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, 2016

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 CORPORATION

(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 80,336,745 shares of common stock, with $0.001 par value, outstanding at April 29, 2016.

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MACQUARIE INFRASTRUCTURE CORPORATION
 
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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			27
Controls and Procedures			27
Consolidated Condensed Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015			28
Consolidated Condensed Statements of Operations for the Quarters Ended March 31, 2016 and 2015 (Unaudited)			30
Consolidated Condensed Statements of Comprehensive Income (Loss) for the Quarters Ended March 31, 2016 and 2015 (Unaudited)			31
Consolidated Condensed Statements of Cash Flows for the Quarters Ended March 31, 2016 and 2015 (Unaudited)			32
Notes to Consolidated Condensed Financial Statements (Unaudited)			34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			52
Item 1A. Risk Factors			52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 3. Defaults Upon Senior Securities			52
Item 4. Mine Safety Disclosures			52
Item 5. Other Information			52
Item 6. Exhibits			52

Macquarie Infrastructure Corporation 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 Corporation.

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Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this quarterly report on Form 10-Q (Quarterly Report) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements may appear throughout this Quarterly Report, including without limitation, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. We use words such as “believe”, “intend”, “expect”, “anticipate”, “plan”, “may”, “will”, “should”, “estimate”, “potential”, “project” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to the risks identified in our Annual Report on the Form 10-K for the year ended December 31, 2015, and in other reports we file from time to time with the Securities and Exchange Commission (SEC).

Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. Our forward-looking statements speak only as of the date of this Quarterly Report. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

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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 Corporation should be read in conjunction with the consolidated condensed financial statements and the notes to those statements included elsewhere herein.

Macquarie Infrastructure Corporation is the successor to Macquarie Infrastructure Company LLC (MIC LLC) pursuant to the conversion (the Conversion) of MIC LLC from a Delaware limited liability company to a Delaware corporation on May 21, 2015. MIC LLC was formed on April 13, 2004.

Except as otherwise specified, all references in this Form 10-Q to “MIC”, “we”, “us”, and “our” refer (i) from and after the time of the Conversion, to Macquarie Infrastructure Corporation and its subsidiaries and (ii) prior to the Conversion, to our predecessor MIC LLC and its subsidiaries. Except as otherwise specified, all references in this Form 10-Q to “common stock” or “shares” refer (i) from and after the time of the Conversion, to common stock and (ii) prior to the Conversion, LLC interests. 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 businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses we own and operate include:

Our businesses generally operate in sectors with barriers to entry including high initial development and construction costs, long-term contracts or the requirement to obtain government approvals and a lack of immediate cost-effective alternatives to the services provided. Overall they tend to generate sustainable, stable and growing cash flows over the long term.

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 that cash generation capability are required payments on debt facilities, cash taxes, capital expenditures necessary to maintain the productivity of the fixed assets of the businesses and pension contributions, among other items.

At IMTT, we focus on providing bulk liquid storage for customers who place a premium on ease of access and operational flexibility. The substantial majority of IMTT’s revenue is generated pursuant to “take-or-pay” contracts providing access to storage tank capacity and ancillary services.

At Atlantic Aviation, our focus is on attracting and maintaining relationships with GA aircraft owners and pilots and encouraging them to purchase refueling and other services from our fixed base operations (FBOs). Atlantic Aviation’s revenue is correlated with the number of GA flight movements in the U.S. and the business’ ability to service a portion of the aircraft involved in those operations.

The businesses that comprise our CP&E segment generate revenue pursuant primarily to long-dated power purchase agreements (PPAs) and tolling agreements with creditworthy power off-takers.

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At Hawaii Gas, we focus on the provision of gas services to commercial, residential and governmental customers throughout the islands of Hawaii and seek to grow by increasing the number of customers served, the volume of gas sold and the margins achieved on gas sales. Hawaii Gas actively markets its products and services in an effort to develop new customers throughout Hawaii.

Dividends

Since January 1, 2015, MIC has paid or declared the following dividends:

Declared

Period Covered

$ per Share

Record Date

Payable Date

April 28, 2016

First quarter 2016

$

1.20

May 12, 2016

May 17, 2016

February 18, 2016

Fourth quarter 2015

$

1.15

March 3, 2016

March 8, 2016

October 29, 2015

Third quarter 2015

$

1.13

November 13, 2015

November 18, 2015

July 30, 2015

Second quarter 2015

$

1.11

August 13, 2015

August 18, 2015

April 30, 2015

First quarter 2015

$

1.07

May 14, 2015

May 19, 2015

February 17, 2015

Fourth quarter 2014

$

1.02

March 2, 2015

March 5, 2015

We currently intend to maintain, and where possible, increase our quarterly cash dividend to our shareholders. The MIC Board has authorized a quarterly cash dividend of $1.20 per share for the quarter ended March 31, 2016, or a 4.3% increase over the dividend for the quarter ended December 31, 2015 and 12.1% increase over the dividend for the quarter ended March 31, 2015. 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, subject to maintaining a prudent level of reserves and without creating undue volatility in the amount of such dividends where possible. Moreover, the Company’s senior secured credit facility and the debt commitments at our businesses contain restrictions that may limit the Company’s ability to pay dividends. Although historically we have declared cash dividends on our shares, any or all of these or other factors could result in the modification of our dividend policy, or the reduction, modification or elimination of our dividend in the future.

The payment of a dividend is supported by the Free Cash Flow generated by our businesses. We define Free Cash Flow as cash from operating activities, which reflects cash paid for interest, taxes and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures, and excludes changes in working capital. For the avoidance of doubt, base management fees and performance fees, if any, are excluded from the calculation of Free Cash Flow whether paid in cash or stock. Over the long term, we believe we will distribute between 75% and 85% of the Free Cash Flow generated by our businesses as a cash dividend.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — 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 information on our calculation of Free Cash Flow and our proportionately combined financial measures in Part I of this Form 10-Q.

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Results of Operations

Consolidated

Key Factors Affecting Operating Results:

Our consolidated results of operations are as follows:

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2016				2015				$				%
		($ In Thousands) (Unaudited)
Revenue
Service revenue		$	312,241			$	326,002				(13,761	)			(4.2	)
Product revenue			84,146				72,496				11,650				16.1
Total revenue			396,387				398,498				(2,111	)			(0.5	)
Costs and expenses
Cost of services			116,463				133,417				16,954				12.7
Cost of product sales			33,060				39,127				6,067				15.5
Gross profit			246,864				225,954				20,910				9.3
Selling, general and administrative			72,284				70,653				(1,631	)			(2.3	)
Fees to Manager-related party			14,796				165,273				150,477				91.0
Depreciation			53,221				57,422				4,201				7.3
Amortization of intangibles			17,787				47,971				30,184				62.9
(Gain) loss on disposal of assets			(414	)			545				959				176.0
Total operating expenses			157,674				341,864				184,190				53.9
Operating income (loss)			89,190				(115,910	)			205,100				176.9
Other income (expense)
Interest income			33				6				27				NM
Interest expense(1)			(56,895	)			(31,521	)			(25,374	)			(80.5	)
Other income, net			3,015				1,577				1,438				91.2
Net income (loss) before income taxes			35,343				(145,848	)			181,191				124.2
(Provision) benefit for income taxes			(15,167	)			55,333				(70,500	)			(127.4	)
Net income (loss)		$	20,176			$	(90,515	)			110,691				122.3
Less: net loss attributable to noncontrolling interests			(2,179	)			(1,513	)			666				44.0
Net income (loss) attributable to MIC		$	22,355			$	(89,002	)			111,357				125.1

NM — Not meaningful

Gross Profit

Consolidated gross profit increased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily reflecting the contribution from the acquisition of BEC and improved results at Atlantic Aviation, the renewable portion of our CP&E business and Hawaii Gas.

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Results of Operations: Consolidated – (continued)

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily as a result of the BEC acquisition and increases at Atlantic Aviation and IMTT, partially offset by a reduction of costs at MIC Corporate, primarily due to the Conversion costs incurred during the quarter ended March 31, 2015, and the renewable portion of our CP&E business.

Fees to Manager

Our Manager is entitled to a monthly base management fee based primarily on our market capitalization, and potentially a quarterly performance fee, based on the total shareholder return relative to a U.S. utilities index. For the quarters ended March 31, 2016 and 2015, we incurred base management fees of $14.8 million and $16.5 million, respectively. For the quarter ended March 31, 2015, we also incurred a performance fee of $148.7 million as compared with no performance fee for the quarter ended March 31, 2016. In accordance with the Third Amended and Restated Management Service Agreement, unless our Manager changes its current election, base management fees and performance fees, if any, are reinvested in additional shares of MIC.

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 reinvestment of its base management fees and performance fees, if any, in shares, except as noted:

Period		Base Management Fee Amount ($ in thousands)				Performance Fee Amount ($ in thousands)				Shares Issued
2016 Activity:
First quarter 2016		$	14,796			$	—				234,179	(1)
2015 Activities:
Fourth quarter 2015		$	17,009			$	—				227,733
Third quarter 2015			18,118				—				226,914
Second quarter 2015			18,918				135,641				223,827	(2)
First quarter 2015			16,545				148,728				2,068,038

Depreciation

Depreciation expense decreased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily as a result of the absence of non-cash impairments at Atlantic Aviation, partially offset by the depreciation associated with BEC and FBOs acquired at Atlantic Aviation.

Amortization of Intangibles

Amortization of intangibles decreased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily as a result of the absence of non-cash impairments at Atlantic Aviation, partially offset by the amortization of intangibles associated with BEC.

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Results of Operations: Consolidated – (continued)

Interest Expense and Losses on Derivative Instruments

Interest expense includes losses on derivative instruments of $32.2 million and $12.9 million for the quarters ended March 31, 2016 and 2015, respectively. Losses on derivatives recorded in interest expense are attributable to the change in fair value of interest rate hedging instruments. For the quarter ended March 31, 2016, interest expense also included the non-cash write-off of deferred financing costs at Hawaii Gas related to the refinancing of its $80.0 million term loan debt and its $60.0 million revolving credit facility. Excluding the derivative adjustments and deferred financing cost write-offs, interest expense for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 increased primarily due to the debt associated with BEC and higher average debt balance at both IMTT and MIC Corporate, partially offset by lower average debt balance at both the renewable portion of our CP&E business and Atlantic Aviation due to the scheduled amortization of these facilities.

Income Taxes

We file a consolidated federal income tax return that includes the financial results for IMTT, Atlantic Aviation, BEC, Hawaii Gas and our allocable share of the taxable income (loss) from our solar and wind power facilities, which are treated as partnerships for tax purposes. Pursuant to the tax sharing agreement, 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.

The change from income tax benefit for the quarter ended March 31, 2015 to income tax expense for the quarter ended March 31, 2016 is primarily due to the expense associated with the performance fee incurred during the first quarter of 2015.

For 2016, we expect any consolidated federal income tax liability to be fully offset by our net operating loss (NOL) carryforwards. We believe that we will be able to utilize all of our federal prior year NOLs. Our federal NOL balance at December 31, 2015 was $426.2 million. As a result of having federal NOL carryforwards, together with planned tax strategies, we do not expect to make regular federal tax payments until the second half of 2019. For the year ending December 31, 2016, we expect to report a current year taxable income of approximately $100.0 million and pay approximately $2.0 million in Alternative Minimum Tax.

Absent acquisitions and/or divestitures, we expect that our effective tax rate would be higher than the U.S. federal statutory rate of 35% primarily because of state and local income taxes. For 2016, we expect to pay state income taxes of approximately $10.2 million. 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 more likely than not.

Protecting Americans from Tax Hikes Act

On December 18, 2015, President Obama signed bill HR 2029, the Protecting Americans from Tax Hikes Act (PATH Act), into law. The PATH Act retroactively extends several tax provisions applicable to corporations, including the extension of 50% bonus depreciation for certain assets placed in service in 2015, 2016 and 2017, 40% bonus depreciation for eligible property placed in service in 2018 and 30% bonus depreciation for property placed in service in 2019. Other than the extension of the bonus depreciation provision, the Company does not expect the provisions of the PATH Act to have a material effect on its tax profile.

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Results of Operations: Consolidated – (continued)

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 9, “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. EBITDA excluding non-cash items also excludes base management fees and performance fees, if any, whether paid in cash or stock. 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, taxes and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund 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 determining the amount of cash generated by our operating entities. In this Quarterly Report on Form 10-Q, we have disclosed Free Cash Flow for our consolidated results and for each of our operating segments.

We note that Free Cash Flow does not fully reflect our ability to freely deploy generated cash, as it does not reflect required payments to be made on our indebtedness 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.

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Results of Operations: Consolidated – (continued)

A reconciliation of net income (loss) attributable to MIC to EBITDA excluding non-cash items and EBITDA excluding non-cash items to Free Cash Flow from operations, on a consolidated basis, is provided below, and similar reconciliations for each of our operating businesses and MIC Corporate follows.

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2016				2015				$				%
		($ In Thousands) (Unaudited)
Net income (loss) attributable to MIC(1)		$	22,355			$	(89,002	)
Interest expense, net(2)			56,862				31,515
Provision (benefit) for income taxes			15,167				(55,333	)
Depreciation			53,221				57,422
Amortization of intangibles			17,787				47,971
Fees to Manager-related party			14,796				165,273
Other non-cash income, net(3)			(4,213	)			(2,602	)
EBITDA excluding non-cash items		$	175,975			$	155,244				20,731				13.4
EBITDA excluding non-cash items		$	175,975			$	155,244
Interest expense, net(2)			(56,862	)			(31,515	)
Adjustments to derivative instruments recorded in interest expense(2)			26,605				5,353
Amortization of debt financing costs(2)			2,879				1,615
Provision/benefit for income taxes, net of changes in deferred taxes			(2,506	)			(805	)
Changes in working capital			2,475				(12,876	)
Cash provided by operating activities			148,566				117,016
Changes in working capital			(2,475	)			12,876
Maintenance capital expenditures			(10,413	)			(6,115	)
Free cash flow		$	135,678			$	123,777				11,901				9.6

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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 (in proportion to our interests). 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 (used in) 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)
		2016				2015				$				%
		($ In Thousands) (Unaudited)
Free Cash Flow – Consolidated basis		$	135,678			$	123,777				11,901				9.6
100% of CP&E Free Cash Flow included in consolidated Free Cash Flow			(11,943	)			(2,689	)
MIC’s share of CP&E Free Cash Flow			9,660				1,593
Free Cash Flow – Proportionately Combined basis		$	133,395			$	122,681				10,714				8.7

Results of Operations: IMTT

Key Factors Affecting Operating Results:

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Results of Operations: IMTT – (continued)

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2016				2015
		$				$				$				%
		($ In Thousands) (Unaudited)
Revenues			135,425				138,061				(2,636	)			(1.9	)
Cost of services			50,301				53,591				3,290				6.1
Gross profit			85,124				84,470				654				0.8
General and administrative expenses			8,174				7,704				(470	)			(6.1	)
Depreciation and amortization			32,621				35,879				3,258				9.1
Operating income			44,329				40,887				3,442				8.4
Interest expense, net(1)			(19,871	)			(6,906	)			(12,965	)			(187.7	)
Other income, net			2,988				632				2,356				NM
Provision for income taxes			(11,229	)			(14,089	)			2,860				20.3
Noncontrolling interest			(59	)			(250	)			191				76.4
Net income(2)			16,158				20,274				(4,116	)			(20.3	)
Reconciliation of net income to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net income(2)			16,158				20,274
Interest expense, net(1)			19,871				6,906
Provision for income taxes			11,229				14,089
Depreciation and amortization			32,621				35,879
Other non-cash expense, net(3)			2,333				1,256
EBITDA excluding non-cash items			82,212				78,404				3,808				4.9
EBITDA excluding non-cash items			82,212				78,404
Interest expense, net(1)			(19,871	)			(6,906	)
Adjustments to derivative instruments recorded in interest expense(1)			9,610				(2,379	)
Amortization of debt financing costs(1)			420				113
Provision for income taxes, net of changes in deferred taxes			(1,230	)			(577	)
Changes in working capital			(2,807	)			(11,612	)
Cash provided by operating activities			68,334				57,043
Changes in working capital			2,807				11,612
Maintenance capital expenditures			(6,297	)			(2,471	)
Free cash flow			64,844				66,184				(1,340	)			(2.0	)

NM — Not meaningful

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Results of Operations: IMTT – (continued)

Revenue

IMTT generates the majority of its revenue from contracts typically comprising a fixed monthly charge (that escalates annually with inflation) for access to or use of its infrastructure. We refer to revenue generated from such contracts or fixed charges as firm commitments. Firm commitments are generally of medium term duration and had at the end of the first quarter in 2016 a weighted average remaining life of approximately two and half years.

In the first half of 2015, customers within the petroleum product category sought to enter into contracts with shorter durations than had been the case historically. That trend reversed in the second half of the year when customers entered into contracts with durations that were slightly longer, on average, than those that had been entered into in the first half. Contracts entered into in the first quarter of 2016 included, on average, durations largely the same as those entered into in the second half of 2015.

For the quarter ended March 31, 2016, total revenue decreased by $2.6 million compared to the quarter ended March 31, 2015, primarily as a result of: a reduction in heating revenue attributable to the warmer winter weather in the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015; a reduced level of spill response activity on the part of IMTT’s subsidiary OMI Environmental Solutions (OMI); a decrease in rail services revenue principally in connection with the reduction in demand for Canadian crude oil in the U.S.; and the weakening of the Canadian Dollar relative to the U.S. Dollar and its impact on contributions from IMTT’s interests in two terminals in Canada. These reductions in total revenue were partially offset by an increase in revenue from firm commitments attributable to higher utilization rates. Revenue from firm commitments comprised approximately 81.3% of total revenue in the first quarter of 2016.

Capacity utilization was higher than historically normal levels at 96.1% for the quarter ended March 31, 2016 compared with 95.1% for the quarter ended March 31, 2015. The business expects utilization rates to revert to historical levels of 94% to 96% in the medium term.

The financial performance of OMI is variable based on the number and size of oil clean-up activities in which the business is involved. The contribution from OMI to IMTT’s annual financial results has been as much as approximately $60.0 million in 2010, as a result of the firm’s involvement in the clean-up of the Macondo oil spill on the Gulf Coast. Excluding 2010, it has averaged less than a few million dollars per year during the period of our involvement in the business going back to 2006. In the first quarter of 2016, OMI generated negative earnings in an amount larger than the average annual contribution from the business.

Costs

Costs were 4.6% lower in the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015. The reduction in costs was primarily the result of lower fuel costs; lower costs associated with OMI, as a result of lower level of spill related activity; and improved cost controls and the realization of efficiencies following the IMTT Acquisition.

Other Income, net

IMTT and its customers maintain insurance against the loss of use or damage to IMTT’s facilities. The business incurred losses in connection with damage done to various docks, at both the Gretna and Bayonne facilities, among other matters, in part as a result of the high level and flow of the Mississippi River in late 2015 and early 2016. Insurance recoveries of approximately $2.5 million were recorded during the first quarter of 2016.

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Results of Operations: IMTT – (continued)

Depreciation and Amortization

Depreciation and amortization expense decreased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily due to additional depreciation recorded in 2015 related to the fair value step up of assets resulting from the IMTT Acquisition.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $10.8 million and $2.1 million for the quarters ended March 31, 2016 and 2015, respectively. Excluding the derivative adjustments, interest expense increased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 due to a higher average debt balance partially offset by lower interest rates. The weighted average interest rate on all outstanding debt facilities, including any interest rate swaps, was 3.39% at March 31, 2016.

Cash interest paid totaled $3.5 million and $9.2 million for the quarters ended March 31, 2016 and 2015, respectively. Cash interest paid was lower in 2016 compared with 2015 primarily due to the timing of interest payments on the senior notes, which are paid semiannually.

Income Taxes

For 2016, the business expects to pay state income taxes of approximately $5.0 million. The “Provision for income taxes, net of changes in deferred taxes” of $1.2 million for the quarter ended March 31, 2016 in the above table includes $1.0 million of state income taxes and $213,000 of federal income taxes payable to MIC. Any current federal income taxes payable is expected to be offset in consolidation with the application of MIC’s NOLs.

A significant difference between IMTT’s book and federal taxable income relates to depreciation of terminalling fixed assets. For book purposes, these fixed assets are depreciated primarily over 15 to 30 years using the straight-line method of depreciation. For federal income tax purposes, these fixed assets are depreciated primarily over 5 to 15 years using accelerated methods. Most terminalling fixed assets placed in service between 2012 through 2015 did or should qualify for the federal 50% bonus tax depreciation. A significant portion of Louisiana terminalling fixed assets constructed after Hurricane Katrina was financed with Gulf Opportunity Zone Bonds (GO Zone Bonds). GO Zone Bond financed assets are depreciated, for tax purposes, primarily over 9 to 20 years using the straight-line depreciation method, and do not qualify for bonus depreciation. Most of the states in which the business operates do not allow the use of 50% bonus tax depreciation. However, Louisiana allows the use of 50% bonus depreciation except for assets financed with GO Zone Bonds.

Maintenance Capital Expenditures

For the quarter ended March 31, 2016, IMTT incurred maintenance capital expenditures of $6.3 million and $8.7 million on an accrual basis and cash basis, respectively, compared with $2.5 million and $5.0 million on an accrual basis and cash basis, respectively, for the quarter ended March 31, 2015. The increase in maintenance capital expenditures for the quarter ended March 31, 2016 was a result of lower spending in the first quarter of 2015 as IMTT was implementing processes and procedures around cost controls and maintenance capital expenditure planning. IMTT anticipates deploying between $30.0 million and $35.0 million in maintenance capital expenditures for 2016, which is expected to be more evenly spent throughout the year.

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Results of Operations: Atlantic Aviation

Key Factors Affecting Operating Results:

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2016				2015
		$				$				$				%
		($ In Thousands) (Unaudited)
Revenues			177,988				187,941				(9,953	)			(5.3	)
Cost of services			66,162				79,826				13,664				17.1
Gross profit			111,826				108,115				3,711				3.4
Selling, general and administrative expenses			52,611				52,009				(602	)			(1.2	)
Depreciation and amortization			22,191				59,715				37,524				62.8
(Gain) loss on disposal of FBOs			(414	)			545				959				176.0
Operating income (loss)			37,438				(4,154	)			41,592				NM
Interest expense, net(1)			(13,314	)			(13,085	)			(229	)			(1.8	)
Other expense, net			(24	)			(27	)			3				11.1
(Provision) benefit for income taxes			(9,742	)			6,689				(16,431	)			NM
Net income (loss)(2)			14,358				(10,577	)			24,935				NM
Reconciliation of net income (loss) to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net income (loss)(2)			14,358				(10,577	)
Interest expense, net(1)			13,314				13,085
Provision (benefit) for income taxes			9,742				(6,689	)
Depreciation and amortization			22,191				59,715
Other non-cash (income) expense, net(3)			(74	)			725
EBITDA excluding non-cash items			59,531				56,259				3,272				5.8
EBITDA excluding non-cash items			59,531				56,259
Interest expense, net(1)			(13,314	)			(13,085	)
Adjustments to derivative instruments recorded in interest expense(1)			5,608				5,066
Amortization of debt financing costs(1)			800				808
Provision/benefit for income taxes, net of changes in deferred taxes			(1,452	)			(355	)
Changes in working capital			6,044				(4,206	)
Cash provided by operating activities			57,217				44,487
Changes in working capital			(6,044	)			4,206
Maintenance capital expenditures			(2,284	)			(2,623	)
Free cash flow			48,889				46,070				2,819				6.1

NM — Not meaningful

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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 on 68 U.S. airports at which Atlantic Aviation operates. 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.

Revenue and gross profit are driven by the volume of fuel sold and the dollar-based margin/fee per gallon on those sales. Despite an increase in the volume of fuel sold, primarily as a result of increased flight activity, revenues decreased in the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 as a result of a significant decline in the wholesale cost of fuel charged to customers. However, the decline in cost more than offsets the decline in the price to customers. On a same store basis, gross profit increased 2.8% in the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 driven by an increase in fuel gross profit and hangar rentals, partially offset by lower deicing gross profit due to relatively warmer winter weather.

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 to 19.5 years at March 31, 2016 compared with 18.7 years at March 31, 2015, notwithstanding the passage of one year, as a result of successful extension and acquisition of leaseholds.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased in the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily due to higher professional fees and higher salaries and benefit costs. On a same store basis, costs were 1.1% higher in the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015.

Depreciation and Amortization

Depreciation and amortization expense decreased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily as a result of the absence of non-cash impairments, partially offset by the depreciation associated with FBOs acquired at Atlantic Aviation.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $7.7 million and $7.2 million for the quarters ended March 31, 2016 and 2015, respectively. Excluding the derivative adjustments, interest expense decreased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 due to lower average debt balances. The weighted average interest rate on all outstanding debt facilities, including any interest rate swaps, was 4.63% at March 31, 2016. Cash interest paid was $6.9 million and $7.2 million for the quarters ended March 31, 2016 and 2015, respectively.

Income Taxes

The federal taxable income generated by Atlantic Aviation is filed as part of 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.

For 2016, the business expects to pay state income taxes of approximately $3.5 million. The “Provision/benefit for income taxes, net of changes in deferred taxes” of $1.5 million for the quarter ended March 31, 2016 in the above table includes $872,000 of state income taxes and $580,000 of federal income taxes payable to MIC. Any current federal income taxes payable is expected to be offset in consolidation with the application of MIC’s NOLs.

Maintenance Capital Expenditures

For the quarter ended March 31, 2016, Atlantic Aviation incurred maintenance capital expenditures of $2.3 million both on an accrual basis and cash basis compared with $2.6 million and $2.9 million on an accrual basis and cash basis, respectively, for the quarter ended March 31, 2015. Maintenance capital expenditures for the periods presented were primarily to fund replacement of equipment at existing locations.

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Results of Operations: Contracted Power and Energy

Key Factors Affecting Operating Results:

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2016				2015
		$				$				$				%
		($ In Thousands) (Unaudited)
Revenues			30,179				11,832				18,347				155.1
Cost of product sales			4,357				2,647				(1,710	)			(64.6	)
Gross profit			25,822				9,185				16,637				181.1
Selling, general and administrative expenses			5,960				2,638				(3,322	)			(125.9	)
Depreciation and amortization			13,846				7,445				(6,401	)			(86.0	)
Operating income (loss)			6,016				(898	)			6,914				NM
Interest expense, net(1)			(17,848	)			(6,338	)			(11,510	)			(181.6	)
Other income			305				1,116				(811	)			(72.7	)
Benefit for income taxes			2,304				818				1,486				181.7
Noncontrolling interest			2,238				1,763				475				26.9
Net loss(2)			(6,985	)			(3,539	)			(3,446	)			(97.4	)
Reconciliation of net loss to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net loss(2)			(6,985	)			(3,539	)
Interest expense, net(1)			17,848				6,338
Benefit for income taxes			(2,304	)			(818	)
Depreciation and amortization			13,846				7,445
Other non-cash income, net(3)			(4,258	)			(2,941	)
EBITDA excluding non-cash items			18,147				6,485				11,662				179.8
EBITDA excluding non-cash items			18,147				6,485
Interest expense, net(1)			(17,848	)			(6,338	)
Adjustments to derivative instruments recorded in interest expense(1)			11,268				2,527
Amortization of debt financing costs(1)			383				17
Benefit for income taxes, net of changes in deferred taxes			(7	)			(2	)
Changes in working capital			2,612				1,743
Cash provided by operating activities			14,555				4,432
Changes in working capital			(2,612	)			(1,743	)
Free cash flow			11,943				2,689				9,254				NM

NM — Not meaningful

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

Revenue and Gross Profit

Total revenue and gross profit increased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 due to the acquisition of BEC and improved solar and wind output. During the first quarter of 2016, our solar resource was approximately 106% of long term average and wind resource was approximately 94% of long term average.

Unseasonably warm weather in the first quarter of 2016 compared with the first quarter in 2015 had a negative impact on our BEC business in the Northeast, but had a positive impact on our solar and wind facilities in the Northwest and Southwest. The relatively mild weather in the Northeast reduced revenue from the untolled portion of BEC relative to our expectations as the peaking power generating capacity of the facility was dispatched less frequently. A year over year increase in both wind and solar resources in the West resulted in improved performance by our renewable power facilities.

The capacity prices that cleared the New York Independent System Operator’s (NYISO) Summer 2016 seasonal Strip Auction for Zone J for the six months from May 2016 through October 2016 were lower relative to the comparable period in 2015. The monthly Spot Auction price that cleared for May 2016 was also lower relative to the comparable period in 2015, but higher than the price that cleared for the full six-month Summer 2016 strip. The reduction will result in lower potential earnings from the untolled portion of BEC’s revenue. We believe that the reduction in prices was largely the result of the NYISO changing assumptions related to the required proportion of in-market generation in its reliability and pricing formula as well as a revised lower forecast for peak power demand in the summer of 2016. Such changes in input assumptions by the NYISO have generated volatility in capacity prices historically and we expect additional changes, both favorable and unfavorable, will do so in the future.

Selling, General and Administrative Expense

The increase in selling, general and administrative expenses for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 was driven primarily by incremental selling, general and administrative expenses associated with BEC.

Depreciation and Amortization

Depreciation and amortization expense increased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 primarily as a result of depreciation and amortization associated with BEC.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $13.2 million and $2.9 million for the quarter ended March 31, 2016 and 2015, respectively. Excluding the derivative adjustments, interest expense increased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 due to incremental interest expense associated with BEC’s credit facility offset by lower average debt balance and interest rate at the renewable portion of this business. The weighted average interest rate on all outstanding debt facilities, including any interest rate swaps, was 4.32% at March 31, 2016. Cash interest paid totaled $6.2 million and $2.3 million for the quarters ended March 31, 2016 and 2015, respectively.

Income Taxes

Our solar and wind power facilities are held in LLCs that are treated as partnerships for tax purposes. As such, these entities do not pay federal or state income taxes on a standalone basis, but each partner pays federal and state income taxes based on their allocated share of taxable income. For 2016, MIC expects its allocated share of the federal taxable income from these facilities to be a loss of approximately $25.0 million. For 2015, MIC’s allocated share of the taxable income from the solar and wind power facilities was a loss of approximately $36.0 million.

On April 1, 2015, we acquired 100% of BEC. The federal taxable income generated by BEC is filed as part of our consolidated federal income tax return and is subject to New York state income taxes on a stand-alone basis. For 2016, the business does not expect to have a state income tax liability. We do not believe that the business will generate a current federal income tax liability in 2016. Future current federal taxable income attributable to BEC may be offset in consolidation with the application of MIC’s NOLs.

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Results of Operations: Hawaii Gas

Key Factors Affecting Operating Results:

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2016				2015
		$				$				$				%
		($ In Thousands) (Unaudited)
Revenues			53,967				60,664				(6,697	)			(11.0	)
Cost of product sales(1)			28,703				36,480				7,777				21.3
Gross profit			25,264				24,184				1,080				4.5
Selling, general and administrative expenses			5,256				5,356				100				1.9
Depreciation and amortization			2,350				2,354				4				0.2
Operating income			17,658				16,474				1,184				7.2
Interest expense, net(2)			(2,424	)			(1,943	)			(481	)			(24.8	)
Other expense, net			(254	)			(144	)			(110	)			(76.4	)
Provision for income taxes			(5,911	)			(5,532	)			(379	)			(6.9	)
Net income(3)			9,069				8,855				214				2.4
Reconciliation of net income to EBITDA excluding non-cash items and cash provided by operating activities to Free Cash Flow:
Net income(3)			9,069				8,855
Interest expense, net(2)			2,424				1,943
Provision for income taxes			5,911				5,532
Depreciation and amortization			2,350				2,354
Other non-cash income, net(4)			(2,402	)			(1,830	)
EBITDA excluding non-cash items			17,352				16,854				498				3.0
EBITDA excluding non-cash items			17,352				16,854
Interest expense, net(2)			(2,424	)			(1,943	)
Adjustments to derivative instruments recorded in interest expense(2)			119				139
Amortization of debt financing costs(2)			664				121
Provision for income taxes, net of changes in deferred taxes			(3,017	)			—
Changes in working capital			2,937				2,523
Cash provided by operating activities			15,631				17,694
Changes in working capital			(2,937	)			(2,523	)
Maintenance capital expenditures			(1,832	)			(1,021	)
Free cash flow			10,862				14,150				(3,288	)			(23.2	)

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Results of Operations: Hawaii Gas – (continued)

Gross Profit

Volume of gas sold increased by 1.3% in the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015. On an underlying basis, adjusting for changes in customer inventory, volume of gas sold increased by 4.5%. Excluding the impact of unrealized gains and losses on commodity hedges, gross profit increased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015, primarily due to the increase in the volume of gas sold and decrease in costs.

Hawaii Gas continues to implement strategies to mitigate the volatility and price of its fuel supply, including hedging, storage expansion and the diversification of the supply base. The business currently sources feedstock for its synthetic natural gas (SNG) plant from Hawaii Independent Energy under a contract that expires September 28, 2016. On April 4, 2016, Hawaii Gas received Hawaii Public Utilities Commission (HPUC) approval to utilize liquefied natural gas as a replacement for up to 30% of SNG production. In its Order, the HPUC noted that, “Fuel diversity can both insulate customers from volatility in oil prices and ensure continued service in the event of a local naphtha shortage.” Also during the first quarter, the business completed the acquisition of the land under its SNG plant which removes uncertainty with regards to site control and provides flexibility with regards to future operations.

Interest Expense, Net

Interest expense includes losses on derivative instruments of $563,000 and $720,000 for the quarters ended March 31, 2016 and 2015, respectively. Excluding the derivative adjustments and the write-off of the deferred financing costs related to the February 2016 refinancing, interest expense decreased for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015. The decrease is due to the refinancing of the business’s $80.0 million term loan and $60.0 million revolving credit facility. The new facilities include a reduction in interest rates on the term loan and revolving credit facilities of 0.50% and 0.25%, respectively, compared with the prior facilities. The weighted average interest rate on all outstanding debt facilities, including any interest rate swaps, was 3.41% at March 31, 2016. Cash interest paid totaled $2.6 million and $2.7 million for the quarters ended March 31, 2016 and 2015, respectively.

Income Taxes

The federal taxable income generated by Hawaii Gas is filed as part of our consolidated federal income tax return and is subject to Hawaii state income taxes on a stand-alone basis. The tax expense in the table above includes both state taxes and the portion of the consolidated federal tax liability attributable to the business. For the year ending December 31, 2016, the business expects to pay state income taxes of approximately $1.7 million. The “Provision for income taxes, net of changes in deferred taxes” of $3.0 million for the quarter ended March 31, 2016 in the above table, includes $2.4 million of federal income taxes payable to MIC and $593,000 of state income taxes. Any current federal income taxes payable is expected to be offset in consolidation with the application of MIC’s NOLs.

Maintenance Capital Expenditures

For the quarter ended March 31, 2016, Hawaii Gas incurred maintenance capital expenditures of $1.8 million and $2.6 million on an accrual basis and cash basis, respectively, compared with $1.0 million and $3.4 million on an accrual basis and cash basis, respectively, for the quarter ended March 31, 2015. Maintenance capital expenditures for the periods presented were primarily for transmission line modifications and vehicle replacements. For 2016, the business expects maintenance capital expenditures, net of customer reimbursements, to be weighted more to the first half of the year compared with 2015.

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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,								Change Favorable/(Unfavorable)
		2016				2015
		$				$				$				%
		($ In Thousands) (Unaudited)
Fees to Manager-related party			14,796				165,273				150,477				91.0
Selling, general and administrative expenses			1,455				2,946				1,491				50.6
Operating loss			(16,251	)			(168,219	)			151,968				90.3
Interest expense, net(1)			(3,405	)			(3,243	)			(162	)			(5.0	)
Benefit for income taxes			9,411				67,447				(58,036	)			(86.0	)
Net loss(2)			(10,245	)			(104,015	)			93,770				90.2
Reconciliation of net loss to EBITDA excluding non-cash items and cash used in operating activities to Free Cash Flow:
Net loss(2)			(10,245	)			(104,015	)
Interest expense, net(1)			3,405				3,243
Benefit for income taxes			(9,411	)			(67,447	)
Fees to Manager-related party			14,796				165,273
Other non-cash expense			188				188
EBITDA excluding non-cash items			(1,267	)			(2,758	)			1,491				54.1
EBITDA excluding non-cash items			(1,267	)			(2,758	)
Interest expense, net(1)			(3,405	)			(3,243	)
Amortization of debt financing costs(1)			612				556
Benefit for income taxes, net of changes in deferred taxes			3,200				129
Changes in working capital			(6,311	)			(1,324	)
Cash used in operating activities			(7,171	)			(6,640	)
Changes in working capital			6,311				1,324
Free cash flow			(860	)			(5,316	)			4,456				83.8

Summary of Our Proportionately Combined Results

The proportionately combined financial measures below are those attributable to MIC’s ownership interest in each of our operating businesses and MIC Corporate. 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. 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, our financial results reported under GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a reconciliation of EBITDA excluding non-cash items to net income (loss), and a reconciliation of Free Cash Flow to cash provided by (used in) operating activities for each of our operating businesses and MIC Corporate ($ in thousands) (unaudited).

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		Quarter Ended March 31, 2016
		IMTT(1)				Atlantic Aviation				Contracted Power and Energy(2)				Hawaii Gas				MIC Corporate				Proportionately Combined(3)				Contracted Power and Energy 100%
Gross profit			85,124				111,826				22,498				25,264				N/A				244,712				25,822
EBITDA excluding non-cash items			82,212				59,531				15,015				17,352				(1,267	)			172,843				18,147
Free cash flow			64,844				48,889				9,660				10,862				(860	)			133,395				11,943

		Quarter Ended March 31, 2015
		IMTT(1)				Atlantic Aviation				Contracted Power and Energy(2)				Hawaii Gas				MIC Corporate				Proportionately Combined(3)				Contracted Power and Energy 100%
Gross profit			84,470				108,115				6,820				24,184				N/A				223,589				9,185
EBITDA excluding non-cash items			78,404				56,259				4,451				16,854				(2,758	)			153,210				6,485
Free cash flow			66,184				46,070				1,593				14,150				(5,316	)			122,681				2,689

N/A — Not applicable.

Liquidity and Capital Resources

General

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 shares or sell assets to generate cash.

At March 31, 2016, our consolidated debt outstanding totaled $2,849.6 million, our consolidated cash balances totaled $22.5 million and total available capacity under our revolving credit facilities totaled $1,125.0 million. In April 2016, we paid down $10.0 million on the senior secured revolving credit facility at MIC Corporate resulting in an increase to total available capacity under our revolving credit facilities to $1,135.0 million.

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Liquidity and Capital Resources – (continued)

The following table shows MIC’s proportionate ownership interest of debt profile at May 2, 2016 ($ in thousands).

Business		Debt				Weighted Average Remaining Life (in years)				Balance Outstanding(1)				Weighted Average Rate(2)
MIC Corporate							3.2
			Revolving Facility							$	10,000				2.19	%
			Convertible Senior Notes								349,971				2.88	%
IMTT(3)							8.1
			Revolving Facility								20,000				1.94	%
			Senior Notes								600,000				3.97	%
			Tax-Exempt Bonds								508,975				2.70	%
Atlantic Aviation(4)							4.1
			Term Loan								598,963				4.63	%
CP&E
			Renewables				14.9				210,503				4.76	%
			BEC				6.3				268,500				3.91	%
Hawaii Gas							5.6
			Term Loan								80,000				2.39	%
			Senior Notes								100,000				4.22	%
Total							6.8			$	2,746,912				3.74	%

The following tables shows the profile of each revolving credit facility at our businesses and at MIC Corporate on May 2, 2016 ($ in thousands).

Business		Debt				Remaining Life (in years)				Undrawn Amount				Interest Rate(1)
MIC Corporate			Revolving Facility				3.2			$	400,000				LIBOR + 1.750%
IMTT			USD Revolving Facility				4.1				530,000				LIBOR + 1.500%
			CAD Revolving Facility				4.1				50,000				Bankers’ Acceptance Rate + 1.500%
Atlantic Aviation			Revolving Facility				2.1				70,000				LIBOR + 2.500%
CP&E-BEC			Revolving Facility				6.3				25,000				LIBOR + 2.125%
Hawaii Gas			Revolving Facility				4.8				60,000				LIBOR + 1.250%
Total							3.7			$	1,135,000

We will, in general, apply available cash to the repayment of revolving debt balances as a means of minimizing interest expense and draw on those facilities to fund growth projects and for general corporate purposes.

TABLE OF CONTENTS

Liquidity and Capital Resources – (continued)

We use revolving credit facilities at each of our operating companies and the holding company as a means of maintaining access to sufficient liquidity to meet future requirements, managing interest expense and funding growth projects. We base our assessment of the sufficiency of our liquidity and capital resources on the assumptions that:

We are capitalized in part using floating rate bank debt with a medium-term maturity of between five and seven years. We hedge a portion of the floating rate exposure for the majority of the term of these facilities using interest rate derivative instruments.

We also use longer dated private placement debt and other forms of capital, including bank, bond or hybrid debt instruments to capitalize our businesses. In general, the debt facilities at our businesses are non-recourse to the holding company and there are no cross-collateralization or cross-guarantee provisions in these facilities.

Six of our solar and wind facilities are financed through standalone fully amortizing non-recourse project finance structures which have maturities prior to or coterminous with the expiration of the underlying PPAs for each of those facilities. On a multiple of EBITDA basis, we use a higher initial level of leverage in these projects than at BEC or our other business segments because of the long-term wholly contracted nature of the revenue stream and the creditworthiness of the PPA counterparties.

The following section discusses our sources and uses of cash on a consolidated basis. 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 on consolidation.

Analysis of Consolidated Historical Cash Flows from Operations

		Quarter Ended March 31,								Change Favorable/(Unfavorable)
		2016				2015
($ In Thousands)		$				$				$				%
Cash provided by operating activities			148,566				117,016				31,550				27.0
Cash used in investing activities			(65,698	)			(43,074	)			(22,624	)			(52.5	)
Cash used in financing activities			(83,217	)			(20,346	)			(62,871	)			NM

NM — Not meaningful

Operating Activities

Cash provided by (used in) operating activities is generally comprised of EBITDA excluding non-cash items (as defined by us), less cash interest, tax and pension payments, and changes in working capital. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for discussions around the components of EBITDA excluding non-cash items on a consolidated basis and for each of our businesses.

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Liquidity and Capital Resources – (continued)

The increase in consolidated cash provided by operating activities for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 was primarily due to:

Investing Activities

The drivers of cash provided by investing activities primarily include proceeds from divestitures of businesses and fixed assets. The drivers of cash used in investing activities primarily include acquisitions of businesses in new and existing segments and capital expenditures. Acquisitions of businesses are generally funded by raising additional equity and/or drawings on credit facilities.

Maintenance capital expenditures are generally funded by cash from operating activities and growth capital expenditures are generally funded by drawing on our available credit facilities or with equity capital. We may fund maintenance capital expenditures from credit facilities or equity capital and growth capital expenditures from operating activities from time to time. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for maintenance capital expenditures for each of our businesses.

The increase in consolidated cash used in investing activities for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 was primarily due to the increased capital expenditures at all of our businesses, partially offset by a larger FBO acquisition in the prior comparable period.

Growth Capital Expenditures

We invested $49.4 million and $15.0 million of growth capital expenditures in our existing businesses during the quarters ended March 31, 2016 and 2015, respectively.

We continuously evaluate opportunities to deploy capital in both growth projects and in acquisitions of additional businesses, whether through our existing businesses or in new lines of business. These opportunities may be significant, such as our acquisition of the remaining 50% interest in IMTT, or they may be incremental and not individually significant, such as our acquisitions of BEC and three FBOs in 2015. In aggregate, we currently anticipate deploying between $225.0 million and $250.0 million in these types of activities in 2016.

In addition, we maintain a backlog of projects that we expect to complete in subsequent periods. We consider projects to be a part of our backlog when we have committed to the deployment of capital for the underlying project, and have, where relevant, received all requisite approvals/authorizations for the deployment of such capital. The inclusion of a project in our backlog does not guarantee that the project will commence, be completed or ultimately generate revenue. As of March 31, 2016, our backlog includes, and we anticipate deploying, approximately $200.0 million of growth capital in 2016 and 2017.

We are actively pursuing an expansion of BEC and have entered into certain agreements, including for the acquisition of generating sets, related to that project. As of this date, we have not secured all of the requisite regulatory approvals, although these may be received during 2016. If approved, the construction of an additional 130 megawatt (MW) of electricity generating capacity on land adjacent to BEC would involve the deployment of approximately $130.0 million in growth capital not included in the current backlog. The majority of this deployment would likely occur in 2017.

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Liquidity and Capital Resources – (continued)

IMTT currently leases land to a third party on which the third party operates a 171 MW power plant. The lease expires in 2018, and we have notified the third party that we will not be renewing the lease. Following reversion of control of the site to IMTT, MIC anticipates investing substantial capital over the medium term to develop or redevelop the site in a manner that could be an important growth component of the CP&E segment. The majority of any capital deployment in relation to this project(s) would likely occur in 2018 or later.

Financing Activities

The drivers of cash provided by financing activities primarily include new equity issuance and debt issuance related to acquisitions and capital expenditures. The drivers of cash used in financing activities primarily include repayment of debt principal balances on maturing debt and dividends to our shareholders.

The increase in cash used in financing activities for the quarter ended March 31, 2016 compared with the quarter ended March 31, 2015 was primarily due to:

IMTT

On May 21, 2015, IMTT refinanced its existing debt, in part, with new senior notes, new revolving credit facilities and redeemed and reissued its portfolio of tax-exempt bonds. In conjunction with the refinancing, Standard and Poor’s and Fitch assigned IMTT an investment grade rating of BBB- with a stable outlook to the notes and the issuer. Concurrent with entering into these new facilities, the business paid $31.4 million in interest rate swap breakage fees associated with the termination of out-of-the-money interest rate swap contracts related to the prior debt facilities.

During the quarter ended March 31, 2016, IMTT borrowed $76.0 million on its revolving credit facility and subsequently repaid $56.0 million in March 2016. At March 31, 2016, IMTT had $1.1 billion of debt outstanding consisting of $600.0 million of senior notes, $509.0 million of tax-exempt bonds, $20.0 million drawn on revolving credit facility and $17.6 million of loans from prior owners. The $20.0 million drawn on the revolving credit facility was used primarily to fund $24.6 million of growth capital expenditures, including an acquisition completed by IMTT during the first quarter of 2016. IMTT has access to $600.0 million of revolving credit facilities, $580.0 million of which remained undrawn at March 31, 2016.

The weighted average interest rate, including interest rate swaps, was 3.39% at March 31, 2016. Cash interest paid during the quarters ended March 31, 2016 and 2015 was $3.5 million and $9.2 million, respectively.

At March 31, 2016, IMTT was in compliance with its financial covenants.

Atlantic Aviation

At March 31, 2016, Atlantic Aviation had total debt outstanding of $602.9 million comprising $599.0 million of senior secured, first lien term loan facilities and $3.9 million of stand-alone debt facilities used to fund construction of certain FBOs. Atlantic Aviation also has access to a $70.0 million senior secured, first lien revolving credit facility which is currently undrawn. The weighted average interest rate on all outstanding debt facilities, including interest rate swaps, was 4.63% at March 31, 2016. Cash interest paid was $6.9 million and $7.2 million for the quarters ended March 31, 2016 and 2015, respectively.

At March 31, 2016, Atlantic Aviation was in compliance with its financial covenants.

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Liquidity and Capital Resources – (continued)

CP&E

At March 31, 2016, the CP&E segment had $550.1 million in term loan debt outstanding. The weighted average interest rate on the term loan debt, including interest rate swaps, was 4.323% at March 31, 2016. Cash interest paid during the quarters ended March 31, 2016 and 2015 was $6.2 million and $2.3 million, respectively.

At March 31, 2016, all of the CP&E businesses were in compliance with their respective financial covenants.

BEC

In connection with the BEC acquisition, the business assumed $509.1 million of debt facilities that were fully repaid in July 2015. As part of the repayment, BEC paid $19.2 million in interest rate swap breakage fees associated with the termination of out-of-the-money interest rate swap contracts. In August 2015, BEC entered into new debt agreements and at March 31, 2016, had $268.5 million of term debt outstanding. The interest rate on the term loan facility was LIBOR plus 2.125% at March 31, 2016. The floating rate has been fixed at 1.786% for six years using interest rate swap contracts. BEC also entered into a $25.0 million revolving credit facility that bears interest at LIBOR plus 2.125%. The revolving credit facility remained undrawn at March 31, 2016. Cash interest paid during the quarter ended March 31, 2016 was $2.8 million.

Solar and Wind Power Businesses

On June 3, 2015, the wind power business located in Idaho amended its term loan facility to reduce its cost of borrowings. The margin on the floating interest rate decreased from 2.75% to 1.625% with all other terms remaining substantially unchanged.

At March 31, 2016, the solar and wind power businesses had total debt outstanding of $281.6 million in term loan debt. The weighted average interest rate on these term loan facilities, including interest rate swaps, was 4.717% at March 31, 2016. Cash interest paid during the quarters ended March 31, 2016 and 2015 was $3.4 million and $2.3 million, respectively.

Hawaii Gas

On February 10, 2016, Hawaii Gas completed the refinancing of its existing $80.0 million term loan and $60.0 million revolving credit facility. The new, five-year facilities include a reduction in interest rates on the term loan and revolving credit facilities of 0.50% and 0.25%, respectively, compared with the prior facilities. The $80.0 million term loan bears interest at a variable rate of LIBOR plus an applicable margin between 1.0% to 1.75% and initially set at 1.75%. The variable rate component of the debt is fixed at 0.64% at March 31, 2016 using an existing interest rate swap contract through August 2016 and will be fixed at 0.99% using a new interest rate swap contract for four years thereafter. The revolving credit facility bears interest at a variable rate of LIBOR plus an applicable margin between 1.0% to 1.75% and initially set at 1.25% and will remain unhedged.

At March 31, 2016, Hawaii Gas had total debt outstanding of $180.0 million in term loan and senior secured note borrowings and a revolving credit facility of $60.0 million that remained undrawn. The weighted average interest rate on the outstanding debt facilities, including the interest rate swap, was 3.41% at March 31, 2016. Cash interest paid was $2.6 million and $2.7 million for the quarters ended March 31, 2016 and 2015, respectively.

At March 31, 2016, Hawaii Gas was in compliance with its financial covenants.

MIC Corporate

In January 2016, MIC repaid $7.0 million on the outstanding balance of senior secured revolving credit facility and repaid the remaining balance of $9.0 million in February 2016. On March 30, 2016, MIC borrowed $20.0 million on its senior secured revolving credit facility for general corporate purposes and subsequently repaid $10.0 million in April 2016. The amount drawn bears interest at LIBOR plus 1.75%. The undrawn balance on the senior secured revolving credit facility at March 31, 2016 was $390.0 million. At March 31, 2016, MIC also had $350.0 million in convertible senior notes outstanding that bear interest at 2.875%. Cash interest paid was $5.3 million and $5.4 million for the quarters ended March 31, 2016 and 2015, respectively.

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Liquidity and Capital Resources – (continued)

At March 31, 2016, MIC Corporate was in compliance with its financial covenants.

For a description of the material terms and debt covenants of MIC and its businesses, see Note 8, “Long-Term Debt”, in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. For a description of the material terms for Hawaii Gas’ refinanced debt, see Note 6, “Long-Term Debt”, in our consolidated condensed financial statements in Part I of this Form 10-Q.

Commitments and Contingencies

On February 10, 2016, Hawaii Gas completed the refinancing of its existing $80.0 million term loan and $60.0 million revolving credit facility. The new, five-year facilities include a reduction in interest rates on the term loan and revolving credit facilities of 0.50% and 0.25%, respectively, compared with the prior facilities. The $80.0 million term loan bears interest at a variable rate of LIBOR plus an applicable margin between 1.0% to 1.75% and initially set at 1.75%. The variable rate component of the debt is fixed at 0.64% at March 31, 2016 using an existing interest rate swap contract through August 2016 and will be fixed at 0.99% using a new interest rate swap contract for four years thereafter. The revolving credit facility bears interest at a variable rate of LIBOR plus an applicable margin between 1.0% to 1.75% and initially set at 1.25% and will remain unhedged.

Except as noted above, at March 31, 2016, there had been no material changes in our commitments and contingencies compared with our commitments and contingencies at December 31, 2015. At March 31, 2016, 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, 2015, filed with the SEC on February 23, 2016.

At March 31, 2016, 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, 2015 and see Note 2, “Basis of Presentation”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards. Our critical accounting policies and estimates have not changed materially from the description contained in our Annual Report.

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Critical Accounting Policies and Estimates – (continued)

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 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.

Accounting Standards Update (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 includes the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared with its corresponding carrying value. IMTT, Atlantic Aviation, CP&E and Hawaii Gas 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 is less than their carrying value, an impairment loss is recognized in an amount equal to the difference. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and/or intangible assets. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or material negative changes in relationships 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.

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Critical Accounting Policies and Estimates – (continued)

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 contractual rights at Atlantic Aviation, the useful lives will generally match the remaining lease terms plus extensions under the business’ control.

We perform impairment reviews of property and equipment and intangibles subject to amortization, when events or circumstances indicate that assets are less than their carrying amount and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In this circumstance, the impairment charge is determined based upon the amount by which the net book value of the assets exceeds their fair market value. Any impairment is measured by comparing the fair value of the asset to its carrying value.

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

We test for goodwill and indefinite-lived intangible assets 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, 2015. Our exposure to market risk has not changed materially since February 23, 2016, the filing date for our Annual Report on Form 10-K.

Controls and Procedures

Evaluation of Disclosure 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) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The purpose of disclosure controls is to ensure that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2016.

Changes in Internal Control Over Financial Reporting

On April 1, 2015, we completed the acquisition of the 100% interest in BEC within the CP&E segment. The Company is evaluating changes to processes and other components of internal controls over financial reporting of BEC as part of its ongoing integration activities, and as a result, controls will be periodically changed. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 4, “Acquisitions”, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. There have not been any other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

		March 31, 2016				December 31, 2015(1)
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	22,502			$	22,394
Restricted cash			11,732				18,946
Accounts receivable, less allowance for doubtful accounts of $1,612 and $1,690, respectively			92,101				95,597
Inventories			27,570				29,489
Prepaid expenses			17,188				21,690
Other current assets			27,129				28,453
Total current assets			198,222				216,569
Property, equipment, land and leasehold improvements, net			4,128,510				4,116,163
Investment in unconsolidated business			8,908				8,274
Goodwill			2,017,891				2,017,211
Intangible assets, net			920,934				934,892
Other noncurrent assets			8,951				15,695
Total assets		$	7,283,416			$	7,308,804
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Due to Manager-related party		$	72,932			$	73,317
Accounts payable			45,192				56,688
Accrued expenses			79,359				78,527
Current portion of long-term debt			43,197				40,099
Fair value of derivative instruments			19,845				19,628
Other current liabilities			37,995				40,531
Total current liabilities			298,520				308,790
Long-term debt, net of current portion			2,761,376				2,746,525
Deferred income taxes			835,486				816,836
Fair value of derivative instruments			37,012				15,698
Tolling agreements – noncurrent			66,206				68,150
Other noncurrent liabilities			147,754				150,363
Total liabilities			4,146,354				4,106,362
Commitments and contingencies			—				—

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION
 
CONSOLIDATED CONDENSED BALANCE SHEETS – (continued)
($ in Thousands, Except Share Data)

		March 31, 2016				December 31, 2015(1)
		(Unaudited)
Stockholders’ equity(2):
Common stock ($0.001 par value; 500,000,000 authorized; 80,257,596 shares issued and outstanding at March 31, 2016 and 80,006,744 shares issued and outstanding at December 31, 2015)		$	80			$	80
Additional paid in capital			2,247,192				2,317,421
Accumulated other comprehensive loss			(25,755	)			(23,295	)
Retained earnings			758,339				735,984
Total stockholders’ equity			2,979,856				3,030,190
Noncontrolling interests			157,206				172,252
Total equity			3,137,062				3,202,442
Total liabilities and equity		$	7,283,416			$	7,308,804

 
 
See accompanying notes to the consolidated condensed financial statements.

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

		Quarter Ended March 31,
		2016				2015
Revenue
Service revenue		$	312,241			$	326,002
Product revenue			84,146				72,496
Total revenue			396,387				398,498
Costs and expenses
Cost of services			116,463				133,417
Cost of product sales			33,060				39,127
Selling, general and administrative			72,284				70,653
Fees to Manager-related party			14,796				165,273
Depreciation			53,221				57,422
Amortization of intangibles			17,787				47,971
(Gain) loss on disposal of assets			(414	)			545
Total operating expenses			307,197				514,408
Operating income (loss)			89,190				(115,910	)
Other income (expense)
Interest income			33				6
Interest expense(1)			(56,895	)			(31,521	)
Other income, net			3,015				1,577
Net income (loss) before income taxes			35,343				(145,848	)
(Provision) benefit for income taxes			(15,167	)			55,333
Net income (loss)		$	20,176			$	(90,515	)
Less: net loss attributable to noncontrolling interests			(2,179	)			(1,513	)
Net income (loss) attributable to MIC		$	22,355			$	(89,002	)
Basic income (loss) per share attributable to MIC		$	0.28			$	(1.22	)
Weighted average number of shares outstanding: basic			80,113,011				73,150,111
Diluted income (loss) per share attributable to MIC		$	0.28			$	(1.22	)
Weighted average number of shares outstanding: diluted			81,171,346				73,150,111
Cash dividends declared per share		$	1.20			$	1.07

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION
 
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
($ in Thousands)

		Quarter Ended March 31,
		2016				2015
Net income (loss)		$	20,176			$	(90,515	)
Other comprehensive income (loss), net of taxes:
Translation adjustment(1)(2)			3,563				(4,051	)
Other comprehensive income (loss):			3,563				(4,051	)
Comprehensive income (loss)		$	23,739			$	(94,566	)
Less: comprehensive loss attributable to noncontrolling interests(2)			(745	)			(3,139	)
Comprehensive income (loss) attributable to MIC		$	24,484			$	(91,427	)

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION
 
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in Thousands)

		Quarter Ended March 31,
		2016				2015
Operating activities
Net income (loss)		$	20,176			$	(90,515	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment			53,221				57,422
Amortization of intangible assets			17,787				47,971
Amortization of debt financing costs			2,879				1,615
Adjustments to derivative instruments			23,278				2,833
Fees to Manager-related party			14,796				165,273
Deferred taxes			12,661				(56,138	)
Other non-cash expense, net			1,293				1,431
Changes in other assets and liabilities, net of acquisitions:
Restricted cash			2,202				669
Accounts receivable			3,910				222
Inventories			1,879				2,087
Prepaid expenses and other current assets			9,352				5,901
Due to Manager-related party			(73	)			(88	)
Accounts payable and accrued expenses			(13,293	)			(18,153	)
Income taxes payable			2,753				(853	)
Other, net			(4,255	)			(2,661	)
Net cash provided by operating activities			148,566				117,016
Investing activities
Acquisitions of businesses and investments, net of cash acquired			(3,153	)			(18,137	)
Purchases of property and equipment			(62,593	)			(25,481	)
Other, net			48				544
Net cash used in investing activities			(65,698	)			(43,074	)

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION
 
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS – (continued)
(Unaudited)
($ in Thousands)

		Quarter Ended March 31,
		2016				2015
Financing activities
Proceeds from long-term debt		$	176,000			$	29,000
Payment of long-term debt			(159,730	)			(452,628	)
Proceeds from the issuance of shares			1,093				488,032
Dividends paid to common stockholders			(92,203	)			(78,075	)
Purchase of noncontrolling interest			(9,909	)			—
Distributions paid to noncontrolling interests			(1,824	)			(1,000	)
Offering and equity raise costs paid			(105	)			(15,964	)
Debt financing costs paid			(1,119	)			—
Change in restricted cash			5,013				11,047
Payment of capital lease obligations			(433	)			(758	)
Net cash used in financing activities			(83,217	)			(20,346	)
Effect of exchange rate changes on cash and cash equivalents			457				(298	)
Net change in cash and cash equivalents			108				53,298
Cash and cash equivalents, beginning of period			22,394				48,014
Cash and cash equivalents, end of period		$	22,502			$	101,312
Supplemental disclosures of cash flow information
Non-cash investing and financing activities:
Accrued equity offering costs		$	229			$	349
Accrued financing costs		$	68			$	126
Accrued purchases of property and equipment		$	19,318			$	5,239
Acquisition of equipment through capital leases		$	—			$	398
Issuance of shares to Manager		$	15,108			$	15,221
Conversion of convertible senior notes to shares		$	4			$	2
Distributions payable to noncontrolling interests		$	42			$	75
Taxes (refund) paid, net		$	(253	)		$	1,657
Interest paid		$	25,176			$	26,968

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION
 
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Description of Business

Macquarie Infrastructure Corporation is the successor to Macquarie Infrastructure Company LLC (MIC LLC) pursuant to the conversion (the Conversion) of MIC LLC from a Delaware limited liability company to a Delaware corporation on May 21, 2015. MIC LLC was formed on April 13, 2004. Except as otherwise specified, all references in this Form 10-Q to “MIC” or the “Company” refer (i) from and after the time of the Conversion, to Macquarie Infrastructure Corporation and its subsidiaries and (ii) prior to the Conversion, to the predecessor MIC LLC and its subsidiaries. Except as otherwise specified, all references in this Form 10-Q to “common stock” or “shares” refer (i) from and after the time of the Conversion, to common stock and (ii) prior to the Conversion, LLC interests.

The Company owns, operates and invests in a diversified group of businesses in the United States. Macquarie Infrastructure Management (USA) Inc. is the Company’s manager and is referred to in these financial statements as the Manager. The Manager is a wholly-owned subsidiary within the Macquarie Group of companies, which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange. MIC is a non-operating holding company with a Board of Directors and other corporate governance responsibilities. MIC, and MIC LLC prior to the Conversion, is treated as a corporation for tax purposes.

The Company owns its businesses through its direct wholly-owned subsidiary MIC Ohana Corporation, the successor to Macquarie Infrastructure Company Inc. pursuant to the Conversion on May 21, 2015. The Company operates and invests in a diversified group of businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses it owns and operates include:

2. Basis of Presentation

The unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The consolidated balance sheet at December 31, 2015 has been derived from audited financial statements but does not include all of the information and notes required by GAAP for complete financial statements. Certain reclassifications were made to the financial statements for the prior period to conform to current period presentation.

The interim financial information contained herein should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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2. Basis of Presentation  – (continued)

Annual Report on Form 10-K, as filed with the SEC on February 23, 2016. Operating results for the quarter ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or for any future interim periods.

Use of Estimates

The preparation of unaudited consolidated condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure related thereto at the date of the unaudited consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates these estimates and assumptions on an ongoing basis.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited interim consolidated condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Recently Issued Accounting Standards

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance (similar to current capital leases) or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require all leases to be recognized on the balance sheet. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is allowed. The standard is to be applied using a modified retrospective approach. The Company will evaluate the effect that ASU 2016-02 will have on its consolidated condensed financial statements and related disclosures.

On November 20, 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which modifies the disclosure requirements of deferred tax assets and liabilities on an entity’s statement of financial position. Under this ASU, an entity will classify deferred tax assets and liabilities, as well as any related valuation allowances, as single noncurrent amounts provided that each tax-paying component of the entity is consistent. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 for public issuers. Early adoption is allowed. The Company has early adopted this ASU retrospectively and reclassified the deferred income taxes of $23.4 million from current assets to noncurrent liabilities on the consolidated condensed balance sheet at December 31, 2015. Adoption of this standard did not impact the Company’s financial results of operations or cash flows in the current or previous interim and annual reporting periods.

On September 25, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments, which requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The ASU also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The standard must be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU. The Company has adopted this ASU and determined that it did not impact the Company’s financial condition, financial results of operations or cash flows.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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2. Basis of Presentation  – (continued)

On August 12, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the adoption date of ASU No. 2014-09, Revenue from Contracts with Customers, by one calendar year. ASU No. 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. With the deferral, the new standard is effective for the Company on January 1, 2018. Early application is permitted to the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated condensed financial statements and related disclosures.

On July 22, 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation”. The ASU will not apply to inventories that are measured by using either the last-in, first-out (LIFO) method or the retail inventory method. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is allowed. The Company does not expect that the adoption of ASU 2015-11 will have a significant impact to its consolidated condensed financial statements.

On April 7, 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The standard must be applied retrospectively to all prior periods presented. The Company has adopted this ASU retrospectively and reclassified the unamortized deferred financing costs from noncurrent assets to noncurrent liabilities as a reduction to long-term debt, net of current portion, on the consolidated condensed balance sheets. See Note 6, “Long-Term Debt”, for the adoption of this standard. Adoption of this standard did not impact the Company’s financial results of operations or cash flows in the current or previous interim and annual reporting periods.

On February 18, 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The ASU significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which the decision making rights are conveyed through a contractual arrangement. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2015. The Company has adopted this ASU and determined that it did not impact the Company’s financial condition, financial results of operations or cash flows.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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3. Income (Loss) per Share

Following is a reconciliation of the basic and diluted income (loss) per share ($ in thousands, except share and per share data):

		Quarter Ended March 31,
		2016				2015
Numerator:
Net income (loss) attributable to MIC		$	22,355			$	(89,002	)
Diluted net income (loss) attributable to MIC		$	22,355			$	(89,002	)
Denominator:
Weighted average number of shares outstanding: basic			80,113,011				73,150,111
Dilutive effect of restricted stock unit grants			8,660				—
Dilutive effect of fees to Manager-related party			1,049,675				—
Weighted average number of shares outstanding: diluted			81,171,346				73,150,111
Income (loss) per share:
Basic income (loss) per share attributable to MIC		$	0.28			$	(1.22	)
Diluted income (loss) per share attributable to MIC		$	0.28			$	(1.22	)

The effect of potentially dilutive shares for the quarter ended March 31, 2016 is calculated assuming that (i) the restricted stock unit grants totaling 8,660 provided to the independent directors on June 18, 2015, which will vest during the second quarter of 2016, had been fully converted to shares on the grant date and (ii) the $67.8 million of the performance fee for the quarter ended June 30, 2015, settlement of which was deferred to July 2016, had been reinvested in shares by the Manager in July 2015. The convertible senior notes that were issued on July 15, 2014 were anti-dilutive for the quarter ended March 31, 2016.

Restricted stock unit grants totaling 12,525 provided to the independent directors on May 21, 2014, which vested during the second quarter of 2015, and 4,127,970 shares related to the convertible senior notes that were issued on July 15, 2014 were anti-dilutive due to the Company’s net loss for the quarter ended March 31, 2015.

The following represents the weighted average potential dilutive shares of common stock that were excluded from the diluted income (loss) per share calculation:

		Quarter Ended March 31,
		2016				2015
Restricted stock unit grants			—				12,525
Convertible senior notes			4,139,250				4,127,970
Total			4,139,250				4,140,495

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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4. Property, Equipment, Land and Leasehold Improvements

Property, equipment, land and leasehold improvements at March 31, 2016 and December 31, 2015 consist of the following ($ in thousands):

		March 31, 2016				December 31, 2015
Land		$	299,469			$	291,521
Easements			131				131
Buildings			41,189				41,049
Leasehold and land improvements			593,357				590,646
Machinery and equipment			3,491,415				3,455,776
Furniture and fixtures			29,916				29,547
Construction in progress			220,355				203,146
			4,675,832				4,611,816
Less: accumulated depreciation			(547,322	)			(495,653	)
Property, equipment, land and leasehold improvements, net		$	4,128,510			$	4,116,163

During the quarter ended March 31, 2015, Atlantic Aviation reassessed the useful lives of its leasehold and land improvements related to leases at certain airports to generally match these useful lives with the remaining lease terms plus extensions under Atlantic Aviation’s control. During the quarter ended March 31, 2015, as a result of this reassessment, the business performed an impairment analysis related to its leasehold and land improvements and recorded a non-cash impairment of $2.8 million, which was included in depreciation expense.

In addition, during the quarter ended March 31, 2015, a non-cash impairment charge of $4.2 million was recorded due to a change in the current lease contract at one of the bases. This amount was included in depreciation expense.

5. Intangible Assets

Intangible assets at March 31, 2016 and December 31, 2015 consist of the following ($ in thousands):

		March 31, 2016				December 31, 2015
Contractual arrangements		$	905,028			$	901,807
Non-compete agreements			9,665				9,665
Customer relationships			341,070				340,425
Leasehold rights			350				350
Trade names			16,091				16,091
Technology			8,760				8,760
			1,280,964				1,277,098
Less: accumulated amortization			(360,030	)			(342,206	)
Intangible assets, net		$	920,934			$	934,892