UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

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

For the Quarterly Period Ended March 31, 2014

OR

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

    For the Transition Period from             to            

Commission File Number: 001-32384

 

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 55^th 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.Yes x No o

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 x No o

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 x		Accelerated Filer o		Non-accelerated Filer o		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x

There were 56,514,819 LLC interests without par value outstanding at April 29, 2014.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
 
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		Page
PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations			1
Quantitative and Qualitative Disclosure About Market Risk			34
Controls and Procedures			34
Consolidated Condensed Balance Sheets as of March 31, 2014 (Unaudited) and December 31, 2013			35
Consolidated Condensed Statements of Operations for the Quarters Ended March 31, 2014 and 2013 (Unaudited)			36
Consolidated Condensed Statements of Comprehensive Income for the Quarters Ended March 31, 2014 and 2013 (Unaudited)			37
Consolidated Condensed Statements of Cash Flows for the Quarters ended March 31, 2014 and 2013 (Unaudited)			38
Notes to Consolidated Condensed Financial Statements (Unaudited)			40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			56
Item 1A. Risk Factors			56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 3. Defaults Upon Senior Securities			56
Item 4. Mine Safety Disclosures			56
Item 5. Other Information			56
Item 6. Exhibits			56

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.

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PART I
 
FINANCIAL INFORMATION

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

The following discussion of the financial condition and results of operations of Macquarie Infrastructure Company LLC should be read in conjunction with the consolidated condensed financial statements and the notes to those statements included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify such forward-looking statements. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. 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 Securities and Exchange Commission (the “SEC”).

Except as otherwise specified, “Macquarie Infrastructure Company,” “MIC,” “we,” “us,” and “our” refer to 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.

We own, operate and invest in a diversified group of infrastructure businesses that provide basic services to businesses and individuals primarily in the U.S. The businesses we own and operate include:

Our infrastructure businesses generally operate in sectors with limited direct 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.

Overview

In analyzing the financial condition and results of operations of our businesses, we focus primarily on cash generation, and our ability to distribute cash to shareholders in particular. The ability of our businesses to generate cash, broadly, is tied to their ability to effectively manage the volume of products sold or services provided and the margin earned on those transactions. Offsetting these are required payments on debt facilities, taxes and capital expenditures necessary to maintain the productivity of the fixed assets of the businesses, among others.

At IMTT, we focus on the generation of terminal revenue and on making appropriate expenditures in maintaining fixed assets of the business. IMTT seeks to attract third party storage from customers who place a premium on ease of access, and operational flexibility. The substantial majority of IMTT’s revenue is generated pursuant to contracts with an average duration of approximately four years.

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At Hawaii Gas, we look to grow the number of customers served, the volume of gas sold and in the case of the non-utility portion of the business, the margins achieved on gas sales. Hawaii Gas has an active marketing program that seeks to develop new customers throughout Hawaii.

At Atlantic Aviation, our focus is on attracting and maintaining relationships with general aviation aircraft owners and pilots and encouraging them to use our fixed base operations (FBO). Atlantic Aviation’s revenue is a function of the number of general aviation flight movements in the U.S. and the business’ ability to service a portion of the aircraft involved in those operations.

Within CP&E, we are focused on deploying capital effectively in the growth of the businesses within the segment, in particular our contracted power generation businesses. CP&E generates revenue pursuant to long-dated contracts.

Dividends

Since January 1, 2013, MIC has paid or declared the following dividends:

Declared

Period Covered

$ per LLC Interest

Record Date

Payable Date

April 28, 2014

First quarter 2014

$

0.9375

May 12, 2014

May 15, 2014

February 18, 2014

Fourth quarter 2013

$

0.9125

March 3, 2014

March 6, 2014

October 25, 2013

Third quarter 2013

$

0.875

November 11, 2013

November 14, 2013

July 29, 2013

Second quarter 2013

$

0.875

August 12, 2013

August 15, 2013

April 26, 2013

First quarter 2013

$

0.6875

May 13, 2013

May 16, 2013

Our Board has previously expressed its intent to distribute a significant portion of the Free Cash Flow generated by our proportionately owned businesses in the form of a quarterly cash dividend to our shareholders. Free Cash Flow includes cash generated by our businesses after cash payment for interest, taxes, maintenance capital expenditures and excludes changes in working capital. The payment of a quarterly cash dividend of $0.9375 per share for the quarter ended March 31, 2014 is being paid out of Free Cash Flow generated by certain of our operating entities. Each of IMTT, Atlantic Aviation, Hawaii Gas and the solar power generation businesses in our CP&E segment can distribute cash to MIC. Cash generated by our district energy business within CP&E is being used to reduce debt principal of that business.

In determining whether to adjust the amount of our quarterly dividend, our Board will take into account such matters as the state of the capital markets and general business conditions, the Company’s financial condition, results of operations, capital requirements, capital opportunities and any contractual, legal and regulatory restrictions on the payment of dividends by the Company to its shareholders or by its subsidiaries to the Company, and any other factors that it deems relevant. In particular, each of the Company’s businesses and investments has debt commitments and restrictive covenants, which must be satisfied before any of them can make distributions to the Company. Any or all of these factors could affect both the timing and amount, if any, of future dividends.

We view MIC as a total return investment opportunity. Consistent with that view, we believe that our businesses are capable of generating growing amounts of Free Cash Flow over time and that we will distribute cash equal to approximately 80% to 85% of the Free Cash Flow (in proportion to our equity interest) generated, subject to their continued stable performance and prevailing economic conditions. In particular, we believe that the growth characteristics of our businesses will cause our distributable cash flow per share to grow at a high single-digit rate annually over the medium term. See “Results of Operations — Consolidated: Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow” and “Summary of Our Proportionately Combined Results” for further discussions on Free Cash Flow and our proportionately combined financial measures in Part I of this Form 10-Q.

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Atlantic Aviation — Acquisitions

On April 30, 2014, Atlantic Aviation completed the acquisition of the assets and liabilities of Galaxy Aviation and Boca Aviation (collectively the “Galaxy Acquisitions”). The Galaxy Acquisitions included substantially all of the assets of six FBOs and one new hangar that is currently under construction at one of the six airports at which the FBOs operate. The aggregate purchase price of $230.0 million was funded using cash that had previously been raised or generated and debt facilities that had previously been arranged.

Results of Operations

Consolidated

Key Factors Affecting Operating Results:

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Results of Operations: Consolidated – (continued)

Our consolidated results of operations are as follows:

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013				$				%
		($ In Thousands) (Unaudited)
Revenue
Revenue from product sales		$	183,801			$	174,115				9,686				5.6
Revenue from product sales – utility			35,145				36,921				(1,776	)			(4.8	)
Service revenue			56,502				52,115				4,387				8.4
Financing and equipment lease income			747				1,055				(308	)			(29.2	)
Total revenue			276,195				264,206				11,989				4.5
Costs and expenses
Cost of product sales			122,917				116,993				(5,924	)			(5.1	)
Cost of product sales – utility			29,380				31,489				2,109				6.7
Cost of services			10,896				10,934				38				0.3
Gross profit			113,002				104,790				8,212				7.8
Selling, general and administrative			55,464				49,209				(6,255	)			(12.7	)
Fees to manager – related party			8,994				29,177				20,183				69.2
Depreciation			12,154				9,255				(2,899	)			(31.3	)
Amortization of intangibles			8,765				8,628				(137	)			(1.6	)
Loss on disposal of assets			—				173				173				100.0
Total operating expenses			85,377				96,442				11,065				11.5
Operating income			27,625				8,348				19,277				NM
Other income (expense)
Interest income			64				94				(30	)			(31.9	)
Interest expense(1)			(14,011	)			(7,686	)			(6,325	)			(82.3	)
Equity in earnings and amortization charges of investee			14,287				10,462				3,825				36.6
Other income (expense), net			681				(2	)			683				NM
Net income before income taxes			28,646				11,216				17,430				155.4
Provision for income taxes			(8,486	)			(4,502	)			(3,984	)			(88.5	)
Net income		$	20,160			$	6,714				13,446				NM
Less: net (loss) income attributable to noncontrolling interests			(206	)			843				1,049				124.4
Net income attributable to MIC LLC		$	20,366			$	5,871				14,495				NM

NM — Not meaningful

Gross Profit

Consolidated gross profit increased for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 reflecting improved results at Atlantic Aviation and increased contribution from CP&E. This was partially offset by a decrease in contribution margin at Hawaii Gas, primarily in the non-utility business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 primarily as a result of an increase in legal and transaction costs related to acquisition activity at Atlantic Aviation. In addition, there were increases in selling, general and administrative expenses at both Hawaii Gas and CP&E.

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Results of Operations: Consolidated – (continued)

Fees to Manager

Our Manager is entitled to a base management fee based primarily on our market capitalization, and potentially a performance fee, based on the performance of our stock relative to a U.S. utilities index. For the quarters ended March 31, 2014 and 2013, we incurred base management fees of $9.0 million and $7.1 million, respectively. In addition, for the quarter ended March 31, 2013, we incurred performance fees of $22.0 million. For the quarter ended March 31, 2014, our Manager did not earn a performance fee. In all of these periods, our Manager elected to reinvest these fees in additional LLC interests.

The unpaid portion of the base management fees and performance fees, if any, at the end of each reporting period is included in due to manager-related party in the consolidated condensed balance sheets. The following table shows our Manager’s election to reinvest its base management fees and performance fees, if any, in additional LLC interests:

Period		Base Management Fee Amount ($ in thousands)				Performance Fee Amount ($ in thousands)				LLC Interests Issued
2014 Activities:
First quarter 2014		$	8,994			$	—				164,546	(1)
2013 Activities:
Fourth quarter 2013		$	8,455			$	—				155,943
Third quarter 2013			8,336				6,906				278,480
Second quarter 2013			8,053				24,440				603,936
First quarter 2013			7,135				22,042				522,638

Depreciation

Depreciation expense increased for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 primarily as a result of the depreciation associated with solar power generation projects that became operational during 2013. Depreciation expense was also higher at Atlantic Aviation due to 2013 growth capital expenditures for supply chain logistics and an acquisition.

Interest Expense and Loss on Derivative Instruments

Interest expense includes losses on derivative instruments of $5.3 million and $1.1 million for the quarters ended March 31, 2014 and 2013, respectively. Losses on derivatives recorded in interest expense are attributable to the change in fair value of interest rate instruments and include the reclassification of amounts from accumulated other comprehensive loss into earnings. Excluding the derivative adjustments, interest expense increased primarily due to a higher interest rate on Atlantic Aviation’s term loan that was refinanced during the second quarter of 2013, partially offset by lower debt balance.

Equity in Earnings and Amortization Charges of Investee

The increase in equity in earnings for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 reflects our share of the improved operating results from IMTT in the current period, primarily due to increase in gross profit, partially offset by a higher tax provision.

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Results of Operations: Consolidated – (continued)

Income Taxes

We file a consolidated federal income tax return that includes the taxable income of Hawaii Gas, Atlantic Aviation and our allocated share of the taxable income from our solar investments, which are treated as partnerships for tax purposes. IMTT and our district energy business file separate federal income tax returns. Pursuant to tax sharing agreements, the individual businesses included in our consolidated federal income tax return pay MIC an amount equal to the federal income taxes each would have paid on a standalone basis as if they were not part of the MIC consolidated federal income tax return. Distributions from IMTT may be characterized as return on capital or as a dividend.

For 2014, we expect any federal income tax to be fully offset by our net operating loss, or NOL, carryforwards. At December 31, 2013, our federal NOL balance was $198.6 million, which is available to offset future taxable income, if any, through 2033. This balance excludes the NOL carryforwards of our district energy business of $2.9 million at December 31, 2013 (see CP&E — Income Taxes below).

As a result of having federal NOL carryforwards, we do not expect to make regular federal tax payments until 2016. However, we expect to pay an Alternative Minimum Tax of approximately $1.8 million for 2014. We expect that the Alternative Minimum Tax paid for 2014 will be available as a credit against regular federal income taxes in the future.

In addition, we expect our federal and state income taxes, excluding our district energy business, to be approximately 28.5% of net income before taxes, of which $7.0 million relates to state and local income taxes. The difference between our effective tax rate and the U.S. federal statutory rate of 35% is primarily attributable to state and local income taxes and adjustments for our less than 80% owned businesses.

We expect our district energy business to record federal and state income taxes of approximately $1.5 million, of which $344,000 relates to state and local income taxes. For 2014, our district energy business expects to pay regular federal and state income taxes of approximately $2.2 million and $959,000, respectively, and expects to utilize approximately $2.9 million of federal NOLs to offset a portion of its federal taxable income.

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.

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

We have disclosed EBITDA excluding non-cash items for our Company and each of our operating segments in Note 10, “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-cash 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 to similar businesses without regard to their capital structure, and to their ability to service or reduce debt, fund capital expenditures and/or support distributions to the holding company.

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, which includes cash paid for interest and taxes, less maintenance capital expenditures and excludes changes in working capital.

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.

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Results of Operations: Consolidated – (continued)

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 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.

A reconciliation of net income attributable to MIC LLC to EBITDA excluding non-cash items and EBITDA excluding non-cash items to Free Cash Flow, on a consolidated basis, is provided below.

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013				$				%
		($ In Thousands) (Unaudited)
Net income attributable to MIC LLC(1)		$	20,366			$	5,871
Interest expense, net(2)			13,947				7,592
Provision for income taxes			8,486				4,502
Depreciation(3)			12,154				9,255
Depreciation – cost of services(3)			1,704				1,698
Amortization of intangibles(4)			8,765				8,628
Loss on disposal of assets			—				106
Equity in earnings and amortization charges of investee			(14,287	)			(10,462	)
Equity distributions from investee(5)			8,127				—
Base management fees to be settled/settled in LLC interests			8,994				7,135
Performance fees settled in LLC interests			—				22,042
Other non-cash expense (income), net			536				(1,006	)
EBITDA excluding non-cash items		$	68,792			$	55,361				13,431				24.3
EBITDA excluding non-cash items		$	68,792			$	55,361
Interest expense, net(2)			(13,947	)			(7,592	)
Adjustments to derivative instruments recorded in interest expense(2)			1,094				(1,339	)
Amortization of debt financing costs(2)			1,041				947
Equipment lease receivables, net			996				967
Provision for income taxes, net of changes in deferred taxes			(2,047	)			(1,432	)
Pension contribution(6)			(310	)			—
Changes in working capital			3,458				(13,243	)
Cash provided by operating activities			59,077				33,669
Changes in working capital			(3,458	)			13,243
Maintenance capital expenditures			(2,825	)			(2,617	)
Free cash flow		$	52,794			$	44,295				8,499				19.2

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Results of Operations: Consolidated – (continued)

Reconciliation from Consolidated Free Cash Flow to Proportionately Combined Free Cash Flow

The following table is a reconciliation from Free Cash Flow on a consolidated basis to Free Cash Flow on a proportionately combined basis. See “Results of Operations — Consolidated” above for a reconciliation of Free Cash Flow — Consolidated basis to cash provided by operating activities, the most comparable GAAP measure. See “Results of Operations” below for each of our segments for a reconciliation of Free Cash Flow for each segment to cash provided by operating activities for such segment. See “Results of Operations — Summary of Our Proportionately Combined Results” for further discussions on Free Cash Flow and our proportionately combined financial measures in Part I of this Form 10-Q.

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013				$				%
		($ In Thousands) (Unaudited)
Free Cash Flow- Consolidated basis		$	52,794			$	44,295				8,499				19.2
Equity distributions from investee(1)			(8,127	)			—
100% of CP&E Free Cash Flow included in consolidated Free Cash Flow			(2,775	)			(2,728	)
MIC’s share of IMTT Free Cash Flow			21,416				17,200
MIC’s share of CP&E Free Cash Flow			1,612				1,315
Free Cash Flow- Proportionately Combined basis		$	64,920			$	60,082				4,838				8.1

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Results of Operations: IMTT

We account for our 50% interest in IMTT using the equity method. 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:

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Results of Operations: IMTT – (continued)

		Quarter Ended March 31,
		2014				2013				Change Favorable/(Unfavorable)
		$				$				$				%
		($ In Thousands) (Unaudited)
Revenue
Terminal revenue			133,690				121,332				12,358				10.2
Environmental response revenue			14,388				10,153				4,235				41.7
Total revenue			148,078				131,485				16,593				12.6
Costs and expenses
Terminal operating costs			51,847				50,304				(1,543	)			(3.1	)
Environmental response operating costs			11,240				7,887				(3,353	)			(42.5	)
Total operating costs			63,087				58,191				(4,896	)			(8.4	)
Terminal gross profit			81,843				71,028				10,815				15.2
Environmental response gross profit			3,148				2,266				882				38.9
Gross profit			84,991				73,294				11,697				16.0
General and administrative expenses			7,866				8,482				616				7.3
Depreciation and amortization			18,274				18,422				148				0.8
Operating income			58,851				46,390				12,461				26.9
Interest expense, net(1)			(7,133	)			(6,606	)			(527	)			(8.0	)
Other income			494				742				(248	)			(33.4	)
Provision for income taxes			(21,102	)			(17,121	)			(3,981	)			(23.3	)
Noncontrolling interest			(129	)			(75	)			(54	)			(72.0	)
Net income			30,981				23,330				7,651				32.8
Reconciliation of net income to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net income			30,981				23,330
Interest expense, net(1)			7,133				6,606
Provision for income taxes			21,102				17,121
Depreciation and amortization			18,274				18,422
Other non-cash expenses(2)			1,983				75
EBITDA excluding non-cash items			79,473				65,554				13,919				21.2
EBITDA excluding non-cash items			79,473				65,554
Interest expense, net(1)			(7,133	)			(6,606	)
Adjustments to derivative instruments recorded in interest expense(1)			(4,136	)			(4,409	)
Amortization of debt financing costs(1)			844				666
Provision for income taxes, net of changes in deferred taxes			(15,109	)			(1,685	)
Changes in working capital			5,248				(17,387	)
Cash provided by operating activities			59,187				36,133
Changes in working capital			(5,248	)			17,387
Maintenance capital expenditures(3)			(11,107	)			(19,121	)
Free cash flow			42,832				34,399				8,433				24.5

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Results of Operations: IMTT – (continued)

Revenue and Gross Profit

Terminal revenues increased 10.2% or $12.4 million during the quarter ended March 31, 2014 as compared with the quarter ended March 31, 2013. The increase was primarily attributable to higher revenues from heating, firm commitments and ancillary services. IMTT’s contracts typically contain a fixed monthly charge for access to or use of IMTT’s infrastructure, which escalates with inflation similar to an availability payment. Together with storage charges, we refer to these payments as firm commitments.

The increase in ancillary services and heating revenues was primarily due to higher activity levels resulting from the cold weather as well as spikes in natural gas prices, which were passed through to customers. Firm commitments increased primarily due to an increase in rates. As expected, capacity utilization was flat at 92.7% due to the continued scheduled cleaning and inspection of large tanks.

Terminal operating costs were higher for the quarter ended March 31, 2014 as compared with the quarter ended March 31, 2013, primarily due to increased product heating costs which are typically passed through to customers, partially offset by lower repairs and maintenance costs due to Hurricane Sandy related costs incurred during the quarter ended March 31, 2013.

Gross profit from environmental response services increased due to a higher level of spill response activity, predominantly related to one large incident in the Houston Ship Channel, during the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013.

General and Administrative Expense

General and administrative expenses decreased for the quarter ended March 31, 2014 as compared with the quarter ended March 31, 2013 primarily due to lower legal costs.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $378,000 and gains on derivative instruments of $31,000 for the quarters ended March 31, 2014 and 2013, respectively. Excluding the derivative adjustments, interest expense remained flat. Cash interest paid totaled $10.2 million and $8.8 million for the quarters ended March 31, 2014 and 2013, respectively. The increase in cash interest paid during the quarter ended March 31, 2014 was due to timing of the payments.

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Results of Operations: IMTT – (continued)

Income Taxes

IMTT files a consolidated federal income tax return and state income tax returns in the states in which it operates.

For the year ending December 31, 2014, IMTT expects to pay $37.5 million of federal income taxes and $9.0 million of state income taxes. IMTT’s actual federal tax liability could be higher or lower depending on the cost and timing of the capital assets placed in service during the year or tax legislation. The “Provision for income taxes, net of changes in deferred taxes” of $15.1 million for the quarter ended March 31, 2014 in the table above, includes $12.2 million of federal income taxes and $2.9 million of state income taxes. The increase in current income taxes payable is due to utilization of available NOLs in prior periods and higher taxable income.

For the full year 2013, IMTT recorded $48.8 million of federal income tax expense and $12.3 million of state income tax expense. This includes $13.8 million and $4.7 million of current federal and state income taxes, respectively. The federal income tax expense exceeded the cash taxes primarily due to the benefit of accelerated tax depreciation.

Hawaii Gas

Management believes that the presentation and analysis of contribution margin, a non-GAAP performance measure, is meaningful to understanding the business’ performance under both a utility rate structure and a non-utility unregulated pricing structure. Regulation of the utility portion of Hawaii Gas’s operations provides for the pass through of increases or decreases in feedstock costs to customers. Changes in the cost of Liquefied Petroleum Gas, or LPG, distributed to non-utility customers can be recovered in pricing, subject to competitive conditions.

Contribution margin should not be considered an alternative to revenue, gross profit, operating income, or net income, as determined in accordance with U.S. GAAP. A reconciliation of contribution margin to gross profit is presented in the below table. The business calculates contribution margin as revenue less direct costs of revenue other than production and transmission and distribution costs. Other companies may calculate contribution margin differently or may use different metrics and, therefore, the contribution margin presented for Hawaii Gas is not necessarily comparable with metrics of other companies.

Key Factors Affecting Operating Results:

TABLE OF CONTENTS

Results of Operations: Hawaii Gas – (continued)

		Quarter Ended March 31,
		2014				2013				Change Favorable/(Unfavorable)
		$				$				$				%
		($ In Thousands) (Unaudited)
Contribution margin
Revenue – non-utility			34,206				32,085				2,121				6.6
Cost of revenue – non-utility			16,963				13,354				(3,609	)			(27.0	)
Contribution margin – non-utility			17,243				18,731				(1,488	)			(7.9	)
Revenue – utility			35,145				36,921				(1,776	)			(4.8	)
Cost of revenue – utility			25,229				26,654				1,425				5.3
Contribution margin – utility			9,916				10,267				(351	)			(3.4	)
Total contribution margin			27,159				28,998				(1,839	)			(6.3	)
Production			2,384				2,715				331				12.2
Transmission and distribution			4,803				5,866				1,063				18.1
Gross profit			19,972				20,417				(445	)			(2.2	)
Selling, general and administrative expenses			5,623				5,332				(291	)			(5.5	)
Depreciation and amortization			2,258				2,158				(100	)			(4.6	)
Operating income			12,091				12,927				(836	)			(6.5	)
Interest expense, net(1)			(1,787	)			(1,705	)			(82	)			(4.8	)
Other expense			(82	)			(32	)			(50	)			(156.3	)
Provision for income taxes			(4,027	)			(4,483	)			456				10.2
Net income(2)			6,195				6,707				(512	)			(7.6	)
Reconciliation of net income to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net income(2)			6,195				6,707
Interest expense, net(1)			1,787				1,705
Provision for income taxes			4,027				4,483
Depreciation and amortization			2,258				2,158
Other non-cash expenses			724				662
EBITDA excluding non-cash items			14,991				15,715				(724	)			(4.6	)
EBITDA excluding non-cash items			14,991				15,715
Interest expense, net(1)			(1,787	)			(1,705	)
Adjustments to derivative instruments recorded in interest expense(1)			(7	)			(78	)
Amortization of debt financing costs(1)			118				106
Provision for income taxes, net of changes in deferred taxes			(2,711	)			(3,092	)
Pension contribution(3)			(310	)			—
Changes in working capital			(5,488	)			(10,567	)
Cash provided by operating activities			4,806				379
Changes in working capital			5,488				10,567
Maintenance capital expenditures			(1,658	)			(1,006	)
Free cash flow			8,636				9,940				(1,304	)			(13.1	)

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Results of Operations: Hawaii Gas – (continued)

Contribution Margin and Operating Income

Non-utility volume decreased by 1.3% for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013, driven by a reduction in average customer inventory resulting from lower than anticipated local refinery production. Non-utility contribution margin decreased during the quarter ended March 31, 2014 as the result of higher propane costs, offset partially by selected pricing increases implemented mid-way through the first quarter of 2014. The volume of gas sold by the utility business decreased by 2.4% for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 as a result of reduced demand from certain large commercial customers.

Hawaii Gas purchased approximately 70% of its LPG from off-island sources in the first quarter of 2014, compared with 63% in the fourth quarter of 2013, due to instability in the operations at the local refineries. To the extent this instability persists, it may continue to impact the sourcing of Hawaii Gas’s LPG supplies. As a result, Hawaii Gas continues to strengthen its relationships with off-island suppliers and to evaluate investing in additional local storage facilities.

The timing of off-island purchases in the first quarter of 2014 also coincided with a peak in the benchmark LPG price index (the “Mont Belvieu index”). The average price per gallon of LPG during the quarter rose by over 50% versus the prior comparable period, primarily as a result of the severe winter weather throughout the mainland and the resulting increased demand. The business is pursuing several initiatives to mitigate future volatility in supply prices including expanding storage and providing for greater flexibility in its supply contracts.

Production, transmission and distribution and selling, general and administrative expenses comprise primarily labor related expenses and professional fees. Collectively, these costs were lower for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 due to lower welfare and benefit costs.

On March 6, 2014, Hawaii Gas received approval from the Hawaii Public Utilities Commission (“HPUC”) to land containerized liquefied natural gas (“LNG”) in Hawaii as a back-up fuel for its synthetic natural gas distribution system on Oahu. Hawaii Gas is currently the only company with regulatory approval to land and utilize LNG in Hawaii. On April 2, 2014 Hawaii Gas received its first shipment of LNG which was subsequently re-gasified and injected into the utility pipeline network. Hawaii Gas continues to pursue both a small-scale containerized LNG delivery program and a large-scale bulk storage and distribution program to supply multiple end markets throughout the state including utility power generation, ground and marine transportation.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $588,000 and $529,000 for the quarters ended March 31, 2014 and 2013, respectively. Excluding the derivative adjustments, interest expense remained flat during the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013. Cash interest paid totaled $2.8 million and $2.7 million for the quarters ended March 31, 2014 and 2013, respectively.

Income Taxes

Income from Hawaii Gas is included in our consolidated federal income tax return, and 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 ended December 31, 2014, the business expects to pay state income taxes of approximately $1.4 million. The “Provision for income taxes, net of changes in deferred taxes” of $2.7 million for the quarter ended March 31, 2014 in the above table, includes $2.3 million of federal income taxes payable to MIC and $391,000 of state income taxes. Any current federal income tax liability is expected to be offset in consolidation by the application of NOLs.

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Results of Operations: Atlantic Aviation

Key Factors Affecting Operating Results:

TABLE OF CONTENTS

Results of Operations: Atlantic Aviation – (continued)

		Quarter Ended March 31,
		2014				2013				Change Favorable/(Unfavorable)
		$				$				$				%
		($ In Thousands) (Unaudited)
Revenue
Fuel revenue			145,937				140,344				5,593				4.0
Non-fuel revenue			48,024				43,796				4,228				9.7
Total revenue			193,961				184,140				9,821				5.3
Cost of revenue
Cost of revenue – fuel			102,058				99,785				(2,273	)			(2.3	)
Cost of revenue – non-fuel			4,694				4,721				27				0.6
Total cost of revenue			106,752				104,506				(2,246	)			(2.1	)
Fuel gross profit			43,879				40,559				3,320				8.2
Non-fuel gross profit			43,330				39,075				4,255				10.9
Gross profit			87,209				79,634				7,575				9.5
Selling, general and administrative expenses			47,243				43,477				(3,766	)			(8.7	)
Depreciation and amortization			14,933				13,871				(1,062	)			(7.7	)
Loss on disposal of assets			—				173				173				100.0
Operating income			25,033				22,113				2,920				13.2
Interest expense, net(1)			(9,565	)			(4,099	)			(5,466	)			(133.3	)
Other income (expense)			2				(4	)			6				150.0
Provision for income taxes			(4,915	)			(7,398	)			2,483				33.6
Net income(2)			10,555				10,612				(57	)			(0.5	)
Reconciliation of net income to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net income(2)			10,555				10,612
Interest expense, net(1)			9,565				4,099
Provision for income taxes			4,915				7,398
Depreciation and amortization			14,933				13,871
Loss on disposal of assets			—				106
Other non-cash expense (income)			68				(68	)
EBITDA excluding non-cash items			40,036				36,018				4,018				11.2
EBITDA excluding non-cash items			40,036				36,018
Interest expense, net(1)			(9,565	)			(4,099	)
Adjustments to derivative instruments recorded in interest expense(1)			2,626				25
Amortization of debt financing costs(1)			731				661
Provision for income taxes, net of changes in deferred taxes			(1,244	)			(4,048	)
Changes in working capital			(971	)			3,158
Cash provided by operating activities			31,613				31,715
Changes in working capital			971				(3,158	)
Maintenance capital expenditures			(817	)			(1,465	)
Free cash flow			31,767				27,092				4,675				17.3

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Results of Operations: Atlantic Aviation – (continued)

Revenue and Gross Profit

The majority of the revenue and gross profit earned by Atlantic Aviation is generated through fueling GA aircraft at facilities located at 63 U.S. airports at which Atlantic Aviation operates. Revenue is categorized according to who owns the fuel used to service these aircraft. If Atlantic Aviation 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. Generally, fluctuations in the cost of fuel are passed through 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. Non-fuel revenue also includes various services such as hangar rentals, de-icing, landing fees, tie-down fees and miscellaneous services.

The business’ fuel-related revenue and gross profit are driven by the volume of fuel sold and the dollar-based margin/fee per gallon on those sales. This applies to revenue and gross profit generated through both fuel and into-plane sales. Purchases of fuel by individual customers may be from Atlantic Aviation directly, another party or both in a given period.

The increase in total gross profit for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 was the result of increased fuel gross profit along with increased rental revenue and de-icing gross profit. On a same store basis, total gross profit increased by 8.6%, volume of GA fuel sold increased by 3.8% and GA average fuel margin increased by 2.7% for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013.

Atlantic Aviation seeks to extend FBO leases prior to their maturity and to increase the portfolio’s weighted average lease life. The weighted average lease life increased from 18.8 years at March 31, 2013 to 19.2 years at March 31, 2014, notwithstanding the passage of one year. Including the locations related to the previously announced acquisitions, the weighted average lease life would be 19.7 years.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 primarily due to transaction and legal costs primarily associated with previously announced acquisitions.

On a same store basis, costs were 6.2% higher for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 primarily due to weather related costs associated with the colder than normal temperatures in the Northeast U.S. Excluding the weather related costs in both periods, costs increased by 4.1%, mainly due to higher rent and incentives.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $4.5 million and $26,000 for the quarters ended March 31, 2014 and 2013, respectively. Excluding the derivative adjustments, interest expense increased due to the lower cost of debt in the prior comparable period, as the principal was unhedged, partially offset by lower debt levels in the current period. In 2014, the business anticipates cash interest to be approximately $29.0 million. The weighted average interest rate of all outstanding debt facilities, including any interest rate swaps, was 4.67% and 1.95% for the quarters ended March 31, 2014 and 2013, respectively. Cash interest paid was $6.2 million and $3.3 million for the quarters ended March 31, 2014 and 2013, respectively.

Income Taxes

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

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Results of Operations: Atlantic Aviation – (continued)

During the quarter ended March 31, 2014, Atlantic Aviation completed a tax planning initiative which is expected to reduce state taxes by approximately $2.0 million over the next several years. For 2014, the business expects to pay state income taxes of approximately $4.2 million. The “Provision for income taxes, net of changes in deferred taxes” of $1.2 million for the quarter ended March 31, 2014 in the above table, includes $329,000 of federal income taxes payable to MIC and $915,000 of state income taxes.

Contracted Power and Energy

Key Factors Affecting Operating Results:

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Results of Operations: Contracted Power and Energy – (continued)

		Quarter Ended March 31,
		2014				2013				Change Favorable/(Unfavorable)
		$				$				$				%
		($ In Thousands) (Unaudited)
Product sales			3,658				1,686				1,972				117.0
Service revenue			8,478				8,319				159				1.9
Finance lease revenue			747				1,055				(308	)			(29.2	)
Total revenue			12,883				11,060				1,823				16.5
Cost of revenue – product			860				108				(752	)			NM
Cost of revenue – service(1)			6,202				6,213				11				0.2
Cost of revenue – total			7,062				6,321				(741	)			(11.7	)
Gross profit			5,821				4,739				1,082				22.8
Selling, general and administrative expenses			1,552				1,225				(327	)			(26.7	)
Depreciation			3,406				1,517				(1,889	)			(124.5	)
Amortization of intangibles			322				337				15				4.5
Operating income			541				1,660				(1,119	)			(67.4	)
Interest expense, net(2)			(2,645	)			(1,877	)			(768	)			(40.9	)
Other income, net			761				2,490				(1,729	)			(69.4	)
Provision for income taxes			(599	)			(1,963	)			1,364				69.5
Noncontrolling interest			527				(428	)			955				NM
Net loss			(1,415	)			(118	)			(1,297	)			NM
Reconciliation of net loss to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net loss			(1,415	)			(118	)
Interest expense, net(2)			2,645				1,877
Provision for income taxes			599				1,963
Depreciation(1)			5,110				3,215
Amortization of intangibles			322				337
Other non-cash income			(765	)			(2,181	)
EBITDA excluding non-cash items			6,496				5,093				1,403				27.5
EBITDA excluding non-cash items			6,496				5,093
Interest expense, net(2)			(2,645	)			(1,877	)
Adjustments to derivative instruments recorded in interest expense(2)			(1,525	)			(1,286	)
Amortization of debt financing costs(2)			192				180
Equipment lease receivable, net			996				967
Provision for income taxes, net of changes in deferred taxes			(389	)			(203	)
Changes in working capital			12,423				874
Cash provided by operating activities			15,548				3,748
Changes in working capital			(12,423	)			(874	)
Maintenance capital expenditures			(350	)			(146	)
Free cash flow			2,775				2,728				47				1.7

NM — Not meaningful

TABLE OF CONTENTS

Results of Operations: Contracted Power and Energy – (continued)

Revenue and Gross Profit

The increase in revenue and gross profit for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 reflects three months of operations of all solar facilities for the quarter ended March 31, 2014 compared with only one solar facility for the quarter ended March 31, 2013. This increase was partially offset by a decrease in finance lease revenue and cooler average temperatures.

Selling, General and Administrative Expense

Selling, general and administrative expenses are comprised primarily of acquisition-related fees, legal and other professional fees and management and incentive costs. The increase in selling, general and administrative expenses primarily relates to legal and professional expenses incurred during the first quarter of 2014.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $287,000 and $505,000 for the quarters ended March 31, 2014 and 2013, respectively. Excluding the derivative adjustments, interest expense increased for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 due to higher debt balance. Cash interest totaled $2.4 million for the quarters ended March 31, 2014 and 2013.

Income Taxes

In 2013, our district energy business recorded a $137,000 Federal Alternative Minimum Tax liability and did not generate a regular federal income tax liability due to the application of NOL carryforwards. For 2014, the district energy business is expected to generate federal and state income cash tax liabilities of approximately $2.2 million and $959,000, respectively. The district energy business is expected to utilize its remaining federal NOLs, of approximately $2.9 million, to offset a portion of its federal taxable income for the year ending December 31, 2014.

The five solar projects within CP&E are held in various LLCs and treated as partnerships for income tax purposes. For 2014, MIC expects its allocated share of the taxable income from the five solar projects currently in operations to be approximately $4.8 million. The business’ federal taxable income differs from book income primarily as a result of differences in the depreciation of fixed assets.

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Results of Operations: Corporate and Other

The financial results below reflect Corporate and Other’s performance during the periods below.

		Quarter Ended March 31,
		2014				2013				Change Favorable/(Unfavorable)
		$				$				$				%
		($ In Thousands) (Unaudited)
Base management fees			8,994				7,135				(1,859	)			(26.1	)
Performance fees			—				22,042				22,042				100.0
Selling, general and administrative expenses			1,046				1,606				560				34.9
Operating loss			(10,040	)			(30,783	)			20,743				67.4
Interest income			50				89				(39	)			(43.8	)
Other expense, net			—				(25	)			25				100.0
Benefit for income taxes			1,055				9,342				(8,287	)			(88.7	)
Noncontrolling interest			(321	)			(415	)			94				22.7
Net loss(1)			(9,256	)			(21,792	)			12,536				57.5
Reconciliation of net loss to EBITDA excluding non-cash items and cash used in operating activities to Free Cash Flow:
Net loss(1)			(9,256	)			(21,792	)
Interest income			(50	)			(89	)
Benefit for income taxes			(1,055	)			(9,342	)
Base management fees to be settled/settled in LLC interests			8,994				7,135
Performance fees settled in LLC interests			—				22,042
Other non-cash expense			509				581
EBITDA excluding non-cash items			(858	)			(1,465	)			607				41.4
EBITDA excluding non-cash items			(858	)			(1,465	)
Interest income			50				89
Benefit for income taxes, net of changes in deferred taxes			2,297				5,911
Changes in working capital			(2,506	)			(6,708	)
Cash used in operating activities			(1,017	)			(2,173	)
Changes in working capital			2,506				6,708
Free cash flow			1,489				4,535				(3,046	)			(67.2	)

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Summary of Our Proportionately Combined Results

We believe that our proportionately combined metrics, including proportionately combined gross profit, proportionately combined EBITDA excluding non-cash items, proportionately combined cash interest, proportionately combined cash taxes, proportionately combined maintenance capital expenditures, proportionately combined Free Cash Flow, proportionately combined Free Cash Flow per share, proportionately combined growth capital expenditures, and proportionately combined net debt, some of which are used in this Form 10-Q, provide our investors and management with additional insight into the financial results and cash generated as a result of our varied ownership interests in our businesses and investments. When we refer to the proportionately combined net debt and resultant leverage ratios, we exclude: (1) the net debt associated with CP&E as the capital structure of that business is more project finance related and the size of that reporting segment, on a proportionately combined basis, is minimal; and (2) any cash on hand at Holding Company. Given the nature of the businesses we own and our varied ownership levels of these businesses, management believes that GAAP measures such as net income and cash from operating activities do not fully reflect all of the items that our management considers in assessing the amount of cash generated by our ownership interest in our businesses and investments.

We note that proportionately combined metrics used by us may be calculated in a different manner by other companies, which may limit their usefulness as a comparative measure. Therefore, our proportionately combined metrics should be used as a supplement to, and not in lieu of, of our financial results reported under GAAP.

Our proportionately combined financial measures are those attributable to MIC’s ownership interest in each of our operating businesses and MIC Corporate. The gross profit, EBITDA excluding non-cash items and Free Cash Flow are derived from the “Results of Operations” of our investments and businesses described above.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for further information for each of our businesses and Corporate and Other segment to see a reconciliation of EBITDA excluding non-cash to net income (loss), its closest comparable GAAP measure, and see reconciliation of Free Cash Flow to cash provided by (used in) operating activities, its closest comparable GAAP measure.

		For the Quarter Ended March 31, 2014
($ in Thousands) (Unaudited)		IMTT 50%				Hawaii Gas				Atlantic Aviation				Contracted Power and Energy(2)				MIC Corporate				Proportionately Combined(1)				IMTT 100%				Contracted Power and Energy 100%
Gross profit			42,496				19,972				87,209				3,567				N/A				153,243				84,991				5,821
EBITDA excluding non-cash items			39,737				14,991				40,036				3,878				(858	)			97,783				79,473				6,496
Free cash flow			21,416				8,636				31,767				1,612				1,489				64,920				42,832				2,775

		For the Quarter Ended March 31, 2013
($ in Thousands) (Unaudited)		IMTT 50%				Hawaii Gas				Atlantic Aviation				Contracted Power and Energy(2)				MIC Corporate				Proportionately Combined(1)				IMTT 100%				Contracted Power and Energy 100%
Gross profit			36,647				20,417				79,634				2,489				N/A				139,187				73,294				4,739
EBITDA excluding non-cash items			32,777				15,715				36,018				2,542				(1,465	)			85,587				65,554				5,093
Free cash flow			17,200				9,940				27,092				1,315				4,535				60,082				34,399				2,728

N/A — Not applicable.

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Liquidity and Capital Resources

Consolidated

Our primary cash requirements include normal operating expenses, debt service, debt principal payments, payments of dividends and capital expenditures. Our primary source of cash is operating activities, although we may draw on credit facilities for capital expenditures, issue additional LLC interests or sell assets to generate cash.

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

Historically, we have capitalized our businesses in large part using project-finance style debt. Project-finance style debt is generally limited-recourse, floating rate, non-amortizing bank debt with a medium term maturity of between five and seven years. Typically, we have sought to ensure that the debt at each business was non-recourse to MIC and that there was no cross-collateralization or cross-guarantees of any debt between our businesses.

More recently, given the openness of the debt markets generally, we have also used slightly longer dated private placement debt as a component of the capital structure of our businesses. For example, in August of 2012, we included $100.0 million of 10-year non-amortizing senior secured notes in the capital structure of Hawaii Gas in connection with the refinancing of its long-term debt. We may in the future consider other forms of capital, including bank, bond or hybrid debt instruments as a means of financing our businesses.

At March 31, 2014, we had no debt at the MIC holding company level. We may in the future consider borrowing money at the MIC holding company level in circumstances where the cost of capitalizing our businesses, collectively, or the terms and covenants available could be improved as a result. Our use of debt instruments at the holding company level or otherwise depends on multiple factors including but not limited to: the condition of the debt capital markets; the operating performance of our businesses and investments; the near and long term capital needs of our businesses; our ability to stagger debt maturities across our portfolio; and, where applicable, express or implied debt ratings.

Our financing strategy involves ensuring that we and our businesses maintain appropriate liquidity and access to capital markets, managing our net exposure to floating interest rate volatility, and maintaining a balanced spectrum of debt maturities. Within these parameters, we seek to optimize our borrowing costs and the terms and covenants of our debt facilities.

The section below discusses the sources and uses of cash on a consolidated basis and for each of our businesses and investments. All intercompany 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.

TABLE OF CONTENTS

Liquidity and Capital Resources: Consolidated – (continued)

Analysis of Consolidated Historical Cash Flows from Operations

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013
($ In Thousands)		$				$				$				%
Cash provided by operating activities			59,077				33,669				25,408				75.5
Cash used in investing activities			(22,613	)			(14,875	)			(7,738	)			(52.0	)
Cash used in financing activities			(61,268	)			(5,723	)			(55,545	)			NM

NM — Not meaningful

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 by the holding company, including base management fees and performance fees to the extent paid in cash, professional fees and costs associated with being a public company.

The increase in consolidated cash provided by operating activities for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 was primarily due to:

Distributions from IMTT are reflected in our consolidated cash provided by operating activities only up to our cumulative 50% share of IMTT’s earnings recorded since our investment in IMTT. Cumulative distributions in excess of this are reflected in our consolidated cash from investing activities as a return of investment in unconsolidated business.

Investing Activities

The increase in consolidated cash used in investing activities for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 was primarily due to increase in growth capital expenditures at Atlantic Aviation and CP&E.

Financing Activities

The dividend for the fourth quarter of 2012 was paid during that quarter. The dividend for the fourth quarter of 2013 was paid in the first quarter of 2014, as is customary. This resulted in a $51.5 million increase in cash used in financing activities during the quarter ended March 31, 2014.

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

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Liquidity and Capital Resources: 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 discussion of the historical cash flow trends of IMTT. We account for our 50% ownership of this business using the equity method.

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013
($ In Thousands)		$				$				$				%
Cash provided by operating activities			59,187				36,133				23,054				63.8
Cash used in investing activities			(29,602	)			(50,928	)			21,326				41.9
Cash (used in) provided by financing activities			(28,498	)			13,580				(42,078	)			NM

NM — Not meaningful

Operating Activities

Cash provided by operating activities at IMTT is generated primarily from firm commitments and ancillary services that are billed monthly, primarily in advance. 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 for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013, primarily as a result of:

Investing Activities

Cash used in investing activities primarily relates to capital expenditures which were lower for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013. Total cash capital expenditures decreased from $50.8 million for the quarter ended March 31, 2013 to $29.6 million for the quarter ended March 31, 2014. Total capital expenditures, on an accrual basis, decreased from $34.2 million for the quarter ended March 31, 2013 to $21.1 million for the quarter ended March 31, 2014.

Maintenance and Environmental Capital Expenditure

During the quarters ended March 31, 2014 and 2013, IMTT incurred $11.1 million and $19.1 million, respectively, on maintenance and environmental capital expenditures. Of the $19.1 million spent for the quarter ended March 31, 2013, $5.9 million was associated with repairs to the Bayonne terminal as a result of damage from Hurricane Sandy.

The classification of capital expenditures as either growth or maintenance is the subject of ongoing discussions between MIC and its co-investor in IMTT. For a summary of the approach that MIC uses to categorize capital expenditures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Classification of Maintenance Capital Expenditures and Growth Capital Expenditures” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. We believe that IMTT management has not used or has inconsistently applied a framework in the categorization of capital expenditures. At MIC’s insistence, the board of IMTT unanimously instructed IMTT management to engage a third party accounting firm to conduct a review of IMTT’s capital expenditure processes and conduct control testing of these processes. This review is ongoing.

Growth Capital Expenditure

IMTT incurred growth capital expenditures of $10.0 million and $15.1 million for the quarters ended March 31, 2014 and 2013, respectively.

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Liquidity and Capital Resources: IMTT – (continued)

At March 31, 2014, IMTT has growth projects with outstanding expenditures that are anticipated to have a total cost of $82.4 million, including $28.3 million of support infrastructure projects and some trailing costs from projects brought on line in the prior years. To date, $34.9 million has been spent on these projects. These projects are anticipated to generate an additional $12.4 million of annualized gross profit and EBITDA as outlined in the table below.

		Anticipated Incremental Gross Profit/EBITDA				Anticipated Cumulative Gross Profit/EBITDA
2013		$	2.0 million			$	2.0 million
2014			6.0 million				8.0 million
2015			4.4 million				12.4 million

IMTT management is reviewing a significant pipeline of expansion projects of which it is actively considering projects of over $100.0 million. Returns on these projects are anticipated to be in line with historical levels.

Financing Activities

Cash used in financing activities for the quarter ended March 31, 2014 compared with cash provided by financing activities for the quarter ended March 31, 2013 reflects a higher level of distributions to shareholders and a net repayment of debt compared to net borrowings, partially offset by debt refinancing costs incurred in 2013.

At March 31, 2014, the balance on IMTT’s total debt facilities was $956.6 million. This consisted of $336.3 million in letter of credit backed tax-exempt bonds, $178.0 million in bank owned tax-exempt bonds, $419.4 million in revolving credit facilities and $22.9 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 was 4.20%. Cash interest paid was $10.2 million and $8.8 million for the quarters ended March 31, 2014 and 2013, respectively. The increase in cash interest paid during the quarter ended March 31, 2014 was primarily due to timing of the payments.

The financial covenant requirements under IMTT’s revolving credit facility, and the calculation of these measures at March 31, 2014, were as follows:

For a description of the material terms of IMTT’s credit facilities, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

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Liquidity and Capital Resources: Hawaii Gas

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013
($ In Thousands)		$				$				$				%
Cash provided by operating activities			4,806				379				4,427				NM
Cash used in investing activities			(3,532	)			(3,506	)			(26	)			(0.7	)
Cash provided by financing activities			—				20,000				(20,000	)			(100.0	)

NM — Not meaningful

Operating Activities

The principal source of cash provided by operating activities is customer receipts. The business incurs 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 increase in cash provided by operating activities for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 was driven primarily by inventory change due to the timing of off-island shipments of LPG.

Investing Activities

Cash used in investing activities is composed primarily of capital expenditures. Capital expenditures are funded by cash from operating activities as well as drawing on credit facilities.

The following table sets forth information about capital expenditures at Hawaii Gas ($ in thousands):

		Maintenance				Growth
Quarter ended March 31, 2014, accrual basis		$	1,658			$	1,146
Change in accrued capital expenditure balance from December 31, 2013			234				527
Quarter ended March 31, 2014, cash basis		$	1,892			$	1,673
Quarter ended March 31, 2013, accrual basis		$	1,006			$	1,129
Change in accrued capital expenditure balance from December 31, 2012			748				580
Quarter ended March 31, 2013, cash basis		$	1,754			$	1,709

Maintenance Capital Expenditure

Maintenance capital expenditures for the quarter ended March 31, 2014 increased compared with the quarter ended March 31, 2013 due to the timing of pipeline renewal projects.

Growth Capital Expenditure

Growth capital expenditures for the quarter ended March 31, 2014 were lower compared with the quarter ended March 31, 2013 driven mainly by the timing of new customer installations.

Financing Activities

The main drivers of cash provided by financing activities are drawings on facilities for capital expenditures and working capital needs. At March 31, 2014, the balance on the business’ debt facilities consisted of $180.0 million in term loan and senior secured note borrowings. Cash provided by financing activities during the quarter ended March 31, 2013 reflects the drawdown of the revolving credit facility of $20.0 million for working capital requirements related to imports of off-island LPG cargos and to fund a portion of capital expenditures. The full amount was repaid during the second quarter of 2013.

The weighted average interest rate of the outstanding debt facilities, including the interest rate swap, was 3.63% at March 31, 2014. Cash interest paid was $2.8 million and $2.7 million for the quarters ended March 31, 2014 and 2013, respectively.

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Liquidity and Capital Resources: Hawaii Gas – (continued)

The financial covenants precluding distributions under each of the business’ credit facilities discussed above are as follows:

At March 31, 2014, the 12 month backward interest coverage ratio was 7.94x at the holding company and 14.62x at the operating company. The leverage ratio at March 31, 2014 was 58.17% at the holding company and 32.40% at the operating company.

Additionally, the HPUC requires the consolidated debt to total capital for the holding company to be less than 65% and that $20.0 million in cash resources be readily available at Hawaii Gas or MIC. At March 31, 2014, the debt to total capital ratio was 58.17% and $20.0 million in cash resources was readily available.

For a description of the material terms of Hawaii Gas’s credit facilities, see Note 9 “Long-Term Debt” in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

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Liquidity and Capital Resources: Atlantic Aviation

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013
($ In Thousands)		$				$				$				%
Cash provided by operating activities			31,613				31,715				(102	)			(0.3	)
Cash used in investing activities			(8,604	)			(3,672	)			(4,932	)			(134.3	)
Cash used in financing activities			(2,716	)			(25,095	)			22,379				89.2

Operating Activities

Cash provided by operating activities at Atlantic Aviation is generated from sales transactions primarily paid by credit cards. Some customers are provided extended payment terms and are billed accordingly. Cash used in operating activities is mainly for payments to vendors of fuel and professional services, as well as payroll costs and payments to tax jurisdictions.

Cash provided by operating activities was flat during the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 primarily due to:

Investing Activities

Cash used in investing activities relates primarily to cash used for acquisitions and capital expenditures. Cash provided by investing activities relates primarily to proceeds from the sale of FBOs. Cash used in investing activities increased during the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 primarily due to increased growth capital expenditures.

The following table sets forth information about capital expenditures at Atlantic Aviation ($ in thousands):

		Maintenance				Growth
Quarter ended March 31, 2014, accrual basis		$	817			$	7,738
Change in accrued capital expenditure balance from December 31, 2013			177				(7	)
Quarter ended March 31, 2014, cash basis		$	994			$	7,731
Quarter ended March 31, 2013, accrual basis		$	1,465			$	1,846
Change in accrued capital expenditure balance from December 31, 2012			173				190
Quarter ended March 31, 2013, cash basis		$	1,638			$	2,036

Maintenance Capital Expenditure

Maintenance capital expenditures were lower for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 due to replacement of equipment at existing locations and increased investments in FBO and information technology incurred during the first quarter of 2013.

Growth Capital Expenditure

Growth capital expenditures incurred during the quarter ended March 31, 2014 related primarily to facility upgrades that are intended to improve the capabilities and amenities of these facilities and investments in fuel supply chain logistics. Atlantic Aviation expects an increase in growth capital expenditures from 2013 to 2014, primarily due to the purchase of fuel supply chain logistics assets, the construction of hangars and remodels of certain facilities to upgrade their capabilities and attain lease extensions.

Financing Activities

Cash used in financing activities decreased primarily due to larger payments on the principal balance of the term loan debt during the quarter ended March 31, 2013 of $24.6 million compared with $1.4 million for the quarter ended March 31, 2014.

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Liquidity and Capital Resources: Atlantic Aviation – (continued)

On May 31, 2013, Atlantic Aviation refinanced its term loan and capital expenditure debt facilities. The new credit agreement provides for a 7-year, $465.0 million senior secured, first lien term loan and a 5-year, $70.0 million senior secured, first lien revolving credit facility. The term loan was fully drawn at signing and the revolving credit facility was undrawn. Proceeds from the term loan were used to partially repay Atlantic Aviation’s existing debt facilities. On November 7, 2013, Atlantic Aviation entered into an incremental joinder agreement that provides the business with an incremental $50.0 million on the same terms as the existing term loan.

At March 31, 2014, the balance on Atlantic Aviation’s debt facilities included $511.3 million outstanding on the term loan facility. The revolving credit facility remains undrawn as of March 31, 2014. The facilities bear interest at a rate of LIBOR plus a margin of 2.50% with a minimum LIBOR of 0.75% through the maturity of the term loan in June of 2020 and the maturity of the revolving credit facility in May of 2018.

On July 10, 2013 Atlantic Aviation entered into an interest rate swap where it will pay a fixed rate of 2.198% for one-month U.S. LIBOR on a notional amount of $465.0 million. The swap has an effective date of July 31, 2013 and will terminate on July 31, 2019. This agreement fixes Atlantic Aviation’s interest rate on $465.0 million of indebtedness at 4.698% for almost 6 years. On November 7, 2013, Atlantic Aviation entered into an interest rate swap where it will pay a fixed rate of 1.944% for one-month U.S. LIBOR on a notional amount of $50.0 million. The swap has an effective date of November 29, 2013 and will terminate on July 31, 2019. This agreement fixes Atlantic Aviation’s interest rate on $50.0 million of indebtedness at 4.444% for almost 6 years.

On January 22, 2014, Atlantic Aviation entered into an incremental joinder agreement that provided the business with an incremental term loan facility of $100.0 million on the same terms as the existing term loan facility. On April 30, 2014, the business drew this debt of which the proceeds were primarily used to fund the Galaxy Acquisitions. During the second quarter of 2014, Atlantic Aviation expects to enter into an interest rate swap to hedge the floating rate interest exposure.

Atlantic Aviation also has stand-alone debt facilities used to fund construction of certain FBOs. At March 31, 2014, the balances on the stand-alone facilities totaled $5.1 million. The interest rates on these stand-alone facilities are fixed at 4.34%. The current weighted average interest rate of all outstanding debt facilities, including the interest rate swaps, is 4.67%. Cash interest paid was $6.2 million and $3.3 million for the quarters ended March 31, 2014 and 2013, respectively.

At March 31, 2014, Atlantic Aviation’s net debt to adjusted EBITDA was 3.01x (versus a covenant of 4.75x). For a description of the material terms of Atlantic Aviation’s credit facilities, see Note 9, “Long-Term Debt”, in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

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Liquidity and Capital Resources: Contracted Power and Energy

The financial results discussed below reflect 100% of CP&E’s performance during the periods presented below, rather than our interests in our solar power generation and district energy business.

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2014				2013
($ In Thousands)		$				$				$				%
Cash provided by operating activities			15,548				3,748				11,800				NM
Cash used in investing activities			(10,477	)			(7,697	)			(2,780	)			(36.1	)
Cash used in financing activities			(7,151	)			(494	)			(6,657	)			NM

NM — Not meaningful

Operating Activities

Cash provided by operating activities is driven primarily by revenue collected from power purchase agreements (“PPA”), customer contracts for products and services provided and leased equipment payments received (including non-revenue lease principal). The change in cash provided by operating activities is a result of payments this quarter, out of a restricted cash account, for the completion of construction for projects that were online by the end of 2013.

Investing Activities

Cash used in investing activities is mainly comprised of growth capital expenditures to construct solar projects, which are generally funded by drawing on construction loans and equity contributions from MIC and/or its co-investor. After construction is complete, we do not expect to incur substantial capital expenditures at our solar sites as most upgrades, replenishments and repairs are covered under the operations and maintenance (“O&M”) contract.

In April of 2014, the Company signed a Stock Purchase Agreement to sell its interest in the district energy business. The sale is expected to conclude in the second half of 2014, subject to certain customary closing conditions, and the net proceeds are expected to be reinvested in the Contracted Power and Energy business.

The following table sets forth information about capital expenditures at CP&E ($ in thousands):

		Maintenance				Growth
Quarter ended March 31, 2014, accrual basis		$	350			$	667
Change in accrued capital expenditure balance from December 31, 2013			(212	)			8,518
Quarter ended March 31, 2014, cash basis		$	138			$	9,185
Quarter ended March 31, 2013, accrual basis		$	146			$	12,113
Change in accrued capital expenditure balance from December 31, 2012			112				(4,674	)
Quarter ended March 31, 2013, cash basis		$	258			$	7,439

Maintenance Capital Expenditure

The business expects to spend approximately $1.0 million per year on capital expenditures, predominately relating to the replacement of parts, system reliability, customer service and minor system modifications at our district energy facilities. Maintenance capital expenditures will be funded from available facilities and cash from operating activities. These expenditures were lower during the quarter ended March 31, 2014 due to the timing of spend on ordinary course maintenance projects.

Growth Capital Expenditure

The increase in growth capital expenditures for the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 is primarily due to the construction of solar projects and the timing of spend related to connecting new customers.

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Liquidity and Capital Resources: Contracted Power and Energy – (continued)

Financing Activities

Cash used in financing activities increased during the quarter ended March 31, 2014 compared with the quarter ended March 31, 2013 primarily due to larger net repayments on term loan debt and capital contribution from noncontrolling interest during the quarter ended March 31, 2013 that did not recur this period.

Each of the five solar projects and the district energy business are financed individually with non-recourse debt. At March 31, 2014, the outstanding balance on term loan debt at the five combined solar projects was $141.7 million with a weighted average interest rate of 4.66%. During the quarter ended March 31, 2014, three solar projects converted construction loans to term loans with fixed interest rates and maturities ranging from 20 – 23 years. The outstanding debt balance at our district energy business was $149.9 million at March 31, 2014, all of which is classified as current portion of long-term debt on the consolidated condensed balance sheet, with a weighted average interest rate of 6.25%. In accordance with the debt agreements, 100% of excess free cash flows generated at the district cooling facility are being utilized to repay the debt facility. All of the CP&E credit facilities were compliant with their respective covenants at March 31, 2014. Cash interest paid at CP&E for the quarters ended March 31, 2014 and 2013 was $2.4 million.

For a description of the material terms of CP&E’s credit facilities, see Note 9, “Long-Term Debt”, in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Commitments and Contingencies

At March 31, 2014, there had been no material changes in our commitments and contingencies compared with our commitments and contingencies at December 31, 2013. At March 31, 2014, we did not have any material purchase obligations. For a discussion of our other future obligations, due by period, under the various contractual obligations, off-balance sheet arrangements and commitments, please see “Liquidity and Capital Resources — Commitments and Contingencies” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on February 19, 2014.

At March 31, 2014, we did not have any material reserves for contingencies. We have other contingencies occurring in the normal course of business, including pending legal and administrative proceedings that are not reflected at this time as they are not ascertainable.

Our sources of cash to meet these obligations include:

Critical Accounting Policies and Estimates

For critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Our critical accounting policies and estimates have not changed materially from the description contained in our Annual Report.

Business Combinations

Our acquisitions of businesses that we control are accounted for under the purchase method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions are based on estimated fair values as of the date of the acquisition, with the remainder, if any, recorded as goodwill. The fair values are determined by our management, taking into consideration information supplied by the management of acquired entities and other relevant information. Such information

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includes valuations supplied by independent appraisal experts for significant business combinations. The valuations are generally based upon future cash flow projections for the acquired assets, discounted to present value. The determination of fair values require significant judgment both by management and outside experts engaged to assist in this process.

Goodwill, Intangible Assets and Property, Plant and Equipment

Significant assets acquired in connection with our acquisition of businesses include contract rights, customer relationships, non-compete agreements, trademarks, property and equipment and goodwill.

Trademarks are generally considered to be indefinite life intangibles. Trademarks and goodwill are not amortized in most circumstances. It may be appropriate to amortize some trademarks. However, for unamortized intangible assets, we are required to perform annual impairment reviews and more frequently in certain circumstances.

ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment, permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test, as discussed below. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test.

If an entity concludes that it is more likely than not that the fair value of reporting unit is less than its carrying amount, it needs to perform the two-step impairment test. This requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with the carrying values, which included the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared with its corresponding carrying value. Hawaii Gas, Atlantic Aviation and our district energy business, within the CP&E reporting segment, are separate reporting units for purposes of this analysis. The impairment test for trademarks, which are not amortized, requires the determination of the fair value of such assets. If the fair value of the trademarks are less than their carrying value, an impairment loss is recognized in an amount equal to the difference. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and/or intangible assets. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or material negative change in relationship with significant customers.

Property and equipment is initially stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the property and equipment after consideration of historical results and anticipated results based on our current plans. Our estimated useful lives represent the period the asset remains in service assuming normal routine maintenance. We review the estimated useful lives assigned to property and equipment when our business experience suggests that they do not properly reflect the consumption of economic benefits embodied in the property and equipment nor result in the appropriate matching of cost against revenue. Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses on asset disposals and consideration of market trends such as technological obsolescence or change in market demand.

Significant intangibles, including contract rights, customer relationships, non-compete agreements and technology are amortized using the straight-line method over the estimated useful lives of the intangible asset after consideration of historical results and anticipated results based on our current plans. With respect to contract rights in our 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

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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 fair value” of reporting units and fair value of property and equipment and intangible assets is determined by our management and is generally based upon future cash flow projections for the acquired assets, discounted to present value. We use outside valuation experts when management considers that it is appropriate to do so.

We test for impairment of goodwill and indefinite-lived intangible assets annually as of October 1^st or when there is an indicator of impairment.

Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Our exposure to market risk has not changed materially since February 19, 2014, our 10-K filing date.

Controls and Procedures

Under the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2014. There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
 
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in Thousands, Except Share Data)

		March 31, 2014				December 31, 2013
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	208,569			$	233,373
Restricted cash			38,562				51,884
Accounts receivable, less allowance for doubtful accounts of $1,121 and $953, respectively			66,990				60,823
Inventories			24,779				25,834
Prepaid expenses			8,654				10,132
Deferred income taxes			5,320				6,197
Equipment lease receivables current			8,690				8,515
Other			11,140				9,792
Total current assets			372,704				406,550
Property, equipment, land and leasehold improvements, net			854,687				854,169
Equipment lease receivables non-current			15,019				16,155
Investment in unconsolidated business			89,434				83,703
Goodwill			514,343				514,494
Intangible assets, net			584,085				592,850
Deferred financing costs, net of accumulated amortization			22,356				22,740
Other			8,010				10,204
Total assets		$	2,460,638			$	2,500,865
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Due to manager – related party		$	3,134			$	3,032
Accounts payable			29,567				28,850
Accrued expenses			29,021				42,713
Current portion of long-term debt			160,181				163,083
Fair value of derivative instruments			11,283				13,027
Other			18,689				20,747
Total current liabilities			251,875				271,452
Long-term debt, net of current portion			827,729				831,027
Deferred income taxes			195,226				189,719
Other			55,648				55,399
Total liabilities			1,330,478				1,347,597
Commitments and contingencies			—				—
Members’ equity:
LLC interests, no par value; 500,000,000 authorized; 56,459,047 LLC interests issued and outstanding at March 31, 2014 and 56,295,595 LLC interests issued and outstanding at December 31, 2013			1,184,108				1,226,733
Additional paid in capital			21,447				21,447
Accumulated other comprehensive loss			(8,652	)			(8,445	)
Accumulated deficit			(177,141	)			(197,507	)
Total members’ equity			1,019,762				1,042,228
Noncontrolling interests			110,398				111,040
Total equity			1,130,160				1,153,268
Total liabilities and equity		$	2,460,638			$	2,500,865

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
 
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
($ in Thousands, Except Share and Per Share Data)

		Quarter Ended March 31, 2014				Quarter Ended March 31, 2013
Revenue
Revenue from product sales		$	183,801			$	174,115
Revenue from product sales – utility			35,145				36,921
Service revenue			56,502				52,115
Financing and equipment lease income			747				1,055
Total revenue			276,195				264,206
Costs and expenses
Cost of product sales			122,917				116,993
Cost of product sales – utility			29,380				31,489
Cost of services			10,896				10,934
Selling, general and administrative			55,464				49,209
Fees to manager – related party			8,994				29,177
Depreciation			12,154				9,255
Amortization of intangibles			8,765				8,628
Loss on disposal of assets			—				173
Total operating expenses			248,570				255,858
Operating income			27,625				8,348
Other income (expense)
Interest income			64				94
Interest expense(1)			(14,011	)			(7,686	)
Equity in earnings and amortization charges of investee			14,287				10,462
Other income (expense), net			681				(2	)
Net income before income taxes			28,646				11,216
Provision for income taxes(2)			(8,486	)			(4,502	)
Net income		$	20,160			$	6,714
Less: net (loss) income attributable to noncontrolling interests			(206	)			843
Net income attributable to MIC LLC		$	20,366			$	5,871
Basic income per share attributable to MIC LLC interest holders		$	0.36			$	0.12
Weighted average number of shares outstanding: basic			56,369,295				47,584,661
Diluted income per share attributable to MIC LLC interest holders		$	0.36			$	0.12
Weighted average number of shares outstanding: diluted			56,382,205				47,603,257
Cash dividends declared per share		$	0.9375			$	0.6875

 
 
See accompanying notes to the consolidated condensed financial statements.

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