state income tax net operating loss carryforwards, the utilization of which is not assured beyond a reasonable doubt. In addition, the Company and its subsidiaries expect to incur certain expenses that will not be deductible in determining state taxable income. Accordingly, these expenses have also been excluded in projecting the Company’s effective state tax rate.
As discussed in Note 7, “Nonfinancial Assets Measured at Fair Value”, during the nine months ended September 30, 2009, the Company incurred a charge to earnings of approximately $108.4 million for the write down of certain fixed assets and intangibles. For purposes of determining its effective income tax rate for the quarter and nine months ended September 30, 2009, the Company does not consider the write down to be part of ordinary income. Of this amount, approximately $53.4 million is attributable to goodwill and represents a permanent book-tax difference. As a result, no tax benefit has been recognized for this charge.
At December 31, 2008,2009, the Company and its subsidiaries had a reserve of approximately $313,000$336,000 for benefits taken during 20082009 and prior tax periods attributable to tax positions for which the probability of recognition is not considered to be less than more likely than not. There was no material change in that reserve as of SeptemberJune 30, 2009.2010, and no material change is expected for the year ended December 31, 2010.
There are no material legal proceedings other than as disclosed in Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008,2009, filed with the SEC on February 27, 2009.
The Company evaluated and disclosed the following events through November 5, 2009:
On November 4, 2009, per the revised terms of the term loan agreement, as described in Note 8, “Long-Term Debt”, the airport services business used $9.9 million of excess cash flow to prepay $9.0 million of the outstanding principal balance of the term loan debt and incurred $914,000 in interest rate swap breakage fees.25, 2010.
The following 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.
We own, operate and invest in a diversified group of infrastructure businesses that provide basic everyday services, such as chilled water for building cooling and gas utility services to businesses and individuals primarily in the U.S. The businesses we own and operate are energy-related businesses consisting of our bulk liquid storage terminal business, orof: IMTT, our gas production and distribution business, or TGC,The Gas Company, and our district energycontrolling interest in District Energy; and Atlantic Aviation.
On June 2, 2010, we concluded the sale in bankruptcy of an airport parking business (“Parking Company of America Airports” or “PCAA”), resulting in a pre-tax gain of $130.3 million, of which $76.5 million related to the forgiveness of debt, and the elimination of $201.0 million of current debt from liabilities from our consolidated condensed balance sheet. The results of operations from this business and aviation-related businesses, consistingthe gain from the bankruptcy sale are separately reported as a discontinued operations in the Company’s consolidated condensed financial statements. This business is no longer a reportable segment. As a part of our airport servicesthe bankruptcy sale process, substantially all of the cash proceeds were used to pay the creditors of this business and were not paid to us. We received $602,000 from the PCAA bankruptcy estate for expenses paid on behalf of PCAA during its operations. See Note 5, “Discontinued Operations”, in our airport parking business. Theseconsolidated condensed financial statements in Part I, Item 1 of this Form 10-Q for financial information and further discussions.
Our infrastructure businesses generally operate in sectors with limited competition and barriers to 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 a lack of immediate cost-efficient alternatives to the services provided. Overall they tend to generate sustainable and growing long-term cash flows. We operate and finance our businesses in a manner that maximizes these cash flows.
Our energy-related businesses have proven, to date, largely resistant to the recent economic downturn, primarily due to the contracted or utility-like nature of their revenues combined with the essential services they provide. We believe these businesses are generally able to sustain cash flows during negative business cycles. This is primarily a result of the contracted nature of the revenue streams of the businessesprovide and the contractual or regulatory ability to pass through most cost increases to customers. We believe these businesses are generally able to generate consistent cash flows throughout the business cycle.
The results of our airport services businessAtlantic Aviation have been negatively affected since mid-2008 by lower overall economicthe slower economy and declining general aviation activity and perception issues regarding thelevels through mid-2009. However, general aviation sector. However, the results and activity levels at this business have stabilized over the last two quarters.
The uncertainty and instability in the credit markets appears to be subsiding.second half of 2009 and showed year on year growth in December 2009 and through the second quarter of 2010. This is evidentstabilization, combined with expense reduction efforts, results in the increase in the volume of lending activity and the price at which such lending is occurring compared with levels during the height of the global financial crisis. We believe that this improvement in the credit market has had a beneficial impact on thean improving outlook for our businesses, given the significant amount of long-term debt those businesses have outstanding. Despite the improvement, we expect tobusiness.
We will continue to strengthen our consolidated balance sheet and thoseapply excess cash flow generated by Atlantic Aviation to the reduction of our operating entities through prudent reduction inthat business’ term loan principal, consistent with the amount of long-termamendments to the debt outstanding, further increasing the likelihoodfacility that we willagreed to in February 2009. In addition to maintaining compliance with agreed upon covenants, such repayments further enables us to be able to successfully refinance this debt aswhen it matures in 2014. We expect that we will have further excess cash of $30.0 million to $40.0 million prior to the end of 2010. We intend to pursue a two-part strategy over approximately the next five years.
At March 31, 2009several months with respect to deployment of the potentially excess cash. First, we reclassifiedwill engage with lenders with the revolving credit facility atobjective of pre-paying a portion of our holding company from long-term debt on favorable terms. Second, we will explore alternatives to current portion of long-term debt in our consolidated condensed balance sheet, due to its maturity on March 31, 2010. We have accumulatedreturn the excess cash generated by our gas production and distribution and district energy businesses as a meansto shareholders, including an undertaking analysis of repaying a portion of the amount due under the facility. With this cash repayment and assuming seasonally normal performance by the gas production and distribution and district energy businesses in the fourth quarter of 2009 and first quarter of 2010, we expect to have less than $30.0 million principal amount outstanding under this facility at the maturity date.an appropriate share repurchase program. We are in discussions with our lendersneutral as to convertwhether the facilitycash is used to a term loan and extendpre-pay debt or repurchase shares, assuming the maturity date. Under these revised terms, we would expectbenefit to fully repay the facility over the remainder of 2010. We continue to consider various other options for repayment of the facility including improving business performance, expense reductions, sale of assets sufficient to cover the remaining principal balance at maturity, or other sources of capital. We remain confident that we will be able to refinance or repay the outstanding borrowings under the facility by the current maturity date.shareholders is comparable.
There is substantial doubt regardingUntil March 31, 2010, the business’ ability to continue asCompany had a going concern.revolving credit facility provided by various financial institutions, including entities within the Macquarie Group. The business has engaged financial advisors to actively solicit a sale offacility was repaid in full in December 2009 and no amounts were outstanding under the business. A letter of intent was signed during the quarter with a third party, which is conducting due diligence and with which the business is currently negotiating an asset purchase agreement. The business expects to close a sale transaction in 2010, which will likely occur in connection with a bankruptcy filing and consummation of a Chapter 11 plan. Proceeds generated as a result of the sale would be payable to the lenders of the business and not to us. Until an asset purchase agreement is signed and any conditions to closing have been met, including any approval of the sale needed as part of the bankruptcy process, we cannot provide assurance regarding the certainty or timing of a sale closing. As previously indicated, we have no intention of committing additional capital to this business and our ongoing liabilities are expected to be no more than $5.3 million in guarantees of a single parkingrevolving credit facility lease. Creditors of this business do not have recourse to any assets of our holding company or any assets of our other businesses, other than approximately $5.3 million in a lease guarantee as of November 5, 2009.
In FebruaryDecember 31, 2009 we suspended payment of quarterly cash distributions in order to reduce both holding company debt and operating company debtor at certain businesses where the underlying fundamentals were strong. We intend to resume payment of cash distributions when our debt has been reduced to what we believe are sustainable levels, and when we have an acceptable degree of visibility into the functioning of the debt markets and prudent cash reserves.facility’s maturity on March 31, 2010.
We file a consolidated federal income tax return that includes the taxable income of all our businesses, except IMTT. For 2009, we expect to haveIMTT and District Energy, which businesses will file separate income tax returns. We will include in our taxable income the taxable portion of any distributions from those businesses, which qualify for the 80% dividends received deduction.
As a result of available federal net operating loss that we can carry forward, along with federal net operating losses from prior years, which we can deduct against future years’ taxable income. Accordingly,carryforwards, we do not expect to have aconsolidated regular federal taxable income tax liability or makeregular federal tax payments at least through 2010.the 2012 tax year. The cash state and local taxes paid by our individual businesses isare discussed below in the sections entitled “Income Taxes” for each of our individual businesses.
All discussions of our consolidated results and the results for each of our businesses relate to both the quarter and nine month periods presented, unless stated otherwise.
Our consolidated results of operations are as follows ($ in thousands):follows:
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||||||||||||||||||||||||||
Quarter Ended September 30, | Change Favorable/(Unfavorable) | Nine Months Ended September 30, | Change Favorable/(Unfavorable) | Quarter Ended June 30, | Change (from 2009 to 2010) Favorable/(Unfavorable) | Six Months Ended June 30, | Change (from 2009 to 2010) Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | $ | % | 2009 | 2008 | $ | % | 2010 | 2009 (1) | $ | % | 2010 | 2009 (1) | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ($ in Thousands) (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from product sales | $ | 103,017 | $ | 152,060 | (49,043 | ) | (32.3 | ) | $ | 281,639 | $ | 478,219 | (196,580 | ) | (41.1 | ) | $ | 125,177 | $ | 89,430 | 35,747 | 40.0 | $ | 245,195 | $ | 178,622 | 66,573 | 37.3 | ||||||||||||||||||||||||||||||||||||
Revenue from product sales – utility | 26,056 | 36,060 | (10,004 | ) | (27.7 | ) | 67,637 | 97,317 | (29,680 | ) | (30.5 | ) | 28,450 | 21,414 | 7,036 | 32.9 | 55,285 | 41,581 | 13,704 | 33.0 | ||||||||||||||||||||||||||||||||||||||||||||
Service revenue | 72,264 | 87,714 | (15,450 | ) | (17.6 | ) | 214,614 | 263,171 | (48,557 | ) | (18.5 | ) | 49,794 | 51,359 | (1,565 | ) | (3.0 | ) | 103,000 | 108,304 | (5,304 | ) | (4.9 | ) | ||||||||||||||||||||||||||||||||||||||||
Financing and equipment lease income | 1,190 | 1,164 | 26 | 2.2 | 3,587 | 3,537 | 50 | 1.4 | 1,271 | 1,205 | 66 | 5.5 | 2,516 | 2,397 | 119 | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total revenue | 202,527 | 276,998 | (74,471 | ) | (26.9 | ) | 567,477 | 842,244 | (274,767 | ) | (32.6 | ) | 204,692 | 163,408 | 41,284 | 25.3 | 405,996 | 330,904 | 75,092 | 22.7 | ||||||||||||||||||||||||||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of product sales | 61,349 | 109,801 | 48,452 | 44.1 | 160,624 | 337,819 | 177,195 | 52.5 | 79,887 | 50,645 | (29,242 | ) | (57.7 | ) | 156,941 | 100,411 | (56,530 | ) | (56.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Cost of product sales – utility | 19,406 | 31,161 | 11,755 | 37.7 | 50,016 | 82,175 | 32,159 | 39.1 | 23,151 | 16,549 | (6,602 | ) | (39.9 | ) | 44,464 | 31,936 | (12,528 | ) | (39.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Cost of services | 26,562 | 33,070 | 6,508 | 19.7 | 82,701 | 98,615 | 15,914 | 16.1 | 13,318 | 11,069 | (2,249 | ) | (20.3 | ) | 24,463 | 22,140 | (2,323 | ) | (10.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 95,210 | 102,966 | (7,756 | ) | (7.5 | ) | 274,136 | 323,635 | (49,499 | ) | (15.3 | ) | 88,336 | 85,145 | 3,191 | 3.7 | 180,128 | 176,417 | 3,711 | 2.1 | ||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 54,782 | 57,426 | 2,644 | 4.6 | 167,468 | 182,928 | 15,460 | 8.5 | 49,522 | 48,725 | (797 | ) | (1.6 | ) | 100,256 | 104,868 | 4,612 | 4.4 | ||||||||||||||||||||||||||||||||||||||||||||||
Fees to manager-related party | 1,639 | 2,737 | 1,098 | 40.1 | 2,952 | 11,872 | 8,920 | 75.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fees to manager – related party | 2,268 | 851 | (1,417 | ) | (166.5 | ) | 4,457 | 1,313 | (3,144 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | — | — | — | — | 71,200 | — | (71,200 | ) | NM | — | 53,200 | 53,200 | NM | — | 71,200 | 71,200 | NM | |||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 7,177 | 7,101 | (76 | ) | (1.1 | ) | 29,597 | 20,139 | (9,458 | ) | (47.0 | ) | 7,202 | 9,270 | 2,068 | 22.3 | 14,924 | 22,420 | 7,496 | 33.4 | ||||||||||||||||||||||||||||||||||||||||||||
Amortization of intangibles | 9,126 | 10,563 | 1,437 | 13.6 | 51,923 | 32,206 | (19,717 | ) | (61.2 | ) | 8,740 | 12,532 | 3,792 | 30.3 | 17,411 | 42,797 | 25,386 | 59.3 | ||||||||||||||||||||||||||||||||||||||||||||||
Total operating expenses | 72,724 | 77,827 | 5,103 | 6.6 | 323,140 | 247,145 | (75,995 | ) | (30.7 | ) | 67,732 | 124,578 | 56,846 | 45.6 | 137,048 | 242,598 | 105,550 | 43.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 22,486 | 25,139 | (2,653 | ) | (10.6 | ) | (49,004 | ) | 76,490 | (125,494 | ) | (164.1 | ) | 20,604 | (39,433 | ) | 60,037 | 152.3 | 43,080 | (66,181 | ) | 109,261 | 165.1 | |||||||||||||||||||||||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | 8 | 268 | (260 | ) | (97.0 | ) | 116 | 1,038 | (922 | ) | (88.8 | ) | 4 | 34 | (30 | ) | (88.2 | ) | 20 | 101 | (81 | ) | (80.2 | ) | ||||||||||||||||||||||||||||||||||||||||
Interest expense | (24,639 | ) | (26,114 | ) | 1,475 | 5.6 | (81,861 | ) | (77,616 | ) | (4,245 | ) | (5.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense(2) | (38,974 | ) | (2,103 | ) | (36,871 | ) | NM | (73,661 | ) | (35,669 | ) | (37,992 | ) | (106.5 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings and amortization charges of investees | 1,178 | 4,051 | (2,873 | ) | (70.9 | ) | 16,655 | 10,603 | 6,052 | 57.1 | 5,774 | 10,028 | (4,254 | ) | (42.4 | ) | 11,367 | 15,477 | (4,110 | ) | (26.6 | ) | ||||||||||||||||||||||||||||||||||||||||||
Loss on derivative instruments | (17,371 | ) | (765 | ) | (16,606 | ) | NM | (29,872 | ) | (1,651 | ) | (28,221 | ) | NM | — | — | — | — | — | (25,238 | ) | 25,238 | NM | |||||||||||||||||||||||||||||||||||||||||
Other income, net | 269 | 6 | 263 | NM | 1,693 | 661 | 1,032 | 156.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income before income taxes and noncontrolling interests | (18,069 | ) | 2,585 | (20,654 | ) | NM | (142,273 | ) | 9,525 | (151,798 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(Provision) benefit for income taxes | (327 | ) | (2,254 | ) | 1,927 | 85.5 | 41,021 | (3,254 | ) | 44,275 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income before noncontrolling interests | (18,396 | ) | 331 | (18,727 | ) | NM | (101,252 | ) | 6,271 | (107,523 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income attributable to noncontrolling interests | (48 | ) | (167 | ) | (119 | ) | (71.3 | ) | (920 | ) | (575 | ) | (345 | ) | (60.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (18,348 | ) | $ | 498 | (18,846 | ) | NM | $ | (100,332 | ) | $ | 6,846 | (107,178 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||
Other (expense) income, net | (496 | ) | (186 | ) | (310 | ) | (166.7 | ) | (448 | ) | 850 | (1,298 | ) | (152.7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Net loss from continuing operations before income taxes | (13,088 | ) | (31,660 | ) | 18,572 | 58.7 | (19,642 | ) | (110,660 | ) | 91,018 | 82.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes | 13,488 | 4,822 | 8,666 | 179.7 | 14,577 | 37,387 | (22,810 | ) | (61.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) from continuing operations | $ | 400 | $ | (26,838 | ) | 27,238 | 101.5 | $ | (5,065 | ) | $ | (73,273 | ) | 68,208 | 93.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) from discontinued operations, net of taxes | 85,212 | (3,159 | ) | 88,371 | NM | 81,199 | (9,583 | ) | 90,782 | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 85,612 | $ | (29,997 | ) | 115,609 | NM | $ | 76,134 | $ | (82,856 | ) | 158,990 | 191.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Less: net loss attributable to noncontrolling interests | (238 | ) | (1,039 | ) | (801 | ) | (77.1 | ) | (1,351 | ) | (872 | ) | 479 | 54.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to MIC LLC | $ | 85,850 | $ | (28,958 | ) | 114,808 | NM | $ | 77,485 | $ | (81,984 | ) | 159,469 | 194.5 |
NM — Not meaningful
(1) | Reclassified to conform to current period presentation. |
(2) | Interest expense includes non-cash losses on derivative instruments of $20.5 million and $31.7 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest expense includes non-cash gains on derivative instruments of $20.1 million and $13.1 million, respectively. |
The decrease in our consolidatedConsolidated gross profit was primarily due to a decline in fuel volumes at our airport services business, partially offset by an improved dollar-based margin per gallon in this business for the third quarter of 2009 andincreased reflecting improved results at our gas productionenergy-related businesses and distribution business.fuel-related services at Atlantic Aviation, offset by a decrease in non-fuel gross profit from Atlantic Aviation.
The decrease in our selling,Selling, general and administrative expenses wasfor the six months ended June 30, 2010 decreased primarily aas result of substantial cost reduction efforts particularlyat Atlantic Aviation, offset by increases for the quarter and six months ended June 30, 2010 at our airport services business.consolidated energy-related businesses.
Base fees to our Manager in the first nine months of 2009 decreasedincreased due to our lowerhigher market capitalization. Our Manager elected to reinvest its second and thirdfirst quarter of 20092010 base management feefees in additional LLC interests. LLC interests for the first quarter of 2010 were issued to our Manager during the second quarter of 2009 were issued2010. The base management fee in the amount of $2.3 million for the second quarter of 2010 will be paid in cash to our Manager during the third quarter of 2009. LLC interests for the third quarter of 2009 will be issued to our Manager during the fourth quarter of 2009.2010.
We performed impairment tests duringDuring the firstquarter and the six months ofended June 30, 2009, andwe recognized non-casha goodwill impairment charges of $53.2 million and $71.2 million, respectively, at our airport services business, primarily related to underperformance at a limited number of fixed base operations, or FBOs.Atlantic Aviation. There were no impairment charges in 2010.
The increasedecrease in depreciation was primarily due toreflects non-cash asset impairment charges of $2.2 million and $7.5 million recorded during the firstquarter and six months ofended June 30, 2009, respectively, at our airport services business, related to underperformance at a limited number of FBOs, and $6.4 million at our airport parking business recorded during the first quarter of 2009. Depreciation expense also increased as a result of capital expenditures by businesses resulting in higher asset balances.Atlantic Aviation.
AmortizationThe decrease in amortization of intangibles expense increased due toreflects non-cash asset impairment charges of $2.9 million and $23.3 million recorded by Atlantic Aviation during the firstquarter and six months ended June 30, 2009, respectively. The impairments reduced the amortizable balance and the amount of 2009, which also related to underperformance at a limited number of FBOs at our airport services business.amortization expense in 2010.
The followingInterest expense, net, includes non-cash transactions resulted in net losses on derivative instruments of $20.5 million and $31.7 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest expense, net, includes non-cash gains on derivative instruments of $20.1 million and $13.1 million, respectively.
The increase in 2009:
Excluding the portion related to non-cash losses on derivative instruments, based on expected future cash flows, overderivatives, interest expense decreased due to a $113.4 million reduction of term loan debt at Atlantic Aviation, the remaining liferepayment in the full amount of the existingoutstanding balance of $66.4 million of MIC holding company debt during December 2009 and a decrease in interest rate swaps.
Our equity in the earnings of IMTT decreased reflecting our share of the non-cash derivative losses in 2010 compared with our share of non-cash derivative gains in 2009, offset by improved operating results of the business.
The increase in interest expense for the nine month period was primarily due to interest rate swap breakage fees paid by our airport services business. This business expects to pay further interest rate swap breakage fees as they continue to pay down their term loan debt and reduce the corresponding interest rate swaps.
Interest expense for the quarter decreased primarily due to favorable LIBOR movements on unhedged debt, primarily from the MIC Inc. revolving credit facility, combined with the expiration of the interest rate swap at the airport parking business during September 2009.
Our equity in the earnings of the bulk liquid storage terminal business for the 2009 nine month period increased due to higher operating results of the business for that period, together with our share of the non-cash derivative gains of $10.2 million compared with our share of non-cash derivative losses of $2.3 million in 2008.
Our equity in the earnings of this business was lower for the 2009 quarter due to lower operating results of the business for that period combined with our share of higher non-cash derivative losses compared with 2008.
Tax provision on continuing operations:
For the 2008 year,2010, we reportedexpect to report a consolidated federal net operating loss, before income taxes, for which we recordedwill record a deferred tax benefit, net of certain state net operating losses from our airport parking business and a portion of our impairment attributable to non-deductible goodwill.
For the year ending December 31, 2009, we expect to havepay a nominal federal Alternative Minimum Tax.
As we own less than 80% of IMTT and District Energy, these businesses are not included in our consolidated taxable loss for federal and for certain statetax return. These businesses file separate consolidated income tax purposes. We expect to utilizereturns, and we include the projected federal and state tax losses, except as noted below, and any prior year losses.
We include our share of any dividends received from the bulk liquid storage terminal businessIMTT and District Energy in our consolidated income tax return. Further, we expect that any dividends from IMTT and District Energy in 2010 will be treated as taxable dividends, which qualify for the 80% Dividends Received Deduction (DRD).
The following table reconciles our net loss from continuing operations before income taxes and noncontrolling interests to our taxable portion, afterloss for the six months ended June 30, 2010 ($ in thousands):
![]() | ![]() | |||
Net loss from continuing operations before income taxes and noncontrolling interests | $ | (19.6 | ) | |
Adjustments for less than 80% owned businesses | (11.0 | ) | ||
State income taxes | 1.9 | |||
Other adjustments | (0.2 | ) | ||
Taxable loss for the six months ended June 30, 2010 | $ | (28.9 | ) |
Accordingly, our tax benefit for the six months ended June 30, 2010 is as follows ($ in thousands):
![]() | ![]() | |||
Federal tax benefit at 35% on the tax loss for the six months ended June 30, 2010 | $ | 10.1 | ||
Reduction in valuation allowance (discussed below) | 2.6 | |||
State income tax benefit | 1.9 | |||
Total tax benefit | $ | 14.6 |
In determining the effective tax rate for the six months ended June 30, 2009, we excluded the write-down to fair value of certain assets from ordinary income. Further, approximately $13.5 million of the write-down was attributable to goodwill and was a permanent book-tax difference, for which no tax benefit was recognized.
Valuation allowance:
As discussed in Note 18, “Income Taxes” in our consolidated financial statements, in Part II, Item 8 of Form 10-K for 2009, from the date of sale of the noncontrolling interest in District Energy and onwards, we evaluate the need for a valuation allowance against our deferred tax assets without taking into consideration the federal dividends received deduction, is 20%deferred tax liabilities of District Energy. As of December 31, 2009, our valuation allowance was approximately $20.6 million.
During the six months ended June 30, 2010, we reduced the valuation allowance to approximately $8.0 million, resulting in a decrease of $12.6 million. Of this decrease, $2.6 million has been recorded as part of benefit for income taxes included in continuing operations on the consolidated condensed statements of operations. The remaining balance of the dividend amount received. For 2009, no more than $1.4decrease of $10.0 million of the $7.0 million cash dividend we received in the first quarter is expected to be included in our consolidated taxable income.net income from discontinued operations.
In calculating our consolidated projected effective state income tax rate for 2009,provision, we have taken into consideration an expected need to provideprovided a valuation allowance for certain state income tax net operating lossNOL carryforwards, the utilization of which is not assured beyond a reasonable doubt. In addition, we expect to incur certain expenses that will not be deductible in determining state taxable income. Accordingly, these expenses have also been excluded in projecting our effective state tax rate.
In determining the effective tax rate for the nine months ended September 30, 2009, we excluded the write-down to fair value of certain assets from ordinary income in determining our effectivestate income tax rate. Further, approximately $53.4expense.
On June 2, 2010, we concluded the sale in bankruptcy of PCAA, resulting in a pre-tax gain of $130.3 million, of which $76.5 million related to the write-down is attributableforgiveness of debt. The results of operations from this business and the gain from the bankruptcy sale are separately reported as a discontinued operations in our consolidated condensed financial statements and prior comparable periods have been restated to goodwillconform to the current period presentation. See Note 5, “Discontinued Operations”, in our consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q for financial information and is a permanent book-tax difference, for which no tax benefit has been recognized.further discussions.
In accordance with GAAP, we have disclosed EBITDA excluding non-cash items for our Company and each of our operating segments in Note 12,13, “Reportable Segments”, to in our consolidated condensed financial statements, as a key performance metric relied on by management in evaluating our performance. EBITDA excluding non-cash items is defined as earnings before interest, taxes, depreciation and amortization and non-cash items, principally goodwillwhich includes impairments, and unrealizedderivative gains and losses on derivative instruments. We consider EBITDA excluding noncashand adjustments for other non-cash items to be importantreflected in the overall assessmentstatements of our operating businesses individually and in consolidation.operations. We believe our presentation of EBITDA excluding non-cash items provides additional insight into the performance of our operating companiesbusinesses relative to each other and similar businesses without regard to their capital structure, and their ability to service or reduce debt, to fund growth capital projectsexpenditures and/or support distributions up to ourthe holding company.
We believe that reporting Free Cash Flow will provide our investors with additional insight into our future ability to deploy cash, as GAAP metrics such as net income and cash from operating activities do not reflect all of the items that our management considers in estimating the amount of cash generated by our operating entities. In this Quarterly Report on Form 10-Q, we have disclosed Free Cash Flow for our consolidated results and for each of our operating segments.
We note that Free Cash Flow does not fully reflect our ability to freely deploy generated cash, as it does not reflect required payments to be made on our indebtedness, pay dividends and other fixed obligations or the other cash items excluded when calculating Free Cash Flow. We also note that Free Cash Flow may be calculated in a different manner by other companies, which limits its usefulness as a comparative measure. Therefore, our Free Cash Flow should be used as a supplemental measure and not in lieu of our financial results reported under GAAP.
In 2008,the quarter and six months ended June 30, 2009, we disclosed EBITDA only.excluding only non-cash gains (losses) on derivative instruments. The following tables, reflecting results of operations for the consolidated group and for our businesses for the quarter and ninesix months ended SeptemberJune 30, 2008,2009, have been conformed to current periods’ presentation reflecting EBITDA excluding all non-cash items.items and Free Cash Flow.
A reconciliation of net income (loss) incomeattributable to EBITDA excluding non-cash items,MIC LLC from continuing operations to free cash flow from continuing operations, on a consolidated basis, is provided below:
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||||||||||||||||||||||||||
Quarter Ended September 30, | Change Favorable/(Unfavorable) | Nine Months Ended September 30, | Change Favorable/(Unfavorable) | Quarter Ended June 30, | Change (from 2009 to 2010) Favorable/(Unfavorable) | Six Months Ended June 30, | Change (from 2009 to 2010) Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | $ | % | 2009 | 2008 | $ | % | 2010 | 2009(1) | $ | % | 2010 | 2009(1) | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ($ in Thousands) (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (18,348 | ) | $ | 498 | $ | (100,332 | ) | $ | 6,846 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | 24,631 | 25,846 | 81,745 | 76,578 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 327 | 2,254 | (41,021 | ) | 3,254 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to MIC LLC from continuing operations(2) | $ | 940 | $ | (27,012 | ) | $ | (3,578 | ) | $ | (73,614 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net(3) | 38,970 | 2,069 | 73,641 | 35,568 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes | (13,488 | ) | (4,822 | ) | (14,577 | ) | (37,387 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 7,177 | 7,101 | 29,597 | 20,139 | 7,202 | 9,270 | 14,924 | 22,420 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation – cost of services | 2,552 | 2,709 | 13,630 | 8,220 | 1,636 | 1,502 | 3,271 | 2,965 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of intangibles | 9,126 | 10,563 | 51,923 | 32,206 | 8,740 | 12,532 | 17,411 | 42,797 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | — | — | 71,200 | — | — | 53,200 | — | 71,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on derivative instruments | 17,371 | 765 | 29,872 | 1,651 | — | — | — | 25,238 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
50% share of IMTT unrealized losses (gains) on derivative instruments | 4,037 | 2,396 | (10,227 | ) | 2,251 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 46,873 | $ | 52,132 | (5,259 | ) | (10.1 | ) | $ | 126,387 | $ | 151,145 | (24,758 | ) | (16.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity in earnings and amortization charges of investees(6) | (5,774 | ) | (8,477 | ) | (6,367 | ) | (8,477 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Base management fees settled in LLC interests | — | 851 | 2,189 | 851 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-cash (income) expense, net | (671 | ) | 420 | 770 | 78 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items from continuing operations | $ | 37,555 | $ | 39,533 | (1,978 | ) | (5.0 | ) | $ | 87,684 | $ | 81,639 | 6,045 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items from continuing operations | $ | 37,555 | $ | 39,533 | $ | 87,684 | $ | 81,639 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net(3) | (38,970 | ) | (2,069 | ) | (73,641 | ) | (35,568 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-cash derivative losses (gains) recorded in interest expense(3) | 20,548 | (20,052 | ) | 31,674 | (13,065 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of debt financing costs | 955 | 1,347 | 2,256 | 2,514 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment lease receivables, net | 739 | 641 | 1,451 | 1,407 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes, net of changes in deferred taxes | (591 | ) | (219 | ) | (1,469 | ) | (744 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | (9,396 | ) | 2,470 | (6,309 | ) | 3,579 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | 10,840 | 21,651 | 41,646 | 39,762 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | 9,396 | (2,470 | ) | 6,309 | (3,579 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maintenance capital expenditures | (2,002 | ) | (1,693 | ) | (3,749 | ) | (3,235 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Free cash flow from continuing operations | $ | 18,234 | $ | 17,488 | 746 | 4.3 | $ | 44,206 | $ | 32,948 | 11,258 | 34.2 |
(1) | Reclassified to conform to current period presentation. |
(2) | Net income (loss) attributable to MIC LLC from continuing operations excludes net loss attributable to noncontrolling interests of $540,000 and $1.487 million for the quarter and six months ended June 30, 2010, respectively, and net income attributable to noncontrolling interests of $174,000 and $341,000 for the quarter and six months ended June 30, 2009, respectively. |
(3) | Interest expense, net, includes non-cash losses on derivative instruments of $20.5 million and $31.7 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest expense, net, includes non-cash gains on derivative instruments of $20.1 million and $13.1 million, respectively. |
(4) | Depreciation — cost of services includes depreciation expense for |
Amortization of intangibles does not include acquisition-related 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 earnings and amortization charges of investees in our consolidated condensed statements of operations. |
(6) | Equity in earnings and amortization charges of investees in the above table includes our 50% share of IMTT's earnings, offset by distributions we received only up to our share of the earnings recorded. |
We account for our 50% interest in this business under the equity method. We recognized income of $16.7$11.4 million in our consolidated results for the ninesix months ended SeptemberJune 30, 2009.2010. This includes our 50% share of IMTT’s net income, equal to $20.2$13.7 million for the period, offset by $3.5$2.3 million of additionalacquisition-related step-up depreciation and amortization expense (net of taxes). For the ninesix months ended SeptemberJune 30, 2008,2009, we recognized income of $10.6$15.5 million in our consolidated results. This included our 50% share of IMTT’s net income, equal to $14.1$17.8 million for the period, offset by $3.5$2.3 million of additionalacquisition-related step-up depreciation and amortization expense (net of taxes).
Distributions from IMTT, to the degree classified as taxable dividends and not a return of capital for income tax purposes, are expected to qualify for the federal dividends received deduction. Therefore, 80% of any dividend is excluded in calculating our consolidated federal taxable income. Any distributions classified as a return of capital for income tax purposes will reduce our tax basis in IMTT. IMTT’s cash from operating activities for the nine months ended September 30, 2009 has been retained to fund IMTT’s growth capital expenditures and is expected to contribute significantly to IMTT’s future gross profit and EBITDA. See “Liquidity and Capital Resources” for further discussion.
To enable meaningful analysis of IMTT’s performance across periods, IMTT’s overall performance is discussed below, rather than IMTT’s contribution to our consolidated results.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Quarter Ended September 30, | Change Favorable/(Unfavorable) | Nine Months Ended September 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
2009 | 2008 | $ | % | 2009 | 2008 | $ | % | |||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Terminal revenue | $ | 80,962 | $ | 76,062 | 4,900 | 6.4 | $ | 242,524 | $ | 223,185 | 19,339 | 8.7 | ||||||||||||||||||||
Environmental response revenue | 4,206 | 28,432 | (24,226 | ) | (85.2 | ) | 11,421 | 37,933 | (26,512 | ) | (69.9 | ) | ||||||||||||||||||||
Total revenue | 85,168 | 104,494 | (19,326 | ) | (18.5 | ) | 253,945 | 261,118 | (7,173 | ) | (2.7 | ) | ||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||||||
Terminal operating costs | 38,114 | 36,076 | (2,038 | ) | (5.6 | ) | 114,577 | 114,061 | (516 | ) | (0.5 | ) | ||||||||||||||||||||
Environmental response operating costs | 3,829 | 19,564 | 15,735 | 80.4 | 11,759 | 27,459 | 15,700 | 57.2 | ||||||||||||||||||||||||
Total operating costs | 41,943 | 55,640 | 13,697 | 24.6 | 126,336 | 141,520 | 15,184 | 10.7 | ||||||||||||||||||||||||
Terminal gross profit | 42,848 | 39,986 | 2,862 | 7.2 | 127,947 | 109,124 | 18,823 | 17.2 | ||||||||||||||||||||||||
Environmental response gross profit (loss) | 377 | 8,868 | (8,491 | ) | (95.7 | ) | (338 | ) | 10,474 | (10,812 | ) | (103.2 | ) | |||||||||||||||||||
Gross profit | 43,225 | 48,854 | (5,629 | ) | (11.5 | ) | 127,609 | 119,598 | 8,011 | 6.7 | ||||||||||||||||||||||
General and administrative expenses | 6,653 | 8,267 | 1,614 | 19.5 | 19,220 | 21,462 | 2,242 | 10.4 | ||||||||||||||||||||||||
Depreciation and amortization | 13,457 | 11,303 | (2,154 | ) | (19.1 | ) | 39,735 | 31,960 | (7,775 | ) | (24.3 | ) | ||||||||||||||||||||
Operating income | 23,115 | 29,284 | (6,169 | ) | (21.1 | ) | 68,654 | 66,176 | 2,478 | 3.7 | ||||||||||||||||||||||
Interest expense, net | (7,378 | ) | (6,909 | ) | (469 | ) | (6.8 | ) | (21,990 | ) | (16,801 | ) | (5,189 | ) | (30.9 | ) | ||||||||||||||||
Other income | 340 | 110 | 230 | NM | 172 | 1,861 | (1,689 | ) | (90.8 | ) | ||||||||||||||||||||||
Unrealized (losses) gains on derivative instruments | (8,074 | ) | (4,792 | ) | (3,282 | ) | (68.5 | ) | 20,454 | (4,502 | ) | 24,956 | NM | |||||||||||||||||||
Provision for income taxes | (3,137 | ) | (7,412 | ) | 4,275 | 57.7 | (27,035 | ) | (18,874 | ) | (8,161 | ) | (43.2 | ) | ||||||||||||||||||
Noncontrolling interest | (145 | ) | 185 | (330 | ) | (178.4 | ) | 152 | 442 | (290 | ) | (65.6 | ) | |||||||||||||||||||
Net income | $ | 4,721 | $ | 10,466 | (5,745 | ) | (54.9 | ) | $ | 40,407 | $ | 28,302 | 12,105 | 42.8 | ||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||
Net income | $ | 4,721 | $ | 10,466 | $ | 40,407 | $ | 28,302 | ||||||||||||||||||||||||
Interest expense, net | 7,378 | 6,909 | 21,990 | 16,801 | ||||||||||||||||||||||||||||
Provision for income taxes | 3,137 | 7,412 | 27,035 | 18,874 | ||||||||||||||||||||||||||||
Depreciation and amortization | 13,457 | 11,303 | 39,735 | 31,960 | ||||||||||||||||||||||||||||
Unrealized losses (gains) on derivative instruments | 8,074 | 4,792 | (20,454 | ) | 4,502 | |||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 36,767 | $ | 40,882 | (4,115 | ) | (10.1 | ) | $ | 108,713 | $ | 100,439 | 8,274 | 8.2 |
NM — Not meaningful
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Quarter Ended June 30, | Change Favorable/(Unfavorable) | Six Months Ended June 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
2010 | 2009(1) | 2010 | 2009(1) | |||||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Terminal revenue | 90,743 | 77,752 | 12,991 | 16.7 | 186,297 | 161,562 | 24,735 | 15.3 | ||||||||||||||||||||||||
Environmental response revenue | 67,492 | 4,222 | 63,270 | NM | 78,976 | 7,215 | 71,761 | NM | ||||||||||||||||||||||||
Total revenue | 158,235 | 81,974 | 76,261 | 93.0 | 265,273 | 168,777 | 96,496 | 57.2 | ||||||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||||||
Terminal operating costs | 39,934 | 38,014 | (1,920 | ) | (5.1 | ) | 82,546 | 76,463 | (6,083 | ) | (8.0 | ) | ||||||||||||||||||||
Environmental response operating costs | 41,271 | 4,130 | (37,141 | ) | NM | 49,471 | 7,930 | (41,541 | ) | NM | ||||||||||||||||||||||
Total operating costs | 81,205 | 42,144 | (39,061 | ) | (92.7 | ) | 132,017 | 84,393 | (47,624 | ) | (56.4 | ) | ||||||||||||||||||||
Terminal gross profit | 50,809 | 39,738 | 11,071 | 27.9 | 103,751 | 85,099 | 18,652 | 21.9 | ||||||||||||||||||||||||
Environmental response gross profit | 26,221 | 92 | 26,129 | NM | 29,505 | (715 | ) | 30,220 | NM | |||||||||||||||||||||||
Gross profit | 77,030 | 39,830 | 37,200 | 93.4 | 133,256 | 84,384 | 48,872 | 57.9 | ||||||||||||||||||||||||
General and administrative expenses | 11,697 | 6,583 | (5,114 | ) | (77.7 | ) | 18,963 | 12,567 | (6,396 | ) | (50.9 | ) | ||||||||||||||||||||
Depreciation and amortization | 14,916 | 13,454 | (1,462 | ) | (10.9 | ) | 29,534 | 26,278 | (3,256 | ) | (12.4 | ) | ||||||||||||||||||||
Operating income | 50,417 | 19,793 | 30,624 | 154.7 | 84,759 | 45,539 | 39,220 | 86.1 | ||||||||||||||||||||||||
Interest (expense) income, net(2) | (25,774 | ) | 17,671 | (43,445 | ) | NM | (37,899 | ) | 10,610 | (48,509 | ) | NM | ||||||||||||||||||||
Other income (expense) | 580 | (10 | ) | 590 | NM | 1,361 | (168 | ) | 1,529 | NM | ||||||||||||||||||||||
Unrealized gains on derivative instruments | — | — | — | — | — | 3,306 | (3,306 | ) | NM | |||||||||||||||||||||||
Provision for income taxes | (10,750 | ) | (14,959 | ) | 4,209 | 28.1 | (20,356 | ) | (23,898 | ) | 3,542 | 14.8 | ||||||||||||||||||||
Noncontrolling interests | (251 | ) | (72 | ) | (179 | ) | NM | (400 | ) | 297 | (697 | ) | NM | |||||||||||||||||||
Net income | 14,222 | 22,423 | (8,201 | ) | (36.6 | ) | 27,465 | 35,686 | (8,221 | ) | (23.0 | ) | ||||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||
Net income | 14,222 | 22,423 | 27,465 | 35,686 | ||||||||||||||||||||||||||||
Interest expense (income), net(2) | 25,774 | (17,671 | ) | 37,899 | (10,610 | ) | ||||||||||||||||||||||||||
Provision for income taxes | 10,750 | 14,959 | 20,356 | 23,898 | ||||||||||||||||||||||||||||
Depreciation and amortization | 14,916 | 13,454 | 29,534 | 26,278 | ||||||||||||||||||||||||||||
Unrealized gains on derivative instruments | — | — | — | (3,306 | ) | |||||||||||||||||||||||||||
Other non-cash expenses (income) | 12 | 157 | 245 | (669 | ) | |||||||||||||||||||||||||||
EBITDA excluding non-cash items | 65,674 | 33,322 | 32,352 | 97.1 | 115,499 | 71,277 | 44,222 | 62.0 | ||||||||||||||||||||||||
EBITDA excluding non-cash items | 65,674 | 33,322 | 115,499 | 71,277 | ||||||||||||||||||||||||||||
Interest (expense) income, net(2) | (25,774 | ) | 17,671 | (37,899 | ) | 10,610 | ||||||||||||||||||||||||||
Non-cash derivative losses (gains) recorded in interest (expense) income(2) | 17,380 | (25,222 | ) | 22,053 | (25,222 | ) | ||||||||||||||||||||||||||
Amortization of debt financing costs | 538 | 117 | 710 | 235 | ||||||||||||||||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (2,965 | ) | (790 | ) | (4,232 | ) | (1,547 | ) | ||||||||||||||||||||||||
Changes in working capital | (24,220 | ) | 13,085 | (27,454 | ) | 11,483 | ||||||||||||||||||||||||||
Cash provided by operating activities | 30,633 | 38,183 | 68,677 | 66,836 | ||||||||||||||||||||||||||||
Changes in working capital | 24,220 | (13,085 | ) | 27,454 | (11,483 | ) | ||||||||||||||||||||||||||
Maintenance capital expenditures | (11,236 | ) | (8,342 | ) | (19,031 | ) | (16,681 | ) | ||||||||||||||||||||||||
Free cash flow | 43,617 | 16,756 | 26,861 | 160.3 | 77,100 | 38,672 | 38,428 | 99.4 |
NM — Not meaningful
(1) | Reclassified to conform to current period presentation. |
(2) | Interest (expense) income, net, includes non-cash losses on derivative instruments of $17.4 million and $22.1 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest (expense) income, net, includes non-cash gains on derivative instruments of $25.2 million. |
The increase in terminal revenue primarily reflects growth in storage and other services revenues, partially offset by declines in throughput and heating revenues.revenue. Storage revenue grew primarily as thedue to an increase in average rental rates increased by 9.1%of 8.1% and 8.6%9.2% during the quarter and ninesix months ended respectively. The increase in storage revenue also reflectedJune 30, 2010, respectively, and an increase in storage capacity as the business completedand capacity utilization mainly attributable to certain expansion projects at itsIMTT’s Louisiana facilities.
Capacity utilization increased from 93.1% to 94.8% and 93.8% to 95.4% during the quarter and six months ended June 30, 2010, respectively. Demand for bulk liquid storage generally remains strong.strong; however, utilization rates are expected to revert to approximately 94.0% over the balance of 2010 as certain tanks are taken out of service for inspection, repairs and maintenance.
The commencementTerminal operating costs increased during the six months ended June 30, 2010 primarily as a result of storagehigher repairs and related logistics services at IMTT’s Geismar, LA terminal was the primary driver ofmaintenance and an overall $2.6 million and $15.1 million increase in salaries and wages.
Revenue and gross profit and EBITDAfrom environmental response services increased substantially during the quarter and nine months ended, respectively. Throughput and heating revenues declined reflecting lower activity levels at IMTT’s facilities and lower heating costs2010 primarily due to the declineincrease in fuel prices passed through to customers. Storage capacity utilization, defined as storage capacity rented divided by total capacity available, remained relatively constant at 94% during the quarter and nine months ended September 30, 2009.
The terminal operating costs increased primarily driven by health insurance claims, pension costs, tank cleaning expenses, pipeline related work and the commencement of operations at Geismar, LA, partially offset by a $2.0 million excise tax settlement in the first half of 2008 that did not recur in 2009.
Gross profit from environmental services decreased from 2008 to 2009 primarily due to higher spill response activity in 2008 relating to IMTT’s central role in response activities following the July 23, 2008April 20, 2010 BP oil spill in the Gulf of Mexico and the January 2010 fuel oil spill on the Mississippi RiverTexas coast near New Orleans.Port Arthur. The business is not aware of any reliable estimate of how long clean-up efforts in the Gulf will continue and the business is unable to estimate the extent to which IMTT/Oil Mop will continue to provide environmental response services for this spill incident.
Lower generalGeneral and administrative costs forincreased primarily due to an increase in environmental response services of $5.7 million as compared to the nine months ended September 30, 2009 resulted primarily fromprior comparable periods. The increase reflects cash and accrued bonuses and sales commissions relating to the recovery of receivables that had been fully provisioned for in prior periods.BP oil spill.
Depreciation and amortization expense increased as IMTT completed several major expansion projects, resulting in higher asset balances.
Interest costs in both(expense) income, net, includes non-cash losses on derivative instruments of $17.4 million and $22.1 million for the quarter and ninesix months ended SeptemberJune 30, 2010, respectively. For the quarter and six months ended June 30, 2009, increased primarily due to higher borrowings incurred to fund growth capital expenditures along with the discontinuationinterest (expense) income, net, includes non-cash gains on derivative instruments of the capitalization of construction period$25.2 million.
Cash interest upon the commencement of operations at Geismar, LA, partially offset by a decrease in interest rates on unhedged debt balancespaid was $8.5 million and $15.9 million for the quarter and six months ended SeptemberJune 30, 2009.2010, respectively, and $6.4 million and $14.2 million for the quarter and six months ended June 30, 2009, respectively.
IMTT expects to pay approximately $12.0 million in federal and state income taxes in 2010. For the yearsix months ended June 30, 2010, IMTT accrued $1.0 million of federal income taxes and $3.2 million of state income taxes. At December 31, 2009, the bulk liquid storage terminal business expects to generate a loss forIMTT had federal income tax purposes that can be carried forward and utilized to reduce current taxable income in 2010. However, the business does expect to pay an Alternative Minimum Taxnet operating losses of approximately $1.0 million, which will$50.0 million. This is expected to be available as a credit against regular federal income taxesfully utilized in the future.
The business files separate state income tax returns in five states. For the year ended December 31, 2009, the business expects to pay state income taxes of approximately $4.0 million.2010.
A significant difference between the bulk liquid storage terminal business’IMTT’s book and federal taxable income relates to depreciation of fixed assets. For book purposes, fixed assets are depreciated primarily over 15 to 30 years using the straight-line method of depreciation. For federal income tax purposes, fixed assets are depreciated primarily over 5 to 15 years using accelerated methods. In addition, a significant portion of the fixed assets placed in service in 2009 qualifyqualified for the 50% federal bonus depreciation. Most of the states in which the business operates allow the use of the federal depreciation calculation methods, but do not allowmethods. Louisiana is the only state where the business operates that allows the bonus depreciation deduction. The 50% federal bonus depreciation is not applicable to assets placed in service in 2010.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Quarter Ended June 30, | Change Favorable/(Unfavorable) | Six Months Ended June 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
2010 | 2009(1) | 2010 | 2009(1) | |||||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||
Contribution margin | ||||||||||||||||||||||||||||||||
Revenue – utility | 28,450 | 21,414 | 7,036 | 32.9 | 55,285 | 41,581 | 13,704 | 33.0 | ||||||||||||||||||||||||
Cost of revenue – utility | 19,402 | 13,045 | (6,357 | ) | (48.7 | ) | 37,274 | 25,330 | (11,944 | ) | (47.2 | ) | ||||||||||||||||||||
Contribution margin – utility | 9,048 | 8,369 | 679 | 8.1 | 18,011 | 16,251 | 1,760 | 10.8 | ||||||||||||||||||||||||
Revenue – non-utility | 24,236 | 18,390 | 5,846 | 31.8 | 49,546 | 39,465 | 10,081 | 25.5 | ||||||||||||||||||||||||
Cost of revenue – non-utility | 12,089 | 8,131 | (3,958 | ) | (48.7 | ) | 25,845 | 17,617 | (8,228 | ) | (46.7 | ) | ||||||||||||||||||||
Contribution margin – non-utility | 12,147 | 10,259 | 1,888 | 18.4 | 23,701 | 21,848 | 1,853 | 8.5 | ||||||||||||||||||||||||
Total contribution margin | 21,195 | 18,628 | 2,567 | 13.8 | 41,712 | 38,099 | 3,613 | 9.5 | ||||||||||||||||||||||||
Production | 1,728 | 1,647 | (81 | ) | (4.9 | ) | 3,408 | 3,094 | (314 | ) | (10.1 | ) | ||||||||||||||||||||
Transmission and distribution | 5,270 | 4,903 | (367 | ) | (7.5 | ) | 10,131 | 9,372 | (759 | ) | (8.1 | ) | ||||||||||||||||||||
Gross profit | 14,197 | 12,078 | 2,119 | 17.5 | 28,173 | 25,633 | 2,540 | 9.9 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 4,537 | 4,023 | (514 | ) | (12.8 | ) | 8,298 | 7,845 | (453 | ) | (5.8 | ) | ||||||||||||||||||||
Depreciation and amortization | 1,716 | 1,732 | 16 | 0.9 | 3,434 | 3,422 | (12 | ) | (0.4 | ) | ||||||||||||||||||||||
Operating income | 7,944 | 6,323 | 1,621 | 25.6 | 16,441 | 14,366 | 2,075 | 14.4 | ||||||||||||||||||||||||
Interest (expense) income, net(2) | (5,926 | ) | 1,249 | (7,175 | ) | NM | (10,733 | ) | (1,368 | ) | (9,365 | ) | NM | |||||||||||||||||||
Other expense | (26 | ) | (146 | ) | 120 | 82.2 | (11 | ) | (125 | ) | 114 | 91.2 | ||||||||||||||||||||
Unrealized losses on derivative instruments | — | — | — | — | — | (327 | ) | 327 | NM | |||||||||||||||||||||||
Provision for income taxes | (780 | ) | (2,908 | ) | 2,128 | 73.2 | (2,231 | ) | (4,913 | ) | 2,682 | 54.6 | ||||||||||||||||||||
Net income(3) | 1,212 | 4,518 | (3,306 | ) | (73.2 | ) | 3,466 | 7,633 | (4,167 | ) | (54.6 | ) | ||||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||
Net income(3) | 1,212 | 4,518 | 3,466 | 7,633 | ||||||||||||||||||||||||||||
Interest expense (income), net(2) | 5,926 | (1,249 | ) | 10,733 | 1,368 | |||||||||||||||||||||||||||
Provision for income taxes | 780 | 2,908 | 2,231 | 4,913 | ||||||||||||||||||||||||||||
Depreciation and amortization | 1,716 | 1,732 | 3,434 | 3,422 | ||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | — | — | — | 327 | ||||||||||||||||||||||||||||
Other non-cash expenses | 531 | 564 | 1,065 | 1,015 | ||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 10,165 | 8,473 | 1,692 | 20.0 | 20,929 | 18,678 | 2,251 | 12.1 | ||||||||||||||||||||||||
EBITDA excluding non-cash items | 10,165 | 8,473 | 20,929 | 18,678 | ||||||||||||||||||||||||||||
Interest (expense) income, net(2) | (5,926 | ) | 1,249 | (10,733 | ) | (1,368 | ) | |||||||||||||||||||||||||
Non-cash derivative losses (gains) recorded in interest (expense) income(2) | 3,620 | (3,452 | ) | 6,211 | (3,129 | ) | ||||||||||||||||||||||||||
Amortization of debt financing costs | 119 | 119 | 239 | 239 | ||||||||||||||||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (1,270 | ) | (1,834 | ) | (2,754 | ) | (2,118 | ) | ||||||||||||||||||||||||
Changes in working capital | (3,202 | ) | 1,042 | (2,803 | ) | (471 | ) | |||||||||||||||||||||||||
Cash provided by operating activities | 3,506 | 5,597 | 11,089 | 11,831 | ||||||||||||||||||||||||||||
Changes in working capital | 3,202 | (1,042 | ) | 2,803 | 471 | |||||||||||||||||||||||||||
Maintenance capital expenditures | (422 | ) | (483 | ) | (978 | ) | (1,081 | ) | ||||||||||||||||||||||||
Free cash flow | 6,286 | 4,072 | 2,214 | 54.4 | 12,914 | 11,221 | 1,693 | 15.1 |
NM — Not meaningful
(1) | Reclassified to conform to current period presentation. For the quarter and six months ended June 30, 2010, payroll taxes and certain employee welfare and benefit costs that were previously recorded in selling, general and administrative costs were reclassified to production, transmission and distribution and other expense where the costs were incurred. Accordingly, the quarter and six months ended June 30, 2009 were restated to reflect this change. |
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||||||
Quarter Ended September 30, | Change Favorable/(Unfavorable) | Nine Months Ended September 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||
2009 | 2008 | $ | % | 2009 | 2008 | $ | % | |||||||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||||||
Contribution margin | ||||||||||||||||||||||||||||||||||||
Revenue – utility | $ | 26,056 | $ | 36,060 | (10,004 | ) | (27.7 | ) | $ | 67,637 | $ | 97,317 | (29,680 | ) | (30.5 | ) | ||||||||||||||||||||
Cost of revenue – utility | 16,535 | 28,212 | 11,677 | 41.4 | 41,865 | 74,014 | 32,149 | 43.4 | ||||||||||||||||||||||||||||
Contribution margin – utility | 9,521 | 7,848 | 1,673 | 21.3 | 25,772 | 23,303 | 2,469 | 10.6 | ||||||||||||||||||||||||||||
Revenue – non-utility | 18,680 | 23,495 | (4,815 | ) | (20.5 | ) | 58,145 | 70,177 | (12,032 | ) | (17.1 | ) | ||||||||||||||||||||||||
Cost of revenue – non-utility | 8,952 | 14,613 | 5,661 | 38.7 | 26,569 | 44,381 | 17,812 | 40.1 | ||||||||||||||||||||||||||||
Contribution margin – non-utility | 9,728 | 8,882 | 846 | 9.5 | 31,576 | 25,796 | 5,780 | 22.4 | ||||||||||||||||||||||||||||
Total contribution margin | 19,249 | 16,730 | 2,519 | 15.1 | 57,348 | 49,099 | 8,249 | 16.8 | ||||||||||||||||||||||||||||
Production | 1,428 | 1,539 | 111 | 7.2 | 4,020 | 4,051 | 31 | 0.8 | ||||||||||||||||||||||||||||
Transmission and distribution | 4,003 | 3,705 | (298 | ) | (8.0 | ) | 11,415 | 10,858 | (557 | ) | (5.1 | ) | ||||||||||||||||||||||||
Gross profit | 13,818 | 11,486 | 2,332 | 20.3 | 41,913 | 34,190 | 7,723 | 22.6 | ||||||||||||||||||||||||||||
Selling, general and administrative expenses | 5,516 | 4,444 | (1,072 | ) | (24.1 | ) | 15,923 | 13,280 | (2,643 | ) | (19.9 | ) | ||||||||||||||||||||||||
Depreciation and amortization | 1,713 | 1,677 | (36 | ) | (2.1 | ) | 5,135 | 5,009 | (126 | ) | (2.5 | ) | ||||||||||||||||||||||||
Operating income | 6,589 | 5,365 | 1,224 | 22.8 | 20,855 | 15,901 | 4,954 | 31.2 | ||||||||||||||||||||||||||||
Interest expense, net | (2,212 | ) | (2,354 | ) | 142 | 6.0 | (6,709 | ) | (7,025 | ) | 316 | 4.5 | ||||||||||||||||||||||||
Other (expense) income | (43 | ) | 41 | (84 | ) | NM | (68 | ) | 213 | (281 | ) | (131.9 | ) | |||||||||||||||||||||||
Unrealized losses on derivative instruments | (3,194 | ) | (73 | ) | (3,121 | ) | NM | (392 | ) | (223 | ) | (169 | ) | (75.8 | ) | |||||||||||||||||||||
Provision for income taxes | (446 | ) | (1,166 | ) | 720 | 61.7 | (5,359 | ) | (3,471 | ) | (1,888 | ) | (54.4 | ) | ||||||||||||||||||||||
Net income(1) | $ | 694 | $ | 1,813 | (1,119 | ) | (61.7 | ) | $ | 8,327 | $ | 5,395 | 2,932 | 54.3 | ||||||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||||||
Net income(1) | $ | 694 | $ | 1,813 | $ | 8,327 | $ | 5,395 | ||||||||||||||||||||||||||||
Interest expense, net | 2,212 | 2,354 | 6,709 | 7,025 | ||||||||||||||||||||||||||||||||
Provision for income taxes | 446 | 1,166 | 5,359 | 3,471 | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 1,713 | 1,677 | 5,135 | 5,009 | ||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | 3,194 | 73 | 392 | 223 | ||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 8,259 | $ | 7,083 | 1,176 | 16.6 | $ | 25,922 | $ | 21,123 | 4,799 | 22.7 |
NM — Not meaningful
Interest (expense) income, net, includes non-cash losses on derivative instruments of $3.6 million and $6.2 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest (expense) income, net, includes non-cash gains on derivative instruments of $3.5 million and $3.1 million, respectively. |
(3) | Corporate allocation expense, 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. |
Although the presentation and analysis of contribution margin is a non-GAAP performance measure, management believes that it is meaningful to understanding TGC’s performance under both a utility regulated rate structure and a non-utility competitive pricing structure. Under a regulated environment, feedstock costs are automatically passed through to utility customers, while non-utility pricing may be adjusted, subject to the competitive environment, to recover changes in raw material costs.
Contribution margin should not be considered an alternative to revenue, operating income, or net income, 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.
Regulation of the utility portion of The Gas Company's operations provides for the automatic pass through of increases or decreases in feedstock costs to utility customers. Changes in the cost of propane distributed to non-utility customers can be recovered in pricing, subject to competitive conditions generally.
Utility contribution margin was higher for the quarter and ninesix months was higher,ended June 30, 2010 primarily due to implementation of the interim rate increase from June 11, 2009, partially offset by volume declines related almost entirely to commercial customers, who arewhose demand is more exposedsensitive to the variability of the economic cycle. Similarly, non-utility contribution margincycle than residential customers. Sales volume in 2010 was approximately 3.6% lower than 2009 for both the quarter and nine monthssix month periods.
On April 20, 2010, the Hawaii Public Utilities Commission (HPUC) issued its Final Decision and Order on the rate case filed by The Gas Company in August 2008, authorizing a rate increase of $9.2 million. This is a reduction from the interim rate increase of $9.5 million implemented from June 11, 2009, and therefore, the utility contribution margin was reduced to reflect the retroactive adjustment to June 11, 2009 of $266,000 in 2010.
Non-utility contribution margin was higher primarily due toas a result of effective margin management combinedactivities with lower input costs, partially offset by marginal volume declines.essentially flat compared to 2009. Local suppliers may reduce their productionrefiners supplied The Gas Company with approximately 30% less propane in the first half of propane that TGC distributes through2010 than they did in the unregulated portionfirst half of the business.2009. To the extent that local suppliers arewere unable to supply TGCThe Gas Company with a sufficient amount of propane, the business believes they cansupplemented, and will continue to supplement, theirits supply from foreign sources. Foreign sourcedThe cost per gallon of foreign supply is higher than locally-produced propane. The business believes that the cost differential of delivered foreign and locally-produced propane is likelywill have a minimal impact on non-utility contribution margin.
Increased production costs primarily reflected higher electricity costs. Transmission and distribution costs were higher primarily due to cost more than locally produced propane, although a portion of any increased cost may be offset by improved efficiency in distribution.
wage and benefit costs as well as higher repair and maintenance costs. Selling, general and administrative costs increasedwere higher primarily due to high incentive compensation based upon strongpersonnel costs and insurance costs.
Interest (expense) income, net, includes non-cash losses on derivative instruments of $3.6 million and $6.2 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, performance to date, pension expensesinterest (expense) income, net, includes non-cash gains on derivative instruments of $3.5 million and professional services costs, primarily related to$3.1 million, respectively. Excluding the implementation of a profit center structure. Full yearnon-cash (losses) gains on derivative instruments, interest expense was relatively flat.
Cash interest paid was $2.2 million and $4.3 million for the quarter and six months ended June 30, 2010, respectively, and $2.1 million and $4.3 million for the quarter and six months ended June 30, 2009, pension expense is expected to increase by approximately $1.1 million compared with 2008.respectively.
Income from the gas production and distribution businessThe Gas Company is included in our consolidated federal income tax return, and its income is subject to Hawaii state income taxes. The tax expense in the table above includes both state taxes and the portion of the consolidated federal tax liability attributable to the business.
The business’ federal taxable income differs from book income primarily as a result of differences in the depreciation of fixed assets. Net book income before taxes includes depreciation based on asset values and lives that differ from those used in determining taxable income. For the year endedending December 2009,31, 2010, the business expects to have apay state income tax liabilitytaxes of approximately $845,000.$1.2 million, of which $434,000 was recorded during the six months ended June 30, 2010.
Customers of our district energy businessDistrict Energy pay two charges to receive chilled water services: a fixed charge based on contracted capacity, and a variable charge based on the consumption of chilled water. Capacity charges are typically adjusted annually at a fixed rate or are indexed to the Consumer Price Index (CPI). The terms of theour customer contracts provide for the pass-throughpass through of increases or decreases in electricity costs, the largest component of the business’ direct expenses.
The financial results discussed below reflect 100% of District Energy’s performance during the quarter.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||||||||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | Quarter Ended June 30, | Change Favorable/(Unfavorable) | Six Months Ended June 30, | Change Favorable/(Unfavorable) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarter Ended September 30, | Change Favorable/(Unfavorable) | Nine Months Ended September 30, | Change Favorable/(Unfavorable) | 2010 | 2009(1) | 2010 | 2009(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | $ | % | 2009 | 2008 | $ | % | $ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ($ In Thousands) (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cooling capacity revenue | $ | 5,224 | $ | 4,850 | 374 | 7.7 | $ | 15,231 | $ | 14,484 | 747 | 5.2 | 5,295 | 5,110 | 185 | 3.6 | 10,533 | 10,007 | 526 | 5.3 | ||||||||||||||||||||||||||||||||||||||||||||
Cooling consumption revenue | 9,400 | 10,654 | (1,254 | ) | (11.8 | ) | 17,130 | 18,495 | (1,365 | ) | (7.4 | ) | 7,144 | 5,502 | 1,642 | 29.8 | 8,907 | 7,730 | 1,177 | 15.2 | ||||||||||||||||||||||||||||||||||||||||||||
Other revenue | 832 | 752 | 80 | 10.6 | 2,331 | 2,201 | 130 | 5.9 | 803 | 743 | 60 | 8.1 | 1,667 | 1,499 | 168 | 11.2 | ||||||||||||||||||||||||||||||||||||||||||||||||
Finance lease revenue | 1,190 | 1,164 | 26 | 2.2 | 3,587 | 3,537 | 50 | 1.4 | 1,271 | 1,205 | 66 | 5.5 | 2,516 | 2,397 | 119 | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total revenue | 16,646 | 17,420 | (774 | ) | (4.4 | ) | 38,279 | 38,717 | (438 | ) | (1.1 | ) | 14,513 | 12,560 | 1,953 | 15.5 | 23,623 | 21,633 | 1,990 | 9.2 | ||||||||||||||||||||||||||||||||||||||||||||
Direct expenses – electricity | 5,715 | 6,982 | 1,267 | 18.1 | 11,103 | 11,984 | 881 | 7.4 | 4,664 | 3,784 | (880 | ) | (23.3 | ) | 5,987 | 5,388 | (599 | ) | (11.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Direct expenses – other | 4,803 | 4,247 | (556 | ) | (13.1 | ) | 14,075 | 13,200 | (875 | ) | (6.6 | ) | 5,066 | 4,508 | (558 | ) | (12.4 | ) | 9,937 | 9,272 | (665 | ) | (7.2 | ) | ||||||||||||||||||||||||||||||||||||||||
Direct expenses – total | 10,518 | 11,229 | 711 | 6.3 | 25,178 | 25,184 | 6 | — | 9,730 | 8,292 | (1,438 | ) | (17.3 | ) | 15,924 | 14,660 | (1,264 | ) | (8.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 6,128 | 6,191 | (63 | ) | (1.0 | ) | 13,101 | 13,533 | (432 | ) | (3.2 | ) | 4,783 | 4,268 | 515 | 12.1 | 7,699 | 6,973 | 726 | 10.4 | ||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 697 | 740 | 43 | 5.8 | 2,051 | 2,498 | 447 | 17.9 | 799 | 716 | (83 | ) | (11.6 | ) | 1,557 | 1,354 | (203 | ) | (15.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Amortization of intangibles | 345 | 345 | — | — | 1,023 | 1,027 | 4 | 0.4 | 341 | 341 | — | — | 678 | 678 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | 5,086 | 5,106 | (20 | ) | (0.4 | ) | 10,027 | 10,008 | 19 | 0.2 | 3,643 | 3,211 | 432 | 13.5 | 5,464 | 4,941 | 523 | 10.6 | ||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | (2,554 | ) | (2,609 | ) | 55 | 2.1 | (7,589 | ) | (7,761 | ) | 172 | 2.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest (expense) income, net(3) | (7,976 | ) | 2,728 | (10,704 | ) | NM | (14,004 | ) | (227 | ) | (13,777 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other income | 447 | 45 | 402 | NM | 541 | 155 | 386 | NM | 59 | 45 | 14 | 31.1 | 109 | 94 | 15 | 16.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized (losses) gains on derivative instruments | (4,069 | ) | 10 | (4,079 | ) | NM | (639 | ) | 28 | (667 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit (provision) | 500 | (623 | ) | 1,123 | 180.3 | (721 | ) | (516 | ) | (205 | ) | (39.7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interest | (174 | ) | (147 | ) | (27 | ) | (18.4 | ) | (515 | ) | (437 | ) | (78 | ) | (17.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | — | — | — | — | — | (1,378 | ) | 1,378 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 1,767 | (2,296 | ) | 4,063 | 177.0 | 3,487 | (1,221 | ) | 4,708 | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | (198 | ) | (174 | ) | (24 | ) | (13.8 | ) | (392 | ) | (341 | ) | (51 | ) | (15.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (764 | ) | $ | 1,782 | (2,546 | ) | (142.9 | ) | $ | 1,104 | $ | 1,477 | (373 | ) | (25.3 | ) | (2,705 | ) | 3,514 | (6,219 | ) | (177.0 | ) | (5,336 | ) | 1,868 | (7,204 | ) | NM | ||||||||||||||||||||||||||||||||||
Reconciliation of net (loss) income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (764 | ) | $ | 1,782 | $ | 1,104 | $ | 1,477 | (2,705 | ) | 3,514 | (5,336 | ) | 1,868 | |||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | 2,554 | 2,609 | 7,589 | 7,761 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax (benefit) provision | (500 | ) | 623 | 721 | 516 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense (income), net(3) | 7,976 | (2,728 | ) | 14,004 | 227 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Benefit) provision for income taxes | (1,767 | ) | 2,296 | (3,487 | ) | 1,221 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 1,541 | 1,402 | 4,506 | 4,354 | 1,636 | 1,502 | 3,271 | 2,965 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of intangibles | 345 | 345 | 1,023 | 1,027 | 341 | 341 | 678 | 678 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses (gains) on derivative instruments | 4,069 | (10 | ) | 639 | (28 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | — | — | — | 1,378 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-cash expenses | 232 | 172 | 387 | 276 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 7,245 | $ | 6,751 | 494 | 7.3 | $ | 15,582 | $ | 15,107 | 475 | 3.1 | 5,713 | 5,097 | 616 | 12.1 | 9,517 | 8,613 | 904 | 10.5 | ||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 5,713 | 5,097 | 9,517 | 8,613 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest (expense) income, net(3) | (7,976 | ) | 2,728 | (14,004 | ) | (227 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-cash derivative losses (gains) recorded in interest (expense) income(3) | 5,328 | (5,199 | ) | 8,826 | (4,808 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of debt financing costs | 170 | 170 | 340 | 340 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment lease receivable, net | 739 | 641 | 1,451 | 1,407 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | (2,799 | ) | (437 | ) | (3,569 | ) | (484 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | 1,175 | 3,000 | 2,561 | 4,841 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | 2,799 | 437 | 3,569 | 484 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maintenance capital expenditures | (400 | ) | (309 | ) | (564 | ) | (359 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Free cash flow | 3,574 | 3,128 | 446 | 14.3 | 5,566 | 4,966 | 600 | 12.1 |
NM —– Not meaningful
(1) | Reclassified to conform to current period presentation. |
(2) | Includes depreciation expense of $1.6 million and $3.3 million for the quarter and six month ended June 30, 2010, respectively, and $1.5 million and |
Interest (expense) income, net, includes non-cash losses on derivative instruments of $5.3 million and $8.8 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest (expense) income, net, includes non-cash gains on derivative instruments of $5.2 million and $4.8 million, respectively. |
(4) | 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 decreasedincreased primarily due to reducedas a result of increased cooling consumption revenue related to lowerhigher ton-hour sales. Ton-hour sales resulting from coolerwere higher as a result of warmer average temperatures in 2009during the second quarter of 2010 compared with 2008 and an adjustment for electricity costs passed through in 2008. Cooler weather conditions in the Chicago area, compared with 2008, have contributed to a significant decrease in chilled water demand.2009. Cooling capacity revenue increased due to a net increase in contractcontracted capacity as sixprovided to new customers that began service predominantly in the second quarter of 2009, and annual inflation-related increases of contract capacity rates in accordance with customer contract terms. Electricity expense decreased due to lower consumption, partially offset by higher market rates in 2009. Other direct expenses increased compared to 2008 due to the timing of the completion of maintenance projects.
Selling, general and administrative expenses decreased primarily due toin 2009 included a reduction in legal expenses, resulting from lower activity, combined with active expense management. In addition, the decrease also reflects a change in the method of accruing audit fees and a customer reimbursement in 2009.
Other income increased by approximately $400,000 due to a one-time termination payment received from a customer who leftfor professional fees related to the business’ system duringLas Vegas plant expansion that did not reoccur in 2010.
Interest (expense) income, net, includes non-cash losses on derivative instruments of $5.3 million and $8.8 million for the third quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest (expense) income, net, includes non-cash gains on derivative instruments of $5.2 million and $4.8 million, respectively. Excluding the non-cash (losses) gains on derivative instruments, interest expense was higher in 2010 compared with 2009 due to the expiration of an interest rate basis swap agreement, and a higher debt balance at June 30, 2010 compared with June 30, 2009.
Cash interest paid was $2.6 million and $4.9 million for the quarter and six months ended June 30, 2010, respectively, and $2.4 million and $4.8 million for the quarter and six months ended June 30, 2009, respectively.
IncomeFor the period preceding the sale of a 49.99% noncontrolling interest in the business, the income from the district energy business isDistrict Energy was included in our consolidated federal income tax return, and its income is subject toDistrict Energy filed a separate Illinois state income taxes. The tax expense inreturn.
Subsequent to the table above includes both state taxes and the portionsale of the consolidated49.99% noncontrolling interest, District Energy will file a separate federal income tax liability attributablereturn, and will continue to the business.file a separate Illinois state income tax return.
DueThe business has approximately $26.0 million in federal and state NOL carryforwards available to differences in determining bookoffset positive taxable income. The business expects to have federal and tax deductible depreciation and amortization, the business’ state taxable income is expected to exceed book income in 2009. However, as of December 31, 2008 the business had more than $20.0 million of state income tax net operating loss carryforwards that are expected to2011 and 2012, which will be wholly offset any state tax liability in 2009.by NOL carryforwards.
The rapidly changing business conditions affecting this business warrants a discussion of current and comparable prior period performance as well as a sequential analysis in order to facilitate an understanding of the stabilization of the
The soft overall economic conditions and the perception issues regarding the general aviation sector caused a lower utilization of business jets by both corporations and individuals. However, the level of U.S. business jet flight activity (as measured by take-offs and landings) has stabilizedmiscellaneous fixed based on flight data reported by the Federal Aviation Administration (FAA). In September 2009, business jet take-offs and landings were approximately 17.0% higher than the low in February 2009. For the quarter ended September 30, 2009, business jet take-offs and landings increased by 5.9% from the second quarter of 2009.
In the absence of further deterioration in the general aviation sector, we believe that, based on the business’ current performance, cash generation from the business will be sufficient to meet debt service obligations and the business will remain in compliance with financial covenants through the maturity of the business’ debt without any further equity contribution from us. Additionally, we anticipate further cost reductions.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||||||||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | Quarter Ended June 30, | Change Favorable/(Unfavorable) | Six Months Ended June 30, | Change Favorable/(Unfavorable) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarter Ended September 30, | Change Favorable/(Unfavorable) | Nine Months Ended September 30, | Change Favorable/(Unfavorable) | 2010 | 2009(1) | 2010 | 2009(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | $ | % | 2009 | 2008 | $ | % | $ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ($ In Thousands) (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fuel revenue | $ | 84,337 | $ | 128,565 | (44,228 | ) | (34.4 | ) | $ | 223,494 | $ | 408,042 | (184,548 | ) | (45.2 | ) | 100,941 | 71,040 | 29,901 | 42.1 | 195,649 | 139,157 | 56,492 | 40.6 | ||||||||||||||||||||||||||||||||||||||||
Non-fuel revenue | 39,843 | 52,772 | (12,929 | ) | (24.5 | ) | 128,911 | 170,990 | (42,079 | ) | (24.6 | ) | 36,552 | 40,004 | (3,452 | ) | (8.6 | ) | 81,893 | 89,068 | (7,175 | ) | (8.1 | ) | ||||||||||||||||||||||||||||||||||||||||
Total revenue | 124,180 | 181,337 | (57,157 | ) | (31.5 | ) | 352,405 | 579,032 | (226,627 | ) | (39.1 | ) | 137,493 | 111,044 | 26,449 | 23.8 | 277,542 | 228,225 | 49,317 | 21.6 | ||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue – fuel | 49,837 | 92,894 | 43,057 | 46.4 | 126,772 | 286,690 | 159,918 | 55.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue – non-fuel | 2,943 | 6,433 | 3,490 | 54.3 | 10,423 | 27,101 | 16,678 | 61.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue-fuel | 64,549 | 39,468 | (25,081 | ) | (63.5 | ) | 124,747 | 76,935 | (47,812 | ) | (62.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue-non-fuel | 3,587 | 2,777 | (810 | ) | (29.2 | ) | 8,539 | 7,480 | (1,059 | ) | (14.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total cost of revenue | 52,780 | 99,327 | 46,547 | 46.9 | 137,195 | 313,791 | 176,596 | 56.3 | 68,136 | 42,245 | (25,891 | ) | (61.3 | ) | 133,286 | 84,415 | (48,871 | ) | (57.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Fuel gross profit | 34,500 | 35,671 | (1,171 | ) | (3.3 | ) | 96,722 | 121,352 | (24,630 | ) | (20.3 | ) | 36,392 | 31,572 | 4,820 | 15.3 | 70,902 | 62,222 | 8,680 | 14.0 | ||||||||||||||||||||||||||||||||||||||||||||
Non-fuel gross profit | 36,900 | 46,339 | (9,439 | ) | (20.4 | ) | 118,488 | 143,889 | (25,401 | ) | (17.7 | ) | 32,965 | 37,227 | (4,262 | ) | (11.4 | ) | 73,354 | 81,588 | (8,234 | ) | (10.1 | ) | ||||||||||||||||||||||||||||||||||||||||
Gross profit | 71,400 | 82,010 | (10,610 | ) | (12.9 | ) | 215,210 | 265,241 | (50,031 | ) | (18.9 | ) | 69,357 | 68,799 | 558 | 0.8 | 144,256 | 143,810 | 446 | 0.3 | ||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 43,413 | 49,989 | 6,576 | 13.2 | 134,734 | 156,922 | 22,188 | 14.1 | 42,558 | 42,569 | 11 | — | 86,793 | 91,321 | 4,528 | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | — | — | — | — | 71,200 | — | (71,200 | ) | NM | — | 53,200 | 53,200 | NM | — | 71,200 | 71,200 | NM | |||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 14,245 | 15,242 | 997 | 6.5 | 75,362 | 44,366 | (30,996 | ) | (69.9 | ) | 13,885 | 19,729 | 5,844 | 29.6 | 28,223 | 61,117 | 32,894 | 53.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | 13,742 | 16,779 | (3,037 | ) | (18.1 | ) | (66,086 | ) | 63,953 | (130,039 | ) | NM | 12,914 | (46,699 | ) | 59,613 | 127.7 | 29,240 | (79,828 | ) | 109,068 | 136.6 | ||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | (15,865 | ) | (15,751 | ) | (114 | ) | (0.7 | ) | (52,552 | ) | (47,032 | ) | (5,520 | ) | (11.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other (expense) income | (109 | ) | (27 | ) | (82 | ) | NM | (322 | ) | 283 | (605 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net(3) | (26,688 | ) | (4,936 | ) | (21,752 | ) | NM | (48,674 | ) | (31,440 | ) | (17,234 | ) | (54.8 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Other expense | (528 | ) | (85 | ) | (443 | ) | NM | (544 | ) | (213 | ) | (331 | ) | (155.4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | (10,517 | ) | (578 | ) | (9,939 | ) | NM | (28,601 | ) | (1,133 | ) | (27,468 | ) | NM | — | — | — | — | — | (23,331 | ) | 23,331 | NM | |||||||||||||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 5,137 | (170 | ) | 5,307 | NM | 59,467 | (6,476 | ) | 65,943 | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income(2) | $ | (7,612 | ) | $ | 253 | (7,865 | ) | NM | $ | (88,094 | ) | $ | 9,595 | (97,689 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of net (loss) income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income(2) | $ | (7,612 | ) | $ | 253 | $ | (88,094 | ) | $ | 9,595 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | 15,865 | 15,751 | 52,552 | 47,032 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Benefit) provision for income taxes | (5,137 | ) | 170 | (59,467 | ) | 6,476 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes | 5,764 | 20,844 | (15,080 | ) | (72.3 | ) | 8,051 | 54,330 | (46,279 | ) | (85.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss(4) | (8,538 | ) | (30,876 | ) | 22,338 | 72.3 | (11,927 | ) | (80,482 | ) | 68,555 | 85.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of net loss to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss(4) | (8,538 | ) | (30,876 | ) | (11,927 | ) | (80,482 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net(3) | 26,688 | 4,936 | 48,674 | 31,440 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes | (5,764 | ) | (20,844 | ) | (8,051 | ) | (54,330 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 14,245 | 15,242 | 75,362 | 44,366 | 13,885 | 19,729 | 28,223 | 61,117 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | — | — | 71,200 | — | — | 53,200 | — | 71,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | 10,517 | 578 | 28,601 | 1,133 | — | — | — | 23,331 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-cash expenses (income) | 558 | (430 | ) | 605 | (367 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 27,878 | $ | 31,994 | (4,116 | ) | (12.9 | ) | $ | 80,154 | $ | 108,602 | (28,448 | ) | (26.2 | ) | 26,829 | 25,715 | 1,114 | 4.3 | 57,524 | 51,909 | 5,615 | 10.8 | ||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 26,829 | 25,715 | 57,524 | 51,909 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net(3) | (26,688 | ) | (4,936 | ) | (48,674 | ) | (31,440 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-cash derivative losses (gains) recorded in interest expense(3) | 11,604 | (11,520 | ) | 16,634 | (5,247 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of debt financing costs | 665 | 853 | 1,472 | 1,526 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes, net of changes in deferred taxes | (144 | ) | (26 | ) | (287 | ) | (262 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | (4,724 | ) | 3,773 | 2,662 | 10,252 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | 7,542 | 13,859 | 29,331 | 26,738 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | 4,724 | (3,773 | ) | (2,662 | ) | (10,252 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maintenance capital expenditures | (1,180 | ) | (901 | ) | (2,207 | ) | (1,795 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Free cash flow | 11,086 | 9,185 | 1,901 | 20.7 | 24,462 | 14,691 | 9,771 | 66.5 |
NM —– Not meaningful
(1) | Reclassified to conform to current period presentation. |
(2) | Includes a $2.4 million increase in the bad debt reserve in the first quarter of 2009 due to the deterioration of accounts receivable aging. In the first quarter of 2009, Atlantic Aviation recorded $1.2 million of debt advisory fees. These fees were transferred to MIC Inc. during the third quarter of 2009, and have been excluded above. |
(3) | Interest expense, net, includes non-cash losses on derivative instruments of $11.6 million and $16.6 million for the quarter and six months ended June 30, 2010, respectively. For the quarter and six months ended June 30, 2009, interest expense, net, includes non-cash gains on derivative instruments of $11.5 million and $5.2 million, respectively. |
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. |
Results for 2008 include SevenBar FBOs from March 4, 2008 (acquisition date) to September 30, 2008. Results for 2009 include SevenBar FBOs for the three and nine months ended September 30, 2009. Results for the two months ended February 28, 2009 have not been presented separately as they are immaterial.
The majority of the revenue and gross profit in our airport services businessAtlantic Aviation is generated through fueling general aviation aircraft at 68 airports and one heliport in the business’ 72 FBOs around the United States. This revenueU.S. Revenue is categorized according to who owns the fuel used to service these aircraft. If our business owns the fuel, they recordit records the cost to purchase that fuel as cost of revenue-fuel. The business’ corresponding fuel revenue is theirits cost to purchase that fuel plus a margin. The business generally pursues a strategy of maintaining, and where appropriate increasing, dollar-based margins, thereby passing any increase in fuel prices to the customer. The business also
Atlantic Aviation has into-plane arrangements whereby they fuelit fuels aircraft with fuel owned by another party. The businessIt collects a fee for this service that is recorded as non-fuel revenue. Other non-fuel revenue also includes various services such as hangar rentals, de-icing and airportmiscellaneous services.
The business’ fuel-related revenue and gross profit are driven by fuel volume and dollar-based margin per gallon. This applies to both fuel and into-plane revenue. Customers will occasionally move from one category to the other. Therefore, we
We believe discussing fuel and non-fueltotal fuel-related revenue and gross profit, including both fuel sales and into-plane arrangements (as recorded in the non-fuel revenue line) and related key metrics on a combinedan aggregate basis provides a more meaningful analysis of our airport services business.Atlantic Aviation.
Gross profit forin the quarter and nine months ended September 30, 2009 declined compared to the comparable prior periods, mainly due to lower volumefirst half of general aviation fuel sold. General aviation fuel volumes declined 19.2% as2010 was essentially flat compared to the first nine months of 2008. Weighted average margins, including into-plane sales, were flat. Excluding the results from the Charter operations and Management Contracts business, which were sold in the second half of 2008, gross profit from other services (including hangar rentals, de-icing and miscellaneous services) decreased by 17.5% for the year, primarily due to lower hangar rent resulting from lower transient traffic.
Gross profit for the quarter ended September 30, 2009 increased by 3.8% compared to the second quarter of 2009 as a result of an increase in overallaggregate fuel-related gross profit, which was offset by lower gross profit from other services. The increase in aggregate fuel-related gross profit resulted from a 4.7% increase in fuel volume driven by increased business jet traffic and expansiona relatively minor increase in market share. This was partially offset by a 1.9% decrease in weighted average fuel margin driven by change in the relative volumes of dollar-basedcustomer segments, such as charter operators, change in the relative mix of locations and competitive pressure. The year-on-year change in fuel volumes and weighted average fuel margin per gallonalso reflects military-related fuel volume (at two airports) in 2009 which did not re-occur in the first half of 2010. Excluding the impact of the non-recurring military-related volume, fuel sold.volume would have increased 8.7% and weighted average fuel-related margin would have declined 4.2%. Gross profit performancefrom other services (primarily hangar rentals and miscellaneous services) decreased by 3.5% for the six months ended June 30, 2010 compared with the prior year comparable period, primarily driven by lower hangar rental, tie-down fees and miscellaneous revenue that was also positively affected by fuel sales and facility fees generated byattributable to the G-20 meetingchange in Pittsburgh in September 2009.customer mix as noted above.
The decrease in selling, general and administrative expenses is primarily due primarily to integration synergies anda 2.8% reduction in underlying costs as a result of the implementation ofongoing cost reduction initiatives. These cost savings were offset by
The decrease is also due to a $2.4 million increase in the bad debt reservereserves in the first quarter of 2009 due to the deterioration of the accounts receivable aging. Accountaging related to acquisitions. Acquisition-related receivables aging hashave improved significantly in the third quarter of 2009,and ongoing accounts receivable have not deteriorated, and as a result the business has recorded no further significant bad debt reserve adjustment. Our airport services business is further rationalizing its cost structureadjustments.
Atlantic Aviation expects selling, general and administrative expense to amount to approximately $175.0 million for 2010.
The business performed an impairment test at the reporting unit level during the first six monthshalf of 2009. Goodwill is considered impaired when the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, as determined under a two step approach. Based on the testing performed, the business recognized goodwill impairment charges of $53.2 million and $71.2 million principally related to underperformance at a limited number of FBOs.in the quarter and six months ended June 30, 2009, respectively. No impairment charge was recorded during 2010.
The increase in depreciationDepreciation and amortization expense was due toincludes non-cash impairment charges of $5.1 million and $30.8 million due to underperformance at a limited number of FBOs in the firstquarter and six months of 2009.ended June 30, 2009, respectively.
Interest expense, increased despite a reductionnet, includes interest incurred on the business’ debt, amortization of $60.6 milliondeferred financing costs, swap breakage fees associated with debt prepayment and $12.0non-cash losses on derivatives instruments. These items are summarized in the table below.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Quarter Ended June 30, | Change Favorable/(Unfavorable) | Six Months Ended June 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ In Thousands) | ||||||||||||||||||||||||||||||||
Interest income | — | (31 | ) | (31 | ) | NM | (14 | ) | (78 | ) | (64 | ) | (82.1 | ) | ||||||||||||||||||
Interest paid on debt facility | 13,825 | 14,279 | 454 | 3.2 | 27,575 | 29,298 | 1,723 | 5.9 | ||||||||||||||||||||||||
Swap breakage fees associated with debt prepayment | 695 | 1,547 | 852 | 55.1 | 3,205 | 6,706 | 3,501 | 52.2 | ||||||||||||||||||||||||
Amortization of deferred financing costs | 665 | 853 | 188 | 22.0 | 1,472 | 1,526 | 54 | 3.5 | ||||||||||||||||||||||||
Non-cash loss (gain) on derivative instruments | 11,604 | (11,520 | ) | (23,124 | ) | NM | 16,634 | (5,247 | ) | (21,881 | ) | NM | ||||||||||||||||||||
Less: capitalized interest | (101 | ) | (192 | ) | (91 | ) | (47.4 | ) | (198 | ) | (765 | ) | (567 | ) | (74.1 | ) | ||||||||||||||||
Total interest expense, net | 26,688 | 4,936 | (21,752 | ) | NM | 48,674 | 31,440 | (17,234 | ) | (54.8 | ) |
NM – Not meaningful
The decrease in interest paid on debt facility primarily reflects an aggregate $113.4 million of debt inprepayments of the first half and third quarter, respectively, due to the payment of $6.7 million and $1.2 million of swap termination fees during the periods, respectively.term loan principal since February 2009.
Income generated by the airport services businessAtlantic Aviation is included in our consolidated federal income tax return. The business files separate state income tax returns in more than 30 states in which it operates. The tax expense in the table above includes both state taxes and the portion of the consolidated federal tax liability attributable to the business.
For purposes of determining book and taxable income, depreciation of fixed assets and amortization of intangibles are calculated differently, with additional differences between federal and state taxable income.
While the businessAtlantic Aviation as a whole expects to generate a current year federal income tax loss, certain entities within the business will generate state taxable income. For the year ending December 31, 2010, the business expects to pay state income taxes of approximately $574,000, of which $287,000 was recorded in the six months ended June 30, 2010.
The business expects its 2009 currenthas approximately $45.0 million of state NOL carryforwards. State NOL carryforwards are specific to the state in which the NOL was generated and various states impose limitations on the utilization of NOL carryforwards. Therefore, the business may incur state income tax expense will be approximately $1.3 million.
near future, even if consolidated state taxable income is less than $45.0 million.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Quarter Ended September 30, | Change Favorable/(Unfavorable) | Nine Months Ended September 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
2009 | 2008 | $ | % | 2009 | 2008 | $ | % | |||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||
Revenue | $ | 16,965 | $ | 18,686 | (1,721 | ) | (9.2 | ) | $ | 51,011 | $ | 57,001 | (5,990 | ) | (10.5 | ) | ||||||||||||||||
Direct expenses(1) | 13,102 | 15,409 | 2,307 | 15.0 | 47,101 | 46,330 | (771 | ) | (1.7 | ) | ||||||||||||||||||||||
Gross profit | 3,863 | 3,277 | 586 | 17.9 | 3,910 | 10,671 | (6,761 | ) | (63.4 | ) | ||||||||||||||||||||||
Selling, general and administrative expenses | 3,424 | 2,308 | (1,116 | ) | (48.4 | ) | 8,680 | 7,914 | (766 | ) | (9.7 | ) | ||||||||||||||||||||
Amortization of intangibles | — | 400 | 400 | NM | — | 1,943 | 1,943 | NM | ||||||||||||||||||||||||
Operating income (loss) | 439 | 569 | (130 | ) | (22.8 | ) | (4,770 | ) | 814 | (5,584 | ) | NM | ||||||||||||||||||||
Interest expense, net | (3,192 | ) | (3,741 | ) | 549 | 14.7 | (11,673 | ) | (11,377 | ) | (296 | ) | (2.6 | ) | ||||||||||||||||||
Other (expense) income | (76 | ) | 2 | (78 | ) | NM | 398 | 62 | 336 | NM | ||||||||||||||||||||||
Unrealized gains on derivative instruments | 490 | 88 | 402 | NM | 163 | 246 | (83 | ) | (33.7 | ) | ||||||||||||||||||||||
Benefit for income taxes | 907 | 1,185 | (278 | ) | (23.5 | ) | 6,184 | 3,956 | 2,228 | 56.3 | ||||||||||||||||||||||
Noncontrolling interest | 222 | 314 | (92 | ) | (29.3 | ) | 1,435 | 1,012 | 423 | 41.8 | ||||||||||||||||||||||
Net loss(2) | $ | (1,210 | ) | $ | (1,583 | ) | 373 | 23.6 | $ | (8,263 | ) | $ | (5,287 | ) | (2,976 | ) | (56.3 | ) | ||||||||||||||
Reconciliation of net loss to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||
Net loss(2) | $ | (1,210 | ) | $ | (1,583 | ) | $ | (8,263 | ) | $ | (5,287 | ) | ||||||||||||||||||||
Interest expense, net | 3,192 | 3,741 | 11,673 | 11,377 | ||||||||||||||||||||||||||||
Benefit for income taxes | (907 | ) | (1,185 | ) | (6,184 | ) | (3,956 | ) | ||||||||||||||||||||||||
Depreciation(1) | 1,011 | 1,307 | 9,124 | 3,866 | ||||||||||||||||||||||||||||
Amortization of intangibles | — | 400 | — | 1,943 | ||||||||||||||||||||||||||||
Unrealized gains on derivative instruments | (490 | ) | (88 | ) | (163 | ) | (246 | ) | ||||||||||||||||||||||||
EBITDA excluding non-cash items | $ | 1,596 | $ | 2,592 | (996 | ) | (38.4 | ) | $ | 6,187 | $ | 7,697 | (1,510 | ) | (19.6 | ) |
NM — Not meaningful
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Quarter Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2009 | 2008 | % | 2009 | 2008 | % | |||||||||||||||||||||||||||
Operating Data: | ||||||||||||||||||||||||||||||||
Cars Out(1) | 433,672 | 460,534 | (26,862 | ) | (5.8 | ) | 1,299,570 | 1,470,735 | (171,165 | ) | (11.6 | ) | ||||||||||||||||||||
Average Revenue Per Car Out: | $ | 39.77 | $ | 37.59 | $ | 2.18 | 5.8 | $ | 40.03 | $ | 36.71 | 3.32 | 9.0 | |||||||||||||||||||
Average Overnight Occupancy(2) | 17,361 | 19,497 | (2,136 | ) | (11.0 | ) | 17,031 | 21,534 | (4,503 | ) | (20.9 | ) |
Our primary cash requirements include normal operating expenses, debt service, debt principal payments and maintenance capital expenditures and debt principal payments.expenditures. Our primary source of cash is cash generated by operating activities, although we could borrow against existing credit facilities, issue additional LLC interests or sell assets.assets to generate cash.
In the past, we have distributed substantially all cash in excess of our primary requirements to shareholders, subject to maintaining prudent reserves in both our operating companies and our holding company. However, the economic downturn and the dislocation in the capital markets caused us to suspend our quarterly cash distributions and retain all excess cash. The retained cash is expected to bufferUntil March 31, 2010, the Company against potential further deteriorationhad a revolving credit facility provided by various financial institutions, including entities within the Macquarie Group. The facility was repaid in the credit markets, to pay down thefull in December 2009 and no amounts were outstanding debt of our airport services business and to pay downunder the revolving credit facility at our holding company.
At Marchas of December 31, 2009 we reclassifiedor at the revolving credit facility at our holding company from long-term debt to current portion of long-term debt in our consolidated condensed balance sheet, due to itsfacility’s maturity on March 31, 2010. We have accumulated the excess cash generated by our gas production and distribution and district energy businesses as a means of repaying a portion of the amount due under the facility. With this cash repayment and assuming seasonally normal performance by the gas production and distribution and district energy businesses in the fourth quarter of 2009 and first quarter of 2010, we expect to have less than $30.0 million principal amount outstanding under this facility at the maturity date. We are in discussions with our lenders to convert the facility to a term loan and extend the maturity date. Under these revised terms, we would expect to fully repay the facility over the remainder of 2010. We continue to consider various other options for repayment of the facility including improving business performance, expense reductions, sale of assets sufficient to cover the remaining principal balance at maturity, or other sources of capital. We remain confident that we will be able to refinance or repay the outstanding borrowings under the facility by the current maturity date.
With the exception of the airport parking business (discussed below), weWe believe that our operating businesses will have sufficient liquidity and capital resources to meet future requirements, including servicing long-term debt obligations. We base our assessment of the sufficiency of our liquidity and capital resources on the following assumptions:
Typically, weWe have capitalized our businesses, in part, using project finance style debt. Project finance style debt is limited-recourse, floating rate, non-amortizing debt with a medium term maturity of between five and seven years.years, although the principal balance on the term loan debt at Atlantic Aviation is being prepaid using the excess cash generated by the business. At SeptemberJune 30, 2009,2010, the average remaining maturity of the drawn balances of the primary debt facilities across all of our businesses, (excluding the debt of the airport parking business and the holding company facility described above), including our proportional interest in the debtrevolving credit facility of the bulk liquid storage terminal business,IMTT, was approximately 4.44.0 years. In light of the improvement in the functioning of the credit markets generally, and the leverage ratios and interest coverage ratios, we expect each of these businesses to produce at the maturity of their respective debt facilities, we believe that we will be able to successfully refinance thetheir long-term debt of these businesses on economically sensible terms.
As previously discussed, the airport parking business has insufficient capital and liquidity with which to service and/or support the refinancing of its long-term debt. We have no intention of contributing additional capital to this business and are in negotiations with a potential acquirer of the assets of the business. Creditors of this business do not have recourse to any of our assets or the assets of our other businesses, other than approximately $5.3 million in lease payments we have guaranteed.terms at maturity.
The section below discusses the sources and uses of cash on a consolidated basis and for each of our businesses and investments. All inter-company activities such as corporate allocations, capital contributions to our businesses and distributions from our businesses have been excluded from the tables as these transactions are eliminated in consolidation.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Nine Months Ended September 30, | Change Favorable/(Unfavorable) | Six Months Ended June 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
2009 | 2008 | 2010 | 2009 | |||||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | % | ||||||||||||||||||||||||||||
$ | $ | $ | % | |||||||||||||||||||||||||||||
($ In Thousands) | ||||||||||||||||||||||||||||||||
Cash provided by operating activities | 59,409 | 75,127 | (15,718 | ) | (20.9 | ) | 41,646 | 39,762 | 1,884 | 4.7 | ||||||||||||||||||||||
Cash used in investing activities | (19,866 | ) | (93,444 | ) | 73,578 | 78.7 | (9,057 | ) | (11,772 | ) | 2,715 | 23.1 | ||||||||||||||||||||
Cash (used in) provided by financing activities | (51,557 | ) | 1,728 | (53,285 | ) | NM | ||||||||||||||||||||||||||
Cash used in financing activities | (30,625 | ) | (57,461 | ) | 26,836 | 46.7 |
NM — Not meaningfulTABLE OF CONTENTS
Consolidated cash provided by operating activities mainly comprises primarily the cash from operations of the businesses we own, as described in each of the business discussions below. The cash flow from our consolidated business’ operations is partially offset by expenses paid at the corporate level, such asincluding base management fees paid in cash, professional fees and interest incurred in the prior periods on any amounts drawn on our revolving credit facility.
The decreaseincrease in consolidated cash provided by operating activities was primarily due primarily to:
As a prerequisite to obtaining financing for the airport parking business in 2006, the Company guaranteed the business’ monthly interest rate swap payments, the final payment of which was made by the Company in September 2009.
The decrease in consolidated cash used in investing activities was primarily due to:
Distributions from IMTT are reflected in our consolidated cash provided by operating activities only up to our 50% share of IMTT’s positive earnings. Amounts in excess of this, and any distributions when IMTT records a net loss, are reflected in our consolidated cash from investing activities. For the nine months of 2009, $7.02010, $5.0 million in equity distributions were included in cash from operations. In the nine months of 2008, $10.6 million of the $21.0 million dividends received were included in cash from operating activities and $10.4compared with $7.0 million were includedin dividends received in 2009.
The decrease in consolidated cash used in investing activities.activities was primarily due to:
The increasedecrease in consolidated cash used in financing activities was primarily due to:
Our businesses are capitalized with a mix of equity and project-financing style debt. We believe we can prudently maintain relatively high levels of leverage due to the generally sustainable and stable long-term cash flows our businesses have provided in the past and which we expect to continue in the future as discussed above. Our project finance debt is non-amortizing and we expect to be able to refinance the outstanding balances of the term loan at maturity, except at Atlantic Aviation, where all excess cash flow from the business is being used to prepay the outstanding principal balance of the term loan. Similarly, excess cash flow generated at District Energy will be applied toward the principal balance of the term loan during the last two years before maturity. The majority of our businesses also maintain revolving credit facility, to fund acquisitions; and
The financial covenant requirements under our MIC Inc. revolving credit facility, and the calculation of these measures at September 30, 2009, were as follows:
For aSee below for further description of the material terms of the MIC Inc. revolving credit facility, see “Liquidity and Capital Resources” in Part II, Item 7 ofcash flows related to our Annual Report of Form 10-K for the fiscal year ended December 31, 2008. As of March 31, 2009, the Company reclassified its revolving credit facility from long-term debt to current portion of long-term debt in the consolidated condensed balance sheet, due to its maturity on March 31, 2010.businesses.
The following analysis represents 100% of the cash flows of IMTT, which we believe is the most appropriate and meaningful approach to discussing the historical cash flow trends of IMTT, rather than just the composition of cash flows that are included in our consolidated cash flows. We believe this is the most appropriate and meaningful approach to discussing the historical cash flow trends of IMTT. We account for our 50% ownership of this business using the equity method. WhenDistributions from IMTT when IMTT records a net loss, or pays distributions in excess of our share of its earnings, distributions we receive in excess of IMTT’s earnings are reflected in theinvesting activities in our consolidated cash flow used in investing activities. Through December 2008, we received a quarterly dividend of $7.0 million since completing our investment in May 2006. Cash from operating activities for the nine months ended September 30, 2009 has been retained to fund IMTT’s growth capital expenditures and is expected to contribute significantly to IMTT’s future gross profit and EBITDA.flow.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Nine Months Ended September 30, | Six Months Ended June 30, | Change Favorable/(Unfavorable) | ||||||||||||||||||||||||||||||
2009 | 2008 | Change Favorable/(Unfavorable) | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | % | ||||||||||||||||||||||||||||
$ | $ | $ | % | |||||||||||||||||||||||||||||
($ In Thousands) | ||||||||||||||||||||||||||||||||
Cash provided by operating activities | 92,671 | 76,477 | 16,194 | 21.2 | 68,677 | 66,836 | 1,841 | 2.8 | ||||||||||||||||||||||||
Cash used in investing activities | (109,772 | ) | (106,298 | ) | (3,474 | ) | (3.3 | ) | (37,171 | ) | (83,119 | ) | 45,948 | 55.3 | ||||||||||||||||||
Cash provided by financing activities | 15,260 | 28,528 | (13,268 | ) | (46.5 | ) | ||||||||||||||||||||||||||
Cash (used in) provided by financing activities | (28,018 | ) | 29,960 | (57,978 | ) | (193.5 | ) |
Cash provided by operating activities at IMTT is generated primarily from storage rentals and ancillary services that are billed monthly and paid on various terms. Cash used in operating activities is mainly for payroll and benefits costs, maintenance and repair of fixed assets, utilities and professional services, interest payments and payments to tax jurisdictions. Cash provided by operating activities increased primarily due to improved operating results, an improvement in working capital and lower cash contributions to the IMTT pension plan, partially offset by an increase in cash interest paid.working capital requirements in 2010.
Working capital declined in 2009 as we received payments from previously executed oil spill jobs. Conversely in 2010, working capital has increased significantly due to the work being performed in connection with the BP oil spill in the Gulf of Mexico. Customers are paying as agreed under usual and customary terms.
Cash used in investing activities primarily relates primarily to capital expenditures discussed below.below, as well as the payment of accrued purchases recorded in prior periods. Capital expenditures decreased from $161.3$66.0 million in 20082009 to $106.1$34.4 million in 20092010 primarily reflecting a reduction in growth capital expenditure as projects have been completed. Maintenance capital expenditures also decreased resulting from reduced levels of tank inspections and repairs and remediation work at the Bayonne, NJ facility. However, cash used in investing activities in 2008 was offset by $55.5 million of proceeds received from the sale of Gulf Opportunity Zone (“GO Zone”) bond investments, which did not recur in 2009.expenditures.
IMTT incurs maintenance capital expenditures to prolong the useful lives and increase the service capacity of existing revenue producingrevenue-producing assets. Maintenance capital expenditures includeincludes the refurbishment of storage tanks, piping, dock facilities, and environmental capital expenditure,expenditures, principally in relation to improvements in containment measures and remediation.
During the ninesix months ended SeptemberJune 30, 2010 and 2009, IMTT spent $26.9incurred $19.0 million and $16.7 million, respectively, on maintenance capital expenditures, including $24.1(i) $16.6 million and $14.5 million, respectively, principally in relation to tank refurbishments and repairs toof tanks, docks and other infrastructure and $2.8(ii) $2.4 million and $2.2 million, respectively, on environmental capital expenditures, principally in relation to improvements in containment measures and remediation.
In 2009,For the full-year 2010, IMTT expects to spend a total of $35.0approximately $45.0 million to $40.0$50.0 million on maintenance capital expenditures. IMTT anticipates that maintenance capital expenditures will increase to $55.0 million to $65.0 million in 2010 and remain at that levelelevated levels through 2012 before moderating.
During the nine months ended September 30, 2009, IMTT spent $65.7 million on growth projects, including $30.9 million for the on-going construction of new storage tanks at its St. Rose, Gretna and Avondale, LA facilities, $22.6 million for on-going tank construction and refurbishment as well as improved infrastructure at its Bayonne, NJ facility and $6.9 million in relation to the final elements of construction of the new bulk liquid chemical storage facility at Geismar, LA. The balance of the expenditure was spent on specific expansion projects related to a number of smaller projects to improve the capabilities of IMTT’s facilities.
Since our investment in IMTT, the business has undertaken or committed to a total of approximately $525.1 million in expansion projects and acquired the Joliet, IL facility for $18.5 million. Through September 30, 2009, these projects added and/or refurbished approximately 5.6 million barrels of storage capacity and are contributing $45.6 million to gross profit and EBITDA on an annualized basis.2014.
In addition,During the first half of 2010, IMTT currentlyfunded $15.4 million of the $54.8 million of previously announced pending growth capital projects and brought on line an additional 700,000 barrels of storage. This compares with growth capital expenditures of $49.3 million in the first half of 2009. The remainder of the announced spending will be largely completed by December 31, 2010.
As of June 30, 2010, IMTT has ongoing growth projects for the construction or refurbishment of 1.8 million385,000 barrels of new storage capacity and associated infrastructure at St. Rose, LA and the conversion of 775,000 barrels of capacity and associated infrastructure at Bayonne, NJ, which are expected to be put into service from the fourth quarter of 2009 through early 2010. Other smaller growth projects are also being pursued. On a combined basis, thestorage. The projects under construction or refurbishment are expected to have a total cost of $138.2$14.4 million and will contribute approximately $19.7$6.2 million to IMTT's gross profit and EBITDA on an annualized basis. Of the $138.2$14.4 million, of IMTT’s current growth projects, $67.5$9.9 million remained to be spent as at Septemberof June 30, 2009.2010.
In addition, IMTT expectsis engaged in the construction or upgrade of storage related infrastructure. These projects are expected to fund these committed projectscost $33.9 million, with its existing credit facilities. Contracts with a term$26.8 million remaining to be spent as of between 4 and 12 years have been signed with customers for substantially all of the tanks being constructed/converted in LA and NJ.June 30, 2010.
IMTT continues to review numerous additional attractive growth opportunities with an aggregate value between $200.0 million and $250.0 million and has been progressing on these opportunities. IMTT anticipates funding new growth capital expenditures with a combinationDiscussions have progressed following the successful upsizing of its credit facility on June 18, 2010 as discussed below. IMTT expects to fund these potential projects with draw downs against the upsized credit facility and cash flow from operating activities, existing and additional credit facilities.operations.
Cash flows from financing activities decreased primarily due to net debt repayments in 2010 as compared with net borrowings in 2009. In the first six months of 2010, IMTT made a $5.0 million distribution to both of its shareholders, compared with $7.0 million in the first six months of 2009.
At SeptemberJune 30, 2009,2010, the outstanding balance on IMTT’s debt facilities, excluding capitalized leases, consisted of $242.6$338.6 million in revolving credit facilities, $251.3 million in tax exempt bonds and $143.7$32.6 million in term loan facilities, including shareholder loans. The weighted average interest rate of the outstanding debt facilities, including any interest rate swaps and fees associated with outstanding letters of credit at September 30,is 5.53%. Cash interest paid was $15.9 million and $14.2 million for 2010 and 2009, is 4.3%. For the nine months ended September 30, 2009, IMTT paid approximately $22.0 million, net of capitalized interest, in interest expense related to its debt facilities.respectively.
On August 28, 2009,June 18, 2010, IMTT entered into a loan agreement with Regions Bank, as Administrative Agent, to provide unsecured term loan financingamended its revolving credit facility. The amendment increased the size of $30.0 million. IMTT drew down $30.0the facility from $625.0 million on the same day and applied the funds to repay its current($600.0 million U.S. dollar denominated revolving credit facility. Terms of the additional unsecured facility include an interest rate of LIBOR plus an average margin of 4.0% and a maturity of June 2012. All other material terms, including financial covenants, are substantially the same as the business’ existing revolving$25.0 million equivalent Canadian dollar denominated) to $1,100.0 million ($1,070.0 million U.S. dollar denominated revolving credit facility.and $30.0 million equivalent Canadian dollar denominated) and extended the maturity on $970.0 million two years from June 7, 2012 to June 7, 2014 with the remaining $130.0 million maturing on June 7, 2012. The facility was used to fully repay the $30.0 million Regions Term Loan as well as the $65.0 million DNB Term Loan.
Cash flows from financing activities decreased primarily dueIn addition, the amendment removes a limitation on IMTT’s ability to decreasesgrant liens when entering into additional debt agreements. Specifically, IMTT may enter into additional debt agreements and grant liens in relation to such debt draw downsagreements provided that obligations are secured on not less than a pari-passu basis. The increased commitment will be used to fund IMTT’s expansion and is expected to be more than adequate to fully fund existing and reasonably foreseeable growth capital expenditure offset by lower dividend paymentsplans.
The key terms of the amended credit facility are summarized below:
![]() | ![]() | ![]() | ![]() | ![]() | ||||
![]() | ![]() | ![]() | ![]() | ![]() | ||||
USD Revolving Credit Facility – Extended | USD Revolving Credit Facility – Non Extended | USD DNB Nor Loans | CAD Revolving Credit Facility – Extended | |||||
Total Committed Amount | $875.0 million | $130.0 million | $65.0 million | $30.0 million | ||||
Maturity | June 7, 2014 | June 7, 2012 | December 31, 2012 (at which time it converts to USD Revolving Credit Facility — Extended) | June 7, 2014 | ||||
Uncommitted Expansion Amounts | $130.0 million, subject to corresponding reductions in other commitments | $0 | $0 | $0 | ||||
Amortization | Revolving, payable at maturity | Revolving, payable at maturity | Term loan, payable at maturity | Revolving, payable at maturity | ||||
Interest Rate | Floating at LIBOR plus a margin based on the ratio of Debt to adjusted EBITDA of IMTT and its affiliates, as follows: | Floating at LIBOR plus a margin based on the ratio of Debt to adjusted EBITDA of IMTT and its affiliates, as follows: | Floating at LIBOR plus 1.00% through December 2012, thereafter per the terms of the USD Revolving Credit Facility | Floating at Bankers’ Acceptances (BA) Rate plus a margin based on the ratio of Debt to adjusted EBITDA of IMTT and its affiliates, as follows: | ||||
< 2.0x L+1.50% < 2.5x L+1.75% < 3.0x L+2.00% < 3.75x L+2.25% < 4.0x L+2.50% > = 4.0x L+2.75% | < 2.0x L+0.55% < 2.5x L+0.70% < 3.0x L+0.85% < 3.75x L+1.00% < 4.0x L+1.25% > = 4.0x L+1.50% | < 2.0x BA+1.50% < 2.5x BA+1.75% < 3.0x BA+2.00% < 3.75x BA+2.25% < 4.0x BA+2.50% > = 4.0x BA+2.75% | ||||||
Commitment Fees | A percentage of undrawn committed amounts based on the ratio of Debt to adjusted EBITDA of IMTT and its affiliates, as follows: | A percentage of undrawn committed amounts based on the ratio of Debt to adjusted EBITDA of IMTT and its affiliates, as follows: | N/A | A percentage of undrawn committed amounts based on the ratio of Debt to adjusted EBITDA of IMTT and its affiliates, as follows: | ||||
< 2.0x 0.250% < 2.5x 0.250% < 3.0x 0.250% < 3.75x 0.375% < 4.0x 0.375% > = 4.0x 0.500% | < 2.0x 0.125% < 2.5x 0.150% < 3.0x 0.175% < 3.75x 0.200% < 4.0x 0.250% > = 4.0x 0.250% | < 2.0x 0.250% < 2.5x 0.250% < 3.0x 0.250% < 3.75x 0.375% < 4.0x 0.375% > = 4.0x 0.500% |
Except for the changes discussed above, the terms of the facility, including covenants and repaymentevents of shareholder loans in 2009.default, were not amended. Interest rate swap contracts hedging a portion of the original facility have been maintained.
The financial covenant requirements under IMTT’s credit facilities, and the calculation of these measures at SeptemberJune 30, 2009,2010, were as follows:
![]() | ![]() | |
USD/CAD Revolving Credit Facility | ||
Debt to EBITDA Ratio: Max 4.75x | ||
(at | ||
EBITDA to Interest Ratio: Min 3.00x | ||
(at |
For a description of the material terms of IMTT’s 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, 2008. IMTT does not have any material changes to these credit facilities since February 27, 2009, our 10-K filing date.
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Nine Months Ended September 30, | Change Favorable/(Unfavorable) | |||||||||||||||
2009 | 2008 | |||||||||||||||
($ In Thousands) | $ | $ | $ | % | ||||||||||||
Cash provided by operating activities | 16,477 | 15,262 | 1,215 | 8.0 | ||||||||||||
Cash used in investing activities | (4,816 | ) | (6,959 | ) | 2,143 | 30.8 | ||||||||||
Cash provided by financing activities | 10,000 | 2,000 | 8,000 | NM |
NM — Not meaningful
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Six Months Ended June 30, | Change Favorable/(Unfavorable) | |||||||||||||||
2010 | 2009 | |||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) | ||||||||||||||||
Cash provided by operating activities | 11,089 | 11,831 | (742 | ) | (6.3 | ) | ||||||||||
Cash used in investing activities | (3,910 | ) | (3,497 | ) | (413 | ) | (11.8 | ) | ||||||||
Cash provided by financing activities | — | — | — | — |
The main driver for cash provided by operating activities is customer receipts. These are offset in part by the timing of payments for fuel, materials, pipeline repairs, vendor services and supplies, payroll and benefit costs, revenue-based taxes and payment of administrative costs. Customers are generally billed monthly and make payments on account. Vendors and suppliers generally bill TGCthe business when services are rendered or when products are shipped.
The increasedecrease from 20082009 to 20092010 was primarily due to higher inventory, lower accounts payable and timing of prepaid insurance payments, offset by improved operating results partially offset by payment of pension contributions.and lower revenue-based taxes.
Cash used in investing activities is primarily comprisescomprised of 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 by drawing on credit facilities as well as cash from operating activities.
Maintenance capital expenditures include replacement of pipeline sections, improvements to the business’ transmission system and synthetic natural gas, or SNG plant, improvements to buildings and other property and the purchasespurchase of vehiclesequipment. These expenditures were higher compared to the prior year due to a higher level of pipeline renewals, expenditures for SNG plant components and equipment.facility upgrades.
Growth capital expenditures include the purchasespurchase 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.renewable feedstock pilot program.
The following table sets forth information about capital expenditures in our gas production and distribution business:The Gas Company:
![]() | ![]() | ![]() | ||||||
Maintenance | Growth | |||||||
Nine months ended September 30, 2008 | $ | 4.6 million | $ | 3.2 million | ||||
Nine months ended September 30, 2009 | $ | 1.8 million | $ | 3.1 million | ||||
2009 full year projected | $ | 3.7 million | $ | 4.3 million | ||||
Commitments at September 30, 2009 | $ | 209,000 | $ | 700,000 |
![]() | ![]() | ![]() | ||||||
Maintenance | Growth | |||||||
Six months ended June 30, 2009 | $1.3 million | $2.3 million | ||||||
Six months ended June 30, 2010 | $1.7 million | $2.2 million | ||||||
2010 full year projected | $5.5 million | $6.5 million | ||||||
Commitments at June 30, 2010 | $122,000 | $1.5 million |
The business expects to fully fund its total 20092010 capital expenditures withfrom cash from operating activities and available credit facilities that relate to the utility operations.debt facilities. Capital expenditures for 20092010 are expected to be lowerhigher than previous years due to deferralrequired pipeline maintenance and inspection involving the relocation and upgrade of several large projects untiltwo sections of the economic outlook improves.transmission pipeline near the SNG plant as part of an integrity management program due by 2012 and a pilot project at the SNG plant to create gas from renewable feedstock sources. Commitments at June 30, 2010 primarily relate to the renewable feedstock project.
At SeptemberJune 30, 2009,2010, the outstanding balance on the business’ debt facilities consisted of $160.0 million in term loan facility borrowings and $19.0 million in capital expenditure facility borrowings. In July 2010, the business repaid $10.0 million of its capital expenditure facility borrowings.
The Gas Company has interest rate swaps hedging 100% of the interest rate exposure under the two $80.0 million term loan facilities that effectively fix the interest rate at 4.8375% (excluding the margin). In March 2009, The Gas Company entered into an interest rate basis swap agreement with its existing debt and swap counterparties. The basis swap, which reduced the weighted average annual interest rate on the business’ primary debt facilities by approximately 24.75 basis points, expired in March 2010. The resulting weighted average interest rate of the outstanding debt facilities including any interest rate swaps at SeptemberJune 30, 20092010 is 4.6%4.85%. For the nine months ended September 30, 2009, theThe business paid approximately $6.4$4.3 million in interest expense related to its debt facilities.facilities in 2010 and 2009.
TGCThe Gas Company also has an uncommitted unsecured short-term borrowing facility of $7.5 million that was renewed during the second quarter of 2009.2010. This credit line bears interest at the lending bank’s quoted rate or prime rate. The facility is available for working capital needs and noneeds. No amounts were outstanding as of SeptemberJune 30, 2009.2010.
The main drivers for cash from financing activities are debt financings for capital expenditures and the repayment of outstanding credit facilities. The change from 2008 to 2009 was due primarily toThere were no borrowings or repayments during the timing of borrowings to fund capital expenditures.quarter.
The financial covenants triggering distribution lock-up under the business’ credit facility are as follows:
12 mo. look-forward |
Additionally, the HPUC requires thatthe consolidated debt to total capital for HGC Holdings not to exceed 65%.65.0% and $20.0 million to be readily available in cash resources at The Gas Company, HGC Holdings or MIC. At June 30, 2010, the debt to total capital ratio was 62% at September 30, 2009.62.4% and $20.0 million in cash resources was readily available.
For a description of the material terms of the gas production and distribution business’The Gas Company’s credit facilities, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report of Form 10-K for the fiscal year ended December 31, 2008.2009. We have not had any material changes to these credit facilities since February 27, 2009,25, 2010, our 10-K filing date.
The following analysis represents 100% of the cash flows of District Energy.
![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||||||||||||||
Nine Months Ended September 30, | Change Favorable/Unfavorable | Six Months Ended June 30, | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||
2009 | 2008 | 2010 | 2009 | |||||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | % | ||||||||||||||||||||||||||||
$ | $ | $ | % | |||||||||||||||||||||||||||||
($ In Thousands) | ||||||||||||||||||||||||||||||||
Cash provided by operating activities | 9,563 | 11,773 | (2,210 | ) | (18.8 | ) | 2,561 | 4,841 | (2,280 | ) | (47.1 | ) | ||||||||||||||||||||
Cash used in investing activities | (5,447 | ) | (3,323 | ) | (2,124 | ) | (63.9 | ) | (3,246 | ) | (3,403 | ) | 157 | 4.6 | ||||||||||||||||||
Cash provided by (used in) financing activities | 6,619 | (396 | ) | 7,015 | NM | |||||||||||||||||||||||||||
Cash (used in) provided by financing activities | (172 | ) | 2,686 | (2,858 | ) | (106.4 | ) |
NM — Not meaningful
Cash provided by operating activities is driven primarily driven by customer receipts for services provided and for leased equipment payments received (including non-revenue lease principal),. Cash used in operating activities is driven by the timing of payments for electricity, and vendor services or supplies and the payment of payroll and benefit costs. The decline in cash provided by operating activities was due primarily due to higher new customer reimbursements for costsa requirement that the business prepay a portion of its 2010 electricity supply contract one month in advance. District Energy accepted these prepayment terms to connectminimize the overall per unit cost of electricity. These cost savings are passed on to the business’ system in 2008 comparedcustomers. The business did not need to prepay its electricity cost under its 2009 andsupply contract nor will it need to prepay under the timingterms of payments to vendors. Excluding these payments, the cash contribution from ongoing operations was relatively flat period over period.its 2011 supply contract.
Cash used in investing activities mainly comprises capital expenditures, which are generally funded by drawing on available credit facilities. Cash used in investing activities in 20082009 and 20092010 primarily funded growth capital expenditures for new customer connections and plant expansion.
The business expects to spend up toapproximately $1.0 million per year on capital expenditures relating to the replacement of parts, system reliability, customer service improvements and minor system modifications. Maintenance capital expenditures will be funded from available debt facilities and cash from operating activities. These expenditures were higher in the first six months of 2010 due to the timing of spend on ordinary course maintenance projects.
The following table summarizes growth capital expenditures committed by our district energy businessDistrict Energy, as well as the gross profit and EBITDA expected to be generated by those expenditures. Of the $28.0$25.0 million total, approximately $17.6$24.2 million, or 63%97%, has been spent as of SeptemberJune 30, 2009.2010.
![]() | ![]() | ![]() | ![]() | |||||||||||||||||||||
![]() | ![]() | ![]() | ![]() | Capital Expenditure Cost | Gross Profit/EBITDA(1) | Expected Date for Gross Profit/EBITDA | ||||||||||||||||||
Capital Expenditure Cost ($ Millions) | Gross Profit/ EBITDA ($ Millions)(1) | Expected Date for Gross Profit/EBITDA | ($ in Millions) | |||||||||||||||||||||
Chicago Plant and Distribution System Expansion | 7.7 | $ | 7.7 | |||||||||||||||||||||
New Chicago Customer Connections and Minor System Modifications | 6.6 | 6.6 | ||||||||||||||||||||||
14.3 | 4.9 | 2007 – 2012 | $ | 14.3 | $ | 4.9 | 2007 – 2013 | |||||||||||||||||
Chicago Plant Renovation and Expansion | 11.0 | 1.3 | 2010 – 2011 | 10.7 | 1.3 | 2009 – 2011 | ||||||||||||||||||
Las Vegas System Expansion | 2.7 | 0.3 | 2010 | |||||||||||||||||||||
Total | 28.0 | 6.5 | $ | 25.0 | $ | 6.2 |
(1) | Represents projected increases in annualized EBITDA in the first year following completion of the project. |
New customers will typically reimburse the business for a substantial portion of expenditures related to connecting them to ourthe business’ system, thereby reducing the impact of this element of capital expenditure. In addition, new customers generally have up to two years after their initial service date to increase capacity up to their final contracted tons, which may defer a small portion of the expected gross profit and EBITDA. The business anticipates that the expanded capacity sold to new or existing customers will be under contract or subject to letters of intent prior to the business committing to the capital expenditure. As of October 15, 2009,August 4, 2010, the business has signed contracts with eleven new customers representing approximately 80% of expected additional gross profit and EBITDA relating to the Chicago projects in the table above. Customers representing approximately 55%, of the $6.2 million of expected additional gross profit and EBITDA, are currently in service.
The business expects to fund the capital expenditures for system expansion and interconnection by drawing on available debt facilities. The following table sets forth information about District Energy’s capital expenditures:
![]() | ![]() | ![]() | ||||||
Maintenance | Growth | |||||||
Six months ended June 30, 2009 | $175,000 | $3.2 million | ||||||
Six months ended June 30, 2010 | $719,000 | $127,000 | ||||||
2010 full year projected | $1.1 million | $1.4 million | ||||||
Commitments at June 30, 2010 | $349,000 | $702,000 |
In 2009, District Energy incurred capital expenditures related to the Chicago plant renovation and expansion in addition to connecting new customers to its district cooling system. This resulted in higher growth capital expenditures in our district energy business:2009 as compared to 2010.
![]() | ![]() | ![]() | ||||||
Maintenance | Growth | |||||||
Nine months ended September 30, 2008 | $ | 615,000 | $ | 3.1 million | ||||
Nine months ended September 30, 2009 | $ | 738,000 | $ | 4.7 million | ||||
2009 full year projected | $ | 1.0 million | $ | 13.8 million | ||||
Commitments at September 30, 2009 | — | — |
In early 2009, District Energy’s Las Vegas operation began providing service to a new customer building. This new customer began receiving full service in February 2010 and is expected to contribute approximately $300,000 per year to gross profit and EBITDA. This service required a $3.0 million system expansion of the Las Vegas facility, of which $300,000 was funded through a capital contribution from the noncontrolling shareholder of District Energy’s Las Vegas operation (see “Financing Activities” below).
At SeptemberJune 30, 2009,2010, the outstanding balance on the business’ debt facilities consisted of $158.5$170.0 million in term loan facilities, offacilities.
In March 2009, District Energy entered into an interest rate basis swap agreement with its existing debt and swap counterparties. The basis swap, which $8.5 million is recordedreduced the weighted average annual interest rate on the business’ primary debt facility by approximately 24.75 basis points, expired in current portion of notes payable and capital leases in the consolidated condensed balance sheets.March 2010. The resulting weighted average interest rate of the outstanding debt facilities, including any interest rate swaps and fees associated with outstanding letters of credit at SeptemberJune 30, 2010, is 5.53%. Cash interest paid was $4.9 million and $4.8 million for 2010 and 2009, is 5.6%. For the nine months ended September 30, 2009, the business paid approximately $7.1 million in interest expense related to its debt facilities.respectively.
The increasedecrease in cash provided by (used in) financing activities iswas primarily due to $7.0 million ofdecreased borrowings onunder the business’ credit facility in 2009 to finance growth and maintenance capital expenditures.expenditure, partially offset by a $300,000 capital contribution from the noncontrolling interest shareholder of District Energy’s Las Vegas operations (as discussed above in “Investing Activities”).
The financial covenants under the business’ credit facility and the calculation of these measures at SeptemberJune 30, 2009,2010 were as follows:
• | Backward Interest Coverage Ratio |
For a description of the material terms of the district energy business’District Energy’s credit facilities, see “Liquidity and Capital resources”Resources” in Part II, Item 7 of our Annual Report of Form 10-K for the fiscal year ended December 31, 2008.2009. We have not had any material changes to these credit facilities since February 27, 2009,25, 2010, our 10-K filing date.
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Six Months Ended June 30, | Change Favorable/(Unfavorable) | |||||||||||||||
2010 | 2009 | |||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) | ||||||||||||||||
Cash provided by operating activities(1) | 29,331 | 26,738 | 2,593 | 9.7 | ||||||||||||
Cash used in investing activities | (2,504 | ) | (4,872 | ) | 2,368 | 48.6 | ||||||||||
Cash used in financing activities(2) | (29,605 | ) | (57,548 | ) | 27,943 | 48.6 |
NM — Not meaningful
(1) | In the first quarter of 2009, Atlantic Aviation recorded $1.2 million of debt advisory fees. These fees were transferred to MIC Inc. during the third quarter of 2009, and have been excluded above. |
(2) | During the first quarter of 2009, we provided |
In response to the slowing of the overall economy and the recent decline in general aviation activity, we have undertaken to reduce the indebtedness of our airport services business. In cooperation with the business’ lenders, the terms of the loan agreement were amended by our airport services business. The amendment was executed on February 25, 2009. The revised terms are outlined in “Liquidity and Capital Resources”, Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 27, 2009.TABLE OF CONTENTS
Operating cash at our airport services businessAtlantic Aviation is generated from sales transactions primarily paid by credit cards. Some customers arehave extended payment terms and are billed accordingly. Cash is used in operating activities mainly for payments to vendors of fuel, aircraft services and professional services, as well as payroll costs and payments to tax jurisdictions. Cash provided by operating activities decreasedincreased mainly due to:
Cash flow from operationsWorking capital levels increased by 33.1% in the third quarter of 2009 as compared to the second quarter of 2009 as a result of a higher gross profit andreceivables, partially offset by improved working capital primarily duecollection cycles. The increase in the receivables balance at June 30, 2010 is attributable to timing of payment of fuel purchases.higher general aviation activities as compared with the prior comparable period.
Cash used in investing activities relates primarily to acquisitions and capital expenditures. The decrease in cash used in investing activity is primarily due to the SevenBar acquisition in March 2008 and lower growth capital expenditures by the business in the first nine months of 2009.business.
Maintenance expenditures are generally funded by cash from operating activities and growth capital expenditures are generally funded with draw downs on capital expenditure facilities.
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 generally funded from cash flow from operating activities.
Growth capital expenditures are incurred primarily in connection with lease extensions and only where the business expects to receive an appropriate return relative to its cost of capital. Historically these expenditures have included development of hangars, terminal buildings and ramp upgrades. The business has generally funded these projects through its growth capital expenditure facilities.facility or capital contributions from MIC.
The following table sets forth information about capital expenditures in our airport services business:Atlantic Aviation:
![]() | ![]() | ![]() | ||||||
Maintenance | Growth | |||||||
Nine months ended September 30, 2008 | $ | 6.7 million | $ | 20.1 million | ||||
Nine months ended September 30, 2009 | $ | 3.5 million | $ | 5.7 million | ||||
2009 full year projected | $ | 4.2 million | $ | 6.4 million | ||||
Commitments at September 30, 2009 | $ | 306,000 | $ | 206,000 |
![]() | ![]() | ![]() | ||||||
Maintenance | Growth | |||||||
Six months ended June 30, 2009 | $1.5 million | $3.4 million | ||||||
Six months ended June 30, 2010 | $1.9 million | $676,000 | ||||||
2010 full year projected | $7.6 million | $6.7 million | ||||||
Commitments at June 30, 2010 | $300,000 | $200,000 |
The decreaseddecrease in growth capital expenditures infrom 2009 primarily relates to the constructioncompletion of a new hangar atterminal and ramp project in Nashville, Tennessee. The increase in the San Jose FBO and a ramp repair and extension at the Teterboro location that were completed in 2008. The business expects2010 full year growth capital expenditures to be $6.4 million in 2009 and $2.6 million in 2010.
The decreases in maintenance capital expenditures are primarily due to the elimination of non-essential maintenance capital expenditures in response to the overall soft economy.
The increase in forecast maintenance capital expenditures for 2009 as compared to our previous guidance primarily reflects the timingconstruction costs of expenditures.a greenfield fixed based operation in Oklahoma City.
At SeptemberJune 30, 2009,2010, the outstanding balance on the business’ debt facilities consisted of $827.4$786.6 million in term loan facility borrowings, which is 100% hedged with interest rate swaps, and $44.6$44.9 million in capital expenditure facility borrowings. In March 2009, Atlantic Aviation entered into an interest rate basis swap agreement with its existing debt and swap counterparties. The basis swap, which reduced the weighted average annual interest rate on the business’ primary debt facility by approximately 19.50 basis points, expired in March 2010. The resulting weighted average interest rate ofon the term loan facility including any interest rate swaps at September 30, 2009 is 6.76%6.81%. The interest rate applicable toon the capital expenditure facility is the three-month U.S. LIBOR rate.US Libor plus a margin of 1.60%. For the ninesix months ended SeptemberJune 30, 2010 and 2009, the business paid approximately $43.2$27.6 million and $29.3 million in interest expense, respectively, excluding interest rate swap breakage fees, related to its debt facilities.
The decrease in cash used in financing activities is primarily due to a larger debt prepayment in the first half of 2009. In addition, for the ninesix months ended SeptemberJune 30, 2009 cash interest expense included $7.9 million in interest rate swap breakage fees. The business expects to pay further interest rate swap breakage fees to its swap counterparties as it continues to pay down its term loan debt2010 and reduce its corresponding interest rate swaps.
During the first quarter of 2009, the Company provided the business with a capital contribution of $50.0 million. The business paid down $44.6pre-paid $31.7 million and $60.6 million, respectively, of debt principal and used the remainder$3.2 million and $6.7 million, respectively, of the capital contribution to pay interest rate swap breakage fees.
In the second and third quarters of 2009, per the revised terms of the loan agreement,August 2010, the business used approximately $17.5prepaid $9.0 million and $13.2 million, respectively, of its excess cash flow to prepay $16.0 million and $12.0 million, respectively, of the outstanding principal balance of the term loan principal and $1.5 million and $1.2 million, respectively,incurred approximately $935,000 in interest rate swap breakage fees.
We expect As a result of this prepayment, the proforma leverage ratio would decrease to apply all excess cash flow from7.27x based upon the business to prepay additional debt principal fortrailing twelve months June 30, 2010 EBITDA, as calculated under the foreseeable future. We believe that, based on the business’s current performance, cash generation from the business will be sufficient to meet debt service obligations and the business will remain in compliance with financial covenants through the maturity of the debt without any further equity contribution from the Company.facility.
The financial covenant requirements under the airport services business’Atlantic Aviation’s credit facility, and the calculation of these measures at SeptemberJune 30, 2009,2010, were as follows:
• | Debt Service Coverage Ratio |
On November 4, 2009, our airport servicesIn cooperation with the business’ lenders, the terms of Atlantic Aviation’s loan agreement were amended on February 25, 2009. The amendments provide that the business used $9.9 million of freeapply all excess cash flow from the third quarter of 2009 to prepay $9.0 million of the outstandingadditional debt principal balance of the term loan debt and incurred $914,000 of interest rate swap breakage fees. As a result of this prepayment,whenever the leverage ratio would decrease(debt to 7.79x based upon the September 2009 adjusted EBITDA, as calculated under the facility,EBITDA) is equal to or greater than 6.0x to 1.0 for the trailing twelve months.
For a descriptionmonths and will use 50% of excess cash flow to prepay debt whenever the materialleverage ratio is equal to or greater than 5.5x to 1.0 and below 6.0x to 1.0. The revised terms of the airport services business’ credit facility, seeare outlined in “Liquidity and Capital resources” in Part II, Item 7 of our Annual Report of Form 10-K for the fiscal year ended December 31, 2008. We have not had any material changes to this credit facility since February 27, 2009, our 10-K filing date.
![]() | ![]() | ![]() | ![]() | ![]() | ||||||||||||
Nine Months Ended September 30, | Change Favorable/(Unfavorable) | |||||||||||||||
2009 | 2008 | |||||||||||||||
($ In Thousands) | $ | $ | $ | % | ||||||||||||
Cash used in operating activities | (4,735 | ) | (1,097 | ) | (3,638 | ) | NM | |||||||||
Cash used in investing activities | (372 | ) | (26,139 | ) | 25,767 | 98.6 | ||||||||||
Cash provided by (used in) financing activities | 2,354 | (875 | ) | 3,229 | NM |
NM — Not meaningful
The results of operations and financial condition of our airport parking business have suffered in the wake of continuing declines in commercial enplanements and reduced consumer spending. Our airport parking business has $201.1 million of total debt that matured on September 9, 2009, secured by the assets and other collateral of this business. It is in default on its debt and does not have sufficient liquidity or capital resources to repay or refinance this debt.
The business signed a forbearance agreement with the lenders under its primary credit facility on June 10, 2009 that was scheduled to expire on August 31, 2009, was extended through October 15, 2009 and was extended again through November 6, 2009. Material terms of the forbearance agreement are that during the forbearance period:
There is substantial doubt regarding the business’ ability to continue as a going concern. The business has engaged financial advisors to actively solicit a sale of the business. A letter of intent was signed during the quarter with a third party, which is conducting due diligence and with which the business is currently negotiating an asset purchase agreement. The business expects to close a sale transaction in 2010, which will likely occur in connection with a bankruptcy filing and consummation of a Chapter 11 plan. Proceeds generated as a result of the sale would be payable to the lenders of the business and not to us. Until an asset purchase agreement is signed and any conditions to closing have been met, including any approval of the sale needed as part of the bankruptcy process, we cannot provide assurance regarding the certainty or timing of a sale closing. As previously indicated, we have no intention of committing additional capital to this business and our ongoing liabilities are expected to be no more than $5.3 million in guarantees of a single parking facility lease. During September 2009, we made the final interest rate swap payment that was guaranteed by us on behalf of the airport parking business.
Cash used in operating activities is driven primarily by customer receipts, timing of payments for interest, occupancy costs, payroll and benefits, repairs and maintenance, shuttle bus fuel and marketing programs.
Through the nine months ended September 30, 2009 the airport parking business used $4.7 million of cash on hand to fund operating activities. At September 30, 2009 the business had $3.0 million in cash on its balance sheet.
Cash used in investing activities is primarily driven by maintenance capital expenditures which include fleet replacements, site repairs and IT equipment. For the quarter and nine months ended September 30, 2009, the airport parking business spent $61,000 and $373,000, respectively, on maintenance capital expenditures reflecting ongoing deferral of non-essential items and elimination of growth capital expenditures. A higher level of expenditure consistent with historical amounts would likely need to be incurred beginning in 2010 and beyond to maintain the long term performance of the business.
The following table sets forth information about capital expenditures in our airport parking business:
![]() | ![]() | |||
Maintenance | ||||
Nine months ended September 30, 2008 | $ | 1.8 million | ||
Nine months ended September 30, 2009 | $ | 373,000 | ||
2009 full year projected | $ | 750,000 | ||
Commitments at September 30, 2009 | — |
Cash provided by financing activities for the nine months ended September 30, 2009 is comprised primarily of the release of $3.3 million of previously restricted cash during the first two quarters of 2009 offset by payments on smaller debt facilities and capital lease obligations. The cash had been restricted by the lenders in support of the liquidity covenant under the business’ primary credit facility but, in consultation with the lenders, the business released the cash to fund operations.
For a description of the material terms of the airport parking business’ primary credit facility, see “Liquidity and Capital Resources” in, Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.2009, filed on February 25, 2010. We have not had any material changes to this credit facility since February 25, 2010, our 10-K filing date.
At SeptemberJune 30, 20092010 there were no material changes in our future commitments and contingencies from December 31, 2008,2009, except for the reclassification of the MIC Inc. revolving credit facility and the mandatory prepaymentsprepayment we expect to make under the cash sweep terms of the airport services business’Atlantic Aviation’s credit facility from long-term debt to current portion of long-term debt in our consolidated condensed balance sheet. The current portion of long-term debt at September 30, 2009 is comprised of $201.1 million for the airport parking business, $66.4 million for MIC Inc. and $48.0 million for the airport services business.
On February 25, 2009, we amended our airport services business’ credit facility to provide for additional financial flexibility over the near and medium term. Under the amended terms weof Atlantic Aviation’s credit facility, the business will apply all excess cash flow from the business to prepay the prepayment of debt principal for the foreseeable future. For the quarter and six months ended June 30, 2010, Atlantic Aviation used $7.7 million and $34.9 million, respectively, of excess cash flow to prepay $7.0 million and $31.7 million, respectively, of the outstanding principal balance of the term loan debt under the facility and $695,000 and $3.2 million, respectively, in interest rate swap breakage fees. Actual prepayment amounts in the periods beginning SeptemberJune 30, 20102011 through the maturity of the facility will depend on the performance of the business and therefore the business is not able to accurately estimate future prepayments at this time. business.
In the third quarter of 2009, per the revised terms of the loan agreement, we used approximately $13.2 million of excess cash flow from our airport services business to prepay $12.0 million of the outstanding principal balance of the term loan debt and $1.2 million in interest rate swap breakage fees.
On November 4, 2009, the airport services businessAugust 2010, Atlantic Aviation used $9.9 million of excess cash flow from the third quarter of 2009 to prepay $9.0 million of the outstanding principal balance of the term loan debt and incurred $914,000$935,000 in interest rate swap breakage fees.
See Note 8,9, “Long-Term Debt”, to our consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q for further discussion.
At SeptemberJune 30, 2009,2010, we did not have any outstanding material purchase obligations. For a discussion of our other 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 fiscal year ended December 31, 2008,2009, filed with the SEC on February 27, 2009.25, 2010. We have not had any material changes to our commitments except as discussed above.
In addition, at SeptemberJune 30, 2009,2010, we did not have any material reserves for contingencies. We have other contingencies, including pending threatened legal and administrative proceedings that are not reflected at this time as they are not ascertainable.
Our sources of cash to meet these obligations are as follows:
For critical accounting estimates, see “Critical Accounting Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.2009. Our critical accounting estimates have not changed materially from the description contained in that Annual Report.
Significant assets acquired in connection with our acquisition of the gas productionThe Gas Company, District Energy and distribution business, district energy business, airport services business and airport parking businessAtlantic Aviation include contract rights, customer relationships, non-compete agreements, trademarks, domain names, property and equipment and goodwill.
Trademarks and domain names are generally considered to be indefinite life intangibles. Trademarks, domain names and goodwill are not amortized in most circumstances. It may be appropriate to amortize some trademarks and domain names. However, for unamortized intangible assets, we are required to perform annual impairment reviews and more frequently in certain circumstances.
The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with the carrying values, which included the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. The gas productionGas Company, District Energy and distribution business, district energy business, airport services business and airport parking businessAtlantic Aviation are separate reporting units for purposes of this analysis. The impairment test for trademarks and domain names, which are not amortized, requires the determination of the fair value of such assets. If the fair value of the trademarks and domain names is less than their carrying value, an impairment loss is recognized in an amount equal to the difference. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and/or intangible assets. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or material negative change in relationship with significant customers.
Property and equipment is initially stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the property and equipment after consideration of historical results and anticipated results based on our current plans. Our estimated useful lives represent the period the asset remains in service assuming normal routine maintenance. We review the estimated useful lives assigned to property and equipment when our business experience suggests that they do not properly reflect the consumption of economic benefits embodied in the property and equipment nor result in the appropriate matching of cost against revenue. Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses on asset disposals and consideration of market trends such as technological obsolescence or change in market demand.
Significant intangibles, including contract rights, customer relationships, non-compete agreements and technology are amortized using the straight-line method over the estimated useful lives of the intangible asset after consideration of historical results and anticipated results based on our current plans. With respect to contract rights in our airport servicesAtlantic Aviation business, we take into consideration the history of contract right renewals in determining our assessment of useful life and the corresponding amortization period.
We perform impairment reviews of property and equipment and intangibles subject to amortization, when events or circumstances indicate that assets are less than their carrying amount and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In this circumstance, the impairment charge is determined based upon the amount ofby which the net book value of the assets exceeds their fair market value. Any impairment is measured by comparing the fair value of the asset to its carrying value.
The “implied fair value” of reporting units and fair value of property and equipment and intangible assets is determined by our management and is generally based upon future cash flow projections for the acquired assets, discounted to present value. We use outside valuation experts when management considers that it is appropriate to do so.
We test for goodwill and indefinite-lived intangible assets when there is an indicator of impairment. Impairments of goodwill, property, equipment, land and leasehold improvements and intangible assets during 2009 and 2008 relating to our airport services business and airport parking business, respectively, areAtlantic Aviation is discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in Part I, Item 2 of this quarterly report on Form 10-Q.
See Note 3, “New Accounting Pronouncements”, to our consolidated condensed financial statements in Part I, Item 1I of this Form 10-Q for details on new accounting pronouncements which is incorporated herein by reference.
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, 2008.2009. 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 the Company and its subsidiaries 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, is part of the Macquarie Group, comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide.
For quantitative and qualitative disclosures about market risk, see Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.2009. Our exposure to market risk has not changed materially since February 27, 2009,25, 2010, our 10-K filing date.
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 SeptemberJune 30, 2009.2010. 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 ninesix months ended SeptemberJune 30, 20092010 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
None, other than as previously disclosed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008,2009, filed with the SEC on February 27, 2009.25, 2010.
See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008,2009, filed with the SEC on February 27, 2009.25, 2010.
None.
None other than as previously disclosed in connection with the airport parking business.None.
None.
None.
An exhibit index has been filed as part of this Report on page E-1.E-1.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
![]() | ![]() | |
MACQUARIE INFRASTRUCTURE COMPANY LLC | ||
Dated: | By: /s/ James Hooke | |
Dated: | By: /s/ Todd Weintraub |
![]() | ![]() | |
Exhibit Number | Description | |
Second Amendment to | ||
31.1* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer | |
32.1* | Section 1350 Certification of Chief Executive Officer | |
32.2* | Section 1350 Certification of Chief Financial Officer |
* | Filed herewith. |
E-1