Exhibit 99.1
EXPLANATORY NOTE
FTAI Infrastructure Inc. is filing this exhibit (this “Exhibit”) to reflect changes to the presentation of its financial information as set forth in its Information Statement, as filed in Exhibit 99.1 to Form 8-K with the Securities and Exchange Commission on July 15, 2022. This Exhibit is being filed to present retrospectively revised segment reporting financial information to reflect changes implemented during the third quarter of 2022, as described in FTAI Infrastructure Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2022. In addition, select material events related to the spin-off that occurred after the filing of the Information Statement have been included in Note 19 to the combined consolidated financial statements. No other changes have been made to the Information Statement. This Exhibit does not modify or update in any way the disclosures made in the Information Statement other than as required to reflect the revised segment information and to present certain subsequent events. References to the Information Statement or the combined consolidated financial statements included herein are to the Form 10 as revised by this Exhibit.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited combined consolidated financial statements of the Company for the years ended December 31, 2021, 2020 and 2019 appearing elsewhere in this Information Statement. These historical financial statements do not give effect to the spin-off or reflect any other pro forma adjustments relating to the spin-off. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Special Note Regarding Forward-Looking Statements,” “Risk Factors” within the Information Statement, as filed in Exhibit 99.1 to Form 8-K with the Securities and Exchange Commission on July 15, 2022 and elsewhere in this Information Statement. All amounts are presented in thousands unless otherwise noted. Unless the context requires otherwise, references use in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “FTAI Infrastructure,” the “Company,” “we,” “our,” “us,” and other similar terms refer to the infrastructure business of FTAI before giving effect to the spin-off.
Overview
We are in the business of acquiring, developing and operating assets and businesses that represent critical infrastructure for customers in the transportation and energy industries. We were formed as FTAI Infrastructure LLC, a Delaware limited liability company and subsidiary of FTAI, on December 13, 2021. Prior to the completion of the spin-off, we will convert into FTAI Infrastructure Inc., a Delaware corporation, and will hold all the material assets and investments that comprise FTAI’s infrastructure business. Prior to the spin-off, we are a subsidiary of FTAI, which is a Nasdaq-listed company that is externally managed and advised by our Manager.
Our operations consist of four primary business lines: (i) Railroad, (ii) Ports and Terminals (iii) Power and Gas and (iv) Sustainability and Energy Transition. Our Railroads business primarily invests in and operates short line and regional railroads in North America. Our Ports and Terminals business, consisting of our Jefferson Terminal and Repauno segments, develops or acquires industrial properties in strategic locations that store and handle for third parties a variety of energy products including crude oil, refined products and clean fuels. Our Power and Gas business develops and operates facilities, such as a 485 megawatt power plant at our Long Ridge terminal in Ohio through our equity method investment, that leverage the property’s location and key attributes to generate incremental value. Our Sustainability and Energy Transition business focuses on investments in companies and assets that utilize green technology, produce sustainable fuels and products or enable customers to reduce their carbon footprint. For the year ended December 31, 2021, (i) our Railroads business accounted for 52% of our total revenue (ii) our Ports and Terminals business accounted for 48% of our total revenue, (iii) our Power and Gas business accounted for 0% of our total revenue and (iv) our Sustainability and Energy Transition business accounted for 0% of our total revenue.
We expect to continue to invest in such market sectors, and pursue additional investment opportunities in other infrastructure businesses and assets we believe to be attractive and meet our investment objectives. Our team focuses on acquiring a diverse group of long-lived assets or operating businesses that provide mission-critical services or functions to infrastructure networks and typically have high barriers to entry, strong margins, stable cash flows and upside from earnings growth and asset appreciation driven by increased use and inflation. We believe that there are a large number of acquisition opportunities in our markets and that our Manager’s expertise and business and financing relationships, together with our access to capital and generally available capital for infrastructure projects in today’s marketplace, which will allow us to take advantage of these opportunities. As of December 31, 2021, we had total consolidated assets of $2,442 million and total equity of $1,462 million. For the year ended December 31, 2021, reflecting the acquisition of Transtar and separation of FTAI’s infrastructure business from FTAI, on a pro forma basis, we had net loss attributable to shareholders of $161.1 million.
The Spin-Off
FTAI Infrastructure LLC, a Delaware limited liability company and subsidiary of FTAI, will convert into FTAI Infrastructure Inc., a Delaware corporation, which will hold, directly or indirectly, all of FTAI’s infrastructure business comprised of (i) the Jefferson Terminal, a multi-modal crude oil and refined products terminal in Beaumont, Texas, (ii) Repauno, a deep-water port located along the Delaware River with an underground storage cavern, a new multipurpose dock, a rail-to-ship transloading system and multiple industrial development opportunities, (iii) Long Ridge, an equity method investment in a multi-modal terminal located along the Ohio River with multiple industrial development opportunities, including a power plant, (iv) Transtar, comprising five freight railroads and one switching company that provide rail service to certain manufacturing and production facilities, (v) Aleon and Gladieux, an equity method investment in two ventures developing battery and metal recycling technology, (vi) KRS, a tank car cleaning and repair business, (vii) Clean Planet USA, a green-tech company that is developing recycling facilities to process traditionally non-recyclable waste plastics in key North American markets, (viii) FYX, an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries, (ix) CarbonFree, a business that develops technologies to capture carbon dioxide from industrial emissions sources, and (x) Containers, which consists of containers that are owned and leased. As part of the spin-off, these infrastructure businesses will be contributed to or merged into a new holding company which will result in the infrastructure business being considered the predecessor of the newly formed FTAI Infrastructure. The separation of FTAI Infrastructure from FTAI and the distribution of FTAI Infrastructure common stock are intended to create two independent companies, enhance investor transparency, better highlight the attributes of both companies and allow for tailored capital structure and financing options. FTAI and FTAI Infrastructure expect that the separation will result in enhanced long-term performance of each business for the reasons discussed in the section entitled “Our Spin-Off from FTAI—Reasons for the Spin-Off” within the Information Statement, as filed in Exhibit 99.1 to Form 8-K with the Securities and Exchange Commission on July 15, 2022. In connection with the spin-off transaction, FTAI is being treated as the accounting spinnor, consistent with the legal form of the transaction.
Under the plan, FTAI will spin-off its infrastructure business by way of a pro-rata distribution of its interest in the common stock of our Company to FTAI shareholders of record as of the close of business on the spin-off transaction record date.
Impact of COVID-19
The ongoing COVID-19 pandemic adversely affected our Jefferson Terminal business in several material ways during the years ended December 31, 2020 and 2021. Although difficult to quantify the impact, the pandemic adversely affected macro trends in refinery utilization rates in the United States and the global consumption of petroleum and liquid fuels in 2020 and part of 2021, which adversely affected our revenues for our Jefferson Terminal business. In addition, we were unable to complete certain new customer contracts and certain of our existing customers did not increase volumes as anticipated which also adversely affected our revenues for those periods.
Due to the outbreak of COVID-19, we have taken measures to protect the health and safety of our employees, including having employees work remotely, where possible. As COVID-19 continues to evolve, the extent to which COVID-19 impacts operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to try and contain COVID-19 or treat its impact. We continue to monitor the pandemic and, the extent to which the continued spread of the virus adversely affects our customer base and therefore revenue. As the COVID-19 pandemic is complex and rapidly evolving, our plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could have a material adverse impact on our business, results of operations, financial position and cash flows.
For additional detail, see “Risk Factors— A pandemic, including COVID-19, could have an adverse impact on our business, financial condition, and results of operations” within the Information Statement, as filed in Exhibit 99.1 to Form 8-K with the Securities and Exchange Commission on July 15, 2022.
Operating Segments
Prior to the third quarter of 2022, we operated as three reportable segments. During the third quarter of 2022, we reorganized our historical operating segments into five operating segments as described below. Additionally, during the third quarter of 2022, we modified our definition of Adjusted EBITDA to exclude the impact of interest costs on pension and other post-employment benefit (“OPEB”) liabilities. All segment data and related disclosures for earlier periods presented herein have been recast to reflect the new segment reporting structure.
Our reportable segments represent strategic business units comprised of investments in different types of infrastructure assets. We have five reportable segments which operate in infrastructure businesses across several market sectors, all in North America. Our reportable segments are (i) Railroad, (ii) Jefferson Terminal, (iii) Repauno, (iv) Power and Gas and (v) Sustainability and Energy Transition. The Railroad segment is comprised of five freight railroads and one switching company that provide rail service to certain manufacturing and production facilities, in addition to KRS, a railcar cleaning operation. The Jefferson Terminal segment consists of a multi-modal crude oil and refined products terminal and other related assets. The Repauno segment consists of a 1,630-acre deep-water port located along the Delaware River with an underground storage cavern, a new multipurpose dock, a rail-to-ship transloading system and multiple industrial development opportunities. The Power and Gas segment is comprised of an equity method investment in Long Ridge, which is a 1,660-acre multi-modal port located along the Ohio River with rail, dock, and multiple industrial development opportunities, including a power plant in operation. The Sustainability and Energy Transition segment is comprised of Aleon/Gladieux, Clean Planet, and CarbonFree, and all three investments are development stage businesses focused on sustainability and recycling.
Corporate and Other primarily consists of corporate general and administrative expenses, management fees and debt, all allocated from the Parent. Additionally, Corporate and Other includes an investment in an unconsolidated entity engaged in the acquisition and leasing of shipping containers and an investment in an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries.
Results of Operations
Adjusted EBITDA (non-GAAP)
The chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as the key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance, as well as making resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance.
Adjusted EBITDA is defined as net income (loss) attributable to FTAI Infrastructure, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, depreciation and amortization expense, interest expense, and interest costs on pension and OPEB liabilities, (b) to include the impact of our pro-rata share of Adjusted EBITDA from unconsolidated entities, and (c) to exclude the impact of equity in earnings (losses) of unconsolidated entities and the non-controlling share of Adjusted EBITDA.
The following table presents our combined consolidated results of operations:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Revenues | | | | | | | | | | | | | | | |
| Lease income | | $ | 2,424 | | | $ | 1,186 | | | $ | 3,362 | | | $ | 1,238 | | | $ | (2,176 | ) |
| Rail revenues | | | 61,514 | | | | 4,424 | | | | 2,917 | | | | 57,090 | | | | 1,507 | |
| Terminal services revenues | | | 45,038 | | | | 50,887 | | | | 42,965 | | | | (5,849 | ) | | | 7,922 | |
| Crude marketing revenues | | | — | | | | 8,210 | | | | 166,134 | | | | (8,210 | ) | | | (157,924 | ) |
| Other revenue | | | 11,243 | | | | 3,855 | | | | 14,074 | | | | 7,388 | | | | (10,219 | ) |
| Total revenues | | | 120,219 | | | | 68,562 | | | | 229,452 | | | | 51,657 | | | | (160,890 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 98,541 | | | | 69,391 | | | | 260,909 | | | | 29,150 | | | | (191,518 | ) |
| General and administrative | | | 8,737 | | | | 8,522 | | | | 7,469 | | | | 215 | | | | 1,053 | |
| Acquisition and transaction expenses | | | 14,826 | | | | 1,658 | | | | 9,134 | | | | 13,168 | | | | (7,476 | ) |
| Management fees and incentive allocation to affiliate | | | 15,638 | | | | 13,073 | | | | 16,541 | | | | 2,565 | | | | (3,468 | ) |
| Depreciation and amortization | | | 54,016 | | | | 31,114 | | | | 33,128 | | | | 22,902 | | | | (2,014 | ) |
| Asset impairment | | | — | | | | — | | | | 4,726 | | | | — | | | | (4,726 | ) |
| Total expenses | | | 191,758 | | | | 123,758 | | | | 331,907 | | | | 68,000 | | | | (208,149 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Other (expense) income | | | | | | | | | | | | | | | | | | | | |
| Equity in losses of unconsolidated entities | | | (13,499 | ) | | | (3,107 | ) | | | (546 | ) | | | (10,392 | ) | | | (2,561 | ) |
| Gain (loss) on sale of assets, net | | | 16 | | | | (8 | ) | | | 121,296 | | | | 24 | | | | (121,304 | ) |
| Loss on extinguishment of debt | | | — | | | | (4,724 | ) | | | — | | | | 4,724 | | | | (4,724 | ) |
| Interest expense | | | (16,019 | ) | | | (10,764 | ) | | | (17,907 | ) | | | (5,255 | ) | | | 7,143 | |
| Other (expense) income | | | (8,930 | ) | | | 92 | | | | 2,857 | | | | (9,022 | ) | | | (2,765 | ) |
| Total other (expense) income | | | (38,432 | ) | | | (18,511 | ) | | | 105,700 | | | | (19,921 | ) | | | (124,211 | ) |
| (Loss) income before income taxes | | | (109,971 | ) | | | (73,707 | ) | | | 3,245 | | | | (36,264 | ) | | | (76,952 | ) |
| (Benefit from) provision for income taxes | | | (3,630 | ) | | | (1,984 | ) | | | 14,384 | | | | (1,646 | ) | | | (16,368 | ) |
| Net loss | | | (106,341 | ) | | | (71,723 | ) | | | (11,139 | ) | | | (34,618 | ) | | | (60,584 | ) |
| Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | | | (26,472 | ) | | | (16,522 | ) | | | (17,571 | ) | | | (9,950 | ) | | | 1,049 | |
| Net (loss) income attributable to FTAI Infrastructure | | $ | (79,869 | ) | | $ | (55,201 | ) | | $ | 6,432 | | | $ | (24,668 | ) | | $ | (61,633 | ) |
The following table sets forth a reconciliation of net (loss) income attributable to FTAI Infrastructure to Adjusted EBITDA:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Net (loss) income attributable to FTAI Infrastructure | | $ | (79,869 | ) | | $ | (55,201 | ) | | $ | 6,432 | | | $ | (24,668 | ) | | $ | (61,633 | ) |
| Add: (Benefit from) provision for income taxes | | | (3,630 | ) | | | (1,984 | ) | | | 14,384 | | | | (1,646 | ) | | | (16,368 | ) |
| Add: Equity-based compensation expense | | | 4,038 | | | | 2,325 | | | | 1,509 | | | | 1,713 | | | | 816 | |
| Add: Acquisition and transaction expenses | | | 14,826 | | | | 1,658 | | | | 9,134 | | | | 13,168 | | | | (7,476 | ) |
| Add: Losses on the modification or extinguishment of debt and capital lease obligations | | | — | | | | 4,724 | | | | — | | | | (4,724 | ) | | | 4,724 | |
| Add: Changes in fair value of non-hedge derivative instruments | | | (2,220 | ) | | | 181 | | | | 4,555 | | | | (2,401 | ) | | | (4,374 | ) |
| Add: Asset impairment charges | | | — | | | | — | | | | 4,726 | | | | — | | | | (4,726 | ) |
| Add: Incentive allocations | | | — | | | | — | | | | 5,819 | | | | — | | | | (5,819 | ) |
| Add: Depreciation & amortization expense | | | 54,016 | | | | 31,114 | | | | 33,128 | | | | 22,902 | | | | (2,014 | ) |
| Add: Interest expense | | | 16,019 | | | | 10,764 | | | | 17,907 | | | | 5,255 | | | | (7,143 | ) |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) | | | 29,095 | | | | 3,140 | | | | 442 | | | | 25,955 | | | | 2,698 | |
| Add: Interest costs on pension and OPEB liabilities | | | 445 | | | | — | | | | — | | | | 445 | | | | — | |
| Less: Equity in losses of unconsolidated entities | | | 13,499 | | | | 3,107 | | | | 546 | | | | 10,392 | | | | 2,561 | |
Less: Non-controlling share of Adjusted EBITDA (2) | | | (12,508 | ) | | | (9,637 | ) | | | (9,859 | ) | | | (2,871 | ) | | | 222 | |
| Adjusted EBITDA (non-GAAP) | | $ | 33,711 | | | $ | (9,809 | ) | | $ | 88,723 | | | $ | 43,520 | | | $ | (98,532 | ) |
(1) | Includes the following items for the years ended December 31, 2021, 2020 and 2019: (i) net loss of $(11,839), $(3,503) and $(734), (ii) interest expense of $5,612, $1,138 and $131, (iii) depreciation and amortization expense of $12,443, $5,513 and $1,045, (iv) acquisition and transaction expense of $104, $581 and $—, (v) changes in fair value of non-hedge derivative instruments of $19,850, $(589) and $—, (vi) asset impairment of $2,146, $— and $— and (vii) equity-based compensation of $779, $— and $—, respectively. |
(2) | Includes the following items for the years ended December 31, 2021, 2020 and 2019: (i) equity-based compensation of $751, $374 and $230, (ii) provision for income taxes of $52, $59 and $60, (iii) interest expense of $3,370, $2,025 and $3,400, (iv) depreciation and amortization expense of $8,411, $6,149, and $4,833, (v) changes in fair value of non-hedge derivative instruments of $(76), $38 and $1,336 and (vi) loss on extinguishment of debt of $—, $992 and $—, respectively. |
Comparison of the years ended December 31, 2021 and 2020
Revenues
Rail revenue increased $57.1 million due to the acquisition of Transtar in July 2021.
Crude marketing revenues decreased $8.2 million. In 2019, Jefferson directly sourced crude from producers in Canada, arranging logistics to its terminal and then marketing crude to third parties to take advantage of favorable spreads. The resulting crude sales and corresponding costs of sale, including logistical costs, are reflected in crude marketing revenues and operating expenses, respectively. Jefferson Terminal exited this crude marketing strategy in the fourth quarter of 2019 as a result of unfavorable oil spreads and as certain logistical commitments expired. All activities related to crude marketing revenues were terminated in 2019. All crude marketing revenues in 2020 include contracts executed in 2019 but delivered in 2020.
Other revenue increased $7.4 million primarily due to (i) an increase in butane sales of $5.2 million at Repauno, (ii) a gain of $2.2 million on butane forward purchase contracts at Repauno and (iii) an increase of $0.4 million due to the commencement of transloading at Repauno.
Terminal services revenue decreased $5.8 million at Jefferson Terminal which reflects lower volumes in the first half of 2021 due to lower global oil demand related to COVID-19.
Expenses
Total expenses increased $68.0 million primarily due to increases in (i) operating expenses, (ii) acquisition and transaction expenses, (iii) management fees and incentive allocation to affiliate and (iv) depreciation and amortization.
Operating expenses increased $29.2 million primarily due to:
| • | an increase of $29.8 million in the Railroad segment due to the acquisition of Transtar, which primarily consists of compensation and benefits and facility operating expenses; |
| • | an increase of $5.3 million at Repauno which primarily reflects increases in (i) property taxes due to new assets, (ii) facility operating expenses due to higher butane volumes, (iii) compensation and benefits due to additional headcount and (iv) professional fees; and |
| • | a decrease of $4.8 million at Jefferson Terminal which primarily reflects (i) a decrease in cost of sales due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019, partially offset by (ii) higher insurance and other facility operating expenses. |
Acquisition and transaction expenses increased $13.2 million primarily due to an increase in professional fees related to the acquisition of Transtar and other strategic initiatives.
Management fees and incentive allocation to affiliate increased $2.6 million which reflects an increase in the base management fee as our average total equity was higher in 2021, primarily due to the acquisition of Transtar.
Depreciation and amortization increased $22.9 million which primarily reflects (i) additional assets placed into service at Jefferson Terminal and Repauno and (ii) the acquisition of Transtar.
Other (expense) income
Total other expense increased $19.9 million which primarily reflects:
| • | an increase in other expense of $9.0 million primarily due to (i) losses related to crude oil forward transactions at Jefferson Terminal and (ii) a write-off of an earn-out receivable at Long Ridge; |
| • | an increase in equity in losses of unconsolidated entities of $10.4 million which primarily reflects unrealized losses on power swaps at Long Ridge; |
| • | an increase in interest expense of $5.3 million due to the issuance of the Series 2021 Bonds for $425 million and the commencement of the EB-5 Loan Agreement; and |
| • | a decrease in loss on extinguishment of debt of $4.7 million due to a debt refinancing at Jefferson Terminal in 2020. |
Provision for income taxes
The benefit from income taxes increased $1.6 million which primarily reflects higher pre-tax losses in the Power and Gas segment and Corporate and other, partially offset by a provision in the Railroad segment.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $43.5 million primarily due to (i) the changes noted above and (ii) an increase in the Pro-rata share of Adjusted EBITDA from unconsolidated entities.
Comparison of the years ended December 31, 2020 and 2019
Revenues
Crude marketing revenues decreased $157.9 million primarily due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019. Revenues in 2020 include contracts executed in 2019 but delivered in 2020.
Other revenue decreased $10.2 million which primarily reflects (i) a decrease of $6.3 million at Long Ridge due to Long Ridge being accounted for as an equity method investment starting in the fourth quarter of 2019 (the “Long Ridge Transaction”), (ii) a decrease of $3.9 million at Repauno due to lower sales of butane, partially offset by (iii) an increase of $1.5 million in our railcar cleaning business due to higher volumes.
Terminal services revenue increased $7.9 million which primarily reflects (i) an increase of $15.0 million due to increased activity and storage capacity at Jefferson Terminal, partially offset by (ii) a decrease of $7.1 million due to the Long Ridge Transaction.
Expenses
Total expenses decreased $208.1 million primarily due to decreases in (i) operating expenses, (ii) acquisition and transaction expenses, (iii) asset impairment, (iv) management fees and incentive allocation to affiliate and (v) depreciation and amortization.
Operating expenses decreased $191.5 million primarily due to decreases in:
| • | cost of sales of $167.4 million primarily due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019; and |
| • | facility operations of $19.2 million which primarily reflects (i) a decrease of $14.1 million at Jefferson Terminal due to lower railcar and storage expenses associated with the crude marketing strategy and (ii) a decrease of $4.1 million due to the Long Ridge Transaction. |
Acquisition and transaction expenses decreased $7.5 million primarily due to transaction costs associated with the Long Ridge Transaction during 2019.
Asset impairment decreased $4.7 million due to asset impairment charges in 2019 at Long Ridge from the expiration of unproved gas leases.
Management fees and incentive allocation to affiliate decreased $3.5 million primarily due to incentive fees related to the Long Ridge Transaction in 2019.
Depreciation and amortization decreased $2.0 million which primarily reflects (i) a decrease of $8.4 million due to the Long Ridge Transaction, partially offset by (ii) an increase of $6.2 million due to assets placed into service at Jefferson Terminal.
Other (expense) income
Total other income decreased $124.2 million which primarily reflects:
| • | a decrease of $121.3 million in gains on sale of assets, net primarily due to the Long Ridge Transaction; |
| • | a decrease in interest expense of $7.1 million which primarily reflects a decrease of $6.8 million at Jefferson Terminal due to the issuance of the Series 2020 Bonds (“Jefferson Refinancing”), which reduced its weighted average interest rate. See Note 8 to the combined consolidated financial statements for additional information; |
| • | a loss on extinguishment of debt of $4.7 million due to the Jefferson Refinancing in 2020; |
| • | a decrease in other income of $2.8 million primarily due to the Long Ridge Transaction; and |
| • | an increase of $2.6 million in equity in losses of unconsolidated entities. |
Provision for income taxes
The provision for income taxes decreased $16.4 million which primarily reflects deferred tax expense in 2019 due to the gain on sale for the Long Ridge Transaction.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $98.5 million primarily due to the changes noted above.
Railroad Segment
On July 28, 2021, we completed the acquisition for 100% of the equity interests of Transtar from United States Steel Corporation (“USS”) for total cash consideration of $636.0 million. Transtar is comprised of five freight railroads and one switching company, of which two railroads are connected to USS’s largest production facilities. See Note 3 to the combined consolidated financial statements for additional information. In addition, the Railroad segment includes KRS, a railcar cleaning operation.
The following table presents our results of operations:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Revenues | | | | | | | | | | | | | | | |
| Lease income | | $ | 736 | | | $ | — | | | $ | — | | | $ | 736 | | | $ | — | |
| Rail revenues | | | 61,514 | | | | 4,424 | | | | 2,917 | | | | 57,090 | | | | 1,507 | |
| Total revenues | | | 62,250 | | | | 4,424 | | | | 2,917 | | | | 57,826 | | | | 1,507 | |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 35,824 | | | | 5,992 | | | | 4,549 | | | | 29,832 | | | | 1,443 | |
| Acquisition and transaction expenses | | | 2,841 | | | | — | | | | — | | | | 2,841 | | | | — | |
| Depreciation and amortization | | | 8,951 | | | | 583 | | | | 405 | | | | 8,368 | | | | 178 | |
| Total expenses | | | 47,616 | | | | 6,575 | | | | 4,954 | | | | 41,041 | | | | 1,621 | |
| | | | | | | | | | | | | | | | | | | | | |
| Other (expense) | | | | | | | | | | | | | | | | | | | | |
| (Loss) gain on sale of assets, net | | | — | | | | — | | | | — | | | | — | | | | — | |
| Interest expense | | | (60 | ) | | | (3 | ) | | | (6 | ) | | | (57 | ) | | | 3 | |
| Other (expense) income | | | (422 | ) | | | — | | | | 6 | | | | (422 | ) | | | (6 | ) |
| Total other expense | | | (482 | ) | | | (3 | ) | | | — | | | | (479 | ) | | | (3 | ) |
| Income (loss) before income taxes | | | 14,152 | | | | (2,154 | ) | | | (2,037 | ) | | | 16,306 | | | | (117 | ) |
| Provision for income taxes | | | 64 | | | | — | | | | — | | | | 64 | | | | — | |
| Net income (loss) attributable to FTAI Infrastructure | | $ | 14,088 | | | $ | (2,154 | ) | | $ | (2,037 | ) | | $ | 16,242 | | | $ | (117 | ) |
The following table sets forth a reconciliation of net income (loss) attributable to FTAI Infrastructure to Adjusted EBITDA:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Net income (loss) attributable to FTAI Infrastructure | | $ | 14,088 | | | $ | (2,154 | ) | | $ | (2,037 | ) | | $ | 16,242 | | | $ | (117 | ) |
| Add: Provision for income taxes | | | 64 | | | | — | | | | — | | | | 64 | | | | — | |
| Add: Acquisition and transaction expenses | | | 2,841 | | | | — | | | | — | | | | 2,841 | | | | — | |
| Add: Depreciation & amortization expense | | | 8,951 | | | | 583 | | | | 405 | | | | 8,368 | | | | 178 | |
| Add: Interest costs on pension and OPEB liabilities | | | 445 | | | | — | | | | — | | | | 445 | | | | — | |
| Add: Interest expense | | | 60 | | | | 3 | | | | 6 | | | | 57 | | | | (3 | ) |
| Adjusted EBITDA (non-GAAP) | | $ | 26,449 | | | $ | (1,568 | ) | | $ | (1,626 | ) | | $ | 28,017 | | | $ | 58 | |
Comparison of the years ended December 31, 2021 and 2020
Revenues
Total revenues increased $57.8 million which is primarily due to the acquisition of Transtar on July 28, 2021.
Expenses
Total expenses increased $41.0 million which is primarily due to the acquisition of Transtar on July 28, 2021.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $28.0 million due to the changes noted above.
Comparison of the years ended December 31, 2020 and 2019
Revenues
Total revenues increased $1.5 million due to higher volumes in the railcar cleaning business.
Expenses
Total expenses increased $1.6 million which is primarily due to an increase in operating expenses of $1.4 million due to higher compensation and benefits of $1.1 million in our railcar cleaning business due to higher volumes.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $0.1 million due to the changes noted above.
Jefferson Terminal Segment
The following table presents our results of operations:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Revenues | | | | | | | | | | | | | | | |
| Lease income | | $ | 1,688 | | | $ | 1,186 | | | $ | 2,306 | | | $ | 502 | | | $ | (1,120 | ) |
| Terminal services revenues | | | 44,664 | | | | 50,887 | | | | 35,908 | | | | (6,223 | ) | | | 14,979 | |
| Crude marketing revenues | | | — | | | | 8,210 | | | | 166,134 | | | | (8,210 | ) | | | (157,924 | ) |
| Total revenues | | | 46,352 | | | | 60,283 | | | | 204,348 | | | | (13,931 | ) | | | (144,065 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 48,255 | | | | 53,072 | | | | 231,506 | | | | (4,817 | ) | | | (178,434 | ) |
| Depreciation and amortization | | | 36,013 | | | | 29,034 | | | | 22,873 | | | | 6,979 | | | | 6,161 | |
| Total expenses | | | 84,268 | | | | 82,106 | | | | 254,379 | | | | 2,162 | | | | (172,273 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Other (expense) income | | | | | | | | | | | | | | | | | | | | |
| Equity in losses of unconsolidated entities | | | — | | | | — | | | | (292 | ) | | | — | | | | 292 | |
| (Loss) gain on sale of assets, net | | | — | | | | (8 | ) | | | 4,636 | | | | 8 | | | | (4,644 | ) |
| Loss on extinguishment of debt | | | — | | | | (4,724 | ) | | | — | | | | 4,724 | | | | (4,724 | ) |
| Interest expense | | | (14,812 | ) | | | (9,426 | ) | | | (16,189 | ) | | | (5,386 | ) | | | 6,763 | |
| Other (expense) income | | | (4,726 | ) | | | 92 | | | | 752 | | | | (4,818 | ) | | | (660 | ) |
| Total other expense | | | (19,538 | ) | | | (14,066 | ) | | | (11,093 | ) | | | (5,472 | ) | | | (2,973 | ) |
| Loss before income taxes | | | (57,454 | ) | | | (35,889 | ) | | | (61,124 | ) | | | (21,565 | ) | | | 25,235 | |
| Provision for income taxes | | | 229 | | | | 278 | | | | 284 | | | | (49 | ) | | | (6 | ) |
| Net loss | | | (57,683 | ) | | | (36,167 | ) | | | (61,408 | ) | | | (21,516 | ) | | | 25,241 | |
| Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | | | (26,250 | ) | | | (16,483 | ) | | | (17,356 | ) | | | (9,767 | ) | | | 873 | |
| Net loss attributable to FTAI Infrastructure | | $ | (31,433 | ) | | $ | (19,684 | ) | | $ | (44,052 | ) | | $ | (11,749 | ) | | $ | 24,368 | |
The following table sets forth a reconciliation of net loss attributable to FTAI Infrastructure to Adjusted EBITDA:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Net loss attributable to FTAI Infrastructure | | $ | (31,433 | ) | | $ | (19,684 | ) | | $ | (44,052 | ) | | $ | (11,749 | ) | | $ | 24,368 | |
| Add: Provision for income taxes | | | 229 | | | | 278 | | | | 284 | | | | (49 | ) | | | (6 | ) |
| Add: Equity-based compensation expense | | | 3,215 | | | | 1,676 | | | | 1,054 | | | | 1,539 | | | | 622 | |
| Add: Acquisition and transaction expenses | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Losses on the modification or extinguishment of debt and capital lease obligations | | | — | | | | 4,724 | | | | — | | | | (4,724 | ) | | | 4,724 | |
| Add: Changes in fair value of non-hedge derivative instruments | | | — | | | | 181 | | | | 6,364 | | | | (181 | ) | | | (6,183 | ) |
| Add: Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Incentive allocations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Depreciation and amortization expense | | | 36,013 | | | | 29,034 | | | | 22,873 | | | | 6,979 | | | | 6,161 | |
| Add: Interest expense | | | 14,812 | | | | 9,426 | | | | 16,189 | | | | 5,386 | | | | (6,763 | ) |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) | | | — | | | | — | | | | 656 | | | | — | | | | (656 | ) |
| Add: Interest costs on pension and OPEB liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| Less: Equity in losses of unconsolidated entities | | | — | | | | — | | | | 292 | | | | — | | | | (292 | ) |
Less: Non-controlling share of Adjusted EBITDA (2) | | | (12,205 | ) | | | (9,517 | ) | | | (9,820 | ) | | | (2,688 | ) | | | 303 | |
| Adjusted EBITDA (non-GAAP) | | $ | 10,631 | | | $ | 16,118 | | | $ | (6,160 | ) | | $ | (5,487 | ) | | $ | 22,278 | |
(1) | Includes the following items for the year ended December 31, 2019: (i) net loss of $(349) and (ii) depreciation and amortization expense of $1,005. |
(2) | Includes the following items for the years ended December 31, 2021, 2020 and 2019: (i) equity-based compensation of $723, $352 and $221, (ii) provision for income taxes of $52, $59 and $60, (iii) interest expense of $3,331, $1,979 and $3,400, (iv) changes in fair value of non-hedge derivative instruments of $—, $38 and $1,336, (v) depreciation and amortization expense of $8,099, $6,097 and $4,803 and (vi) loss on extinguishment of debt of $—, $992 and $—, respectively. |
Comparison of the years ended December 31, 2021 and 2020
Revenues
Total revenues decreased $13.9 million which primarily reflects (i) a decrease in crude marketing revenue of $8.2 million due to Jefferson Terminal exiting its crude marketing strategy in the fourth quarter of 2019 and (ii) a decrease in terminal services revenues of $6.2 million which reflects lower volumes in the first half of 2021 due to lower global oil demand related to COVID-19.
Expenses
Total expenses increased $2.2 million which reflects (i) an increase in depreciation and amortization of $7.0 million due to additional assets placed into service, partially offset by (ii) a decrease in operating expenses of $4.8 million which primarily reflects (i) a decrease in cost of sales due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019, partially offset by (ii) higher insurance and other facility operating expenses.
Other (expense) income
Total other expense increased $5.5 million which primarily reflects:
| • | an increase in interest expense of $5.4 million due to the issuance of the Series 2021 Bonds for $425 million and the commencement of the EB-5 Loan Agreements; |
| • | an increase in other expense of $4.8 million due to losses related to crude oil forward transactions; and |
| • | a decrease in loss on extinguishment of debt of $4.7 million due to a debt refinancing in 2020. See Note 8 to the combined consolidated financial statements for additional information. |
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $5.5 million primarily due to the changes noted above.
Comparison of the years ended December 31, 2020 and 2019
Revenues
Total revenues decreased $144.1 million which primarily reflects (i) a decrease in crude marketing revenue of $157.9 million due to Jefferson Terminal exiting its crude marketing strategy in the fourth quarter of 2019. In 2019, crude to third parties to take advantage of favorable spreads. The resulting crude sales and corresponding costs of sale, including logistical costs, are reflected in Crude marketing revenues and Operating expenses, respectively. Jefferson exited this crude marketing strategy in the fourth quarter of 2019 as a result of unfavorable oil spreads and as certain logistical commitments expired. This decrease is partially offset by (ii) an increase in terminal services of $15.0 million due to increased activity and storage capacity.
Expenses
Total expenses decreased $172.3 million which reflects (i) a decrease in operating expenses of $178.4 million primarily due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019, as described above, partially offset by (ii) an increase in depreciation and amortization of $6.2 million due to additional assets placed into service.
Other (expense) income
Total other expense increased $3.0 million which primarily reflects (i) a loss on extinguishment of debt of $4.7 million due to the Jefferson Refinancing, (ii) a decrease in gains on sale of assets, net due to a $4.6 million gain recognized in 2019, partially offset by (iii) a decrease in interest expense of $6.8 million due to the Jefferson Refinancing.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $22.3 million primarily due to the changes in net loss attributable to FTAI Infrastructure noted above.
Repauno Segment
The following table presents our results of operations:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Revenues | | | | | | | | | | | | | | | |
| Lease income | | $ | — | | | $ | — | | | $ | 84 | | | $ | — | | | $ | (84 | ) |
| Terminal services revenues | | | 374 | | | | — | | | | — | | | | 374 | | | | — | |
| Other revenue | | | 11,243 | | | | 3,855 | | | | 7,802 | | | | 7,388 | | | | (3,947 | ) |
| Total revenues | | | 11,617 | | | | 3,855 | | | | 7,886 | | | | 7,762 | | | | (4,031 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 14,304 | | | | 8,971 | | | | 9,599 | | | | 5,333 | | | | (628 | ) |
| Depreciation and amortization | | | 9,052 | | | | 1,497 | | | | 1,480 | | | | 7,555 | | | | 17 | |
| Total expenses | | | 23,356 | | | | 10,468 | | | | 11,079 | | | | 12,888 | | | | (611 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Other (expense) income | | | | | | | | | | | | | | | | | | | | |
| Gain on sale of assets, net | | | 16 | | | | — | | | | — | | | | 16 | | | | — | |
| Interest expense | | | (1,147 | ) | | | (1,335 | ) | | | (1,373 | ) | | | 188 | | | | 38 | |
| Total other (expense) income | | | (1,131 | ) | | | (1,335 | ) | | | (1,373 | ) | | | 204 | | | | 38 | |
| Loss before income taxes | | | (12,870 | ) | | | (7,948 | ) | | | (4,566 | ) | | | (4,922 | ) | | | (3,382 | ) |
| (Benefit from) provision for income taxes | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net (loss) income | | | (12,870 | ) | | | (7,948 | ) | | | (4,566 | ) | | | (4,922 | ) | | | (3,382 | ) |
| Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | | | (222 | ) | | | (39 | ) | | | (215 | ) | | | (183 | ) | | | 176 | |
| Net (loss) income attributable to FTAI Infrastructure | | $ | (12,648 | ) | | $ | (7,909 | ) | | $ | (4,351 | ) | | $ | (4,739 | ) | | $ | (3,558 | ) |
The following table sets forth a reconciliation of net loss attributable to FTAI Infrastructure to Adjusted EBITDA:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Net loss attributable to FTAI Infrastructure | | $ | (12,648 | ) | | $ | (7,909 | ) | | $ | (4,351 | ) | | $ | (4,739 | ) | | $ | (3,558 | ) |
| Add: (Benefit from) provision for income taxes | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Equity-based compensation expense | | | 823 | | | | 649 | | | | 455 | | | | 174 | | | | 194 | |
| Add: Acquisition and transaction expenses | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Losses on the modification or extinguishment of debt and capital lease obligations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Changes in fair value of non-hedge derivative instruments | | | (2,220 | ) | | | — | | | | — | | | | (2,220 | ) | | | — | |
| Add: Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Incentive allocations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Depreciation and amortization expense | | | 9,052 | | | | 1,497 | | | | 1,480 | | | | 7,555 | | | | 17 | |
| Add: Interest expense | | | 1,147 | | | | 1,335 | | | | 1,373 | | | | (188 | ) | | | (38 | ) |
| Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities | | | — | | | | — | | | | — | | | | — | | | | — | |
| Less: Equity in losses of unconsolidated entities | | | — | | | | — | | | | — | | | | — | | | | — | |
Less: Non-controlling share of Adjusted EBITDA (1) | | | (303 | ) | | | (120 | ) | | | (39 | ) | | | (183 | ) | | | (81 | ) |
| Adjusted EBITDA (non-GAAP) | | $ | (4,149 | ) | | $ | (4,548 | ) | | $ | (1,082 | ) | | $ | 399 | | | $ | (3,466 | ) |
(1) | Includes the following items for the years ended December 31, 2021, 2020 and 2019: (i) equity-based compensation of $28, $22 and $9, (ii) interest expense of $39, $46 and $—, (iii) depreciation and amortization expense of $312, $52 and $30, (iv) changes in fair value of non-hedge derivative instruments of $(76), $— and $— and, respectively. |
Comparison of the years ended December 31, 2021 and 2020
Revenues
Total revenues increased $7.8 million, primarily due to (i) an increase in butane sales of $5.2 million, (ii) a gain of $2.2 million on butane forward purchase contracts and (iii) an increase of $0.4 million due to the commencement of transloading.
Expenses
Total expenses increased $12.9 million primarily due to:
| • | an increase in operating expenses of $5.3 million which primarily reflects increases in (i) property taxes due to new assets, (ii) facility operating expenses due to higher butane volumes, (iii) compensation and benefits due to additional headcount and (iv) professional fees; and |
| • | an increase in depreciation expense of $7.6 million due to assets being placed into service. |
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $0.4 million due to the changes noted above.
Comparison of the years ended December 31, 2020 and 2019
Revenues
Total revenues decreased $4.0 million, primarily due to a decrease of $3.9 million in butane sales.
Expenses
Total expenses decreased $0.6 million primarily due to decreases in operating expenses driven by lower cost of sales of $2.6 million related to the sale of butane, offset by an increase in compensation and benefits of $1.1 million due to increased headcount and an increase of $0.6 million in the management fee expense pushdown.
Other (expense) income
Total other (expense) income decreased $0.4 million primarily due to changes in interest expense for the period relating to the revolver loan.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $3.5 million due to the changes noted above.
Power and Gas Segment
The following table presents our results of operations:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Revenues | | | | | | | | | | | | | | | |
| Lease income | | $ | — | | | $ | — | | | $ | 972 | | | $ | — | | | $ | (972 | ) |
| Terminal services revenues | | | — | | | | — | | | | 7,057 | | | | — | | | | (7,057 | ) |
| Other revenue | | | — | | | | — | | | | 6,272 | | | | — | | | | (6,272 | ) |
| Total revenues | | | — | | | | — | | | | 14,301 | | | | — | | | | (14,301 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 99 | | | | 1,356 | | | | 15,255 | | | | (1,257 | ) | | | (13,899 | ) |
| Acquisition and transaction expenses | | | — | | | | 907 | | | | 5,008 | | | | (907 | ) | | | (4,101 | ) |
| Depreciation and amortization | | | — | | | | — | | | | 8,370 | | | | — | | | | (8,370 | ) |
| Asset impairment | | | — | | | | — | | | | 4,726 | | | | — | | | | (4,726 | ) |
| Total expenses | | | 99 | | | | 2,263 | | | | 33,359 | | | | (2,164 | ) | | | (31,096 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Other (expense) income | | | | | | | | | | | | | | | | | | | | |
| Equity in losses of unconsolidated entities | | | (13,597 | ) | | | (3,222 | ) | | | (192 | ) | | | (10,375 | ) | | | (3,030 | ) |
| Gain on sale of assets, net | | | — | | | | — | | | | 116,660 | | | | — | | | | (116,660 | ) |
| Interest expense | | | — | | | | — | | | | (339 | )
| | | — | | | | (339 | )
|
| Other (expense) income | | | (3,782 | ) | | | — | | | | 2,098 | | | | (3,782 | ) | | | (2,098 | ) |
| Total other (expense) income | | | (17,379 | ) | | | (3,222 | ) | | | 118,227 | | | | (14,157 | ) | | | (121,449 | ) |
| (Loss) income before income taxes | | | (17,478 | ) | | | (5,485 | ) | | | 99,169 | | | | (11,993 | ) | | | (104,654 | ) |
| (Benefit from) provision for income taxes | | | (3,930 | ) | | | (2,265 | ) | | | 14,106 | | | | (1,665 | ) | | | (16,371 | ) |
| Net (loss) income | | | (13,548 | ) | | | (3,220 | ) | | | 85,063 | | | | (10,328 | ) | | | (88,283 | ) |
| Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net (loss) income attributable to FTAI Infrastructure | | $ | (13,548 | ) | | $ | (3,220 | ) | | $ | 85,063 | | | $ | (10,328 | ) | | $ | (88,283 | ) |
The following table sets forth a reconciliation of net (loss) income attributable to FTAI Infrastructure to Adjusted EBITDA:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Net (loss) income attributable to FTAI Infrastructure | | $ | (13,548 | ) | | $ | (3,220 | ) | | $ | 85,063 | | | $ | (10,328 | ) | | $ | (88,283 | ) |
| Add: (Benefit from) provision for income taxes | | | (3,930 | ) | | | (2,265 | ) | | | 14,106 | | | | (1,665 | ) | | | (16,371 | ) |
| Add: Equity-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Acquisition and transaction expenses | | | — | | | | 907 | | | | 5,008 | | | | (907 | ) | | | (4,101 | ) |
| Add: Losses on the modification or extinguishment of debt and capital lease obligations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Changes in fair value of non-hedge derivative instruments | | | — | | | | — | | | | (1,809 | ) | | | — | | | | 1,809 | |
| Add: Asset impairment charges | | | — | | | | — | | | | 4,726 | | | | — | | | | (4,726 | ) |
| Add: Incentive allocations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Depreciation and amortization expense | | | — | | | | — | | | | 8,370 | | | | — | | | | (8,370 | ) |
| Add: Interest expense | | | — | | | | — | | | | 339 | | | | — | | | | (339 | )
|
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) | | | 29,405 | | | | 3,304 | | | | (153 | ) | | | 26,101 | | | | 3,457 | |
| Add: Interest costs on pension and OPEB liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| Less: Equity in losses of unconsolidated entities | | | 13,597 | | | | 3,222 | | | | 192 | | | | 10,375 | | | | 3,030 | |
| Less: Non-controlling share of Adjusted EBITDA | | | — | | | | — | | | | — | | | | — | | | | — | |
| Adjusted EBITDA (non-GAAP) | | $ | 25,524 | | | $ | 1,948 | | | $ | 115,842 | | | $ | 23,576 | | | $ | (113,894 | ) |
(1) | Includes the following items for the years ended December 31, 2021, 2020 and 2019: (i) net loss of $(11,430), $(3,222) and $(193), (ii) depreciation expense of $12,443, $5,513 and $40, (iii) interest expense of $5,513, $1,021 and $—, (iv) acquisition and transaction expense of $104, $581 and $—, (v) changes in fair value of non-hedge derivative instruments of $19,850, $(589) and $—, (vi) asset impairment of $2,146, $— and $— and (vii) equity-based compensation of $779, $—, and $—, respectively. |
Comparison of the years ended December 31, 2021 and 2020
Expenses
Total expenses decreased $2.2 million primarily due to decreases in operating expenses of $1.3 million which is primarily due to the Long Ridge Transaction and a decrease in acquisition and transaction expense of $0.9 million due to no acquisitions in 2021.
Other (expense) income
Total other expense increased $14.2 million primarily due to increases in equity in losses in unconsolidated entities primarily due to unrealized losses on power swaps at Long Ridge.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $23.6 million due to an increase in the pro rata share of adjusted EBITDA from unconsolidated entities of $26.1 million and the changes noted above.
Comparison of the years ended December 31, 2020 and 2019
Revenues
Total revenues decreased $14.3 million, primarily due to the Long Ridge Transaction.
Expenses
Total expenses decreased $31.1 million primarily due to decreases in (i) operating expenses of $13.9 million, (ii) depreciation expense of $8.4 million related to the Long Ridge Transaction, (iii) asset impairment of $4.7 million in 2019 at Long Ridge due to the expiration of unproved gas leases and (iv) acquisition and transaction expense of $4.1 million.
The decrease in operating expenses was primarily driven by lower operating expenses of $12.7 million primarily due to the Long Ridge Transaction.
Acquisition and transaction expense decreased due to transaction costs associated with the Long Ridge Transaction during 2019.
Other (expense) income
Total other income decreased $121.4 million primarily due to decreases in (i) gain on sale of $116.7 million from the Long Ridge Transaction in 2019 and (ii) equity method income of $3.0 million from Long Ridge in 2020 and (iii) other income of $1.8 million due to unrealized gains on power swap derivatives, which was deconsolidated with the Long Ridge Transaction.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $113.9 million due to the changes noted above.
Sustainability and Energy Transition Segment
The following table presents our results of operations:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Revenues | | | | | | | | | | | | | | | |
| Other revenue | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total revenues | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total expenses | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Other expense | | | | | | | | | | | | | | | | | | | | |
| Equity in losses of unconsolidated entities | | | (372 | ) | | | — | | | | — | | | | (372 | ) | | | — | |
| Total other expense | | | (372 | ) | | | — | | | | — | | | | (372 | ) | | | — | |
| Loss before income taxes | | | (372 | ) | | | — | | | | — | | | | (372 | ) | | | — | |
| Provision for (benefit from) income taxes | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net loss | | | (372 | ) | | | — | | | | — | | | | (372 | ) | | | — | |
| Less: Net income attributable to non-controlling interest in consolidated subsidiaries: | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net loss attributable to FTAI Infrastructure | | $ | (372 | ) | | $ | — | | | $ | — | | | $ | (372 | ) | | $ | — | |
The following table sets forth a reconciliation of net loss attributable to FTAI Infrastructure to Adjusted EBITDA:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Net loss attributable to FTAI Infrastructure | | $ | (372 | ) | | $ | — | | | $ | — | | | $ | (372 | ) | | $ | — | |
| Add: Provision for (benefit from) income taxes | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Equity-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Acquisition and transaction expenses | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Losses on the modification or extinguishment of debt and capital lease obligations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Changes in fair value of non-hedge derivative instruments | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Incentive allocations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Depreciation and amortization expense | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Interest expense | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities | | | (372 | ) | | | — | | | | — | | | | (372 | ) | | | — | |
| Add: Interest costs on pension and OPEB liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| Less: Equity in losses of unconsolidated entities | | | 372 | | | | — | | | | — | | | | 372 | | | | — | |
| Less: Non-controlling share of Adjusted EBITDA | | | — | | | | — | | | | — | | | | — | | | | — | |
| Adjusted EBITDA (non-GAAP) | | $ | (372 | ) | | $ | — | | | $ | — | | | $ | (372 | ) | | $ | — | |
Comparison of the years ended December 31, 2021 and 2020
Other expense
Other expense decreased $0.4 million primarily due to the investment in unconsolidated entities in the sustainability and energy transition sectors in the second half of 2021.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $0.4 million primarily due to the changes noted above.
Corporate and Other
The following table presents our results of operations:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Revenues | | | | | | | | | | | | | | | |
| Other revenue | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total revenues | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 59 | | | | — | | | | — | | | | 59 | | | | — | |
| General and administrative | | | 8,737 | | | | 8,522 | | | | 7,469 | | | | 215 | | | | 1,053 | |
| Acquisition and transaction expenses | | | 11,985 | | | | 751 | | | | 4,126 | | | | 11,234 | | | | (3,375 | ) |
| Management fees and incentive allocation to affiliate | | | 15,638 | | | | 13,073 | | | | 16,541 | | | | 2,565 | | | | (3,468 | ) |
| Total expenses | | | 36,419 | | | | 22,346 | | | | 28,136 | | | | 14,073 | | | | (5,790 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Other (expense) income | | | | | | | | | | | | | | | | | | | | |
| Equity in earnings (losses) of unconsolidated entities | | | 470 | | | | 115 | | | | (62 | ) | | | 355 | | | | 177 | |
| Gain on sale of assets, net | | | — | | | | — | | | | — | | | | — | | | | — | |
| Other income | | | — | | | | — | | | | 1 | | | | — | | | | (1 | ) |
| Total other income (expense) | | | 470 | | | | 115 | | | | (61 | ) | | | 355 | | | | 176 | |
| Loss before income taxes | | | (35,949 | ) | | | (22,231 | ) | | | (28,197 | ) | | | (13,718 | ) | | | 5,966 | |
| Provision for (benefit from) income taxes | | | 7 | | | | 3 | | | | (6 | ) | | | 4 | | | | 9 | |
| Net loss | | | (35,956 | ) | | | (22,234 | ) | | | (28,191 | ) | | | (13,722 | ) | | | 5,957 | |
| Less: Net income attributable to non-controlling interest in consolidated subsidiaries: | | | — | | | | — | | | | — | | | | — | | | | — | |
| Net loss attributable to FTAI Infrastructure | | $ | (35,956 | ) | | $ | (22,234 | ) | | $ | (28,191 | ) | | $ | (13,722 | ) | | $ | 5,957 | |
The following table sets forth a reconciliation of net loss attributable to FTAI Infrastructure to Adjusted EBITDA:
| | | Year Ended December 31, | | | Change | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | | | ‘21 vs ‘20 | | | ‘20 vs ‘19 | |
| Net loss attributable to FTAI Infrastructure | | $ | (35,956 | ) | | $ | (22,234 | ) | | $ | (28,191 | ) | | $ | (13,722 | ) | | $ | 5,957 | |
| Add: Provision for (benefit from) income taxes | | | 7 | | | | 3 | | | | (6 | ) | | | 4 | | | | 9 | |
| Add: Equity-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Acquisition and transaction expenses | | | 11,985 | | | | 751 | | | | 4,126 | | | | 11,234 | | | | (3,375 | ) |
| Add: Losses on the modification or extinguishment of debt and capital lease obligations | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Changes in fair value of non-hedge derivative instruments | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Asset impairment charges | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Incentive allocations | | | — | | | | — | | | | 5,819 | | | | — | | | | (5,819 | ) |
| Add: Depreciation and amortization expense | | | — | | | | — | | | | — | | | | — | | | | — | |
| Add: Interest expense | | | — | | | | — | | | | — | | | | — | | | | — | |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) | | | 62 | | | | (164 | ) | | | (61 | ) | | | 226 | | | | (103 | ) |
| Add: Interest costs on pension and OPEB liabilities | | | — | | | | — | | | | — | | | | — | | | | — | |
| Less: Equity in (earnings) losses of unconsolidated entities | | | (470 | ) | | | (115 | ) | | | 62 | | | | (355 | ) | | | (177 | ) |
| Less: Non-controlling share of Adjusted EBITDA | | | — | | | | — | | | | — | | | | — | | | | — | |
| Adjusted EBITDA (non-GAAP) | | $ | (24,372 | ) | | $ | (21,759 | ) | | $ | (18,251 | ) | | $ | (2,613 | ) | | $ | (3,508 | ) |
(1) | Includes the following items for the years ended December 31, 2021, 2020 and 2019: (i) net loss of $(36), $(281) and $(192) and (ii) interest expense of $99, $117 and $131, respectively. |
Comparison of the years ended December 31, 2021 and 2020
Expenses
Acquisition and transaction expenses increased $11.2 million primarily due to an increase in professional fees related to the acquisition of Transtar and other strategic initiatives.
Management fees and incentive allocation to affiliate increased $2.6 million which reflects an increase in the base management fee as our average total equity was higher in 2021, primarily due to the acquisition of Transtar.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $2.6 million primarily due to the changes noted above.
Comparison of the years ended December 31, 2020 and 2019
Expenses
Management fees and incentive allocation to affiliate decreased $3.5 million primarily due to incentive fees related to the Long Ridge Transaction in 2019.
Acquisition and transaction expenses decreased $3.4 million primarily due to fewer transactions in 2020 compared to 2019.
General and administrative expense increased $1.1 million primarily due to higher professional fees.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $3.5 million primarily due to the changes noted above.
Transactions with Affiliates and Affiliated Entities
We will be managed by the Manager, an affiliate of Fortress, pursuant to our Management Agreement, which provides for us to bear obligations for management fees and expense reimbursements payable to the Manager. Pursuant to the terms of the Management Agreement with FTAI’s Manager, the Manager provides a management team and other professionals who are responsible for implementing our business strategy and performing certain services for us, subject to oversight by our board of directors. Our Management Agreement has an initial six-year term and is automatically renewed for one-year terms thereafter unless terminated by our Manager. For its services, our Manager is entitled to receive a management fee from us, payable monthly, that is based on the average value of our total equity (excluding non-controlling interests) determined on a consolidated basis in accordance with GAAP as of the last day of the two most recently completed months multiplied by an annual rate of 1.50%. In addition, we are obligated to reimburse certain expenses incurred by our Manager on our behalf.
Geographic Information
Please refer to Note 17 of our combined consolidated financial statements for information by geographic area for each segment, all located in North America, of revenues from our external customers, for the years ended December 31, 2021, 2020 and 2019, as well as the geographic area for each segment of our total property, plant and equipment as of December 31, 2021 and 2020.
Liquidity and Capital Resources
The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt financing.
Additionally, in February 2020, Jefferson issued $264.0 million aggregate principal amount of Series 2020 Bonds. In August 2021, Jefferson also issued $425.0 million aggregate principal amount of Series 2021 Bonds (see Note 8 to the combined consolidated financial statements). Jefferson intends to use a portion of the net proceeds which are held in restricted cash to pay for or reimburse the cost of development, construction and acquisition of certain facilities.
The liquidity provided by these sources and the restricted cash of $252.0 million at December 31, 2021 available from the above financings is expected to be sufficient to fund the Company’s working capital needs and capital expenditures program. Additionally, we expect to continue to be able to obtain financing upon reasonable terms as necessary.
Our principal uses of liquidity have been and continue to be (i) acquisitions or expansion of transportation infrastructure and equipment, (ii) expenses associated with our operating activities and (iii) debt service obligations associated with our investments.
| • | Cash used for the purpose of making investments was $833.2 million, $252.2 million and $351.9 million during the years ended December 31, 2021, 2020 and 2019, respectively. |
| • | Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities. Uses of liquidity associated with our debt obligations are captured in our cash flows from financing activities. |
Our principal sources of liquidity to fund these uses have been and continue to be (i) revenues from our infrastructure businesses net of operating expenses, (ii) proceeds from borrowings and (iii) proceeds from asset sales.
| • | During the year ended December 31, 2021, additional borrowings were obtained in connection with the (i) Series 2021 Bonds (as defined in Note 8 of the combined consolidated financial statements) of $425.0 million and (ii) EB-5 Loan Agreement of $26.1 million. |
| • | During the year ended December 31, 2020, additional borrowings were obtained in connection with the Series 2020 Bonds (as defined in Note 8 of the combined consolidated financial statements) of $264.0 million. We made principal payments of $240.0 million related to the Jefferson Revolver and the Series 2016 and 2012 Bonds. |
| • | During the year ended December 31, 2019, additional borrowings were obtained in connection with (i) LREG Credit Agreement of $173.5 million, (ii) the DRP Revolver of $25.0 million and (iii) the Jefferson Revolver of $23.2 million. We made principal payments of $24.8 million related to the Jefferson Revolver and Series 2012 Bonds. |
Historical Cash Flow
The following table presents our historical cash flow:
| | | Year Ended December 31, | |
| (in thousands) | | 2021 | | | 2020 | | | 2019 | |
| Cash flow data: | | | | | | | | | |
| Net cash used in operating activities | | $ | (61,716 | ) | | $ | (46,860 | ) | | $ | (52,672 | ) |
| Net cash used in investing activities | | | (828,716 | ) | | | (252,216 | ) | | | (258,578 | ) |
| Net cash provided by financing activities | | | 1,136,866 | | | | 337,628 | | | | 293,647 | |
Comparison of the years ended December 31, 2021 and 2020
Net cash used in operating activities increased $14.9 million, which primarily reflects (i) an increase in net loss of $34.6 million and (ii) changes in management fees payable to affiliate, accounts receivable, accounts payable and accrued liabilities, other assets and other liabilities of $7.6 million, partially offset by (iii) an increase in depreciation and amortization of $22.9 million, and (iv) a change in equity in losses of unconsolidated entities of $10.4 million.
Net cash used in investing activities increased $576.5 million primarily due to (i) an increase in the acquisition of business, net of cash acquired for $627.1 million, (ii) an increase in the investment in unconsolidated entities of $50.5 million, and (iii) an increase in investment in convertible promissory notes of $10.0 million partially offset by (iv) an increase in proceeds from sale of property, plant and equipment of $4.5 million , and (v) a decrease in acquisitions of property, plant and equipment of $106.6 million.
Net cash provided by financing activities increased $799.2 million primarily due to (i) an increase in net transfers from Parent of $372.7 million, (ii) a decrease in repayment of debt of $240.0 million and (iii) an increase in proceeds from debt of $187.1 million.
Comparison of the years ended December 31, 2020 and 2019
Net cash used in operating activities decreased $5.8 million, which primarily reflects (i) a change in gain on sale of subsidiaries of $121.3 million, partially offset by (ii) an increase in net loss of $60.6 million, (iii) a decrease in net working capital of $32.9 million and (iv) a change in current and deferred income taxes of $16.4 million.
Net cash used in investing activities decreased $6.4 million primarily due to (i) a decrease in acquisitions of property, plant, and equipment and JV investments of $104.3 million, partially offset by (ii) a decrease in proceeds from sale of subsidiaries of $91.7 million.
Net cash provided by financing activities increased $44.0 million primarily due to (i) an increase in net transfers from Parent of $203.3 million, (ii) a decrease in payments of deferred financing costs of $13.7 million and (iii) an increase in proceeds from debt of $42.1 million, partially offset by (iv) an increase in repayment of debt of $215.1 million.
Debt Covenants
We are in compliance with all of our debt covenants as of December 31, 2021 and 2020. See Note 8 to the combined consolidated financial statements for information related to our debt obligations and respective covenants.
Contractual Obligations and Cash Requirements
Our material cash requirements include the following contractual and other obligations:
Debt Obligations— As of December 31, 2021, we have outstanding principal and interest payment obligations of $740.1 million and $348.6 million, respectively, of which, there is no principal payment due and $27.0 million of interest payment due within the next twelve months. See Note 8 of the combined consolidated financial statements for additional information about our debt obligations.
Lease Obligations— As of December 31, 2021, we had operating and finance lease obligations of $178.7 million, of which $10.0 million is due within the next twelve months.
Other Obligations— As of December 31, 2021, in connection with a pipeline capacity agreement at Jefferson Terminal, we had an obligation to pay a minimum of $10.2 million in marketing fees in the next twelve months.
We expect to meet our future short-term liquidity requirements through cash on hand and net cash provided by our current operations. We expect that our operating subsidiaries will generate sufficient cash flow to cover operating expenses. We may elect to meet certain long-term liquidity requirements or to continue to pursue strategic opportunities through utilizing cash on hand, cash generated from our current operations and the issuance of securities in the future. Management believes adequate capital and borrowings are available from various sources to fund our commitments to the extent required.
Application of Critical Accounting Policies
Variable Interest Entities— The assessment of whether an entity is a VIE and the determination of whether to consolidate a VIE requires judgment. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Property, Plant and Equipment, Leasing Equipment and Depreciation— Property, plant and equipment and leasing equipment are stated at cost (inclusive of capitalized acquisition costs, where applicable) and depreciated using the straight-line method, over estimated useful lives, to estimated residual values which are summarized as follows:
| Asset | Range of Estimated Useful Lives | Residual Value Estimates |
| Railcars and locomotives | 40 - 50 years from date of manufacture | Scrap value at end of useful life |
| Track and track related assets | 15 - 50 years from date of manufacture | Scrap value at end of useful life |
| Land, site improvements and rights | N/A | N/A |
| Bridges and tunnels | 15 - 55 years | Scrap value at end of useful life |
| Buildings and site improvements | 20 - 30 years | Scrap value at end of useful life |
| Railroad equipment | 3 - 15 years from date of manufacture | Scrap value at end of useful life |
| Terminal machinery and equipment | 15 - 25 years from date of manufacture | Scrap value at end of useful life |
| Vehicles | 5 - 7 years from date of manufacture | Scrap value at end of useful life |
| Furniture and fixtures | 3 - 6 years from date of purchase | None |
| Computer hardware and software | 2 - 5 years from date of purchase | None |
| Construction in progress | N/A | N/A |
Impairment of Long-Lived Assets— We perform a recoverability assessment of each of our long-lived assets whenever events or changes in circumstances, or indicators, indicate that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination; a significant change in market conditions; or the introduction of newer technology. When performing a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the asset exceeds its net book value. The undiscounted cash flows consist of cash flows from currently contracted leases and terminal services contracts, future projected leases, terminal service and freight rail rates, transition costs, and estimated residual or scrap values. In the event that an asset does not meet the recoverability test, the carrying value of the asset will be adjusted to fair value resulting in an impairment charge.
Management develops the assumptions used in the recoverability analysis based on its knowledge of active contracts, current and future expectations of the demand for a particular asset and historical experience, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in contracted lease rates, terminal service, and freight rail rates, residual values, economic conditions, technology, demand for a particular asset type and other factors.
Goodwill— Goodwill includes the excess of the purchase price over the fair value of the net tangible and intangible assets associated with the acquisition of Jefferson Terminal and Transtar. The carrying amount of goodwill was approximately $257.1 million and $122.7 million as of December 31, 2021 and 2020, respectively. The goodwill amounts as of December 31, 2020 related to the Jefferson reporting unit. The increase in goodwill in 2021 reflects our acquisition of Transtar.
We review the carrying values of goodwill at least annually to assess impairment since these assets are not amortized. An annual impairment review is conducted as of October 1st of each year. Additionally, we review the carrying value of goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The determination of fair value involves significant management judgment.
For an annual goodwill impairment assessment, an optional qualitative analysis may be performed. If the option is not elected or if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a goodwill impairment test is performed to identify potential goodwill impairment and measure an impairment loss. A qualitative analysis was not elected for the years ended December 31, 2021 or 2020.
Beginning in 2020, we adopted new guidance regarding the testing and recognition of a goodwill impairment, which prior to 2020 required two steps. A goodwill impairment assessment compares the fair value of a respective reporting unit with its carrying amount, including goodwill. The estimate of fair value of the respective reporting unit is based on the best information available as of the date of assessment, which primarily incorporates certain factors including our assumptions about operating results, business plans, income projections, anticipated future cash flows and market data. If the estimated fair value of the reporting unit is less than the carrying amount, a goodwill impairment is recorded to the extent that the carrying value of the reporting unit exceeds the fair value.
We estimate the fair value of Jefferson and Transtar using an income approach, specifically a discounted cash flow analysis. This analysis requires us to make significant assumptions and estimates about the forecasted revenue growth rates, EBITDA margins, capital expenditures, the timing of future cash flows, and discount rates. The estimates and assumptions used consider historical performance if indicative of future performance and are consistent with the assumptions used in determining future profit plans for the reporting units.
In connection with our impairment analysis, although we believe the estimates of fair value are reasonable, the determination of certain valuation inputs is subject to management’s judgment. Changes in these inputs, including as a result of events beyond our control, could materially affect the results of the impairment review. If the forecasted cash flows or other key inputs are negatively revised in the future, the estimated fair value of the reporting unit could be adversely impacted, potentially leading to an impairment in the future that could materially affect our operating results. Due to the acquisition of Transtar in the current year, the estimated fair value of that reporting unit approximates the book value. The Jefferson reporting unit had an estimated fair value that exceeded its carrying value by more than 10% but less than 20%. The Jefferson Terminal segment forecasted revenue is dependent on the ramp up of volumes under current and expected future contracts for storage and throughput of heavy and light crude and refined products and is subject to obtaining rail capacity for crude, expansion of refined product distribution to Mexico and movements in future oil spreads. At October 31, 2021, approximately 4.3 million barrels of storage was currently operational with 1.9 million barrels currently under construction for new contracts which will complete our storage development for our main terminal. Our discount rate for our 2021 goodwill impairment analysis was 9.0% and our assumed terminal growth rate was 2.0%. If our strategy changes from planned capacity downward due to an inability to source contracts or expand volumes, the fair value of the reporting unit would be negatively affected, which could lead to an impairment. The expansion of refineries in the Beaumont/Port Arthur area, as well as growing crude oil production in the U.S. and Canada, are expected to result in increased demand for storage on the U.S. Gulf Coast. Although we do not have significant direct exposure to volatility of crude oil prices, changes in crude oil pricing that affect long term refining planned output could impact Jefferson Terminal operations.
We expect the Jefferson Terminal segment to continue to generate positive Adjusted EBITDA in future years. Although certain of our anticipated contracts or expected volumes from existing contracts for Jefferson Terminal have been delayed, we continue to believe our projected revenues are achievable. Further delays in executing these contracts or achieving our projections could adversely affect the fair value of the reporting unit. The impact of the COVID-19 global pandemic during 2020 and 2021 negatively affected refining volumes and therefore Jefferson Terminal crude throughput but we have seen the activity starting to normalize and are expected to ramp back to normal during 2022. Furthermore, we anticipate strengthening macroeconomic demand for storage and the increasing spread between Western Canadian Crude and Western Texas Intermediate as Canadian crude pipeline apportionment increases. Also, as our pipeline connections became fully operational during 2021, we remain positive for the outlook of Jefferson Terminal’s earnings potential.
There were no impairments of goodwill for the years ended December 31, 2021, 2020 or 2019.
Income Taxes— The income tax provision in the combined consolidated financial statements was prepared on a separate return method. Income earned by our corporate subsidiaries for the infrastructure businesses is subject to U.S. federal and state income taxation and is taxed at the currently enacted rates. The remainder of our income is allocated directly to our partners and is not subject to a corporate level of taxation. Following the spin-off, all of our income will be subject to a corporate level of taxation, and none of it will be allocated directly to our partners.
We account for these taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management believes it is more likely than not that a deferred tax asset will not be realized.
Each of our combined entities files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in certain foreign jurisdictions. The income tax returns filed by us and our subsidiaries are subject to examination by the U.S. federal, state and foreign tax authorities. We recognize tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in the combined consolidated statements of operations.
Recent Accounting Pronouncements
Please see Note 2 to our combined consolidated financial statements included elsewhere in this filing for recent accounting pronouncements.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.
Interest Rate Risk
Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive to many factors, including the U.S. government’s monetary and tax policies, global economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposure relates to our term loan arrangements.
Although a majority of our borrowing agreements are fixed rate agreements, we do have borrowing agreements that require payments based on a variable interest rate index, such as SOFR. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents. We may elect to manage our exposure to interest rate movements through the use of interest rate derivatives (interest rate swaps and caps).
The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates. As of December 31, 2021, assuming we do not hedge our exposure to interest rate fluctuations related to our outstanding floating rate debt, a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an increase of approximately $0.3 million or a decrease of approximately $0.1 million in interest expense, respectively, over the next 12 months.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of FTAI Infrastructure Inc.
Opinion on the Financial Statements
We have audited the accompanying combined consolidated balance sheets of the Infrastructure business of Fortress Transportation and Infrastructure Investors LLC (the Company) as of December 31, 2021 and 2020, the related combined consolidated statements of operations, comprehensive (loss) income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “combined consolidated financial statements”). In our opinion, the combined consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
New York, New York
March 22, 2022, except for Notes 17 and 19, as to which the date is November 21, 2022
