UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


___________________________

FORM 10-Q



___________________________ 

(Mark One) 
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended JuneSeptember 30, 2010

OR


oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___________ to

____________
Commission File Number: 001-32384



 

___________________________
MACQUARIE INFRASTRUCTURE COMPANY LLC

(Exact Name of Registrant as Specified in Its Charter)


Delaware 43-2052503
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)

125 West 55th Street
New York, New York 10019

(Address of Principal Executive Offices) (Zip Code)

(212) 231-1000

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report):N/A



 

 ___________________________
Indicate by check mark whether the 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. Yes x Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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.  Yes o 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 Filer o
 
Accelerated Filer x
 
Non-accelerated Filer o
 
Large Accelerated Filer
o
Accelerated FilerxNon-accelerated FileroSmaller 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 45,715,448 limited liability company interests without par value outstanding at August 3,November 2, 2010.


 

TABLE OF CONTENTS


MACQUARIE INFRASTRUCTURE COMPANY LLC

TABLE OF CONTENTS

 Page

Item 1.

Financial Statements

  1 
1
28
28
  129 
  230 
  331 
  5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of
Operations

24

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

54

Item 4.

Controls and Procedures

5533 
PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

  56 

Item 1A.

Risk Factors

1.     Legal Proceedings
  5650 
50
  5650 

Item 3.

Defaults Upon Senior Securities

  5650 

Item 4.

Submission of Matters to a Vote of Security Holders [Reserved]

  5650 

Item 5.

Other Information

  5650 

Item 6.

Exhibits

  5650 

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


 

 

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

MACQUARIE INFRASTRUCTURE COMPANY LLC

CONSOLIDATED CONDENSED BALANCE SHEETS
($ In Thousands, Except Share Data)

  
 June 30,
2010
 December 31,
2009
   (Unaudited)   
ASSETS
          
Current assets:
          
Cash and cash equivalents $29,274  $27,455 
Accounts receivable, less allowance for doubtful accounts of $1,481 and $1,629,
respectively
  50,508   47,256 
Inventories  16,606   14,305 
Prepaid expenses  6,218   6,688 
Deferred income taxes  21,908   23,323 
Other  9,559   10,839 
Assets of discontinued operations held for sale     86,695 
Total current assets  134,073   216,561 
Property, equipment, land and leasehold improvements, net  569,193   580,087 
Restricted cash  13,780   16,016 
Equipment lease receivables  34,574   33,266 
Investment in unconsolidated business  213,858   207,491 
Goodwill  516,182   516,182 
Intangible assets, net  733,670   751,081 
Deferred financing costs, net of accumulated amortization  14,931   17,088 
Other  1,915   1,449 
Total assets $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.


 

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
($ In Thousands, Except Share and per Share Data)

    
 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.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ In Thousands)

  
 Six Months Ended
   June 30, 2010 June 30, 2009(1)
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 
Depreciation and amortization of property and equipment  18,195   25,385 
Amortization of intangible assets  17,411   42,797 
Equity in earnings and amortization charges of investees  (11,367  (15,477
Equity distributions from investees  5,000   7,000 
Amortization of debt financing costs  2,256   2,514 
Non-cash derivative loss  31,674   12,173 
Base management fees settled in LLC interests  2,189   851 
Equipment lease receivable, net  1,451   1,407 
Deferred rent  145   87 
Deferred taxes  (16,046  (38,131
Other non-cash expenses (income), net  2,112   (350
Changes in other assets and liabilities, net of acquisitions:
          
Restricted cash  50    
Accounts receivable  (4,718  6,881 
Inventories  (2,376  1,598 
Prepaid expenses and other current assets  1,299   5,394 
Due to manager – related party  2,263   (3,493
Accounts payable and accrued expenses  (1,281  (5,213
Income taxes payable  (406  40 
Other, net  (1,140  (1,628
Net cash provided by operating activities from continuing operations  41,646   39,762 
Investing activities
          
Purchases of property and equipment  (7,315  (11,864
Investment in capital leased assets  (2,400   
Other  658   92 
Net cash used in investing activities from continuing operations  (9,057  (11,772



See accompanying notes to the consolidated condensed financial statements.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS – (continued)
(Unaudited)
($ In Thousands)

  
 Six Months Ended
   June 30, 2010 June 30, 2009
Financing activities
          
Net proceeds on line of credit facilities $  $3,600 
Contributions received from noncontrolling interests  300    
Distributions paid to noncontrolling interests  (1,261  (314
Payment of long-term debt  (31,736  (60,620
Change in restricted cash  2,236   (33
Payment of notes and capital lease obligations  (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  (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  1,819   (31,124
Cash and cash equivalents, beginning of period  27,455   66,054 
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 $1,092  $1,238 
Issuance of LLC interests to manager for base management fees $4,083  $851 
Issuance of LLC interests to independent directors $446  $450 
Taxes paid $1,508  $508 
Interest paid $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.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Description of Business

Macquarie Infrastructure Company LLC, a Delaware limited liability company, was formed on April 13, 2004. Macquarie Infrastructure Company LLC, both on an individual entity basis and together with its consolidated subsidiaries, is referred to in these financial statements as the “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 within 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.

The Company is an operating entity with a Board of Directors and other corporate governance responsibilities generally consistent with those 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 consist of the following:

The Energy-Related Businesses:

(i)a 50% interest in a bulk liquid storage terminal business (“International Matex Tank Terminals” or “IMTT”), which provides bulk liquid storage and handling services at ten marine terminals in the United States and two in Canada and is one of the largest participants in this industry in the U.S., based on storage capacity;
(ii)a gas production and distribution business (“The Gas Company”), which is a full-service gas energy company, making gas products and services available in Hawaii; and
(iii)a 50.01% controlling interest in a district energy business (“District Energy”), which operates the largest district cooling system in the U.S., serving various customers in Chicago, Illinois and Las Vegas, Nevada.

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 the U.S.

2. Basis of Presentation

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 assumptions 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 six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

2. Basis of Presentation  – (continued)

The consolidated balance sheet at December 31, 2009 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, 2009 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 25, 2010.

3. New Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board, or FASB, issued ASC 825-10-65Financial 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 methods 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.

4. Income (Loss) Per Share

Following is a reconciliation of the basic and diluted number of shares used in computing income (loss) per share:

    
 Quarter Ended June 30, Six Months Ended June 30,
   2010 2009 2010 2009
Weighted average number of shares outstanding: basic  45,467,413   44,951,176   45,381,413   44,949,942 
Dilutive effect of restricted stock unit grants  136,651      132,451    
Weighted average number of shares outstanding: diluted  45,604,064   44,951,176   45,513,864   44,949,942 

The effect of potentially dilutive shares for the quarter and six months ended June 30, 2010 is calculated assuming that the 31,989 restricted stock unit grants provided to the independent directors on June 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 six months ended June 30, 2009, due to the Company’s net loss for those periods.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

5. Discontinued Operations

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 

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

5. Discontinued Operations  – (continued)

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 

6. Property, Equipment, Land and Leasehold Improvements

Property, equipment, land and leasehold improvements at June 30, 2010 and December 31, 2009 consist of the following ($ in thousands):

  
 June 30,
2010
 December 31, 2009
Land $4,618  $4,618 
Easements  5,624   5,624 
Buildings  24,796   24,789 
Leasehold and land improvements  317,512   312,881 
Machinery and equipment  332,064   330,226 
Furniture and fixtures  9,441   9,395 
Construction in progress  16,394   16,519 
Property held for future use  1,561   1,561 
    712,010   705,613 
Less: accumulated depreciation  (142,817  (125,526
Property, equipment, land and leasehold improvements, net(1) $569,193  $580,087 

(1)Includes $302,000 of capitalized interest for the six months ended June 30, 2010 and $1.3 million for the year ended December 31, 2009.

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

6. Property, Equipment, Land and Leasehold Improvements  – (continued)

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.

7. Intangible Assets

Intangible assets at June 30, 2010 and December 31, 2009 consist of the following ($ in thousands):

   
 Weighted
Average
Life
(Years)
 June 30,
2010
 December 31,
2009
Contractual arrangements  31.1  $774,309  $774,309 
Non-compete agreements  2.5   9,515   9,515 
Customer relationships  10.6   78,596   78,596 
Leasehold rights  12.5   3,331   3,331 
Trade names  Indefinite   15,401   15,401 
Technology  5.0   460   460 
       881,612   881,612 
Less: accumulated amortization     (147,942  (130,531
Intangible assets, net    $733,670  $751,081 

As a result of a decline in the performance of certain asset groups during the quarter and six months ended June 30, 2009, 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 the discounted cash flow model. Accordingly, the Company recognized non-cash impairment charges of $2.9 million and $23.3 million related to contractual arrangements at Atlantic Aviation during the quarter and six months ended 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 goodwill balance as of June 30, 2010 and December 31, 2009 is comprised of the following ($ in thousands):

 
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 over the latter part of 2008 and the first half of 2009 caused the book value of the Company to exceed its market capitalization. In addition to its annual goodwill impairment testing conducted routinely on October 1st of each year, the Company performed goodwill impairment testing during the quarter and six months ended June 30, 2009 due to the triggering event of the 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 quarter 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 2010.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

8. Nonfinancial Assets Measured at Fair Value

The following major categories of nonfinancial assets at the impaired asset groups were written down to fair value during the quarter and six months ended June 30, 2009 at Atlantic Aviation ($ in thousands):

   
  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 discounted cash flows. Property, equipment, land and leasehold improvements for Atlantic Aviation with a carrying value of $12.6 million were written down to fair value of $5.1 million during the six months ended June 30, 2009. The non-cash impairment charge of $7.5 million was recorded in depreciation expense in the consolidated condensed statement of 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 value of $37.7 million were written down to their fair value of $14.4 million during the six months ended June 30, 2009. The non-cash impairment charge of $23.3 million was 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 7, “Intangible Assets”, the Company performed goodwill impairment analyses during the quarter and six months ended June 30, 2009. As a result of these analyses, goodwill at Atlantic Aviation with a carrying value 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 Atlantic 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 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:

a risk free rate equal to the rate on 20 year U.S. treasury securities;
a risk premium based on the risk premium for the U.S. equity market overall;
the observed beta of comparable listed companies;

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

8. Nonfinancial Assets Measured at Fair Value  – (continued)

a small company risk premium based on historical data provided by Ibbotsons; and
a specific company risk premium based on the uncertainty in the market conditions during the six months ended June 30, 2009.

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.

9. Long-Term Debt

At June 30, 2010 and December 31, 2009, the Company’s consolidated long-term debt consisted of the following ($ in thousands):

  
 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 

Until March 31, 2010, MIC Inc. had a revolving credit facility with various financial institutions. The facility was repaid in full in December 2009 and no amounts were outstanding under the revolving credit facility as of December 31, 2009 or at the facility’s maturity on March 31, 2010.

On February 25, 2009, Atlantic Aviation amended its credit facility to provide the business additional financial flexibility over the near and medium term. Under 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 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. 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.

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 under this facility and incurred $935,000 in interest rate swap breakage fees.

10. Derivative Instruments and Hedging Activities

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 the 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 June 30, 2010, the Company had $1.2 billion of current and long-term debt, $1.1 billion of which was economically hedged with interest rate swaps and $83.9 million of which was unhedged.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Derivative Instruments and Hedging Activities  – (continued)

As discussed in Note 9, “Long-Term Debt”, Atlantic Aviation applies its excess cash flow to prepay debt. As a result, $4.9 million and $11.1 million of accumulated other comprehensive loss in the consolidated condensed balance sheet related to Atlantic Aviation’s derivative instruments were reclassified to interest expense in the consolidated condensed statement of operations for the quarter and six months ended June 30, 2010, respectively. Atlantic Aviation expects to record further reclassifications from accumulated other comprehensive loss to interest expense as the business continues to pay down its debt.

In March 2009, Atlantic Aviation, The Gas Company and District Energy entered into interest rate basis swap contracts that expired on March 31, 2010. These contracts effectively changed the interest rate index on each business’ existing swap contracts from the 90-day LIBOR rate to the 30-day LIBOR rate plus a margin of 19.50 basis points for Atlantic Aviation and 24.75 basis points for The Gas Company and District Energy. This transaction, adjusted for the prepayments of outstanding principal on the term loan debt at Atlantic Aviation, resulted in $580,000 and $1.8 million lower interest expense for these businesses for the quarter ended March 31, 2010 and the year ended December 31, 2009, respectively.

Effective February 25, 2009 for 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 portion of the other comprehensive loss recorded under hedge accounting is also reclassified into earnings. The Company will reclassify into earnings $56.9 million of net derivative losses, included in accumulated other comprehensive loss as of June 30, 2010 over the remaining life of the existing interest rate swaps, of which approximately $24.1 million will be reclassified over the next 12 months.

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 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 sheets at June 30, 2010 and December 31, 2009 were as follows:

  
 Liabilities at Fair Value(1)
   Interest Rate Swap Contracts Not
Designated as Hedging Instruments
Balance Sheet Location June 30, 2010 December 31, 2009
   ($ In Thousands)
Fair value of derivative instruments – current liabilities $(45,792 $(49,573
Fair value of derivative instruments – non-current liabilities  (72,268  (54,794
Total interest rate derivative contracts $(118,060 $(104,367

(1)Fair value measurements at reporting date were made using significant other observable inputs (“level 2”).

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Derivative Instruments and Hedging Activities  – (continued)

The Company’s hedging activities for the quarter and six months ended June 30, 2010 and 2009 and the related location within the consolidated condensed financial statements were as follows:

  
 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)All derivatives are interest rate swap contracts.
(2)Loss recognized in interest expense for the quarter ended June 30, 2010 includes $14.7 million in interest rate swap payments, $695,000 in interest rate swap breakage fees and $20.6 million in unrealized derivative losses arising from:
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.
(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
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)All derivatives are interest rate swap contracts.
(2)Includes $22.7 million of accumulated other comprehensive losses reclassified into earnings (loss on derivative instruments) resulting from the $44.6 million repayment of debt principal at Atlantic Aviation in the first quarter of 2009. Interest expense represents cash interest paid on derivative instruments, of which $5.2 million is related to the payment of interest rate swap breakage fees in the first quarter of 2009.

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Derivative Instruments and Hedging Activities  – (continued)

(3)Loss recognized in interest expense for the six months ended June 30, 2010 includes $28.2 million in interest rate swap payments, $3.2 million in interest rate swap breakage fees and $31.7 million in unrealized derivative losses arising from:
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.
(4)Loss recognized in interest expense for the six months ended June 30, 2009 includes $13.1 million in interest rate swap payments and $1.6 million in interest swap breakage fees, offset by $13.1 million in unrealized derivative gains.

All of the Company’s derivative instruments are collateralized by all of the assets of the respective businesses.

11. Comprehensive Income (Loss)

Other comprehensive income (loss) includes primarily the change in fair value of derivative instruments which qualified for hedge accounting until the dates that hedge accounting was discontinued, as discussed in Note 10, “Derivative Instruments and Hedging Activities”.

The difference between net income (loss) and comprehensive income (loss) for the quarter and six months ended June 30, 2010 and 2009 was as follows ($ in thousands):

    
 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 10, “Derivative Instruments and Hedging Activities”.

12. Members’ Equity

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.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Reportable Segments

The Company’s operations are broadly classified into the energy-related businesses and Atlantic Aviation. The energy-related businesses consist of two reportable segments: The Gas Company and District Energy. The energy-related businesses also include a 50% investment in IMTT, which is accounted for under the equity method. Financial information for IMTT’s business as a whole is presented below ($ in thousands) (unaudited):

    
 Quarter Ended, and as of, June 30, Six Months Ended, and as of, June 30,
   2010 2009 2010 2009
Revenue $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) $65,674  $33,322  $115,499  $71,277 
 
Capital expenditures paid $17,741  $41,482  $37,171  $81,424 
Property, equipment, land and leasehold improvements, net  993,427   953,907   993,427   953,907 
Total assets balance  1,127,169   1,041,219   1,127,169   1,041,219 

(1)EBITDA consists of earnings before interest, taxes, depreciation and amortization. Non-cash items that are excluded consist of impairments, derivative gains and losses and all other non-cash income and expense items.

All of the business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered.

Energy-Related Businesses

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 Company segment is included in revenue from product sales. 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 growth, will generally track global oil prices. The utility revenue of The 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 segment is included in service revenue and financing and equipment lease income. Included in service revenue is capacity 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. District Energy provides its services to buildings primarily in the downtown Chicago, Illinois area and to a casino and a shopping mall located in Las Vegas, Nevada.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Reportable Segments  – (continued)

Atlantic Aviation

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 Atlantic Aviation is generated in the United States at 68 airports and one heliport.

Selected information by 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 June 30, 2010
   Energy-related Businesses
   The Gas Company District Energy Atlantic
Aviation
 Total
Revenue from Product Sales
                    
Product sales $24,236  $  $100,941  $125,177 
Product sales – utility  28,450         28,450 
    52,686      100,941   153,627 
Service Revenue
                    
Other services     803   36,552   37,355 
Cooling capacity revenue     5,295      5,295 
Cooling consumption revenue     7,144      7,144 
       13,242   36,552   49,794 
Financing and Lease Income
                    
Financing and equipment lease     1,271      1,271 
       1,271      1,271 
Total Revenue $52,686  $14,513  $137,493  $204,692 

    
 Quarter Ended June 30, 2009
   Energy-related Businesses
   The Gas Company District Energy Atlantic
Aviation
 Total
Revenue from Product Sales
                    
Product sales $18,390  $  $71,040  $89,430 
Product sales – utility  21,414         21,414 
    39,804      71,040   110,844 
Service Revenue
                    
Other services     743   40,004   40,747 
Cooling capacity revenue     5,110      5,110 
Cooling consumption revenue     5,502      5,502 
       11,355   40,004   51,359 
Financing and Lease Income
                    
Financing and equipment lease     1,205      1,205 
       1,205      1,205 
Total Revenue $39,804  $12,560  $111,044  $163,408 

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Reportable Segments  – (continued)

    
 Six Months Ended June 30, 2010
   Energy-related Businesses
   The Gas Company District Energy Atlantic
Aviation
 Total
Revenue from Product Sales
                    
Product sales $49,546  $  $195,649  $245,195 
Product sales – utility  55,285         55,285 
    104,831      195,649   300,480 
Service Revenue
                    
Other services     1,667   81,893   83,560 
Cooling capacity revenue     10,533      10,533 
Cooling consumption revenue     8,907      8,907 
       21,107   81,893   103,000 
Financing and Lease Income
                    
Financing and equipment lease     2,516      2,516 
       2,516      2,516 
Total Revenue $104,831  $23,623  $277,542  $405,996 

    
 Six Months Ended June 30, 2009
   Energy-related Businesses
   The Gas Company District Energy Atlantic
Aviation
 Total
Revenue from Product Sales
                    
Product sales $39,465  $  $139,157  $178,622 
Product sales – utility  41,581         41,581 
    81,046      139,157   220,203 
Service Revenue
                    
Other services     1,499   89,068   90,567 
Cooling capacity revenue     10,007      10,007 
Cooling consumption revenue     7,730      7,730 
       19,236   89,068   108,304 
Financing and Lease Income
                    
Financing and equipment lease     2,397      2,397 
       2,397      2,397 
Total Revenue $81,046  $21,633  $228,225  $330,904 

In accordance with FASB ASC 280Segment Reporting, the Company has disclosed earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items as a key performance metric relied on by management in the evaluation of the Company’s performance. Non-cash items include impairments, derivative gains and losses and adjustments for other non-cash items reflected in the statements of operations. The Company believes 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.


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Reportable Segments  – (continued)

EBITDA excluding non-cash items for the Company’s consolidated reportable segments is shown in the tables below ($ in thousands) (unaudited). Allocation of corporate expense and the federal tax effect have been excluded as they are eliminated on consolidation.

    
 Quarter Ended June 30, 2010
   Energy-related Businesses Atlantic
Aviation
 Total
Reportable
Segments
   The Gas
Company
 District
Energy
Net income (loss) $1,212  $(2,705 $(8,538 $(10,031
Interest expense, net  5,926   7,976   26,688   40,590 
Benefit (provision) for income taxes  780   (1,767  (5,764  (6,751
Depreciation  1,511   1,636   5,691   8,838 
Amortization of intangibles  205   341   8,194   8,740 
Other non-cash expense  531   232   558   1,321 
EBITDA excluding non-cash items $10,165  $5,713  $26,829  $42,707 

    
 Quarter Ended June 30, 2009
   Energy-related Businesses Atlantic
Aviation(1)
 Total
Reportable
Segments
   The Gas
Company
 District
Energy
Net income (loss) $4,518  $3,514  $(30,876 $(22,844
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  1,520   1,502   7,750   10,772 
Amortization of intangibles  212   341   11,979   12,532 
Goodwill impairment        53,200   53,200 
Other non-cash expense (income)  564   172   (430  306 
EBITDA excluding non-cash items $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 

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Reportable Segments  – (continued)

    
 Six Months Ended June 30, 2009
   Energy-related Businesses Atlantic
Aviation(1)
 Total
Reportable
Segments
   The Gas
Company
 District
Energy
Net income (loss) $7,633  $1,868  $(80,482 $(70,981
Interest expense, net  1,368   227   31,440   33,035 
Benefit (provision) for income taxes  4,913   1,221   (54,330  (48,196
Depreciation  2,996   2,965   19,424   25,385 
Amortization of intangibles  426   678   41,693   42,797 
Goodwill impairment        71,200   71,200 
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 $18,678  $8,613  $51,909  $79,200 

(1)Includes non-cash impairment charges of $102.0 million recorded during the first six months of 2009, consisting of $71.2 million related to goodwill, $23.3 million related to intangible assets (in amortization of intangibles) and $7.5 million related to property, equipment, land and leasehold improvements (in depreciation).

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):

    
 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.

TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Reportable Segments  – (continued)

Capital expenditures for the Company’s reportable segments were as follows ($ in thousands) (unaudited):

    
 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 June 30 were as follows ($ in thousands) (unaudited):

      
 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 recorded during the six months ended June 30, 2009 at Atlantic Aviation.
(2)Non-cash goodwill impairment charges of $71.2 million recorded during the six months ended June 30, 2009 at Atlantic Aviation.

Reconciliation of reportable segments’ total assets to consolidated total assets ($ in thousands) (unaudited):

  
 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 

14. Related Party Transactions

Management Services Agreement with Macquarie Infrastructure Management (USA) Inc. (the Manager)

As of June 30, 2010, the Manager held 3,797,557 LLC interests of the Company, which were acquired concurrently with the closing of the initial public offering in December 2004 and 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


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

14. Related Party Transactions  – (continued)

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 six months ended June 30, 2010 and 2009, the Company incurred base management fees of $4.5 million and $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 Manager elected to reinvest the base management fee of $2.2 million for the first quarter of 2010 in LLC interests and the Company issued 155,375 LLC interests to the Manager during the second quarter of 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 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 six months ended June 30, 2010 and 2009, the Manager charged the Company $169,000 and $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.

Advisory and Other Services from the Macquarie Group

The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited, or MBL, and Macquarie Capital (USA) Inc., or MCUSA, 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’ 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):

Six Months Ended June 30, 2010

 
Strategic review of alternatives available to the Company
 – advisory services from MCUSA
 $500 

Long-Term Debt

Until March 31, 2010, the Company had a revolving credit facility provided by various financial institutions, including entities within the Macquarie Group. The facility was repaid in full during 2009 and no amounts were outstanding under the revolving credit facility as of December 31, 2009 or at the facility’s


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

14. Related Party Transactions  – (continued)

maturity on March 31, 2010. Amounts relating to the Macquarie Group’s portion of this revolving credit facility comprised of the following ($ in thousands):

Six Months Ended June 30, 2010

 
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 December 31, 2009, the Company elected to reduce the available principal on its revolving credit facility from $97.0 million to $20.0 million. This resulted in a decrease in the Macquarie Group’s total commitment under its revolving credit facility from $21.6 million to $4.4 million.
(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.

Derivative Instruments and Hedging Activities

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 Atlantic Aviation and The Gas Company. At June 30, 2010, Atlantic Aviation had $786.6 million of its variable-rate term loans hedged, of which MBL provided the interest rate swaps for a notional amount of $278.8 million. The remainder of the swaps are from an unrelated third party. During the six months ended June 30, 2010, Atlantic Aviation made net payments to MBL of $7.0 million in relation to these swaps.

As discussed in Note 9, “Long-Term Debt”, for the six months ended June 30, 2010, Atlantic Aviation paid $3.2 million in interest rate swap breakage fees, of which $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 June 30, 2010, The Gas Company had $160.0 million of its term loans hedged, of which MBL provided 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 six months ended June 30, 2010, The Gas Company made net payments to MBL of $1.1 million in relation to these swaps.

Other Transactions

On March 30, 2009, The 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 Company’s customer base. No payments were made under these arrangements during the six months ended June 30, 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 was an existing customer of Atlantic Aviation. For the six


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

14. Related Party Transactions  – (continued)

months ended June 30, 2010, Atlantic Aviation recorded $8.4 million in revenue from Sentient. As of June 30, 2010, Atlantic Aviation had $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 several 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.

15. Income Taxes

The Company expects to incur a net operating loss for federal consolidated income tax purposes for the year ending December 31, 2010. The Company believes that it will be able to utilize the projected federal and certain state consolidated 2010 and prior year net operating losses. Accordingly, the Company has not provided a valuation allowance against any deferred tax assets generated in 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 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.

Uncertain Tax Positions

At December 31, 2009, the Company and its subsidiaries had a reserve of approximately $336,000 for benefits taken during 2009 and prior tax periods attributable to tax positions for which the probability of recognition is considered to be less than more likely than not. There was no material change in that reserve as of June 30, 2010, and no material change is expected for the year ended December 31, 2010.

16. Legal Proceedings and Contingencies

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, 2009, filed with the SEC on February 25, 2010.


TABLE OF CONTENTS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

General

We own, operate and invest in a diversified group of infrastructure businesses that provide basic 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: a 50% interest in IMTT, The Gas Company, and our controlling interest in District Energy; and Atlantic Aviation.

Our infrastructure businesses generally operate in sectors with limited competition and significant barriers to entry, 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 long-term cash flows.
Distributions
We believe we achieved prudent levels of cash reserves at both our holding company and operating companies. In addition, our results of operations and balance sheet have improved sufficiently, along with improved capital market conditions, to give us confidence in our ability to refinance our debt on or before maturity. The precise timing and amount of any distribution will be based on the continued stable performance of the Company’s businesses, the outcome of the budgeting process currently underway and the economic conditions prevailing at the time of any authorization. Management believes that any distribution would be characterized as a dividend for tax purposes rather than as a return of capital.
Continuing Operations
Our energy-related businesses were 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 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 Atlantic Aviation have been negatively affected since mid-2008 by the slower economy and declining general aviation activity levels through mid-2009. However, general aviation activity levels stabilized in the second half of 2009 and showed year on year growth in December 2009 and through the third quarter of 2010. This stabilization, combined with expense reduction efforts, results in an improving outlook for the business.
We will continue to apply excess cash flow generated by Atlantic Aviation to the reduction of that business’ term loan principal, consistent with the amendments to the debt facility that we agreed to in February 2009. Such repayments enhance our ability to successfully refinance this debt when it matures in 2014.
Discontinued Operations
On June 2, 2010, we concluded the sale in bankruptcy of an airport parking business (“(‘‘Parking Company of America Airports”Airports’’ or “PCAA”‘‘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 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. 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 us. We received $602,000 from thet he PCAA bankruptcy estate for expenses paid on behalf of PCAA during its operations. See Note 5, “Discontinued Operations”‘‘Discontinued Operations’’, in our consolidated condensed financial statements in Part I Item 1 of this Form 10-Q for financial information and further discussions.

Our infrastructure businesses generally operate

MIC had continued to guarantee one lease of its formerly owned airport parking business. This guarantee has been terminated in sectors with limited competition and barriersconsideration of $1.2 million to entry 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 long-term 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 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 Atlantic Aviation have been negatively affected since mid-2008be paid by the slower economy and declining general aviation activity levels through mid-2009. However, general aviation activity levels stabilized inCompany over three years, of which $930,000 will be reimbursed by the second half of 2009 and showed year on year growth in December 2009 and through the second quarter of 2010. This stabilization, combined with expense reduction efforts, results in an improving outlook for the business.

We will continue to apply excess cash flow generated by Atlantic Aviation to the reduction of that business’ term loan principal, consistent with the amendments to the debt facility that we agreed 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 when 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 the next several months with respect to deploymentnew owners of the potentially excess cash. First, we will engage with lenders with the objective of pre-paying a portion of our long-term debt on favorable terms. Second, we will explore alternatives to return the excess cash to shareholders, including an undertaking analysis of an appropriate share repurchase program. We are neutral as to whether the cash is used to pre-pay debt or repurchase shares, assuming the benefit to shareholders is comparable.


business.
 

TABLE OF CONTENTS

1

MIC Inc. Revolving Credit Facility

Until March 31, 2010, the Company had a revolving credit facility provided by various financial institutions, including entities within the Macquarie Group. The facility was repaid in full in December 2009 and no amounts were outstanding under the revolving credit facility as of December 31, 2009 or at the facility’s maturity on March 31, 2010.

Income Taxes

We file a consolidated federal income tax return that includes the taxable income of all our businesses, except IMTT 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 carryforwards, we do not expect to have consolidated regular federal taxable income or regular federal tax payments at least through the 2012 tax year. The cash state and local taxes paid by our individual businesses are discussed in the sections entitled ‘‘Income Taxes’’ for each of our individual businesses.

Results of Operations

Consolidated

Key Factors Affecting Operating Results
strong performance in our energy-related businesses reflecting:
increases in average storage rates, storage capacity and utilization at IMTT;
increase in revenue and gross profit from IMTT spill response activity in the Gulf Coast;
rate
increases in average storage rates and price increases, offset by a declinestorage capacity at IMTT;
increase in underlying margins and flat volumes at The Gas Company; and
increase in gross profit at District Energy an increase in capacity revenue and consumption revenue driven by a greater number of customers and higher average temperatures respectively.and a net increase in contracted capacity from new customers.
contribution from Atlantic Aviation reflecting:
higher general aviation fuel volumes, partially offset by lower weighted average fuel margins;volumes;
cost reductions; and
lower interest expense as a result of the early repayment of the outstanding term loan debt; partially offset by
a decrease in non-fuel revenue, primarily service fees.driven by lower tie-down and miscellaneous fixed base operation related services.

 

TABLE OF CONTENTS

2

Results of Operations:Consolidated – - (continued)

Our consolidated results of operations are as follows:

        
 Quarter Ended June 30, Change
(from 2009 to 2010) Favorable/(Unfavorable)
 Six Months Ended June 30, Change
(from 2009 to 2010) Favorable/(Unfavorable)
   2010 2009 (1) $ % 2010 2009 (1) $ %
   ($ in Thousands) (Unaudited)
Revenue
                                        
Revenue from product sales $125,177  $89,430   35,747   40.0  $245,195  $178,622   66,573   37.3 
Revenue from product sales – utility  28,450   21,414   7,036   32.9   55,285   41,581   13,704   33.0 
Service revenue  49,794   51,359   (1,565  (3.0  103,000   108,304   (5,304  (4.9
Financing and equipment lease income  1,271   1,205   66   5.5   2,516   2,397   119   5.0 
Total revenue  204,692   163,408   41,284   25.3   405,996   330,904   75,092   22.7 
Costs and expenses
                                        
Cost of product sales  79,887   50,645   (29,242  (57.7  156,941   100,411   (56,530  (56.3
Cost of product sales – utility  23,151   16,549   (6,602  (39.9  44,464   31,936   (12,528  (39.2
Cost of services  13,318   11,069   (2,249  (20.3  24,463   22,140   (2,323  (10.5
Gross profit  88,336   85,145   3,191   3.7   180,128   176,417   3,711   2.1 
Selling, general and administrative  49,522   48,725   (797  (1.6  100,256   104,868   4,612   4.4 
Fees to manager – related party  2,268   851   (1,417  (166.5  4,457   1,313   (3,144  NM 
Goodwill impairment     53,200   53,200   NM      71,200   71,200   NM 
Depreciation  7,202   9,270   2,068   22.3   14,924   22,420   7,496   33.4 
Amortization of intangibles  8,740   12,532   3,792   30.3   17,411   42,797   25,386   59.3 
Total operating expenses  67,732   124,578   56,846   45.6   137,048   242,598   105,550   43.5 
Operating income (loss)  20,604   (39,433  60,037   152.3   43,080   (66,181  109,261   165.1 
Other income (expense)
                                        
Interest income  4   34   (30  (88.2  20   101   (81  (80.2
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  5,774   10,028   (4,254  (42.4  11,367   15,477   (4,110  (26.6
Loss on derivative instruments                 (25,238  25,238   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

  
Quarter Ended
September 30,
 
Change
(from 2009 to 2010)
Favorable/(Unfavorable)
 
Nine Months Ended
September 30,
 
Change
(from 2009 to 2010)
Favorable/(Unfavorable)
 
  2010 
2009 (1)
  $ %  2010  2009(1)  $ % 
  ($ in Thousands) (Unaudited) 
                    
Revenue                   
Revenue from product sales $129,217 $103,017  26,200 25.4 $374,412 $281,639  92,773 32.9 
Revenue from product sales - utility  28,232  26,056  2,176 8.4  83,517  67,637  15,880 23.5 
Service revenue  54,598  55,299  (701)(1.3) 157,598  163,603  (6,005)(3.7)
Financing and equipment lease income  1,251  1,190  61 5.1  3,767  3,587  180 5.0 
Total revenue   213,298  185,562  27,736 14.9  619,294  516,466  102,828 19.9 
                        
Costs and expenses                       
Cost of product sales  78,843  61,923  (16,920)(27.3) 235,784  162,334  (73,450)(45.2)
Cost of product sales - utility  22,467  20,088  (2,379)(11.8) 66,931  52,024  (14,907)(28.7)
Cost of services  16,625  13,460  (3,165)(23.5) 41,088  35,600  (5,488)(15.4)
   Gross profit  95,363  90,091  5,272 5.9  275,491  266,508  8,983 3.4 
                        
Selling, general and administrative  50,486  50,054  (432)(0.9) 150,742  154,922  4,180 2.7 
Fees to manager - related party  2,380  1,639  (741)(45.2) 6,837  2,952  (3,885)(131.6)
Goodwill impairment  -  -  - -  -  71,200  71,200 NM 
Depreciation  6,973  7,177  204 2.8  21,897  29,597  7,700 26.0 
Amortization of intangibles  8,743  9,126  383 4.2  26,154  51,923  25,769 49.6 
                        
Total operating expenses   68,582  67,996  (586)(0.9) 205,630  310,594  104,964 33.8 
                        
Operating income (loss)  26,781  22,095  4,686 21.2  69,861  (44,086) 113,947 NM 
                        
Other income (expense)                       
Interest income  2  7  (5)(71.4) 22  108  (86)(79.6)
Interest expense (2)
  (24,844) (39,308) 14,464 36.8  (98,505) (74,977) (23,528)(31.4)
Equity in earnings and amortization                       
  charges of investees  7,804  1,178  6,626 NM  19,171  16,655  2,516 15.1 
Loss on derivative instruments  -  -  - -  -  (25,238) 25,238 NM 
Other income, net  1,269  296  973 NM  821  1,146  (325)(28.4)
                        
Net income (loss) from continuing operations before income taxes  11,012  (15,732) 26,744 170.0  (8,630) (126,392) 117,762 93.2 
(Provision) benefit for income taxes  (2,036) (984) (1,052)(106.9) 12,541  36,403  (23,862)(65.5)
                        
Net income (loss) from continuing operations $8,976 $(16,716) 25,692 153.7 $3,911 $(89,989) 93,900 104.3 
Net (loss) income from discontinued operations, net of taxes  -  (1,680) 1,680 NM  81,199  (11,263) 92,462 NM 
Net income (loss) $8,976 $(18,396) 27,372 148.8 $85,110 $(101,252) 186,362 184.1 
  Less: net income (loss) attributable to noncontrolling interests  34  (48) (82)(170.8) (1,317) (920) 397 43.2 
Net income (loss) attributable to MIC LLC $8,942 $(18,348) 27,290 148.7 $86,427 $(100,332) 186,759 186.1 
___________________(1)
NM - Not meaningful
(1) Reclassified to conform to current period presentation.
(2)
Interest expense includes non-cash losses on derivative instruments of $20.5$3.8 million and $31.7$35.5 million for the quarter and sixnine months ended JuneSeptember 30, 2010, respectively. Forrespectively, and non-cash losses of $17.9 million and $4.8 million for the quarter and sixnine months ended JuneSeptember 30, 2009, interest expense includes non-cash gains on derivative instruments of $20.1 million and $13.1 million, respectively.

 

TABLE OF CONTENTS

Results of Operations:Consolidated – (continued)

Gross Profit

Consolidated gross profit increased reflecting improved results at our energy-related businesses andfor fuel-related services at Atlantic Aviation and at our energy-related businesses generally, offset by a decrease in non-fuel gross profit from Atlantic Aviation.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the sixnine months ended JuneSeptember 30, 2010 decreased primarily as a result of cost reduction efforts at Atlantic Aviation, offset by increases in our corporate segment for the quarter ended September 30, 2010 and our consolidated energy-related businesses for the quarter and sixnine months ended JuneSeptember 30, 2010 at our consolidated energy-related businesses.

2010.

Fees to Manager

Base fees to our Manager increased due to higher market capitalization. Our Manager elected to reinvest its first quarter 2010 base management fees in additional LLC interests. LLC interests for the first quarter of 2010 were issued to our Manager during the second quarter of 2010. The base management fee in the amount of $2.3 million for the second quarter of 2010 was paid in cash to our Manager during the third quarter of 2010.  The base management fee in the amount of $2.4 million for the third quarter 2010 will be paid in cash to our Manager during the thirdfourth quarter of 2010.

3

Results of Operations: Consolidated - (continued)
Goodwill Impairment

During the quarter and thefirst six months ended June 30,of 2009, we recognized a goodwill impairment charges of $53.2 million and $71.2 million respectively, at Atlantic Aviation. There were no impairment charges in 2010.

Depreciation

The decrease in depreciation reflects non-cash asset impairment charges of $2.2 million and $7.5 million recorded during the quarter andfirst six months ended June 30,of 2009 respectively, at Atlantic Aviation.

  There were no impairment charges in 2010.

Amortization of Intangibles

The decrease in amortization of intangibles expense reflects non-cash asset impairment charges of $2.9 million and $23.3 million recorded by Atlantic Aviation during the quarter andfirst six months ended June 30, 2009, respectively.of 2009. The impairments reduced the amortizable balance and the amount of amortization expense in 2010.

Interest Expense and Loss on Derivative Instruments

Interest expense net, includes non-cash losses on derivative instruments of $20.5$3.8 million and $31.7$35.5 million for the quarter and sixnine months ended JuneSeptember 30, 2010, respectively. For the quarterrespectively, and six months ended June 30, 2009, interest expense, net, includes non-cash gainslosses on derivative instruments of $20.1$17.9 million and $13.1$4.8 million for the quarter and nine months ended September 30, 2009, respectively.

The increasechange in the non-cash losses on derivatives recorded both in interest expense and in loss on derivative instruments is attributable to the change in fair value of interest rate swaps, interest rate swap breaks related to the pay down of debt at Atlantic Aviation and includes the reclassification of amounts from accumulated other comprehensive loss into earnings, as Atlantic Aviation pays down its debt more quickly than anticipated.

Excluding the portion related to non-cash losses on derivatives, interest expense decreased due to a $113.4$128.0 million reduction of term loan debt at Atlantic Aviation and the repayment in the full amount of the outstanding balance of $66.4 million of MIC holding company debt during December 2009 and a decrease in interest rate swap break fees associated with the debt prepayments at Atlantic Aviation.

2009.

Equity in Earnings and Amortization Charges of Investees

Our equity in the earnings of IMTT decreasedincreased reflecting our share of the non-cash derivative losses in 2010 compared withimproved operating results of the business and by our share of non-cash derivative gains infor the nine months ended September 30, 2009, offset by improved operating resultsour share of non-cash derivative losses for 2010 and the business.


quarter ended September 30, 2009.
 

TABLE OF CONTENTS

Results of Operations:Consolidated – (continued)

Income Taxes

Tax provision on continuing operations:

For 2010, we expect to report a consolidated federal net operating loss, for which we will record a deferred tax benefit, and we expect to pay 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 federal tax return. These businesses file separate consolidated income tax returns, and we include the dividends received from IMTT 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).

4

Results of Operations: Consolidated - (continued)
The following table reconciles our net loss from continuing operations before income taxes and noncontrolling interests to our taxable loss for the sixnine months ended JuneSeptember 30, 2010 ($
($ in thousands)millions):

 
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 

Net loss from continuing operations before income taxes and noncontrolling interests $(8.6)
Adjustments for less than 80% owned businesses  (17.2)
State income taxes  1.3 
Other adjustments  (0.4)
Taxable loss for the nine months ended September 30, 2010 $(24.9)
     
Accordingly, our tax benefit for the nine months ended September 30, 2010 is as follows ($ in millions): 
     
Federal tax benefit at 35% on the tax loss for the nine months ended September 30, 2010 $8.7 
Reduction in valuation allowance (discussed below)  2.6 
State income tax benefit  1.2 
Total tax benefit $12.5 
In determining the effective tax rate for the sixnine months ended JuneSeptember 30, 2009, we excluded the write-down to fair value of certain assets from ordinary income. Further, approximately $13.5$53.4 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”‘‘Income Taxes’’ in our consolidated financial statements, in Part II, Item 8 of our 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 deferred tax liabilities of District Energy. As of December 31, 2009, our valuation allowance was approximately $20.6 million.

During the sixnine months ended JuneSeptember 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 decrease of $10.0 million is included in net income from discontinued operations.

In calculating our consolidated state income tax provision, we have provided a valuation allowance for certain state income tax NOL 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 determining our state income tax expense.


 

TABLE OF CONTENTS

Results of Operations:Consolidated – (continued)

Discontinued Operations

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 forgiveness 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 conform to the current period presentation. See Note 5, “Discontinued Operations”‘‘Discontinued Operations’’, in our consolidated condensed financial statements in Part I Item 1 of this Form 10-Q for financial information and further discussions.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow

In accordance with GAAP, we have disclosed EBITDA excluding non-cash items for our Company and each of our operating segments in Note 13, “Reportable Segments”12, ‘‘Reportable Segments’’ 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-cashnoncash items, which includes impairments, derivative gains and losses and adjustments for other non-cash items reflected in the statements of operations. We believe EBITDA excluding non-cash items provides additional insight into the performance of our operating businesses relative to each other and similar businesses without regard to their capital structure, and their ability to service or reduce debt, fundfu nd capital expenditures and/or support distributions to the holding company.

5

Results of Operations: Consolidated - (continued)
We also disclose Free Cash Flow, as defined by us, as a means of assessing the amount of cash generated by our businesses and supplementing other information provided in accordance with GAAP. We define Free Cash Flow as cash from operating activities, less maintenance capital expenditures and changes in working capital. Working capital movements are excluded on the basis that these are largely timing differences in payables and receivables, and are therefore not reflective of our ability to generate cash.

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 the quarter and sixnine months ended JuneSeptember 30, 2009, we disclosed EBITDA 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 sixnine months ended JuneSeptember 30, 2009, have been conformed to current periods’ presentation reflecting EBITDA excluding all non-cash items and Free Cash Flow.


 

TABLE OF CONTENTS

Results of Operations:Consolidated – (continued)

A reconciliation of net income (loss) attributable to MIC LLC from continuing operations to free cash flow from continuing operations, on a consolidated basis, is provided below:

        
 Quarter Ended June 30, Change
(from 2009 to 2010)
Favorable/(Unfavorable)
 Six Months Ended June 30, Change
(from 2009 to 2010)
Favorable/(Unfavorable)
   2010 2009(1) $ % 2010 2009(1) $ %
   ($ in Thousands) (Unaudited)
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(4)  7,202   9,270             14,924   22,420           
Depreciation – cost of services(4)  1,636   1,502             3,271   2,965           
Amortization of intangibles(5)  8,740   12,532             17,411   42,797           
Goodwill impairment     53,200                71,200           
Loss on derivative instruments                     25,238           
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 

6

Results of Operations: Consolidated - (continued)
 
Quarter Ended
September 30,
 
Change
(from 2009 to 2010)
Favorable/(Unfavorable)
 
Nine Months Ended
September 30,
 
Change
(from 2009 to 2010)
Favorable/(Unfavorable)
 
 2010  
2009 (1)
  $ %  2010  2009(1)  $ % 
  ($ in Thousands) (Unaudited)  
Net income (loss) attributable to MIC LLC from continuing operations (2)
 $8,942  $(16,890)    $5,364 $(90,504)    
Interest expense, net (3)
  24,842   39,301      98,483  74,869     
Provision (benefit) for income taxes  2,036   984      (12,541) (36,403)    
Depreciation (4)
  6,973   7,177      21,897  29,597     
Depreciation - cost of services (4)
  1,639   1,541      4,910  4,506     
Amortization of intangibles (5)
  8,743   9,126      26,154  51,923     
Goodwill impairment  -   -      -  71,200     
Loss on derivative instruments  -   -      -  25,238     
Equity in earnings and amortization                      
  charges of investees (6)
  2,196   (1,178)     (4,171) (9,655)    
Base management fees settled in LLC interests  -   1,639      2,189  2,490     
Other non-cash expense, net  902   991      1,672  1,069     
EBITDA excluding non-cash items from continuing operations $56,273  $42,691  13,582 31.8 $143,957 $124,330  19,627 15.8 
                         
EBITDA excluding non-cash items from continuing operations $56,273  $42,691      $143,957 $124,330      
Interest expense, net (3)
  (24,842)  (39,301)      (98,483) (74,869)     
Interest rate swap breakage fees (3)
  (1,484)  (1,185)      (4,689) (7,862)     
Non-cash derivative losses recorded in interest expense (3)
  5,307   19,047       40,186  12,659      
    Amortization of debt financing costs (3)
  1,043   1,310       3,299  3,824      
Equipment lease receivables, net  751   651       2,202  2,058      
Provision/benefit for income taxes, net of changes in deferred taxes  325   (126)      (1,144) (870)     
Changes in working capital  963   1,295       (5,346) 4,874      
Cash provided by operating activities  38,336   24,382       79,982  64,144      
Changes in working capital  (963)  (1,295)      5,346  (4,874)     
Maintenance capital expenditures  (3,053)  (2,749)      (6,802) (5,984)     
Free cash flow from continuing operations $34,320  $20,338  13,982 68.7 $78,526 $53,286  25,240 47.4 
                         
___________________
(1)
Reclassified to conform to current period presentation.
(2)
Net income (loss) attributable to MIC LLC from continuing operations excludes net income attributable to noncontrolling interests of $34,000 and net loss attributable to noncontrolling interests of $540,000 and $1.487$1.453 million for the quarter and sixnine months ended JuneSeptember 30, 2010, respectively, and net income attributable to noncontrolling interests of $174,000 and $341,000$515,000 for the quarter and sixnine months ended JuneSeptember 30, 2009, respectively.
(3)
Interest expense, net, includes non-cash losses on derivative instruments, non-cash amortization of $20.5 milliondeferred financing fees 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.rate swap breakage fees.
(4)
Depreciation - cost of services includes depreciation expense for District Energy, which is reported in cost of services in our consolidated condensed statements of operations. Depreciation and Depreciation - cost of services does not include acquisition-related step-up depreciation expense of $1.7 million for each quarter 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.
(5)
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.

7

 

TABLE OF CONTENTS

Energy-Related Businesses

IMTT

We account for our 50% interest in this business under the equity method. We recognized income of $11.4$19.2 million in our consolidated results for the sixnine months ended JuneSeptember 30, 2010. This includes our 50% share of IMTT’s net income, equal to $13.7$22.7 million for the period, offset by $2.3$3.5 million of acquisition-related step-upstep up depreciation and amortization expense (net of taxes). For the sixnine months ended JuneSeptember 30, 2009, we recognized income of $15.5$16.7 million in our consolidated results. This included our 50% share of IMTT’s net income, equal to $17.8$20.2 million for the period, offset by $2.3$3.5 million of acquisition-related step-up depreciation and amortization expense (net of taxes).

IMTT declared and paid dividends of $15.0 million to each of its shareholders during the nine months ended September 30, 2010. 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.

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.

Key Factors Affecting Operating Results
terminal revenue and gross profit increased principally due to:
increases in average tank rental rates;
increase in capacity utilization; and
increase in volume of storage under contract.
environmental response service revenue and gross profit increased principally due to spill response work and other activities related to the BP oil spill in the Gulf of Mexico.Mexico; and

terminal revenue and gross profit increased principally due to:
increases in average tank rental rates; and
increase in volume of storage under contract.
 

TABLE OF CONTENTS

8

Energy-Related Business:IMTT – - (continued)

        
 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

  Quarter Ended
September 30,
   
Nine Months Ended
September 30,
   
   
2010
  
2009 (1)
 
Change
Favorable/(Unfavorable)
  
2010
  
2009 (1)
 
Change
Favorable/(Unfavorable)
 
   $ $ $ %  $ $ $ % 
  ($ In Thousands) (Unaudited) 
Revenue                 
Terminal revenue  91,825  80,962  10,863  13.4  278,122  242,524  35,598  14.7 
Environmental response revenue  90,377  4,206  86,171 NM  169,353  11,421  157,932 NM 
Total revenue  182,202  85,168  97,034  113.9  447,475  253,945  193,530  76.2 
                          
Costs and expenses                         
Terminal operating costs  42,300  38,114  (4,186) (11.0) 124,846  114,577  (10,269) (9.0)
Environmental response operating costs  58,728  3,829  (54,899)NM  108,199  11,759  (96,440)NM 
Total operating costs  101,028  41,943  (59,085) (140.9) 233,045  126,336  (106,709) (84.5)
                          
Terminal gross profit  49,525  42,848  6,677  15.6  153,276  127,947  25,329  19.8 
Environmental response gross profit  31,649  377  31,272 NM  61,154  (338) 61,492 NM 
Gross profit  81,174  43,225  37,949  87.8  214,430  127,609  86,821  68.0 
                          
General and administrative expenses  10,839  6,653  (4,186) (62.9) 29,802  19,220  (10,582) (55.1)
Depreciation and amortization  16,602  13,457  (3,145) (23.4) 46,136  39,735  (6,401) (16.1)
Operating income  53,733  23,115  30,618  132.5  138,492  68,654  69,838  101.7 
                          
Interest expense, net (2)
  (20,586) (15,452) (5,134) (33.2) (58,485) (4,842) (53,643)NM 
Other income  220  340  (120) (35.3) 1,581  172  1,409 NM 
Unrealized gains on derivative instruments  -  -  -  -  -  3,306  (3,306)NM 
Provision for income taxes  (15,546) (3,137) (12,409)NM  (35,902) (27,035) (8,867) (32.8)
Noncontrolling interests  153  (145) 298 NM  (247) 152  (399)NM 
Net income  17,974  4,721  13,253 NM  45,439  40,407  5,032  12.5 
                          
Reconciliation of net income to EBITDA excluding non-cash items:       
Net income  17,974  4,721        45,439  40,407       
Interest expense, net (2)
  20,586  15,452        58,485  4,842       
Provision for income taxes  15,546  3,137        35,902  27,035       
Depreciation and amortization  16,602  13,457        46,136  39,735       
Unrealized gains on derivative instruments  -  -        -  (3,306)      
Other non-cash (income) expenses  (518) 378        (273) (291)      
EBITDA excluding non-cash items  70,190  37,145  33,045  89.0  185,689  108,422  77,267  71.3 
                          
EBITDA excluding non-cash items  70,190  37,145        185,689  108,422       
Interest expense, net (2)
  (20,586) (15,452)       (58,485) (4,842)      
Non-cash derivative losses (gains) recorded in interest expense(2)
  11,041  8,074        33,094  (17,148)      
Amortization of debt financing costs (2)
  618  118        1,328  353       
Provision for income taxes, net of changes in deferred taxes  (6,580) (1,020)       (10,812) (2,567)      
Changes in working capital  7,761  (3,030)       (19,693) 8,453       
Cash provided by operating activities  62,444  25,835        131,121  92,671       
Changes in working capital  (7,761) 3,030        19,693  (8,453)      
Maintenance capital expenditures  (10,138) (10,183)       (29,169) (26,864)      
Free cash flow  44,545  18,682  25,863  138.4  121,645  57,354  64,291  112.1 
___________________
(1)
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,expense, net, includes non-cash gains (losses) on derivative instruments and non-cash amortization of $25.2 million.deferred financing fees.

 

TABLE OF CONTENTS

Energy-Related Business:IMTT – (continued)

Revenue and Gross Profit

The increase in terminal revenue primarily reflects growth in storage revenue. Storage revenue grew due to an increase in average rental rates of 8.1%6.8% and 9.2%8.3% during the quarter and sixnine months ended JuneSeptember 30, 2010, respectively, and an increase in storage capacity and capacity utilization mainly attributable to certain expansion projects at IMTT’s Louisiana facilities.

Capacity utilization increaseddecreased from 93.1% to 94.8% and 93.8% to 95.4%93.7% during the quarter ended September 30, 2009 to 93.0% during the quarter ended September 30, 2010, and sixincreased from 93.8% during the nine months ended JuneSeptember 30, 2010, respectively.2009 to 94.6% during the nine months ended September 30, 2010. Demand for bulk liquid storage generally remains strong; however, utilization rates are expected to revert toremain at approximately 94.0%93.0% over the balance of 2010, as certain tanks arehave been taken out of service for inspection, repairs and maintenance.

IMTT expects utilization rates to return to the somewhat higher historical levels in early 2011.

9

Energy-Related Business: IMTT - (continued)
Terminal operating costs increased during the sixnine months ended JuneSeptember 30, 2010 primarily as a result of higher repairs and maintenance and an increase in salaries and wages.

wages and higher repairs and maintenance.

Revenue and gross profit from environmental response services increased substantially during 2010 primarily due to the increase in spill response activities following the April 20, 2010 BP oil spill in the Gulf of Mexico and the January 2010 fuel oil spill on the Texas coast near 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 Mopit will continue to provide environmental response services for this spill incident.

spill.  However, beginning in October 2010, BP began to scale back Oil Mop’s involvement in the Gulf clean-up and, consequently, Oil Mop’s contribution in the fourth quarter of 2010 will be materially less than it was in the second and third quarters of 2010. At this time, we anticipate that Oil M op's contribution to revenue and gross profit will return to historical levels in early 2011.

General and Administrative Expenses

General and administrative costsexpenses for the quarter and year to date periods increased primarily due to anthe increase in environmental response services of $5.7 million asactivity compared towith the prior comparable periods. The increase reflects a year to date $9.6 million increase from the environmental response service business,  primarily related to cash and accrued bonuses and sales commissions relating to the BP oil spill.

environmental response services.

Depreciation and Amortization

Depreciation and amortization expense increased as IMTT completed several major expansion projects, resulting in higher asset balances.

Interest (Expense) Income,Expense, Net

Interest (expense) income,expense, net, includes non-cash losses on derivative instruments of $17.4$11.0 million and $33.1 million for the quarter and nine months ended September 30, 2010, respectively, and non-cash losses of $8.1 million and non-cash gains of $17.1 million for the quarter and nine months ended September 30, 2009, respectively.
Cash interest paid was $9.1 million and $25.0 million for the quarter and nine months ended September 30, 2010, respectively, and $7.9 million and $22.1 million for the quarter and sixnine months ended June 30, 2010, respectively. For the quarter and six months ended JuneSeptember 30, 2009, interest (expense) income, net, includes non-cash gains on derivative instruments of $25.2 million.

Cash interest paid was $8.5 million and $15.9 million for the quarter and six months ended June 30, 2010, respectively, and $6.4 million and $14.2 million for the quarter and six months ended June 30, 2009, respectively.

Income Taxes

IMTT expects to pay approximately $12.0$15.0 million to $20.0 million in federal and state income taxes in 2010 depending upon the amount of capital expenditures ultimately placed in service and eligible for tax depreciation in 2010.  For the sixnine months ended JuneSeptember 30, 2010, IMTT accrued $1.0recorded $4.8 million of current federal income taxestax expense and $3.2$6.0 million of current state income taxes.tax expense.  At December 31, 2009, IMTT had a federal net operating lossesloss of approximately $50.0 million. This is expected$50.5 million, of which $5.8 million was carried back to and used in year 2008 and $44.7 million was carried forward to and will be fully utilizedused in 2010.

A significant difference between the IMTT’s book and federal taxable income relates to depreciation of terminalling fixed assets. For book purposes, these fixed assets are depreciated primarily over 15 to 30 years using the straight-line method of depreciation.  For federal income tax purposes, these fixed assets are depreciated primarily over 5 to 15 years using accelerated methods. In addition, a significant portion of theMost terminalling fixed assets placed in service in 2009 qualified2010 qualify for the federal 50% federal bonus depreciation. Mostdepreciation, except assets placed in service in Louisiana financed with GO Zone Bonds. A significant portion of Louisiana terminalling fixed assets constructed since Hurricane Katrina are or will be financed with GO Zone Bonds. GO Zone Bond financed assets are depreciated primarily over 9 to 20 years using the straight-line depreciation method. Mos t of the states in which the business operates allow the use of the federal depreciation calculation methods. Louisiana is the only state where the business operates that allows the 50% bonus depreciation deduction. The 50% federal bonus depreciation isdeduction (on qualifying fixed assets not applicable to assets placed in service in 2010.


financed with GO Zone Bonds).
 

TABLE OF CONTENTS

The Gas Company

Key Factors Affecting Operating Results
increased
•   utility contribution margin due to a rate increase effective June 11, 2009, partially offset by a decline in volume sold;2009;
increased
•   effective non-utility contribution margin due to effective margin management; and
•   increased salary and employment benefit costs.

        
 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

10

Energy-Related Business: The Gas Company - (continued)
  
Quarter Ended
September 30,
      
Nine Months Ended
September 30,
     
   
2010
   
2009 (1)
 
Change
Favorable/(Unfavorable)
   
2010
  
2009 (1)
 
Change
Favorable/(Unfavorable)
 
   $   $  $ %   $  $  $ % 
   ($ In Thousands) (Unaudited) 
Contribution margin                   
Revenue - utility  28,232   26,056  2,176  8.4   83,517  67,637  15,880  23.5 
Cost of revenue - utility  18,904   16,535  (2,369) (14.3)  56,178  41,865  (14,313) (34.2)
Contribution margin - utility  9,328   9,521  (193) (2.0)  27,339  25,772  1,567  6.1 
Revenue - non-utility  23,214   18,680  4,534  24.3   72,760  58,145  14,615  25.1 
Cost of revenue - non-utility  11,179   8,952  (2,227) (24.9)  37,024  26,569  (10,455) (39.4)
Contribution margin - non-utility  12,035   9,728  2,307  23.7   35,736  31,576  4,160  13.2 
Total contribution margin  21,363   19,249  2,114  11.0   63,075  57,348  5,727  10.0 
Production  1,718   1,684  (34) (2.0)  5,126  4,778  (348) (7.3)
Transmission and distribution  4,919   5,003  84  1.7   15,050  14,375  (675) (4.7)
Gross profit  14,726   12,562  2,164  17.2   42,899  38,195  4,704  12.3 
Selling, general and administrative expenses  4,259   4,212  (47) (1.1)  12,557  12,057  (500) (4.1)
Depreciation and amortization  1,492   1,713  221  12.9   4,926  5,135  209  4.1 
Operating income  8,975   6,637  2,338  35.2   25,416  21,003  4,413  21.0 
Interest expense, net (2)
  (5,047)  (5,406) 359  6.6   (15,780) (6,774) (9,006) (132.9)
Other income (expense)  1   (91) 92  101.1   (10) (216) 206  95.4 
Unrealized losses on derivative instruments  -   -  -  -   -  (327) 327 NM 
Provision for income taxes  (1,538)  (446) (1,092)NM   (3,769) (5,359) 1,590  29.7 
Net income (3)
  2,391   694  1,697 NM   5,857  8,327  (2,470) (29.7)
                            
Reconciliation of net income to EBITDA excluding non-cash items:                 
Net income (3)
  2,391   694         5,857  8,327       
Interest expense, net (2)
  5,047   5,406         15,780  6,774       
Provision for income taxes  1,538   446         3,769  5,359       
Depreciation and amortization  1,492   1,713         4,926  5,135       
Unrealized losses on derivative instruments  -   -         -  327       
Other non-cash expenses  534   510         1,599  1,525       
EBITDA excluding non-cash items  11,002   8,769  2,233  25.5   31,931  27,447  4,484  16.3 
                            
EBITDA excluding non-cash items  11,002   8,769         31,931  27,447       
Interest expense, net (2)
  (5,047)  (5,406)        (15,780) (6,774)      
Non-cash derivative losses recorded in interest expense(2)
2,734   3,194         8,945  65       
Amortization of debt financing costs (2)
  120   119         359  358       
Provision for income taxes, net of changes in deferred taxes  1,478   (579)        (1,276) (2,697)      
Changes in working capital  1,483   (1,451)        (1,320) (1,922)      
Cash provided by operating activities  11,770   4,646         22,859  16,477       
Changes in working capital  (1,483)  1,451         1,320  1,922       
Maintenance capital expenditures  (1,030)  (676)        (2,008) (1,757)      
Free cash flow  9,257   5,421  3,836  70.8   22,171  16,642  5,529  33.2 
                            
___________________
(1)
NM - Not meaningful
(1) Reclassified to conform to current period presentation. For the quarter and sixnine months ended JuneSeptember 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 expenseincome (expense) where the costs were incurred. Accordingly, the quarter and sixnine months ended JuneSeptember 30, 2009 were restated to reflect this change.

TABLE OF CONTENTS

Energy-Related Business:The Gas Company – (continued)

(2)
Interest (expense) income,expense, net, includes non-cash losses on derivative instruments and non-cash amortization 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.deferred financing fees.
(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.

11

Energy-Related Business: The Gas Company - (continued)
Contribution Margin and Operating Income

Regulation of the utility portion of The Gas Company'sCompany’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 lower for the quarter ended September 30, 2010 due to lower margin per therm. The lower margin per therm primarily resulted from the timing of fuel adjustment charge reconciliations and the implementation of the final rate case order, largely offset by a 4.4% increase in utility gas sold as a result of improved tourism and economic activity.
Utility contribution margin was higher for the quarter and sixnine months ended JuneSeptember 30, 2010 primarily due to implementation of the rate increase from June 11, 2009, partially offset by slightly lower sales volume declines related almost entirelyduring the first half of 2010.    The Gas Company recently renegotiated its synthetic natural gas, or SNG, feedstock contract with Tesoro. The contract is subject to commercial customers, whose demand is more sensitive to the variability of the economic cycle than residential customers. Sales volume in 2010 was approximately 3.6% lower than 2009 for both the quarter and six month periods.

On April 20, 2010,approval by the Hawaii Public Utilities Commission (HPUC) issued its Final Decision. The changes in cost of feedstock are passed through to consumers via the fuel adjustment charge mechanism and Orderhave no impact 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.

margin.

Non-utility contribution margin was higher as a result of effective margin management activities withand higher volume essentially flat compared to 2009. Local refiners suppliedSales volume was approximately 5.0% and 1.6% higher for the quarter and nine month periods.  The Gas Company with approximately 30% less propane inrecently renegotiated its liquefied petroleum gas, or LPG, supply contracts which increased the first half of 2010 than they did in the first half of 2009. To the extent that local suppliers were unable to supply The Gas Company with a sufficient amount of propane, the business supplemented, and will continue to supplement, itslocally supplied propane. We expect an overall decrease in supply from foreign sources. The 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 will have a minimal impact on non-utility contribution margin.

costs.

Increased production costs primarily reflected higher electricity costs. Transmission and distribution costs were higher primarily due to increased wage and benefit costs as well as higher repair and maintenance costs. Selling, general and administrative costs were higher primarily due to personnel costs and insurance costs.

Interest (Expense) Income,Expense, Net

Interest (expense) income,expense, net, includes non-cash losses on derivative instruments of $3.6$2.7 million and $6.2$8.9 million for the quarter and sixnine months ended JuneSeptember 30, 2010, respectively. Forrespectively, and non-cash losses of $3.2 million and $65,000 for the quarter and sixnine months ended JuneSeptember 30, 2009, interest (expense) income, net, includes non-cash gains on derivative instruments of $3.5 million and $3.1 million, respectively. Excluding the non-cash (losses) gainslosses on derivative instruments, interest expense was relatively flat.

Cash interest paid was $2.2$2.1 million and $4.3$6.4 million for the quarter and sixnine months ended JuneSeptember 30, 2010, respectively, and $2.1 million and $4.3$6.4 million for the quarter and sixnine months ended JuneSeptember 30, 2009, respectively.

Income Taxes

Income from The 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. For the year ending December 31, 2010, the business expects to pay state income taxes of approximately $1.2 million, of which $434,000$770,000 was recorded during the sixnine months ended JuneSeptember 30, 2010.


 

TABLE OF CONTENTS

District Energy

Customers of District 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 our customer contracts provide for the pass 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.

Key Factors Affecting Operating Results
an increase in consumption revenuegross profit driven by warmer average temperatures during the second quarterand third quarters of 2010 compared withto the comparable period in 2009, resulting in higher ton-hour sales, partially offset by higher electricity costs;sales; and
a net increase in contracted capacity revenue from new customers that began service predominantly in the second quarter of 2009, and annual inflation-linked increases in contract capacity rates.

 

TABLE OF CONTENTS

12

Energy-Related Business:District Energy –  - (continued)

        
 Quarter Ended June 30, Change
Favorable/(Unfavorable)
 Six Months Ended June 30, Change
Favorable/(Unfavorable)
   2010 2009(1) 2010 2009(1)
   $ $ $ % $ $ $ %
   ($ In Thousands) (Unaudited)
Cooling capacity revenue  5,295   5,110   185   3.6   10,533   10,007   526   5.3 
Cooling consumption revenue  7,144   5,502   1,642   29.8   8,907   7,730   1,177   15.2 
Other revenue  803   743   60   8.1   1,667   1,499   168   11.2 
Finance lease revenue  1,271   1,205   66   5.5   2,516   2,397   119   5.0 
Total revenue  14,513   12,560   1,953   15.5   23,623   21,633   1,990   9.2 
Direct expenses – electricity  4,664   3,784   (880  (23.3  5,987   5,388   (599  (11.1
Direct expenses – other(2)  5,066   4,508   (558  (12.4  9,937   9,272   (665  (7.2
Direct expenses – total  9,730   8,292   (1,438  (17.3  15,924   14,660   (1,264  (8.6
Gross profit  4,783   4,268   515   12.1   7,699   6,973   726   10.4 
Selling, general and administrative expenses  799   716   (83  (11.6  1,557   1,354   (203  (15.0
Amortization of intangibles  341   341         678   678       
Operating income  3,643   3,211   432   13.5   5,464   4,941   523   10.6 
Interest (expense) income, net(3)  (7,976  2,728   (10,704  NM   (14,004  (227  (13,777  NM 
Other income  59   45   14   31.1   109   94   15   16.0 
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(4)  (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(4)  (2,705  3,514             (5,336  1,868           
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(2)  1,636   1,502             3,271   2,965           
Amortization of intangibles  341   341             678   678           
Unrealized losses on derivative instruments                     1,378           
Other non-cash expenses  232   172           387   276         
EBITDA excluding non-cash items  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

  
Quarter Ended
September 30,
   
Nine Months Ended
September 30,
   
  2010  
2009 (1)
 
Change
Favorable/(Unfavorable)
 2010 
2009 (1)
 
Change
Favorable/(Unfavorable)
 
  $  
$
 
$
 % 
$
 
$
 
$
 % 
  ($ In Thousands) (Unaudited) 
                   
Cooling capacity revenue  5,302   5,224  78  1.5  15,835  15,231  604  4.0 
Cooling consumption revenue  12,596   9,400  3,196  34.0  21,503  17,130  4,373  25.5 
Other revenue  823   832  (9) (1.1) 2,490  2,331  159  6.8 
Finance lease revenue  1,251   1,190  61  5.1  3,767  3,587  180  5.0 
Total revenue  19,972   16,646  3,326  20.0  43,595  38,279  5,316  13.9 
Direct expenses — electricity  8,202   5,715  (2,487) (43.5) 14,189  11,103  (3,086) (27.8)
Direct expenses — other (2)
  4,941   4,803  (138) (2.9) 14,878  14,075  (803) (5.7)
Direct expenses — total  13,143   10,518  (2,625) (25.0) 29,067  25,178  (3,889) (15.4)
Gross profit  6,829   6,128  701  11.4  14,528  13,101  1,427  10.9 
                           
Selling, general and administrative expenses  793   697  (96) (13.8) 2,350  2,051  (299) (14.6)
Amortization of intangibles  345   345  -  -  1,023  1,023  -  - 
Operating income  5,691   5,086  605  11.9  11,155  10,027  1,128  11.2 
Interest expense, net (3)
  (6,862)  (6,623) (239) (3.6) (20,866) (6,850) (14,016)NM 
Other income  1,427   447  980 NM  1,536  541  995  183.9 
Unrealized losses on derivative instruments  -   -  -  -  -  (1,378) 1,378 NM 
(Provision) benefit  for income taxes  (23)  500  (523) (104.6) 3,464  (721) 4,185 NM 
Noncontrolling interests  (198)  (174) (24) (13.8) (590) (515) (75) (14.6)
Net income (loss)  (4)
  35   (764) 799  104.6  (5,301) 1,104  (6,405)NM 
                           
Reconciliation of net income (loss) to EBITDA excluding non-cash items:             
Net income (loss) (4)
  35   (764)       (5,301) 1,104       
Interest expense, net (3)
  6,862   6,623        20,866  6,850       
Provision (benefit) for income taxes  23   (500)       (3,464) 721       
Depreciation (2)
  1,639   1,541        4,910  4,506       
Amortization of intangibles  345   345        1,023  1,023       
Unrealized losses on derivative instruments  -   -        -  1,378       
Other non-cash expenses  265   179        652  455       
EBITDA excluding non-cash items  9,169   7,424  1,745  23.5  18,686  16,037  2,649  16.5 
                           
EBITDA excluding non-cash items  9,169   7,424        18,686  16,037       
Interest expense, net (3)
  (6,862)  (6,623)       (20,866) (6,850)      
Non-cash derivative losses (gains) recorded in interest expense (3)
  4,180   4,069        13,006  (739)      
Amortization of debt financing costs (3)
  171   171        511  511       
Equipment lease receivable, net  751   651        2,202  2,058       
Changes in working capital  (92)  (970)       (3,661) (1,454)      
Cash provided by operating activities  7,317   4,722        9,878  9,563       
Changes in working capital  92   970        3,661  1,454       
Maintenance capital expenditures  (249)  (305)       (813) (664)      
Free cash flow  7,160   5,387  1,773  32.9  12,726  10,353  2,373  22.9 
(1)
___________________
NM - Not meaningful
(1) Reclassified to conform to current period presentation.
(2)
Includes depreciation expense of $1.6 million and $3.3$4.9 million for the quarter and sixnine month ended JuneSeptember 30, 2010, respectively, and $1.5 million and $3.0$4.5 million for the quarter and sixnine months ended JuneSeptember 30, 2009, respectively.
(3)
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,expense, net, includes non-cash gains (losses) on derivative instruments and non-cash amortization of $5.2 million and $4.8 million, respectively.deferred financing fees.
(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.

 
13

Energy-Related Business:District Energy –  - (continued)

Gross Profit

Gross profit increased primarily as a result of increased cooling consumption revenue relateddue to higher ton-hour sales. Ton-hour sales were higher as a result of warmer average temperatures during the second quarterand third quarters of 2010 compared with 2009. Coolingto the comparable period in 2009 resulting in higher ton-hour sales. Additionally, cooling capacity revenue increased due to a net increase in contracted capacity provided 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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in 2009 included a reimbursement from a customer for professional fees related to the Las Vegas plant expansion that did not reoccur in 2010.

Other Income
Other income increased due to the timing of payments earned under agreements to review and manage the business’ energy demand during periods of peak demand in 2010. These payments were recorded during the third quarter of 2010 and the fourth quarter of 2009.
Interest (Expense) Income,Expense, Net

Interest (expense) income,expense, net, includes non-cash losses on derivative instruments of $5.3$4.2 million and $8.8$13.0 million for the quarter and sixnine months ended JuneSeptember 30, 2010, respectively. Forrespectively, and non-cash losses of $4.1 million and non-cash gains of $739,000 for the quarter and sixnine months ended JuneSeptember 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,during 2010 compared with June 30, 2009.

Cash interest paid was $2.6$2.4 million and $4.9$7.3 million for the quarter and sixnine months ended JuneSeptember 30, 2010, respectively, and $2.4 million and $4.8$7.2 million for the quarter and sixnine months ended JuneSeptember 30, 2009, respectively.

Income Taxes

For the period preceding the sale of a 49.99% noncontrolling interest in the business, the income from District Energy was included in our consolidated federal income tax return, and District Energy filed a separate Illinois state income tax return.

Subsequent to the sale of the 49.99% noncontrolling interest, District Energy will file a separate federal income tax return, and will continue to file a separate Illinois state income tax return.

The business has approximately $26.0 million in federal and state NOL carryforwards available to offset positive taxable income. The business expects to have federal and state taxable income in 2011 and 2012, which will be wholly offset by NOL carryforwards.

Atlantic Aviation

Key Factors Affecting Operating Results
higher general aviation (“GA”) fuel volumes, partially offset by lower weighted average fuel margins;volumes;
lower selling, general and administrative expenses due to ongoing expense reduction initiatives; and
lower interest expense driven by reduced debt levels and lower swap breakage fees; andlevels; partially offset by
a decrease in other non-fuel revenue including hangar rental,primarily driven by lower tie-down and miscellaneous fixed based operations related-services.

 

TABLE OF CONTENTS

Atlantic Aviation – (continued)

        
 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
                                        
Fuel revenue  100,941   71,040   29,901   42.1   195,649   139,157   56,492   40.6 
Non-fuel revenue  36,552   40,004   (3,452  (8.6  81,893   89,068   (7,175  (8.1
Total revenue  137,493   111,044   26,449   23.8   277,542   228,225   49,317   21.6 
Cost of revenue
                                        
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  68,136   42,245   (25,891  (61.3  133,286   84,415   (48,871  (57.9
Fuel gross profit  36,392   31,572   4,820   15.3   70,902   62,222   8,680   14.0 
Non-fuel gross profit  32,965   37,227   (4,262  (11.4  73,354   81,588   (8,234  (10.1
Gross profit  69,357   68,799   558   0.8   144,256   143,810   446   0.3 
Selling, general and administrative expenses(2)  42,558   42,569   11      86,793   91,321   4,528   5.0 
Goodwill impairment     53,200   53,200   NM      71,200   71,200   NM 
Depreciation and amortization  13,885   19,729   5,844   29.6   28,223   61,117   32,894   53.8 
Operating income (loss)  12,914   (46,699  59,613   127.7   29,240   (79,828  109,068   136.6 
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                 (23,331  23,331   NM 
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  13,885   19,729             28,223   61,117           
Goodwill impairment     53,200                71,200           
Unrealized losses on derivative instruments                     23,331           
Other non-cash expenses (income)  558   (430          605   (367        
EBITDA excluding non-cash items  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.

14

 

TABLE OF CONTENTS

Atlantic Aviation – - (continued)

(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.
(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.

  
Quarter Ended
September 30,
    
Nine Months Ended
September 30,
   
  2010 
2009 (1)
  
Change
Favorable/(Unfavorable)
 2010 
2009 (1)
 
Change
Favorable/(Unfavorable)
 
  $ $  $ % $ $ $ % 
  ($ In Thousands) (Unaudited) 
Revenue                  
Fuel revenue  106,003  84,337   21,666  25.7  301,652  223,494  78,158  35.0 
Non-fuel revenue  35,877  39,843   (3,966) (10.0) 117,770  128,911  (11,141) (8.6)
Total revenue  141,880  124,180   17,700  14.3  419,422  352,405  67,017  19.0 
Cost of revenue                          
Cost of revenue-fuel  64,590  49,837   (14,753) (29.6) 189,337  126,772  (62,565) (49.4)
Cost of revenue-non-fuel  3,482  2,943   (539) (18.3) 12,021  10,423  (1,598) (15.3)
Total cost of revenue  68,072  52,780   (15,292) (29.0) 201,358  137,195  (64,163) (46.8)
                           
Fuel gross profit  41,413  34,500   6,913  20.0  112,315  96,722  15,593  16.1 
Non-fuel gross profit  32,395  36,900   (4,505) (12.2) 105,749  118,488  (12,739) (10.8)
Gross profit  73,808  71,400   2,408  3.4  218,064  215,210  2,854  1.3 
Selling, general and administrative expenses (2)
  42,969  43,413   444  1.0  129,762  134,734  4,972  3.7 
Goodwill impairment  -  -   -  -  -  71,200  71,200 NM 
Depreciation and amortization  13,879  14,245   366  2.6  42,102  75,362  33,260  44.1 
Operating income (loss)  16,960  13,742   3,218  23.4  46,200  (66,086) 112,286  169.9 
Interest expense, net (3)
  (12,938) (26,382)  13,444  51.0  (61,612) (57,822) (3,790) (6.6)
Other expense  (101) (109)  8  7.3  (645) (322) (323) (100.3)
Unrealized losses on derivative instruments  -  -   -  -  -  (23,331) 23,331 NM 
(Provision) benefit for income taxes  (1,580) 5,137   (6,717) (130.8) 6,471  59,467  (52,996) (89.1)
Net income (loss) (4)
  2,341  (7,612)  9,953  130.8  (9,586) (88,094) 78,508  89.1 
                           
Reconciliation of net income (loss) to EBITDA excluding non-cash items:             
Net income (loss) (4)
  2,341  (7,612)        (9,586) (88,094)      
Interest expense, net (3)
  12,938  26,382         61,612  57,822       
Provision (benefit) for income taxes  1,580  (5,137)        (6,471) (59,467)      
Depreciation and amortization  13,879  14,245         42,102  75,362       
Goodwill impairment  -  -         -  71,200       
Unrealized losses on derivative instruments  -  -         -  23,331       
Other non-cash expenses (income)  149  43         754  (324)      
EBITDA excluding non-cash items  30,887  27,921   2,966  10.6  88,411  79,830  8,581  10.7 
                           
EBITDA excluding non-cash items  30,887  27,921         88,411  79,830       
Interest expense, net (3)
  (12,938) (26,382)        (61,612) (57,822)      
Interest rate swap breakage fees (3)
  (1,484) (1,185)        (4,689) (7,862)      
Non-cash derivative (gains) losses recorded in interest expense (3)
  (1,602) 11,702         18,237  13,132       
Amortization of debt financing costs (3)
  753  815         2,225  2,341       
Provision/benefit for income taxes, net of changes in deferred taxes  (11) 9         (298) (253)      
Changes in working capital  (2,526) 4,407         136  14,659       
Cash provided by operating activities  13,079  17,287         42,410  44,025       
Changes in working capital  2,526  (4,407)        (136) (14,659)      
Maintenance capital expenditures  (1,774) (1,768)        (3,981) (3,563)      
Free cash flow  13,831  11,112   2,719  24.5  38,293  25,803  12,490  48.4 
                           
___________________
                          
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.
 
(3) Interest expense, net, includes non-cash gains (losses) on derivative instruments, non-cash amortization of deferred financing fees and interest rate swap breakage fees.
 
(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.
 
                           
Revenue and Gross Profit

The majority of the revenue and gross profit in Atlantic Aviation is generated through fueling general aviation aircraft at 68 airports and one heliport in the U.S. Revenue is categorized according to who owns the fuel used to service these aircraft. If our business owns the fuel, it records the cost to purchase that fuel as cost of revenue-fuel. The business’ corresponding fuel revenue is its 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.

Atlantic Aviation also has into-plane arrangements whereby it fuels aircraft with fuel owned by another party. It 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 miscellaneous services.

15

Atlantic Aviation - (continued)
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 occasionallysometimes move from one category to the other.

We believe

The business believes discussing total 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 an aggregate basis provides a more meaningful analysis of Atlantic Aviation.

Gross profit infor the first half ofnine months ended September 30, 2010 was essentially flatincreased 1.3% compared to the first half ofcomparable period in 2009 as a result of an increase in aggregate 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%4.0% increase in GA fuel volume, driven by increased business jet traffic and a relatively minor increase in market share. This was partially offset by a 1.9% decrease in weightedtraffic. Weighted average fuel margin driven by change inwas essentially flat compared to the relative volumes of customer segments, suchprevious year, 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 also reflects military-related fuel volume (at two airports) in 2009 which did not re-occurcompression in the first half of 2010 was offset by a 4.2% margin recovery in the third quarter.
Gross profit from other services decreased by 2.8% for the quarter ended September 30, 2010 compared to the comparable period in 2009 and 3.3% for the nine months ended September 30, 2010 compared to the comparable period in 2009, primarily driven by lower tie-down fees and miscellaneous revenue.
The year-on-year change in gross profit includes a number of events which will not reoccur in any given year, such as the G-20 meeting in Pittsburgh in 2009 and the temporary closure of the runway at Rifle airport in 2010. Excluding such events, GA fuel gross profit for the impact of the non-recurring military-related volume,quarter would have increased by 6.7% year-on-year. GA fuel volume would have increased 8.7%5.2% and weighted average fuel-relatedfuel related margin would have declined 4.2%increased 1.5%.  Gross profit from 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 attributable to the change in customer mix as noted above.

would have remained flat.

Selling, General and Administrative Expenses

The decrease in selling, general and administrative expenses is primarily due to a 2.8%2.2% reduction in underlying costs as a result of the ongoing cost reduction initiatives.

The decrease is also due to a $2.4 million increase in bad debt reserves in the first quarter of 2009 due to the deterioration of the accounts receivable aging related to acquisitions. Acquisition-related receivables have improved and ongoing accounts receivable have not deteriorated, and as a result the business has recorded no further significant bad debt reserve adjustments.

Atlantic Aviation expects selling, general and administrative expense to amount to approximatelybe less than $175.0 million for 2010.


 

TABLE OF CONTENTS

Atlantic Aviation – (continued)

Goodwill Impairment

The business performed an impairment test at the reporting unit level during the first half 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 induring the quarter andfirst six months ended June 30, 2009, respectively.of 2009. No impairment charge was recorded during 2010.

Depreciation and Amortization

Depreciation and amortization expense includes non-cash impairment charges of $5.1 million and $30.8 million induring the quarter andfirst six months ended June 30, 2009, respectively.

of 2009.

Interest Expense, Net

Interest expense, net, includes interest incurred on the business’ debt, amortization of deferred financing costs swap breakage fees associated with debt prepayment and non-cash lossesgains (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

16

Atlantic Aviation - (continued)
  
Quarter Ended
September 30,
     
Nine Months Ended
September 30,
    
  2010  2009  
Change
Favorable/(Unfavorable)
  2010  2009  
Change
Favorable/(Unfavorable)
 
  $  $  $  %  $  $  $  % 
  ($ In Thousands) 
                         
Interest income  -   (5)  (5) NM   (14)  (83)  (69)  (83.1)
Interest paid on debt facility  13,594   14,026   432   3.1   41,169   43,353   2,184   5.0 
Amortization of deferred financing costs  753   815   62   7.6   2,225   2,341   116   5.0 
Non-cash (gains) losses on derivative instruments  (1,602)  11,702   13,304   113.7   18,237   13,132   (5,105)  (38.9)
Less: capitalized interest  193   (156)  (349) NM   (5)  (921)  (916)  (99.5)
Total interest expense, net  12,938   26,382   13,444   51.0   61,612   57,822   (3,790)  (6.6)
___________________
                                
NM - Not meaningful                                

The decrease in interest paid on debt facility primarily reflects an aggregate $113.4$128.0 million of prepayments of the term loan principal since February 2009.

Income Taxes

Income generated by Atlantic Aviation is included in our consolidated federal income tax return. The business files 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.

While Atlantic 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,$397,000, of which $287,000$298,000 was recorded in the sixnine months ended JuneSeptember 30, 2010.

The business has 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 liabilities in the near future, even if consolidated state taxable income is less than $45.0 million.


 

TABLE OF CONTENTS

Liquidity and Capital Resources

Consolidated

Our primary cash requirements include normal operating expenses, debt service, debt principal payments and maintenance capital expenditures. Our primary source of cash is operating activities, although we could borrow against existing credit facilities for growth capital expenditures, issue additional LLC interests or sell assets to generate cash.

Until March 31, 2010,

We believe we achieved prudent levels of cash reserves at both our holding company and operating companies. In addition, our results of operations and balance sheet have improved sufficiently, along with improved capital market conditions, to give us confidence in our ability to refinance our debt on or before maturity. The precise timing and amount of any distribution will be based on the Company had a revolving credit facility provided by various financial institutions, including entities withincontinued stable performance of the Macquarie Group. The facility was repaid in full in December 2009Company’s businesses, the outcome of the budgeting process currently underway and no amounts were outstanding under the revolving credit facility as of December 31, 2009 oreconomic conditions prevailing at the facility’s maturity on March 31, 2010.

time of any authorization. Management believes that any distribution would be characterized as a dividend for tax purposes rather than as a return of capital.

We believe that our operating businesses will have sufficient liquidity and capital resources to meet future requirements, including servicing long-term debt obligations.obligations and making payments of distributions. We base our assessment of the sufficiency of our liquidity and capital resources on the following assumptions:

our businesses and investments overall generate, and will continue to generate, significant operating cash flow;
our businesses and investments overall generate, and will continue to generate, significant operating cash flow;
the ongoing maintenance capital expenditures associated with our businesses are modest and readily funded from their respective operating cash flow or available financing;
all significant short-term growth capital expenditures will be funded with cash on hand or from committed undrawn credit facilities; and
we will be able to refinance, extend and/or repay the principal amount of maturing long-term debt on terms that can be supported by our businesses.
all significant short-term growth capital expenditures will be funded with cash on hand or from committed undrawn credit facilities; and
we will be able to refinance, extend and/or repay the principal amount of maturing long-term debt on terms that can be supported by our businesses.

17


We 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, although the principal balance on the term loan debt at Atlantic Aviation is being prepaid using the excess cash generated by the business. At JuneSeptember 30, 2010, the average remaining maturity of the drawn balances of the primary debt facilities across all of our businesses, including our proportional interest in the revolving credit facility of IMTT, was approximately 4.03.8 years. In light of the improvement in the functioning of the credit markets generally, and the leverage and interest coverage ratios, we expect each of these businesses to successfully refinance their long-term debt on economically sensiblereasonable terms on or before maturity.
Until March 31, 2010, the Company had a revolving credit facility provided by various financial institutions, including entities within the Macquarie Group. The facility was repaid in full in December 2009 and no amounts were outstanding under the revolving credit facility as of December 31, 2009 or at maturity.

the facility’s maturity on March 31, 2010.

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.

Analysis of Consolidated Historical Cash Flows from Continuing Operations

    
 Six Months Ended June 30, Change
Favorable/(Unfavorable)
   2010 2009
   $ $ $ %
   ($ In Thousands)
Cash provided by operating activities  41,646   39,762   1,884   4.7 
Cash used in investing activities  (9,057  (11,772  2,715   23.1 
Cash used in financing activities  (30,625  (57,461  26,836   46.7 

 
  Nine Months Ended September 30,    
  2010  2009  
Change
Favorable/(Unfavorable)
 
  $  $  $  % 
  ($ In Thousands) 
Cash provided by operating activities  79,982   64,144   15,838   24.7 
Cash used in investing activities  (14,232)  (19,494)  5,262   27.0 
Cash used in financing activities  (56,023)  (53,911)  (2,112)  (3.9)
Operating Activities

Consolidated cash provided by operating activities 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, including 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 increase in consolidated cash provided by operating activities was primarily due to:

improved operating performance at Atlantic Aviation due to stable gross profit and cost savings;
a larger dividend received from IMTT;
improved operating results at the energy-related businesses; and
lower interest paid on the reduced term loan balance for Atlantic Aviation and no interest paid on holding company debt;debt.
decreased payment of interest rate swap breakage fees relating to the prepayment of the outstanding principal balance on Atlantic Aviation’s term loan debt; and
improved operating results at the energy-related businesses; partially offset by
a smaller dividend received from IMTT.

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 2010, $5.0$15.0 million in distributions were included in cash from operating activities compared with $7.0 million in dividends received in 2009.

Investing Activities

The decrease in consolidated cash used in investing activities was primarily due to:

lower capital expenditures at Atlantic Aviation and District Energy due to timing of projects;
cash received from the PCAA bankruptcy estate for expenses paid on behalf of PCAA during its operations; partially offset by
an
increase in capital expenditures at the energy-related businesses, primarily investment in capital leased assets at District Energy.Gas Company.

18

Financing Activities

The decreaseincrease in consolidated cash used in financing activities was primarily due to largerhigher net debt principal repayments in 2009 following the amendment of the Atlantic Aviation term loan debt facility on February 25, 2009,2010 as compared with the debt principal repayments made in 2010.

to 2009.

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 aton or before 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 capitalca pital expenditure and/or working capital facilities.

See below for further description of the cash flows related to our businesses.


 

TABLE OF CONTENTS

Energy-Related Businesses

IMTT

The following analysis represents 100% of the cash flows 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. Distributions from IMTT when IMTT records a net loss, or pays distributions in excess of our share of its earnings, are reflected in investing activities in our consolidated cash flow.

    
 Six Months Ended June 30, Change
Favorable/(Unfavorable)
   2010 2009
   $ $ $ %
   ($ In Thousands)
Cash provided by operating activities  68,677   66,836   1,841   2.8 
Cash used in investing activities  (37,171  (83,119  45,948   55.3 
Cash (used in) provided by financing activities  (28,018  29,960   (57,978  (193.5

  Nine Months Ended September 30,    
  2010  2009  
Change
Favorable/(Unfavorable)
 
  $  $  $  % 
  ($ In Thousands) 
Cash provided by operating activities  131,121   92,671   38,450   41.5 
Cash used in investing activities  (57,550)  (109,772)  52,222   47.6 
Cash (used in) provided by financing activities  (71,581)  15,260   (86,841) NM 
___________________
                
NM - Not meaningful                

Operating Activities

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, partially offset by an increase in working capital requirements in 2010.

2010 as compared to a decrease in 2009. Working capital declined in 2009 as we received payments from previously executedcompleted 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.

Investing Activities

Cash used in investing activities primarily relates to capital expenditures discussed below, as well as the payment of accrued purchases recorded in prior periods. Capital expenditures decreased from $66.0$92.6 million in 2009 to $34.4$55.8 million in 2010 primarily reflecting a reduction in growth capital expenditures.

19

Energy-Related Business:IMTT- (continued)
Maintenance Capital Expenditure

IMTT incurs maintenance capital expenditures to prolong the useful lives and increase the service capacity of existing revenue-producing assets. Maintenance capital expenditures includesinclude the refurbishment of storage tanks, piping, dock facilities, and environmental capital expenditures, principally in relation to improvements in containment measures and remediation.

During the sixnine months ended JuneSeptember 30, 2010 and 2009, IMTT incurred $19.0$29.2 million and $16.7$26.9 million, respectively, on maintenance capital expenditures, including (i) $16.6$23.6 million and $14.5$24.1 million, respectively, principally in relation to refurbishments of tanks, docks and other infrastructure and (ii) $2.4$5.6 million and $2.2$2.8 million, respectively, on environmental capital expenditures, principally in relation to improvements in containment measures and remediation.

For the full-year 2010, IMTT expects to spend approximately $45.0 million to $50.0 million on maintenance capital expenditures. IMTT anticipates that maintenance capital expenditures will remain at elevated levels through 2014.


 

TABLE OF CONTENTS

Energy-Related Business:IMTT – (continued)

Growth Capital Expenditure

During the first half ofnine months ended September 30, 2010, IMTT funded $15.4$26.6 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$65.7 million in the first halfnine months of 2009. The remainder
During the third quarter 2010, IMTT signed contracts to refurbish 1.2 million barrels of the announced spending will be largely completedstorage at a capital cost of $26.7 million that are expected to increase gross profit and EBITDA by December 31, 2010.

$4.3 million on an annualized basis.

As of JuneSeptember 30, 2010, IMTT has ongoing growth projects for the construction or refurbishment of 385,0001.9 million barrels of storage. The projects under construction or refurbishment are expected to have a total cost of $14.4$50.7 million and willare expected to contribute approximately $6.2$10.4 million to IMTT'sIMTT’s gross profit and EBITDA on an annualized basis. Of the $14.4$50.7 million, $9.9$43.7 million remained to be spent as of JuneSeptember 30, 2010.

In addition, IMTT is engaged in the construction or upgrade of storage related infrastructure. These projects are expected to cost $33.9$32.4 million, with $26.8$24.9 million remaining to be spent as of JuneSeptember 30, 2010.

IMTT continues to review numerous additional growth opportunities with an aggregate value between $200.0 million and $250.0 million and has been progressing on these opportunities. Discussions 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 from operations.

Financing Activities

Cash flows from financing activities decreased primarily due to net debt repayments in 2010 as compared with net borrowings in 2009.2009 and increase distributions to shareholders. In the first sixnine months of 2010, IMTT made a $5.0$15.0 million distributionof distributions to botheach of its shareholders, compared with $7.0 million in the first sixnine months of 2009.

At JuneSeptember 30, 2010, the outstanding balance on IMTT’s debt facilities, excluding capitalized leases, consisted of $338.6$231.6 million in revolving credit facilities, $251.3$336.3 million in tax exempt bonds and $32.6$31.9 million in 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 is 5.53%5.95%. Cash interest paid was $15.9$25.0 million and $14.2$22.1 million for 2010 and 2009, respectively.

On June 18, 2010, IMTT amended its revolving credit facility. The amendment increased the size of the facility from $625.0 million ($600.0 million U.S. dollar denominated and $25.0 million equivalent Canadian dollar denominated) to $1,100.0 million ($1,070.0 million U.S. dollar denominated 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.

In addition, the amendment removes a limitation on IMTT’s abilitynow allows IMTT to grant liens when entering into additional debt agreements. Specifically, IMTT may enter into additionalagree, in other debt agreements, and grant liens in relationthat if IMTT is ever required to suchcollateralize the revolving credit facility, it will collateralize the other debt agreements 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 plans.


 

TABLE OF CONTENTS

Energy-Related Business:On August 25, 2010, IMTT – (continued)

closed on $85.0 million of additional GO Zone Bonds. Proceeds from this issuance were used to partially repay the revolving credit facility. IMTT was awarded an additional $100.0 million and $27.4 million of GO Zone Bonds on August 19, 2010 and October 21, 2010, respectively. These will be issued in the fourth quarter of 2010 and proceeds will be used to partially repay the revolving credit facility and/or fund future projects. IMTT will continue to pursue additional opportunities to issue GO Zone Bonds.

The key terms of the amended credit facility$85.0 million of additional GO Zone Bonds issued 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 forin the changes discussed above, the termstable below.

Facility Term
Amount Outstanding$85.0 million
TermAugust 1, 2046
AmortizationN/A. Repayable in full at maturity.
Interest RateFloating at tax-exempt weekly tender rate.
SecurityUnsecured. Required to be supported at all times by
bank letter of credit.
Financial CovenantsNone.
Restrictions on Payments of DividendsNone.
20

Energy-Related Business:IMTT- (continued)
In addition, IMTT is pursuing an opportunity to sell GO Zone Bonds to banking institutions.  Once sold, these GO Zone Bonds will no longer need to be backed by a letter of credit and will incur a lower interest rate, equal to 68% of 30 day LIBOR plus 65% of the facility, including covenantsapplicable margin (per the revolving credit agreement).  To date, IMTT has received $140.0 million of commitments to purchase GO Zone Bonds from its existing banking syndicate and events of 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 June 30, 2010, were as follows:

USD/CAD Revolving Credit Facility
Debt to EBITDA Ratio: Max 4.75x
(at June 30, 2010: 3.03x)
EBITDA to Interest Ratio: Min 3.00x
(at June 30, 2010: 8.17x)

it continues to pursue additional commitments.
 

TABLE OF CONTENTS

The Gas Company

    
 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            

   
Nine Months Ended September 30,
    
  2010  2009  
Change
Favorable/(Unfavorable)
 
  $  $  $  % 
  ($ In Thousands) 
Cash provided by operating activities  22,859   16,477   6,382   38.7 
Cash used in investing activities  (5,680)  (4,816)  (864)  (17.9)
Cash (used in) provided by financing activities  (10,000)  10,000   (20,000) NM 
                 
___________________
                
NM - Not meaningful                
Operating 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 the business when services are rendered or when products are shipped.

The decreaseincrease from 2009 to 2010 was primarily due to higher inventory, lower accounts payable and timing of prepaid insurance payments, offset by improved operating results and lower revenue-based taxes.

cash funding of the business' pension plan in 2010 as compared to 2009.

Investing Activities

Cash used in investing activities is primarily comprised 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 Expenditure

Maintenance capital expenditures include replacement of pipeline sections, improvements to the business’ transmission system and SNG plant, improvements to buildings and other property and the purchase of equipment. These expenditures were higher compared to the prior year due to a higher level of pipeline renewals, expenditures for SNG plant components and facility upgrades.

Growth Capital Expenditure

Growth capital expenditures include the purchase of meters, regulators and propane tanks for new customers, the cost of installing pipelines for new residential and commercial construction and the renewable feedstock pilot program.

The following table sets forth information about capital expenditures in The Gas Company:

 Maintenance Growth
SixNine months ended JuneSeptember 30, 2009$1.8 million $1.33.1 million
Nine months ended September 30, 2010$1.8 million $2.33.8 million
Six months ended June 30, 2010$1.7 million$2.2 million
2010 full year projected$5.5 million $6.55.0 million
Commitments at JuneSeptember 30, 2010$302,000 $122,000$1.51.4 million


The business expects to fund its total 2010 capital expenditures from cash from operating activities and available debt facilities. Capital expenditures for 2010 are expected to be higher than previous years due to required pipeline maintenance and inspection involving the relocation and upgrade of two sections of the 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. The full year growth capital expenditure projection has been revised downward primarily due to a deferral of equipment for the renewable feedstock project. Commitments at JuneSeptember 30, 2010 primarily relate to the renewable feedstock project.

21

Energy-Related Business:The Gas Company- (continued)
Financing Activities

The main drivers for cash from financing activities are debt financings for capital expenditures and the repayment of outstanding credit facilities. At JuneSeptember 30, 2010, the outstanding balance on the business’ debt facilities consisted of $160.0 million in term loan facility borrowings and $19.0$9.0 million in capital expenditure facility borrowings. In July 2010, the business repaid $10.0 million of its capital expenditure facility borrowings.


 

TABLE OF CONTENTS

Energy-Related Business:The Gas Company – (continued)

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 JuneSeptember 30, 2010 is 4.85%was 5.09%. The business paid approximately $4.3$6.4 million in interest expense related to its debt facilities in 2010 and 2009.

The Gas Company also has an uncommitted unsecured short-term borrowing facility of $7.5 million that was renewed during the second quarter of 2010. This credit line bears interest at the lending bank’s quoted rate or prime rate. The facility is available for working capital needs. No amounts were outstanding as of JuneSeptember 30, 2010.

The main drivers for cash from financing activities are debt financings for capital expenditures and the repayment of outstanding credit facilities. There were no borrowings or repayments during the quarter.

The financial covenants triggering distribution lock-up or default under the business’ credit facility are as follows:

12 mo. look-forward and 12 mo. look-backward adjusted EBITDA/interest <3.5x (distribution lock-up) and <2.5x (default). The ratio at JuneSeptember 30, 2010 was 5.7x.6.9x.

Additionally, the HPUC requires the consolidated debt to total capital for HGC Holdings not to exceed 65.0% and $20.0 million to be readily available in cash resources at The Gas Company, HGC Holdings or MIC. At JuneSeptember 30, 2010, the debt to total capital ratio was 62.4%60.5% and $20.0 million in cash resources was readily available.

For a description of the material terms of The Gas Company’s credit facilities, see “Liquidity‘‘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, 2009. We have not had any material changes to these credit facilities since February 25, 2010, our 10-K filing date.

District Energy

The following analysis represents 100% of the cash flows of District Energy.

    
 Six Months Ended June 30, Change
Favorable/(Unfavorable)
   2010 2009
   $ $ $ %
   ($ In Thousands)
Cash provided by operating activities  2,561   4,841   (2,280  (47.1
Cash used in investing activities  (3,246  (3,403  157   4.6 
Cash (used in) provided by financing activities  (172  2,686   (2,858  (106.4

  Nine Months Ended September 30,    
  2010  2009  
Change
Favorable/(Unfavorable)
 
  $  $  $  % 
  ($ In Thousands) 
Cash provided by operating activities  9,878   9,563   315   3.3 
Cash used in investing activities  (3,642)  (5,447)  1,805   33.1 
Cash (used in) provided by financing activities  (406)  6,619   (7,025)  (106.1)

Operating Activities

Cash provided by operating activities is primarily driven primarily by customer receipts for services provided and leased equipment payments received (including non-revenue lease principal).  Cash used in operating activities is driven by the timing of payments for electricity, vendor services or supplies and the payment of payroll and benefit costs. The declineincrease in cash provided by operating activities was due primarily to improved operating results and timing of leased equipment payments received offset by a requirement that the business prepay a portion of its 2010 electricity supply contract one month in advance.  District Energy accepted these prepayment terms to minimize the overall per unit cost of electricity.  These cost savings are passed on to the business’ customers.  The business did not need to prepay its electricity cost under its 2009 supply contract nor will it need to prepay under the terms of its 2011 supply contract.


 

TABLE OF CONTENTS

Energy-Related Business:District Energy – (continued)

Investing Activities

Cash used in investing activities mainly comprises capital expenditures, which are generally funded by drawing on available facilities. Cash used in investing activities in 2009 and 2010 primarily funded growth capital expenditures for new customer connections and plant expansion.

22

Energy-Related Business:District Energy- (continued)
Maintenance Capital Expenditure

The business expects to spend approximately $1.0 million per year on capital expenditures relating to the replacement of parts, system reliability, customer service improvements and minor system modifications. Maintenance capital expenditures will be funded from available debt facilities and cash from operating activities.  These expenditures were higher in the first sixnine months of 2010 due to the timing of spend on ordinary course maintenance projects.

Growth Capital Expenditure

The following table summarizes growth capital expenditures committed by District Energy, as well as the gross profit and EBITDA expected to be generated by those expenditures. Of the $25.0 million total, approximately $24.2$24.3 million, or 97%, has been spent as of JuneSeptember 30, 2010.

   
 Capital Expenditure Cost Gross Profit/EBITDA(1) Expected Date for Gross Profit/EBITDA
   ($ in Millions)   
Chicago Plant and Distribution System Expansion $7.7           
New Chicago Customer Connections and Minor System Modifications  6.6           
   $    14.3  $    4.9   2007 – 2013 
Chicago Plant Renovation and Expansion  10.7   1.3   2009 – 2011 
Total $25.0  $6.2    

(1)Represents projected increases in annualized EBITDA in the first year following completion of the project.

  
Capital
Expenditure Cost
($ In Millions)
  
Gross
Profit/EBITDA
($ In Millions) (1)
  
Expected Date
for Gross
Profit/EBITDA
 
Chicago Plant and Distribution System Expansion $7.7       
New Chicago Customer Connections and          
  Minor System Modifications  6.6       
  $14.3  $4.9   2007 - 2013 
Chicago Plant Renovation and Expansion  10.7   1.3   2009 - 2012 
Total $25.0  $6.2     
             
___________________
            
(1) Represents projected increases in annualized Gross profit/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 the 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. As of August 4,October 21, 2010, the business has signed contracts 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 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 

MaintenanceGrowth
Nine months ended September 30, 2009$738,000$4.7 million
Nine months ended September 30, 2010$1.1 million$174,000
2010 full year projected$1.2 million$1.1 million
Commitments at September 30, 2010-$831,000

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 2009 as compared to 2010.


  The full year growth capital expenditures projection has been revised downward due to a delay in a customer connection to 2011.
 

TABLE OF CONTENTS

Energy-Related Business:District Energy – (continued)

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).

23

Energy-Related Business:District Energy- (continued)
Financing Activities

At JuneSeptember 30, 2010, the outstanding balance on the business’ debt facilities consisted of $170.0 million in term loan facilities.

In March 2009, District Energy 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 24.75 basis points, expired in 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 JuneSeptember 30, 2010, is 5.53%was 5.52%.  Cash interest paid was $4.9$7.3 million and $4.8$7.2 million for 2010 and 2009, respectively.

The decrease in cash provided by financing activities was primarily due to decreased borrowings under the business’ credit facility to finance growth and maintenance capital 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 triggering distribution lock-up or default under the business’ credit facility are as follows:
Backward Interest Coverage Ratio < 1.5x (distribution lock-up) and the calculation of these measures< 1.2x (default). The ratio at JuneSeptember 30, 2010 were as follows:

Backward Interest Coverage Ratio > 1.5x (distribution lock-up) and > 1.2x (debt default threshold). The ratio at June 30, 2010 was 2.5x.
was 2.4x.
Leverage Ratio (funds from operations less interest expense to net debt) for the previous 12 months equal to or greaterless than 6.0% (distribution lock-up) and 4.0% (debt default threshold)(default). The ratio at JuneSeptember 30, 2010 was 6.8%8.6%.

For a description of the material terms of District Energy’s credit facilities, see “Liquidity‘‘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, 2009. We have not had any material changes to these credit facilities since February 25, 2010, our 10-K filing date.

Atlantic Aviation

    
 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 

(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 Atlantic Aviation with a capital contribution of $50.0 million to pay down $44.6 million of debt. The remainder of the capital contribution was used to pay interest rate swap breakage fees and expenses. This contribution has been excluded from the above table as it is eliminated on consolidation.

 

TABLE OF CONTENTS

Atlantic Aviation – (continued)

  Nine Months Ended September 30,    
  2010  2009  
Change
Favorable/(Unfavorable)
 
  $  $  $  % 
  ($ In Thousands) 
Cash provided by operating activities  42,410   44,025   (1,615)  (3.7)
Cash used in investing activities  (5,511)  (9,232)  3,721   40.3 
Cash used in financing activities (1)
  (44,330)  (67,932)  23,602   34.7 
___________________
                
(1) During the first quarter of 2009, we provided Atlantic Aviation with a capital contribution of $50.0 million to pay down $44.6 million of debt. The remainder of the capital contribution was used to pay interest rate swap breakage fees and expenses. This contribution has been excluded from the above table as it is eliminated on consolidation.
 

Operating Activities
Operating cash at Atlantic Aviation is generated from sales transactions primarily paid by credit cards. Some customers have 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 increaseddecreased mainly due to:

a smaller reduction in working capital, partially offset by;
improved operating results due to stableincreasing gross profit and lower selling, general and administrative costs; and
reduced interest expense from lower debt levels; andlevels.
lower partial swap termination costs.

Working capital levels increased asdecreased in 2009 primarily due to a result of higher receivables, partially offset by improved collection cycles. The increasesubstantial reduction in the receivablesaccounts receivable balance, at June 30, 2010 is attributable to higher general aviation activities as compared with the prior comparable period.

which has been maintained in 2010.

24

Atlantic Aviation - (continued)
Investing Activities

Cash used in investing activities relates primarily to capital expenditures. The decrease in cash used in investing activity is primarily due to lower growth capital expenditures by the 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 Expenditure

Maintenance capital expenditures encompass repainting, replacing equipment as necessary and any ongoing environmental or required regulatory expenditure, such as installing safety equipment. These expenditures are generally funded from cash flow from operating activities.

Growth Capital Expenditure

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 facility or capital contributions from MIC.

The following table sets forth information about capital expenditures in Atlantic Aviation:

  
 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 

 Maintenance Growth
Nine months ended September 30, 2009$3.5 million $5.7 million
Nine months ended September 30, 2010$3.9 million $1.7 million
2010 full year projected$7.6 million $6.1 million
Commitments at September 30, 2010$58,000 $228,000

The decrease in growth capital expenditures from 2009 primarily relates to the completion of a terminal and ramp project in Nashville, Tennessee. The increase in the 2010 full year growth capital expenditures reflects the construction costs of a greenfield fixed based operation in Oklahoma City.

Financing Activities

At JuneSeptember 30, 2010, the outstanding balance on the business’ debt facilities consisted of $786.6$772.0 million in term loan facility borrowings, which is 100% hedged with interest rate swaps, and $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 on the term loan is 6.81%was 6.82%. The interest rate applicable on the capital expenditure facility is the three-month USU.S. Libor plus a margin of 1.60%. For the sixnine months ended JuneSeptember 30, 2010 and 2009, the business paid approximately $27.6$41.2 million and $29.3$43.4 million in interest expense, respectively, excluding interest rate swap breakage fees, related to its debt facilities.


 

TABLE OF CONTENTS

Atlantic Aviation – (continued)

The decrease in cash used in financing activities is primarily due to a larger debt prepayment in the first half of 2009. In the sixnine months ended JuneSeptember 30, 2010 and 2009, the business pre-paid $31.7$46.3 million and $60.6$72.6 million, respectively, of debt principal and $3.2$4.7 million and $6.7$7.9 million, respectively, of interest rate swap breakage fees.

In AugustNovember 2010, the business prepaid $9.0$8.7 million of term loan principal and incurred approximately $935,000$839,000 in swap breakage fees. As a result of this prepayment, the proforma leverage ratio would decrease to 7.27x7.04x based upon the trailing twelve months JuneSeptember 30, 2010 EBITDA, as calculated under the facility.

The financial covenant requirements under Atlantic Aviation’s credit facility, and the calculation of these measures at JuneSeptember 30, 2010, were as follows:

Debt Service Coverage Ratio > 1.2x (default threshold). The ratio at JuneSeptember 30, 2010 was 1.97x.1.98x.
Leverage Ratio debt to EBITDA for the trailing twelve months < 8.00x (default threshold). The ratio at JuneSeptember 30, 2010 was 7.35x.7.12x.

25

Atlantic Aviation - (continued)
In 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 apply all excess cash flow to prepay additional debt principal 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. The revised terms are outlined in “Liquidity‘‘Liquidity and Capital Resources”Resources’’, Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 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.

Commitments and Contingencies

At JuneSeptember 30, 2010 there were no material changes in our future commitments and contingencies from December 31, 2009, except for the mandatory prepayment we expect to make under the cash sweep terms of Atlantic Aviation’s credit facility from long-term debt to current portion of long-term debt in our consolidated condensed balance sheet.

Under the amended terms of Atlantic Aviation’s credit facility, the business will apply all excess cash flow from the business to prepay the debt principal for the foreseeable future. For the quarter and sixnine months ended JuneSeptember 30, 2010, Atlantic Aviation used $7.7$16.1 million and $34.9$51.0 million, respectively, of excess cash flow to prepay $7.0$14.6 million and $31.7$46.3 million, respectively, of the outstanding principal balance of the term loan debt under the facility and $695,000$1.5 million and $3.2$4.7 million, respectively, in interest rate swap breakage fees. Actual prepayment amounts in the periods beginning JuneSeptember 30, 2011 through the maturity of the facility will depend on the performance of the business.

In AugustNovember 2010, Atlantic Aviation used $9.9$9.5 million of excess cash flow to prepay $9.0$8.7 million of the outstanding principal balance of the term loan debt and incurred $935,000$839,000 in interest rate swap breakage fees.

See Note 9, “Long-Term Debt”8, ‘‘Long-Term Debt’’, to our consolidated condensed financial statements in Part I Item 1 of this Form 10-Q for further discussion.

At JuneSeptember 30, 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‘‘Liquidity and Capital Resources — Commitments and Contingencies”Contingencies’’ in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on February 25, 2010. We have not had any material changes to our commitments except as discussed above.


 

TABLE OF CONTENTS

In addition, at JuneSeptember 30, 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:

cash generated from our operations (see “Operating Activities”‘‘Operating Activities’’ in “Liquidity‘‘Liquidity and Capital Resources”Resources’’);
refinancing our current credit facilities on or before maturity (see “Financing Activities”‘‘Financing Activities’’ in “Liquidity‘‘Liquidity and Capital Resources”Resources’’); and
cash available from our undrawn credit facilities (see “Financing Activities”‘‘Financing Activities’’ in “Liquidity‘‘Liquidity and Capital Resources”Resources’’).

Critical Accounting Estimates

For critical accounting estimates, see “Critical‘‘Critical Accounting Estimates”Estimates’’ in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Our critical accounting estimates have not changed materially from the description contained in that Annual Report.

Goodwill, Intangible Assets and Property, Plant and Equipment

Significant assets acquired in connection with our acquisition of The Gas Company, District Energy and Atlantic 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.

26

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‘‘implied fair value”value’’ of goodwill. The determination of a reporting unit’s “implied‘‘implied fair value”value’’ of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of thet he reporting unit. Any unallocated fair value represents the “implied‘‘implied fair value”value’’ of goodwill, which is compared to its corresponding carrying value. The Gas Company, District Energy and Atlantic 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 considerationconsi deration of market trends such as technological obsolescence or change in market demand.


 

TABLE OF CONTENTS

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 Atlantic 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 by 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‘‘implied fair value”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 the first six months of 2009 relating to Atlantic Aviation is discussed in “Management’s‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations”Operations’’ in Part I Item 2 of this quarterly report on Form 10-Q.

New Accounting Pronouncements

See Note 3, “New‘‘New Accounting Pronouncements”Pronouncements’’, to our consolidated condensed financial statements in Part I, Item I of this Form 10-Q for details on new accounting pronouncements which is incorporated herein by reference.

Other Matters

The discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated condensed financial statements and the notes to those statements included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,”‘‘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 anticipateda nticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors”‘‘Risk Factors’’ in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 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.

27

Except as otherwise specified, “Macquarie‘‘Macquarie Infrastructure Company,” “we,” “us,”’’ ‘‘we,’’ ‘‘us,’’ and “our”‘‘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.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A “Quantitative‘‘Quantitative and Qualitative Disclosures about Market Risk”Risk’’ in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Our exposure to market risk has not changed materially since February 25, 2010, our 10-K filing date.


 

TABLE OF CONTENTS

Item 4. Controls and Procedures

Under the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of JuneSeptember 30, 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 sixnine months ended JuneSeptember 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

28

MACQUARIE INFRASTRUCTURE COMPANY LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
($ In Thousands, Except Share Data)
  
September 30,
 2010
  
December 31,
 2009
 
  (Unaudited)    
ASSETS      
Current assets:      
Cash and cash equivalents $37,037  $27,455 
Accounts receivable, less allowance for doubtful accounts        
of $411 and $1,629, respectively  51,045   47,256 
Inventories  15,125   14,305 
Prepaid expenses  7,171   6,688 
Income tax receivable  1,019   - 
Deferred income taxes  21,600   23,323 
Other  9,120   10,839 
Assets of discontinued operations held for sale  -   86,695 
Total current assets  142,117   216,561 
Property, equipment, land and leasehold improvements, net  565,761   580,087 
Restricted cash  13,780   16,016 
Equipment lease receivables  33,729   33,266 
Investment in unconsolidated business  211,662   207,491 
Goodwill  516,182   516,182 
Intangible assets, net  724,927   751,081 
Deferred financing costs, net of accumulated amortization  13,975   17,088 
Other  1,820   1,449 
Total assets $2,223,953  $2,339,221 
         
LIABILITIES AND MEMBERS' EQUITY        
Current liabilities:        
Due to manager - related party $2,466  $1,977 
Accounts payable  40,591   44,575 
Accrued expenses  20,919   17,432 
Current portion of notes payable and capital leases  235   235 
Current portion of long-term debt  52,745   45,900 
Fair value of derivative instruments  44,546   49,573 
Customer deposits  4,593   5,617 
Other  8,935   9,338 
Liabilities of discontinued operations held for sale  -   220,549 
Total current liabilities  175,030   395,196 
Notes payable and capital leases, net of current portion  1,232   1,498 
Long-term debt, net of current portion  1,103,199   1,166,379 
Deferred income taxes  154,163   107,840 
Fair value of derivative instruments  69,757   54,794 
Other  40,727   38,746 
Total liabilities  1,544,108   1,764,453 
Commitments and contingencies  -   - 
Members’ equity:        
LLC interests, no par value; 500,000,000 authorized; 45,715,448  LLC        
interests issued and outstanding at September 30, 2010 and 45,292,913 LLC
interests issued and outstanding at December 31, 2009
  964,430   959,897 
Additional paid in capital  20,727   21,956 
Accumulated other comprehensive loss  (29,422)  (43,232)
Accumulated deficit  (273,668)  (360,095)
Total members’ equity  682,067   578,526 
Noncontrolling interests  (2,222)  (3,758)
Total equity  679,845   574,768 
Total liabilities and equity $2,223,953  $2,339,221 
         
See accompanying notes to the consolidated condensed financial statements.
29

 
             
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS 
(Unaudited) 
($ In Thousands, Except Share and Per Share Data) 
             
             
  Quarter Ended  Nine Months Ended 
  
September 30,
2010
  
September 30,
2009 (1)
  
September 30,
2010
  
September 30,
2009 (1)
 
             
Revenue            
Revenue from product sales $129,217  $103,017  $374,412  $281,639 
Revenue from product sales - utility  28,232   26,056   83,517   67,637 
Service revenue  54,598   55,299   157,598   163,603 
Financing and equipment lease income  1,251   1,190   3,767   3,587 
                 
Total revenue   213,298   185,562   619,294   516,466 
                 
Costs and expenses                
Cost of product sales  78,843   61,923   235,784   162,334 
Cost of product sales - utility  22,467   20,088   66,931   52,024 
Cost of services  16,625   13,460   41,088   35,600 
Selling, general and administrative  50,486   50,054   150,742   154,922 
Fees to manager - related party  2,380   1,639   6,837   2,952 
Goodwill impairment  -   -   -   71,200 
Depreciation  6,973   7,177   21,897   29,597 
Amortization of intangibles  8,743   9,126   26,154   51,923 
Total operating expenses   186,517   163,467   549,433   560,552 
                 
Operating income (loss)  26,781   22,095   69,861   (44,086)
                 
Other income (expense)                
Interest income  2   7   22   108 
Interest expense (2)
  (24,844)  (39,308)  (98,505)  (74,977)
Equity in earnings and amortization charges                
     of investee  7,804   1,178   19,171   16,655 
Loss on derivative instruments  -   -   -   (25,238)
Other income, net  1,269   296   821   1,146 
Net income (loss) from continuing operations before             
   income taxes  11,012   (15,732)  (8,630)  (126,392)
(Provision) benefit for income taxes  (2,036)  (984)  12,541   36,403 
Net income (loss) from continuing operations $8,976  $(16,716) $3,911  $(89,989)
Net (loss) income from discontinued operations, net of taxes  -   (1,680)  81,199   (11,263)
Net income (loss) $8,976  $(18,396) $85,110  $(101,252)
Less: net income (loss) attributable to noncontrolling interests  34   (48)  (1,317)  (920)
Net income (loss) attributable to MIC LLC $8,942  $(18,348) $86,427  $(100,332)
                 
Basic income (loss) per share from continuing operations attributable         
to MIC LLC interest holders $0.20  $(0.38) $0.12  $(2.01)
Basic (loss) income per share from discontinued operations             
attributable to MIC LLC interest holders  -   (0.03)  1.78   (0.22)
Basic income (loss) per share attributable to MIC LLC interest holders $0.20  $(0.41) $1.90  $(2.23)
Weighted average number of shares outstanding: basic  45,715,448   45,006,771   45,493,982   44,969,093 
                 
Diluted income (loss) per share from continuing operations attributable         
to MIC LLC interest holders $0.20  $(0.38) $0.12  $(2.01)
Diluted (loss) income per share from discontinued operations             
attributable to MIC LLC interest holders  -   (0.03)  1.78   (0.22)
Diluted income (loss) per share attributable to MIC LLC interest holders $0.20  $(0.41) $1.90  $(2.23)
Weighted average number of shares outstanding: diluted  45,747,437   45,006,771   45,592,577   44,969,093 
___________________
(1) Reclassified to conform to current period presentation.
(2) Interest expense includes non-cash losses on derivative instruments of $3.8 million and $35.5 million for the quarter and nine months ended September 30, 2010, respectively, and non-cash losses of $17.9 million and $4.8 million for the quarter and nine months ended September 30, 2009, respectively.
See accompanying notes to the consolidated condensed financial statements.
30

 
       
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS 
(Unaudited) 
($ In Thousands) 
  
  Nine Months Ended 
  
September 30,
2010
  
September 30,
2009 (1)
 
       
Operating activities      
Net income (loss) $85,110  $(101,252)
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)  11,263 
Non-cash goodwill impairment  -   71,200 
Depreciation and amortization of property and equipment  26,807   34,103 
Amortization of intangible assets  26,154   51,923 
Equity in earnings and amortization charges of investees  (19,171)  (16,655)
Equity distributions from investees  15,000   7,000 
Amortization of debt financing costs  3,299   3,824 
Non-cash derivative loss  35,497   30,035 
Base management fees settled in LLC interests  2,189   2,490 
Equipment lease receivable, net  2,202   2,058 
Deferred rent  217   131 
Deferred taxes  (13,685)  (37,273)
Other non-cash expenses, net  2,908   423 
Changes in other assets and liabilities, net of acquisitions:        
Restricted cash  50   - 
Accounts receivable  (5,254)  6,913 
Inventories  (895)  776 
Prepaid expenses and other current assets  878   3,259 
Due to manager - related party  2,383   (3,464)
Accounts payable and accrued expenses  (221)  357 
Income taxes payable  (1,281)  (606)
Other, net  (1,006)  (2,361)
Net cash provided by operating activities from continuing operations  79,982   64,144 
         
Investing activities        
Purchases of property and equipment  (12,462)  (19,608)
Investment in capital leased assets  (2,400)  - 
Other  630   114 
Net cash used in investing activities from continuing operations  (14,232)  (19,494)
         
Financing activities        
Proceeds from long-term debt  -   10,000 
Net proceeds on line of credit facilities  -   9,250 
Contributions received from noncontrolling interests  300   - 
Distributions paid to noncontrolling interests  (1,935)  (381)
Payment of long-term debt  (56,336)  (72,620)
Debt financing costs paid  (186)  - 
Change in restricted cash  2,236   (33)
Payment of notes and capital lease obligations  (102)  (127)
Net cash used in financing activities from continuing operations  (56,023)  (53,911)
         
Net change in cash and cash equivalents from continuing operations  9,727   (9,261)
31

MACQUARIE INFRASTRUCTURE COMPANY LLC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS − (continued)
(Unaudited)
($ In Thousands)
  Nine Months Ended
September 30,
2010
September 30,
2009 (1)
Cash flows provided by (used in) discontinued operations:        
Net cash used in operating activities $(12,703) $(4,735)
Net cash provided by (used in) investing activities  134,356   (372)
Net cash (used in) provided by financing activities  (124,183)  2,354 
Cash used in discontinued operations (2)
  (2,530)  (2,753)
Change in cash of discontinued operations held for sale (2)
  2,385   (704)
         
Net change in cash and cash equivalents  9,582   (12,718)
Cash and cash equivalents, beginning of period  27,455   66,054 
         
Cash and cash equivalents, end of period - continuing operations $37,037  $53,336 
         
Supplemental disclosures of cash flow information for continuing operations:    
Non-cash investing and financing activities:        
Accrued purchases of property and equipment $1,208  $209 
         
Issuance of LLC interests to manager for base management fees $4,083  $2,490 
         
Issuance of LLC interests to independent directors $450  $450 
         
Taxes paid $2,059  $1,129 
         
Interest paid $59,737  $67,417 
___________________
(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 sheet. 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.
32

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.Organization and Description of Business
Macquarie Infrastructure Company LLC, a Delaware limited liability company, was formed on April 13, 2004. Macquarie Infrastructure Company LLC, both on an individual entity basis and together with its consolidated subsidiaries, is referred to in these financial statements as the ‘‘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 within 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 l isted on the Australian Stock Exchange.
The Company is an operating entity with a Board of Directors and other corporate governance responsibilities generally consistent with those 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 consist of the following:
The Energy-Related Businesses:
(i) a 50% interest in a bulk liquid storage terminal business (‘‘International Matex Tank Terminals’’ or ‘‘IMTT’’), which  provides bulk liquid storage and handling services at ten marine terminals in the United States and two in Canada and is one of the largest participants in this industry in the U.S., based on storage capacity;
(ii) a gas production and distribution business (‘‘The Gas Company’’), which is a full-service gas energy company, making gas products and services available in Hawaii; and
(iii) a 50.01% controlling interest in a district energy business (‘‘District Energy’’), which operates the largest district cooling system in the U.S., serving various customers in Chicago, Illinois and Las Vegas, Nevada.
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 the U.S.
2.Basis of Presentation
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 assumptions on an ongoing basis. Actual results may differ from the est imates and assumptions used in the financial statements and notes. Operating results for the quarter and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
The consolidated balance sheet at December 31, 2009 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, 2009 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 25, 2010.
33

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
3.New Accounting Pronouncements 
In April 2009, the Financial Accounting Standards Board, or FASB, issued ASC 825-10-65 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 methods and significant assumptions. The Company adopted this guidance during the second q uarter 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.
4.Income (Loss) Per Share 
Following is a reconciliation of the basic and diluted number of shares used in computing income (loss) per share:
  Quarter Ended September 30,  Nine Months Ended September 30, 
  2010  2009  2010  2009 
Weighted average number of shares outstanding: basic  45,715,448   45,006,771   45,493,982   44,969,093 
Dilutive effect of restricted stock unit grants  31,989   -   98,595   - 
Weighted average number of shares outstanding: diluted  45,747,437   45,006,771   45,592,577   44,969,093 

The effect of potentially dilutive shares for the quarter and nine months ended September 30, 2010 is calculated assuming that the 31,989 restricted stock unit grants provided to the independent directors on June 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 nine months ended September 30, 2009, due to the Company’s net loss for those periods.
5.     Discontinued Operations
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 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.
34

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
5.     Discontinued Operations - (continued)
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 nine months ended September 30, 2010 and 2009 are as follows:
  For the Quarter Ended September 30,  For the Nine Months Ended September 30, 
  2010  2009  2010  2009 
  ($ in Thousands, Except Share and Per Share Data) 
             
Service revenue $-  $16,965  $28,826  $51,011 
                 
Gain on sale of assets through bankruptcy (pre-tax)  -   -   130,260   - 
                 
Net (loss) income from discontinued operations before income taxes $-  $(2,337) $132,709  $(15,881)
Benefit (provision) for income taxes  -   657   (51,510)  4,618 
Net (loss) income from discontinued operations  -   (1,680)  81,199   (11,263)
Less: net (loss) income attributable to noncontrolling interests  -   (222)  136   (1,435)
Net (loss) income from discontinued operations attributable to MIC LLC $-  $(1,458) $81,063  $(9,828)
                 
Basic (loss) income per share from discontinued operations attributable to MIC LLC interest holders $-  $(0.03) $1.78  $(0.22)
Weighted average number of shares outstanding at the Company level: basic  45,715,448   45,006,771   45,493,982   44,969,093 
                 
Diluted (loss) income per share from discontinued operations attributable to MIC LLC interest holders $-  $(0.03) $1.78  $(0.22)
Weighted average number of shares outstanding at the Company level: diluted  45,747,437   45,006,771   45,592,577   44,969,093 
                 
35

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
6.     Property, Equipment, Land and Leasehold Improvements
Property, equipment, land and leasehold improvements at September 30, 2010 and December 31, 2009 consist of the following ($ in thousands):
  September 30, 2010  December 31, 2009 
Land $4,618  $4,618 
Easements  5,624   5,624 
Buildings  24,796   24,789 
Leasehold and land improvements  318,017   312,881 
Machinery and equipment  335,689   330,226 
Furniture and fixtures  9,546   9,395 
Construction in progress  16,790   16,519 
Property held for future use  1,561   1,561 
   716,641   705,613 
Less: accumulated depreciation  (150,880)  (125,526)
Property, equipment, land and leasehold improvements, net (1)
 $565,761  $580,087 
         
___________________        
(1) Includes $166,000 of capitalized interest for the nine months ended September 30, 2010 and $1.3 million for the year ended December 31, 2009. 

During the first six months of 2009, the Company recognized non-cash impairment charges of $7.5 million primarily relating to leasehold and land improvements; buildings; machinery and equipment; and furniture and fixtures at Atlantic Aviation. These charges are recorded in depreciation expense in the consolidated condensed statements of operations. There was no impairment charge during the nine months ended September 30, 2010.
7.    Intangible Assets
Intangible assets at September 30, 2010 and December 31, 2009 consist of the following ($ in thousands):
  
Weighted
Average Life
(Years)
  September 30, 2010  December 31, 2009 
Contractual arrangements 31.1  $774,309  $774,309 
Non-compete agreements 2.5   9,515   9,515 
Customer relationships 10.6   78,596   78,596 
Leasehold rights 12.5   3,331   3,331 
Trade names Indefinite   15,401   15,401 
Technology 5.0   460   460 
      881,612   881,612 
Less: accumulated amortization     (156,685)  (130,531)
Intangible assets, net    $724,927  $751,081 
            
As a result of a decline in the performance of certain asset groups during the first six months of 2009, 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 the discounted cash flow model. Accordingly, the Company recognized non-cash impairment charges of $23.3 million related to contractual arrangements at Atlantic Aviation during the first six months of 2009. These charges are recorded in amortization of intangibles in the consolidated condensed statement of operations. There was no impairment charge during the nine months ended September 30, 2010.
36

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
7.    Intangible Assets- (continued)
The goodwill balance as of September 30, 2010 and December 31, 2009 is comprised of the following ($ in thousands):
Goodwill acquired in business combinations, net of disposals $639,382 
Less: accumulated impairment charges  (123,200)
Balance at September 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 over the latter part of 2008 and the first half of 2009 caused the book value of the Company to exceed its market capitalization. In addition to its annual goodwill impairment testing conducted routinely on October 1st of each year, the Company performed goodwill impairment testing during the first six months of 2009 due to the triggering event of the Company’s stock price decline. Based on the testing performed, the Company recorded goodwill impairment charges of $71.2 million at Atlantic Aviation during the first six months of 2009, which is included in the accumulated impairment charges in the above table. There was no goodwill impairment charge during the nine months ended September 30, 2010.
37

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
8.    Long-Term Debt
At September 30, 2010 and December 31, 2009, the Company’s consolidated long-term debt consisted of the following ($ in thousands):
  September 30, 2010  December 31, 2009 
The Gas Company $169,000  $179,000 
District Energy  170,000   170,000 
Atlantic Aviation  816,944   863,279 
Total  1,155,944   1,212,279 
Less: current portion  (52,745  (45,900)
Long-term portion $1,103,199  $1,166,379 
         
Until March 31, 2010, MIC Inc. had a revolving credit facility with various financial institutions. The facility was repaid in full in December 2009 and no amounts were outstanding under the revolving credit facility as of December 31, 2009 or at the facility’s maturity on March 31, 2010.
On February 25, 2009, Atlantic Aviation amended its credit facility to provide the business additional financial flexibility over the near and medium term. Under 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 nine months ended September 30, 2010, Atlantic Aviation used $16.1 million and $51.0 million, respectively, of excess cash flow to prepay $14.6 million and $46.3 million, respectively, of the outstanding principal balance of the term loan debt under the facility and $1.5 million and $4. 7 million, respectively, in interest rate swap breakage fees. The Company has classified $52.7 million relating to Atlantic Aviation’s debt in current portion of long-term debt in the consolidated condensed balance sheet at September 30, 2010, as it expects to repay this amount within one year.
In November 2010, Atlantic Aviation used $9.5 million of excess cash flow to prepay $8.7 million of the outstanding principal balance of the term loan debt under this facility and incurred $839,000 in interest rate swap breakage fees.
9.    Derivative Instruments and Hedging Activities
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 the 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.
38

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
9.    Derivative Instruments and Hedging Activities - (continued)
At September 30, 2010, the Company had $1.2 billion of current and long-term debt, $1.1 billion of which was economically hedged with interest rate swaps and $73.9 million of which was unhedged.
As discussed in Note 8, ‘‘Long-Term Debt’’, Atlantic Aviation applies its excess cash flow to prepay debt. As a result, $1.5 million of accumulated other comprehensive loss in the consolidated condensed balance sheet related to Atlantic Aviation’s derivative instruments were reclassified to interest expense in the consolidated condensed statement of operations for the nine months ended September 30, 2010. Atlantic Aviation expects to record further reclassifications from accumulated other comprehensive loss to interest expense as the business continues to pay down its debt.
In March 2009, Atlantic Aviation, The Gas Company and District Energy entered into interest rate basis swap contracts that expired on March 31, 2010. These contracts effectively changed the interest rate index on each business’ existing swap contracts from the 90-day LIBOR rate to the 30-day LIBOR rate plus a margin of 19.50 basis points for Atlantic Aviation and 24.75 basis points for The Gas Company and District Energy. This transaction, adjusted for the prepayments of outstanding principal on the term loan debt at Atlantic Aviation, resulted in $580,000 and $1.8 million lower interest expense for these businesses for the quarter ended March 31, 2010 and the year ended December 31, 2009, respectively.
Effective February 25, 2009 for 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 portion of the other comprehensive loss recorded under hedge accounting is also reclassified into earnings. The Company will reclassify into earnings $50.1 million of net derivative losses, included in accumulated other compreh ensive loss as of September 30, 2010 over the remaining life of the existing interest rate swaps, of which approximately $22.1 million will be reclassified over the next 12 months.
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 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 sheets at September 30, 2010 and December 31, 2009 were as follows:
  
Liabilities at Fair Value (1)
 
  
Interest Rate Swap Contracts Not Designated as
Hedging Instruments
 
Balance Sheet Location September 30, 2010  December 31, 2009 
  ($ In Thousands) 
       
Fair value of derivative instruments - current liabilities $(44,546) $(49,573)
Fair value of derivative instruments - non-current liabilities  (69,757)  (54,794)
Total interest rate derivative contracts $(114,303) $(104,367)
         
___________________
        
(1) Fair value measurements at reporting date were made using significant other observable inputs ("level 2").
 
         
The Company’s hedging activities for the quarter and nine months ended September 30, 2010 and 2009 and the related location within the consolidated condensed financial statements were as follows:
39

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
9.    Derivative Instruments and Hedging Activities - (continued)
  
Derivatives Not Designated as
Hedging Instruments (1)
 
  
Amount of Loss Recognized in Interest Expense for
the Quarter Ended September 30,
 
Financial Statement Account 
2010 (2)
 
2009 (3)
 
  ($ In Thousands) 
Interest expense $(19,049) $(32,675)
Total $(19,049) $(32,675)
___________________        
(1) All derivatives are interest rate swap contracts.
(2) Loss recognized in interest expense for the quarter ended September 30, 2010 includes $13.7 million in interest rate swap payments and $5.3 million in unrealized derivative losses arising from:
 the change in fair value of interest rate swaps from the discontinuation of hedge accounting;
interest rate swap break fees related to the pay down of debt at Atlantic Aviation; and
the reclassification of amounts from accumulated other comprehensive loss into earnings, as Atlantic Aviation pays down its debt more quickly than anticipated.
(3) Loss recognized in interest expense for the quarter ended September 30, 2009 includes $19.1 million in unrealized derivative losses and $13.6 million in interest rate swap payments.
  
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
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
Interest Expense for the Nine
Months Ended September 30,
 
Financial Statement Account 2010  2009  2010  
2009 (2)
  2010  2009  
2010 (3)
 
2009 (4)
 
  ($ In Thousands) 
                         
Interest expense $-  -  $-  $(15,691) $-  $-  $(82,191) $(34,267)
Loss on derivative instruments  -   -   -   (25,154)  -   (84)  -   - 
Accumulated other comprehensive loss  -   2,848   -   -   -   -   -   - 
Total $-  2,848  $-  $(40,845) $-  $(84) $(82,191) $(34,267)
___________________                                
(1) All derivatives are interest rate swap contracts.
(2) Includes $22.7 million of accumulated other comprehensive losses reclassified into earnings (loss on derivative instruments) resulting from the $44.6 million repayment of debt principal at Atlantic Aviation in the first quarter of 2009. Interest expense represents cash interest paid on derivative instruments, of which $5.2 million is related to the payment of interest rate swap breakage fees in the first quarter of 2009.
(3)Loss recognized in interest expense for the nine months ended September 30, 2010 includes $42.0 million in interest rate swap payments and $40.2 million in unrealized derivative losses arising from:
•   the change in fair value of interest rate swaps from the discontinuation of hedge accounting;
•   interest rate swap break fees related to the pay down of debt at Atlantic Aviation; and
•   the reclassification of amounts from accumulated other comprehensive loss into earnings, as Atlantic Aviation pays down its debt more quickly than anticipated.
(4)Loss recognized in interest expense for the nine months ended September 30, 2009 includes $26.7 million in interest rate swap payments and $7.6 million in unrealized derivative losses.
All of the Company’s derivative instruments are collateralized by all of the assets of the respective businesses.
40

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
10.    Comprehensive Income (Loss)
Other comprehensive income (loss) includes primarily the change in fair value of derivative instruments which qualified for hedge accounting until the dates that hedge accounting was discontinued, as discussed in Note 9, ‘‘Derivative Instruments and Hedging Activities’’.
The difference between net income (loss) and comprehensive income (loss) for the quarter and nine months ended September 30, 2010 and 2009 was as follows ($ in thousands):
  Quarter Ended September 30,  Nine Months Ended September 30, 
  2010  2009  2010  2009 
             
Net income (loss) attributable to MIC LLC $8,942  $(18,348) $86,427  $(100,332)
Unrealized gain in fair value of derivatives, net of taxes  -   -   -   1,498 
Reclassification of realized losses into earnings, net of taxes  4,072   7,399   13,810   42,062 
Comprehensive income (loss) $13,014  $(10,949) $100,237  $(56,772)

For further discussion on derivative instruments and hedging activities, see Note 9, ‘‘Derivative Instruments and Hedging Activities’’.
11.    Members’ Equity
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.
12.    Reportable Segments 
The Company’s operations are broadly classified into the energy-related businesses and Atlantic Aviation. The energy-related businesses consist of two reportable segments: The Gas Company and District Energy. The energy-related businesses also include a 50% investment in IMTT, which is accounted for under the equity method. Financial information for IMTT’s business as a whole is presented below ($ in thousands) (unaudited):
  
Quarter Ended, and as of,
September 30,
  
Nine Months Ended, and as
of, September 30,
 
  2010  2009  2010  2009 
Revenue $182,202  $85,168  $447,475  $253,945 
                 
Net income $17,974  $4,721  $45,439  $40,407 
Interest expense, net  20,586   15,452   58,485   4,842 
Provision for income taxes  15,546   3,137   35,902   27,035 
Depreciation and amortization expense  16,602   13,457   46,136   39,735 
Unrealized gains on derivative instruments  -   -   -   (3,306)
Other non-cash (income) expense  (518)  378   (273)  (291)
EBITDA excluding non-cash items (1)
 $70,190  $37,145  $185,689  $108,422 
                 
Capital expenditures paid $20,487  $24,638  $57,658  $106,062 
Property, equipment, land and leasehold improvements, net  998,715   967,323   998,715   967,323 
Total assets balance  1,133,760   1,040,796   1,133,760   1,040,796 
___________________
(1)
EBITDA consists of earnings before interest, taxes, depreciation and amortization. Non-cash items that are excluded consist of impairments, derivative gains and losses and all
other non-cash income and expense items.
41

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12.    Reportable Segments - (continued)
All of the business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered.
Energy-Related Businesses
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 Company segment is included in revenue from product sales. 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 growth, will generally track global oil prices. The utility revenue of The 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 segment is included in service revenue and financing and equipment lease income. Included in service revenue is capacity 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. District Energy provides its services to buildings primarily in the downtown Chicago, Illinois area and to a casino and a shopping mall located in Las Vegas, Nevada.
Atlantic Aviation
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 Atlantic Aviation is generated in the United States at 68 airports and one heliport.
Selected information by 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, 2010 
  Energy-related Businesses       
  The Gas Company  District Energy  Atlantic Aviation  Total 
Revenue from Product Sales          
Product sales $23,214  $-  $106,003  $129,217 
Product sales - utility  28,232   -   -   28,232 
   51,446   -   106,003   157,449 
Service Revenue                
Other services  -   823   35,877   36,700 
Cooling capacity revenue  -   5,302   -   5,302 
Cooling consumption revenue  -   12,596   -   12,596 
   -   18,721   35,877   54,598 
Financing and Lease Income             
Financing and equipment lease  -   1,251   -   1,251 
   -   1,251   -   1,251 
Total Revenue $51,446  $19,972  $141,880  $213,298 
                 
42

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12.    Reportable Segments - (continued)
  Quarter Ended September 30, 2009 
  Energy-related Businesses     
  The Gas Company District Energy Atlantic Aviation Total 
Revenue from Product Sales          
Product sales $18,680  $-  $84,337  $103,017 
Product sales - utility  26,056   -   -   26,056 
   44,736   -   84,337   129,073 
Service Revenue                
Other services  -   832   39,843   40,675 
Cooling capacity revenue  -   5,224   -   5,224 
Cooling consumption revenue  -   9,400   -   9,400 
   -   15,456   39,843   55,299 
Financing and Lease Income             
Financing and equipment lease  -   1,190   -   1,190 
   -   1,190   -   1,190 
Total Revenue $44,736  $16,646  $124,180  $185,562 
                 
                 
  Nine Months Ended September 30, 2010 
  Energy-related Businesses     
  The Gas Company District Energy Atlantic Aviation Total 
Revenue from Product Sales             
Product sales $72,760  $-  $301,652  $374,412 
Product sales - utility  83,517   -   -   83,517 
   156,277   -   301,652   457,929 
Service Revenue                
Other services  -   2,490   117,770   120,260 
Cooling capacity revenue  -   15,835   -   15,835 
Cooling consumption revenue  -   21,503   -   21,503 
   -   39,828   117,770   157,598 
Financing and Lease Income             
Financing and equipment lease  -   3,767   -   3,767 
   -   3,767   -   3,767 
Total Revenue $156,277  $43,595  $419,422  $619,294 
                 
                 
  Nine Months Ended September 30, 2009 
  Energy-related Businesses     
  The Gas Company District Energy Atlantic Aviation Total 
Revenue from Product Sales             
Product sales $58,145  $-  $223,494  $281,639 
Product sales - utility  67,637   -   -   67,637 
   125,782   -   223,494   349,276 
Service Revenue                
Other services  -   2,331   128,911   131,242 
Cooling capacity revenue  -   15,231   -   15,231 
Cooling consumption revenue  -   17,130   -   17,130 
   -   34,692   128,911   163,603 
Financing and Lease Income             
Financing and equipment lease  -   3,587   -   3,587 
   -   3,587   -   3,587 
Total Revenue $125,782  $38,279  $352,405  $516,466 
43

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

12.    Reportable Segments - (continued)
In accordance with FASB ASC 280 Segment Reporting, the Company has disclosed earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items as a key performance metric relied on by management in the evaluation of the Company’s performance. Non-cash items include impairments, derivative gains and losses and adjustments for other non-cash items reflected in the statements of operations. The Company believes 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 distr ibutions to the holding company. EBITDA excluding non-cash items is reconciled to net income or loss.
During the quarter and nine months ended September 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 nine months ended September 30, 2009, have been conformed to current periods’ presentation reflecting EBITDA excluding all non-cash items.
EBITDA excluding non-cash items for the Company’s consolidated reportable segments is shown in the tables below ($ in thousands) (unaudited). Allocation of corporate expense and the federal tax effect have been excluded as they are eliminated on consolidation.
  Quarter Ended September 30, 2010 
  Energy-related Businesses       
  The Gas Company  District Energy  Atlantic Aviation  Total Reportable Segments 
Net income $2,391  $35  $2,341  $4,767 
Interest expense, net  5,047   6,862   12,938   24,847 
Benefit for income taxes  1,538   23   1,580   3,141 
Depreciation  1,286   1,639   5,687   8,612 
Amortization of intangibles  206   345   8,192   8,743 
Other non-cash expense  534   265   149   948 
EBITDA excluding non-cash items $11,002  $9,169  $30,887  $51,058 

             
  Quarter Ended September 30, 2009 
  Energy-related Businesses       
  The Gas Company  District Energy  Atlantic Aviation  Total Reportable Segments 
Net income (loss) $694  $(764) $(7,612) $(7,682)
Interest expense, net  5,406   6,623   26,382   38,411 
Benefit (provision) for income taxes  446   (500)  (5,137)  (5,191)
Depreciation  1,508   1,541   5,669   8,718 
Amortization of intangibles  205   345   8,576   9,126 
Other non-cash expense  510   179   43   732 
EBITDA excluding non-cash items $8,769  $7,424  $27,921  $44,114 
                 
44

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12.    Reportable Segments - (continued)
 Nine Months Ended September 30, 2010 
  Energy-related Businesses       
  The Gas Company  District Energy  Atlantic Aviation  Total Reportable Segments 
Net income (loss) $5,857  $(5,301) $(9,586) $(9,030)
Interest expense, net  15,780   20,866   61,612   98,258 
Benefit (provision) for income taxes  3,769   (3,464)  (6,471)  (6,166)
Depreciation  4,309   4,910   17,588   26,807 
Amortization of intangibles  617   1,023   24,514   26,154 
Other non-cash expense  1,599   652   754   3,005 
EBITDA excluding non-cash items $31,931  $18,686  $88,411  $139,028 
                 

 

TABLE OF CONTENTS

 Nine Months Ended September 30, 2009 
  Energy-related Businesses       
  The Gas Company  District Energy  
Atlantic Aviation (1)
  Total Reportable Segments 
Net income (loss) $8,327  $1,104  $(88,094) $(78,663)
Interest expense, net  6,774   6,850   57,822   71,446 
Benefit (provision) for income taxes  5,359   721   (59,467)  (53,387)
Depreciation  4,504   4,506   25,093   34,103 
Amortization of intangibles  631   1,023   50,269   51,923 
Goodwill impairment  -   -   71,200   71,200 
Loss on derivative instruments  327   1,378   23,331   25,036 
Other non-cash expense (income)  1,525   455   (324)  1,656 
EBITDA excluding non-cash items $27,447  $16,037  $79,830  $123,314 
                 
___________________                
(1) Includes non-cash impairment charges of $102.0 million recorded during the first six months of 2009, consisting of $71.2 million related to goodwill, $23.3 million related to intangible assets (in amortization of intangibles) and $7.5 million related to property, equipment, land and leasehold improvements (in depreciation).
 
Reconciliations of consolidated reportable segments’ EBITDA excluding non-cash items to consolidated net income (loss) from continuing operations before income taxes are as follows ($ in thousands) (unaudited):
  Quarter Ended September 30,  Nine Months Ended September 30, 
  2010  2009  2010  2009 
Total reportable segments EBITDA excluding non-cash items $51,058  $44,114  $139,028  $123,314 
Interest income  2   7   22   108 
Interest expense  (24,844)  (39,308)  (98,505)  (74,977)
Depreciation (1)
  (8,612)  (8,718)  (26,807)  (34,103)
Amortization of intangibles (2)
  (8,743)  (9,126)  (26,154)  (51,923)
Selling, general and administrative - corporate  (2,465)  (1,732)  (6,073)  (6,080)
Fees to manager  (2,380)  (1,639)  (6,837)  (2,952)
Equity in earnings and amortization charges of investees  7,804   1,178   19,171   16,655 
Goodwill impairment  -   -   -   (71,200)
Loss on derivative instruments  -   -   -   (25,238)
Other (expense) income, net  (808)  (508)  (2,475)  4 
Total consolidated net income (loss) from continuing operations before income taxes $11,012  $(15,732) $(8,630) $(126,392)
                 
___________________                
(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 non-cash impairment charges of $7.5 million recorded by Atlantic Aviation during the first six months of 2009.
 
(2) Amortization expense includes non-cash impairment charges of $23.3 million for contractual arrangements recorded by Atlantic Aviation during the first six months of 2009.
 
45

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12.    Reportable Segments - (continued)
Capital expenditures for the Company’s reportable segments were as follows ($ in thousands) (unaudited):
  Quarter Ended September 30,  Nine Months Ended September 30, 
  2010  2009  2010  2009 
The Gas Company $1,739  $1,334  $5,625  $4,915 
District Energy  396   2,044   1,242   5,447 
Atlantic Aviation  3,012   4,366   5,595   9,246 
Total $5,147  $7,744  $12,462  $19,608 
                 
Property, equipment, land and leasehold improvements, goodwill and total assets for the Company’s reportable segments as of September 30 were as follows ($ in thousands) (unaudited):
  
Property, Equipment, Land and
Leasehold Improvements
  Goodwill  Total Assets 
  2010  
2009 (1)
  2010  
2009 (2)
  2010  2009 
The Gas Company $144,400  $143,269  $120,193  $120,193  $352,474  $347,269 
District Energy  147,630   146,063   18,646   18,646   234,333   230,544 
Atlantic Aviation  273,731   289,157   377,343   377,343   1,437,767   1,497,028 
Total $565,761  $578,489  $516,182  $516,182  $2,024,574  $2,074,841 
                         
___________________                  
(1) Includes a non-cash impairment charge of $7.5 million recorded during the first six months of 2009 at Atlantic Aviation.
 
(2) Includes a non-cash goodwill impairment charge of $71.2 million recorded during the first six months of 2009 at Atlantic Aviation.
 
                         
Reconciliation of reportable segments’ total assets to consolidated total assets ($ in thousands) (unaudited):
  As of September 30, 
  2010  2009 
       
Total assets of reportable segments $2,024,574  $2,074,841 
Investment in IMTT  211,662   201,585 
Assets of discontinued operations held for sale  -   94,942 
Corporate and other  (12,283)  (6,493
Total consolidated assets $2,223,953  $2,364,875 
13.    Related Party Transactions
Management Services Agreement with Macquarie Infrastructure Management (USA) Inc. (the Manager)
As of September 30, 2010, the Manager held 3,797,557 LLC interests of the Company, which were acquired concurrently with the closing of the initial public offering in December 2004 and 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 nine months ended September 30, 2010 and 2009, the Company incurred base management fees of $6.8 million and $3.0 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 Manager elected to reinvest the base management fee of $2.2 million for the first quarter of 2010 in LLC interests and the Company issued 155,375 LLC interests to the Manager during the second quarter of 2010. The base management fee of $2.3 million for the se cond quarter of 2010 was paid in cash during the third quarter of 2010. The base management fee of $2.4 million for the third quarter of 2010 will be paid in cash during the fourth quarter of 2010.
46

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13.    Related Party Transactions- (continued)
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 nine months ended September 30, 2010 and 2009, the Manager charged the Company $255,000 and $192,000, respectively, for reimbursement of out-of-pocket expenses. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is included in due to manager-related party in the consolidated condensed balance s heet.
Advisory and Other Services from the Macquarie Group
The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited, or MBL, and Macquarie Capital (USA) Inc., or MCUSA, have provided various advisory and other services and incurred expenses in connection with the Company’s equity raising activities, acquisitions and debt structuring for the Company and its businesses. Underwriting fees are recorded in members’ equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are expensed as incurred. Debt arranging fees are deferred and amortized over the term of the credit facility. Amounts relating to these transactions comprise the following ($ in thousands):
Nine Months Ended September 30, 2010
 − Holding company debt restructuring advice provided by MCUSA in 2009$500
Long-Term Debt
Until March 31, 2010, the Company had a revolving credit facility provided by various financial institutions, including entities within the Macquarie Group. The facility was repaid in full during 2009 and no amounts were outstanding under the revolving credit facility as of December 31, 2009 or at the facility’s maturity on March 31, 2010. Amounts relating to the Macquarie Group’s portion of this revolving credit facility comprised of the following ($ in thousands):
Nine Months Ended September 30, 2010
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 December 31, 2009, the Company elected to reduce the available principal on its revolving credit facility from $97.0 million to $20.0 million. This resulted in a decrease in the Macquarie Group’s total commitment under its revolving credit facility from $21.6 million to $4.4 million.
(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.
Derivative Instruments and Hedging Activities
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 Atlantic Aviation and The Gas Company. At September 30, 2010, Atlantic Aviation had $772.0 million of its variable-rate term loans hedged, of which MBL provided the interest rate swaps for a notional amount of $270.0 million. The remainder of the swaps are from an unrelated third party. During the nine months ended September 30, 2010, Atlantic Aviation made net payments to MBL of $10.2 million in relation to these swaps.
47

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13.    Related Party Transactions- (continued)
As discussed in Note 8, ‘‘Long-Term Debt’’, for the nine months ended September 30, 2010, Atlantic Aviation paid $4.7 million in interest rate swap breakage fees, of which $467,000 was paid to MBL.
In November 2010, Atlantic Aviation used $9.5 million of excess cash flow to prepay $8.7 million of the outstanding principal balance of the term loan debt and incurred $839,000 in interest rate swap breakage fees, of which $29,000 was paid to MBL.
At September 30, 2010, The Gas Company had $160.0 million of its term loans hedged, of which MBL provided 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 nine months ended September 30, 2010, The Gas Company made net payments to MBL of $1.6 million in relation to these swaps.
Other Transactions
In September 2010, The Gas Company purchased casualty insurance coverage from insurance underwriters who pay commission to Macquarie Insurance Facility, or MIF, an indirect subsidiary of Macquarie Group Limited.  The Gas Company does not make any payments directly to MIF.
In August 2010, Macquarie AirFinance, or MAF, an indirect subsidiary of Macquarie Group Limited, parked an aircraft at one of Atlantic Aviation’s airports.  During the quarter ended September 30, 2010, Atlantic Aviation recorded $11,000 in revenue from MAF’s agent. As of September 30, 2010, there was no receivables balance outstanding from MAF.
During the nine months ended September 30, 2010, Atlantic Aviation entered into a copiers lease agreement with Macquarie Equipment Finance, or MEF, an indirect subsidiary of Macquarie Group Limited. For the nine months ended September 30, 2010, Atlantic Aviation incurred $25,000 in lease expense on these copiers.  As of September 30, 2010, Atlantic Aviation had payables to MEF of $1,000, which is included in accounts payable in the consolidated condensed balance sheet.
On March 30, 2009, The 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 Company’s customer base. No payments were made under these arrangements during the nine months ended September 30, 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 was an existing customer of Atlantic Aviation. For the nine months ended September 30, 2010, Atlantic Aviation recorded $12.4 million in revenue from Sentient. As of September 30, 2010, Atlantic Aviation had $126,000 in receivables from Sentient, which is included in accounts receivable in the consolidated condensed balance sheets. During the nine months ended September 30, 2010, Atlantic Aviation paid $15,000 to Sentient for ch arter services rendered.
In addition, the Company and several 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.
14.    Income Taxes
The Company expects to incur a net operating loss for federal consolidated income tax purposes for the year ending December 31, 2010. The Company believes that it will be able to utilize the projected federal and certain state consolidated 2010 and prior year net operating losses. Accordingly, the Company has not provided a valuation allowance against any deferred tax assets generated in 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.
48

MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
14.    Income Taxes - (continued)
In the first nine 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 nine months ended September 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 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.
Uncertain Tax Positions
At December 31, 2009, the Company and its subsidiaries had a reserve of approximately $336,000 for benefits taken during 2009 and prior tax periods attributable to tax positions for which the probability of recognition is considered to be less than more likely than not. There was no material change in that reserve as of September 30, 2010, and no material change is expected for the year ended December 31, 2010.
15.    Legal Proceedings and Contingencies
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, 2009, filed with the SEC on February 25, 2010.
16.  Subsequent Event

Atlantic Aviation has been in the process of bidding for an operating lease renewal at one of the Atlanta airports. This airport was previously operating under a month to month lease. In November 2010, the lease was awarded to another party. The results of operations at this airport are not material to Atlantic Aviation's consolidated results of operations.
49

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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, 2009, filed with the SEC on February 25, 2010.

Item 1A. Risk Factors

See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on February 25, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders [Reserved]

Item 5. Other Information

None.

Item 6. Exhibits

An exhibit index has been filed as part of this Report on page E-1.


 

50

TABLE OF CONTENTSSIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 MACQUARIE INFRASTRUCTURE COMPANY LLC
Dated: August 4,November 3, 2010By:

By:

/s/ James Hooke

Name: James Hooke
Title: Chief Executive Officer

Dated: August 4,November 3, 2010By:

By:

/s/ Todd Weintraub

Name: Todd Weintraub
Title: Chief Financial Officer


51

 

TABLE OF CONTENTS

EXHIBIT INDEX

 
Exhibit
Number
 Description
 2.1* 10.1* Asset PurchaseLoan Agreement, dated as of April 29,August 1, 2010, among PCAA Parent,between the Louisiana Public Facilities Authority, as issuer, and IMTT-Finco, LLC, its subsidiaries listed onrelating to the signature pages thereto and Commercial Finance Services 2907 Inc.
10.1* Second Amendment to Revolving Credit Agreement, dated asissuance of June 18, 2010, by and among International-Matex Tank Terminals, IMTT-BAYONNE, IMTT-QUEBEC INC. and IMTT-NTL, LTD., the several banks and other financial institutions from time to time party hereto, Suntrust Bank, in its capacity as administrative agent for the Lenders, as the U.S. issuing bank and as swingline lender, and Royal Bank$85.0 million aggregate principal amount of Canada, as Canadian funding agent for the Canadian Lenders and as the Canadian issuing bank.GO Zone bonds.
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