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(Mark One) | ||
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Exact Name of Registrant as Specified in Its Charter)
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Delaware | 43-2052503 | |
(State or Other Jurisdiction of
Incorporation or Organization) |
(IRS Employer
Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(Registrants 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, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer x | Accelerated Filer o | |||
Non-accelerated Filer o | Smaller Reporting Company o | Emerging Growth Company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 82,419,923 shares of common stock, with $0.001 par value, outstanding at May 2, 2017.
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.
i
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 Managements 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, 2016, 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.
ii
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 (MIC) is a Delaware corporation formed on May 21, 2015. MICs predecessor, Macquarie Infrastructure Company 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 to Macquarie Infrastructure Corporation and its subsidiaries.
MIC is externally managed by Macquarie Infrastructure Management (USA) Inc. (our Manager) pursuant to the terms of a Management Services Agreement that is subject to the oversight and supervision of our Board of Directors. The majority of the members of our Board of Directors have no affiliation with Macquarie. Our Manager is a member of the Macquarie Group of companies comprising the Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange.
We currently own and operate a diversified portfolio of businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses we own and operate are organized into four segments:
| International-Matex Tank Terminals (IMTT) : a marine terminals business providing bulk liquid storage, handling and other services to third parties at ten terminals in the U.S. and two in Canada; |
| Atlantic Aviation : a provider of fuel, terminal, aircraft hangaring and other services primarily to owners and operators of general aviation (GA) jet aircraft at 69 airports throughout the U.S.; |
| Contracted Power (CP) : comprising a gas-fired facility and controlling interests in wind and solar facilities in the U.S.; and |
| MIC Hawaii : comprising an energy company that processes and distributes gas and provides related services (Hawaii Gas), and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy, all based in Hawaii. |
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.
In addition to our results under U.S. GAAP, we use certain non-GAAP measures to assess the performance and prospects of our businesses. In particular, we use EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics reflect MIC Corporate and our ownership interest in each of our businesses.
We measure EBITDA excluding non-cash items as it reflects our businesses ability to effectively manage the volume of products sold or services provided, the margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses.
In analyzing the financial performance of our businesses, we focus primarily on cash generation and Free Cash Flow in particular. We believe investors use Free Cash Flow as a measure of our ability to sustain and potentially increase our quarterly cash dividend and to fund a portion of our growth.
1
See Managements 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, Free Cash Flow and Proportionately Combined Metrics for further information on our calculation of EBITDA excluding non-cash items, Free Cash Flow and our proportionately combined metrics and for reconciliations of non-GAAP measures to the most comparable GAAP measures.
At IMTT, we focus on providing bulk liquid storage, handling and other services to customers who place a premium on ease of access and operational flexibility. The substantial majority of IMTTs 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 fuel and other services from our fixed based operations (FBOs). Atlantic Aviations gross margin 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 segment generate revenue by producing and selling electric power pursuant primarily to long-dated power purchase agreements (PPAs) or tolling agreements all with creditworthy off-takers.
MIC Hawaii comprises Hawaii Gas and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. The businesses of MIC Hawaii generate revenue primarily from the provision of gas services to commercial, residential and governmental customers, the generation of power and the design and construction of building mechanical systems.
Since January 1, 2016, MIC has paid or declared the following dividends:
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Declared | Period Covered | $ per Share | Record Date | Payable Date | ||||||||||||
May 2, 2017
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First quarter 2017 | $ | 1.32 | May 15, 2017 | May 18, 2017 | |||||||||||
February 17, 2017
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Fourth quarter 2016 | 1.31 | March 3, 2017 | March 8, 2017 | ||||||||||||
October 27, 2016
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Third quarter 2016 | 1.29 | November 10, 2016 | November 15, 2016 | ||||||||||||
July 28, 2016
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Second quarter 2016 | 1.25 | August 11, 2016 | August 16, 2016 | ||||||||||||
April 28, 2016
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First quarter 2016 | 1.20 | May 12, 2016 | May 17, 2016 | ||||||||||||
February 18, 2016
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Fourth quarter 2015 | 1.15 | March 3, 2016 | March 8, 2016 |
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 $1.32 per share for the quarter ended March 31, 2017, or a 0.8% increase over the dividend for the quarter ended December 31, 2016 and 10.0% increase over the dividend for the quarter ended March 31, 2016. 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 Companys 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 stockholders 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 Companys senior secured credit facility and the debt commitments at our businesses contain restrictions that may limit the Companys 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.
2
| growth in contributions from Atlantic Aviation; and |
| contributions from acquisitions; partially offset by |
| unrealized losses from commodity hedges at Hawaii Gas; and |
| implementation of a shared services initiative. |
Our consolidated results of operations are as follows:
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Quarter Ended March 31, |
Change
Favorable/(Unfavorable) |
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2017 | 2016 | $ | % | |||||||||||||
($ In Thousands, Except Share and Per Share Data) (Unaudited) | ||||||||||||||||
Revenue
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Service revenue | $ | 363,804 | $ | 312,241 | 51,563 | 16.5 | ||||||||||
Product revenue | 87,653 | 84,146 | 3,507 | 4.2 | ||||||||||||
Total revenue | 451,457 | 396,387 | 55,070 | 13.9 | ||||||||||||
Costs and expenses
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Cost of services | 154,706 | 116,463 | (38,243 | ) | (32.8 | ) | ||||||||||
Cost of product sales | 47,225 | 33,060 | (14,165 | ) | (42.8 | ) | ||||||||||
Selling, general and administrative | 76,952 | 72,284 | (4,668 | ) | (6.5 | ) | ||||||||||
Fees to Manager related party | 18,223 | 14,796 | (3,427 | ) | (23.2 | ) | ||||||||||
Depreciation | 57,681 | 53,221 | (4,460 | ) | (8.4 | ) | ||||||||||
Amortization of intangibles | 17,693 | 17,787 | 94 | 0.5 | ||||||||||||
Total operating expenses | 372,480 | 307,611 | (64,869 | ) | (21.1 | ) | ||||||||||
Operating income | 78,977 | 88,776 | (9,799 | ) | (11.0 | ) | ||||||||||
Other income (expense)
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Interest income | 34 | 33 | 1 | 3.0 | ||||||||||||
Interest expense (1) | (25,482 | ) | (56,895 | ) | 31,413 | 55.2 | ||||||||||
Other income, net | 1,182 | 3,429 | (2,247 | ) | (65.5 | ) | ||||||||||
Net income before income taxes | 54,711 | 35,343 | 19,368 | 54.8 | ||||||||||||
Provision for income taxes | (22,073 | ) | (15,167 | ) | (6,906 | ) | (45.5 | ) | ||||||||
Net income | $ | 32,638 | $ | 20,176 | 12,462 | 61.8 | ||||||||||
Less: net loss attributable to noncontrolling interests | (3,377 | ) | (2,179 | ) | 1,198 | 55.0 | ||||||||||
Net income attributable to MIC | $ | 36,015 | $ | 22,355 | 13,660 | 61.1 | ||||||||||
Basic income per share attributable to MIC | $ | 0.44 | $ | 0.28 | 0.16 | 57.1 | ||||||||||
Weighted average number of shares outstanding: basic | 82,138,168 | 80,113,011 | 2,025,157 | 2.5 |
(1) | Interest expense includes gains on derivative instruments of $954,000 and losses on derivative instruments of $31.8 million for the quarters ended March 31, 2017 and 2016, respectively. |
Consolidated revenue increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily as a result of an increase in volume of fuel sold and an increase in the wholesale cost of fuel at Atlantic Aviation and an increase in volume of gas sold and an increase in the wholesale cost of gas at our Hawaii Gas business. Consolidated revenue also increased for the quarter ended March 31, 2017 due to contributions from acquisitions within the MIC Hawaii segment.
3
Consolidated cost of services and product sales increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to an increase in the wholesale cost of fuel at Atlantic Aviation, unrealized losses on commodity hedges and increases in the wholesale cost of gas at the Hawaii Gas business and contributions from acquisitions within MIC Hawaii.
Selling, general and administrative expenses increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to $2.4 million of costs incurred in connection with the implementation of our shared services initiative and incremental costs associated with acquisitions in 2016. We expect to incur additional implementation costs during the balance of 2017, principally in relation to severance and consulting services, and to realize full year savings in connection with consolidating common back-office functions including Accounting, Human Resources, Tax, Information Technology and Risk Management support for each of MICs operating entities in 2018.
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 stockholder return relative to a U.S. utilities index. For the quarters ended March 31, 2017 and 2016, we incurred base management fees of $18.2 million and $14.8 million, respectively. For the quarters ended March 31, 2017 and 2016, our Manager did not earn any performance fees. The unpaid portion of the base management fees and performance fees, if any, at the end of each reporting period is included in Due to Manager-related party in our consolidated condensed balance sheets.
In all of the periods shown below, our Manager elected to reinvest any fees to which it was entitled in additional shares. In accordance with the Third Amended and Restated Management Service Agreement, our Manager has currently elected to reinvest future base management fees and performance fees, if any, in additional shares.
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Period |
Base
Management Fee Amount ($ in Thousands) |
Performance
Fee Amount ($ in Thousands) |
Shares
Issued |
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2017 Activity:
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First quarter 2017 | $ | 18,223 | $ | | 232,398 | (1) | ||||||
2016 Activities:
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Fourth quarter 2016 | $ | 18,916 | $ | | 230,773 | |||||||
Third quarter 2016 | 18,382 | | 232,488 | |||||||||
Second quarter 2016 | 16,392 | | 232,835 | |||||||||
First quarter 2016 | 14,796 | | 234,179 |
(1) | Our Manager elected to reinvest all of the monthly base management fees for the first quarter of 2017 in shares. We issued 232,398 shares for the quarter ended March 31, 2017, including 77,563 shares that were issued in April 2017 for the March 2017 monthly base management fee. |
Depreciation expense increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily as a result of assets placed in service at Atlantic Aviation during 2016 and from acquisitions.
4
Interest expense includes gains on derivative instruments of $954,000 and losses on derivative instruments of $31.8 million for the quarters ended March 31, 2017 and 2016, respectively. Gains and 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 February 2016 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 decreased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to an overall lower weighted average interest rate, partially offset by a higher average debt balance. Cash interest expense was $25.9 million and $27.4 million for the quarters ended March 31, 2017 and 2016, respectively. See discussions of interest expense for each of our operating businesses below.
Other income, net, decreased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 as a result of the absence of insurance recoveries totaling $2.5 million from losses in connection with damaged docks at IMTT.
We file a consolidated federal income tax return that includes the financial results for IMTT, Atlantic Aviation, Bayonne Energy Center (BEC), MIC Hawaii and our allocable share of the taxable income (loss) from our solar and wind facilities, which are treated as partnerships for tax purposes. Pursuant to a tax sharing agreement, the businesses included in our consolidated federal income tax return pay MIC an amount equal to the federal income tax each would have paid on a standalone basis as if they were not part of the consolidated federal income tax return.
For the year ending December 31, 2017, we expect any consolidated federal income tax liability to be fully offset by net operating loss (NOL) carryforwards. Our federal NOL balance at December 31, 2016 was $398.1 million. We believe that we will be able to utilize all of our federal prior year NOLs and, together with planned tax strategies, we do not expect to make regular federal income tax payments any earlier than the second half of 2019.
At March 31, 2017, we expected that for the year ending December 31, 2017 we would report current year taxable income of approximately $130.0 million and pay approximately $1.5 million in Alternative Minimum Tax, net of available investment tax credits. In May 2017, we completed an investment in a renewable project that will, provided it has reached commercial operations prior to year-end, generate investment tax credits that would entirely offset the forecasted Alternative Minimum Tax. The project is expected to be in service in October 2017.
For the year ending December 31, 2017, we expect to pay state income taxes of approximately $15.0 million. In calculating our consolidated state income tax provision, we have provided a valuation allowance for certain state income tax NOLs, the use of which is uncertain.
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 eligible 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.
In addition to our results under U.S. GAAP, we use certain non-GAAP measures to assess the performance and prospects of our businesses. In particular, we use EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics reflect MIC Corporate and our ownership interest in each of our businesses.
5
We measure EBITDA excluding non-cash items as it reflects our businesses ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses. We believe investors use EBITDA excluding non-cash items primarily as a measure of the operating performance of MICs businesses and to make comparisons with the operating performance of other businesses whose depreciation and amortization expense may vary widely from ours, particularly where acquisitions and other non-operating factors are involved. We define EBITDA excluding non-cash items as net income (loss) or earnings the most comparable GAAP measure before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense 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.
Given our varied ownership levels in our CP and MIC Hawaii segments, together with our obligations to report the results of these businesses on a consolidated basis, GAAP measures such as net income (loss) do not fully reflect all of the items we consider in assessing the amount of cash generated based on our ownership interest in our businesses. We note that the proportionately combined metrics used may be calculated in a different manner by other companies and may limit their usefulness as a comparative measure. Therefore, proportionately combined metrics should be used as a supplemental measure to help understand our financial performance and not in lieu of our financial results reported under GAAP.
Our businesses can be characterized as owners of high-value, long-lived assets capable of generating substantial Free Cash Flow. We define Free Cash Flow as cash from operating activities the most comparable GAAP measure 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 use Free Cash Flow as a measure of our ability to provide investors with an attractive risk-adjusted return by sustaining and potentially increasing our quarterly cash dividend and funding a portion of our growth. GAAP metrics such as net income (loss) do not provide us with the same level of visibility into the performance and prospects of the business as a result of: (i) the capital intensive nature of our businesses and the generation of non-cash depreciation and amortization; (ii) shares issued to our external Manager under the Management Services Agreement; (iii) our ability to defer all or a portion of current federal income taxes; (iv) non-cash unrealized gains or losses on derivative instruments; (v) amortization of tolling liabilities; (vi) gains (losses) on disposal of assets; and (vii) pension expense. Pension expenses primarily consist of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are reflected as a reduction to Free Cash Flow. We believe that external consumers of our financial statements, including investors and research analysts, use Free Cash Flow both to assess MICs performance and as an indicator of its success in generating an attractive risk-adjusted return.
In this Quarterly Report on Form 10-Q, we have disclosed Free Cash Flow on a consolidated basis and for each of our operating segments and MIC Corporate. We believe that both EBITDA excluding non-cash items and Free Cash Flow support a more complete and accurate understanding of the financial and operating performance of our businesses than would otherwise be achieved using GAAP results alone.
Free Cash Flow does not take into consideration required payments on indebtedness and other fixed obligations or the other cash items that are excluded from our definition of Free Cash Flow. We note that Free Cash Flow may be calculated differently by other companies thereby limiting its usefulness as a comparative measure. Free Cash Flow should be used as a supplemental measure to help understand our financial performance and not in lieu of our financial results reported under GAAP.
6
We categorize capital expenditures as either maintenance capital expenditures or growth capital expenditures. As neither maintenance capital expenditure nor growth capital expenditure is a GAAP term, we have adopted a framework to categorize specific capital expenditures. In broad terms, maintenance capital expenditures primarily maintain our businesses at current levels of operations, capability, profitability or cash flow, while growth capital expenditures primarily provide new or enhanced levels of operations, capability, profitability or cash flow. We consider a number of factors in determining whether a specific capital expenditure will be classified as maintenance or growth.
In some cases, specific capital expenditures contain characteristics of both maintenance and growth capital expenditures. We do not bifurcate specific capital expenditures into maintenance and growth components. Each discrete capital expenditure is considered within the above framework and the entire capital expenditure is classified as either maintenance or growth.
A reconciliation of net income to EBITDA excluding non-cash items and a reconciliation from cash provided by operating activities to Free Cash Flow, on a consolidated basis, is provided below. Similar reconciliations for each of our operating businesses and MIC Corporate follow.
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Quarter Ended March 31, |
Change
Favorable/(Unfavorable) |
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2017 | 2016 | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Net income | $ | 32,638 | $ | 20,176 | ||||||||||||
Interest expense, net (1) | 25,448 | 56,862 | ||||||||||||||
Provision for income taxes | 22,073 | 15,167 | ||||||||||||||
Depreciation | 57,681 | 53,221 | ||||||||||||||
Amortization of intangibles | 17,693 | 17,787 | ||||||||||||||
Fees to Manager-related party | 18,223 | 14,796 | ||||||||||||||
Pension expense (2) | 2,694 | 2,198 | ||||||||||||||
Other non-cash expense (income), net (3) | 3,865 | (4,232 | ) | |||||||||||||
EBITDA excluding non-cash items | $ | 180,315 | $ | 175,975 | 4,340 | 2.5 | ||||||||||
EBITDA excluding non-cash items | $ | 180,315 | $ | 175,975 | ||||||||||||
Interest expense, net (1) | (25,448 | ) | (56,862 | ) | ||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (3,247 | ) | 26,605 | |||||||||||||
Amortization of debt financing costs (1) | 2,202 | 2,879 | ||||||||||||||
Amortization of debt discount (1) | 619 | | ||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (3,721 | ) | (2,506 | ) | ||||||||||||
Changes in working capital | (22,152 | ) | 2,475 | |||||||||||||
Cash provided by operating activities | 128,568 | 148,566 | ||||||||||||||
Changes in working capital | 22,152 | (2,475 | ) | |||||||||||||
Maintenance capital expenditures | (4,476 | ) | (10,413 | ) | ||||||||||||
Free cash flow | $ | 146,244 | $ | 135,678 | 10,566 | 7.8 |
(1) | Interest expense, net, includes adjustment to derivative instruments, non-cash amortization of deferred financing fees and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023. For the quarter ended March 31, 2016, interest expense also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas. |
(2) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. |
(3) | Other non-cash expense (income), net, primarily includes non-cash amortization of tolling liabilities, unrealized gains (losses) on commodity hedges and non-cash gains (losses) related to disposal of assets. See Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics above for further discussion. |
7
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. 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 equity interests in each of our businesses). See Results of Operations below for a reconciliation of Free Cash Flow for each of our segments to cash provided by (used in) operating activities for such segment.
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Quarter Ended March 31, |
Change
Favorable/(Unfavorable) |
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2017 | 2016 | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Free Cash Flow Consolidated basis | $ | 146,244 | $ | 135,678 | 10,566 | 7.8 | ||||||||||
100% of CP Free Cash Flow included in consolidated Free Cash Flow | (9,839 | ) | (11,943 | ) | ||||||||||||
MICs share of CP Free Cash Flow | 8,171 | 9,660 | ||||||||||||||
100% of MIC Hawaii Free Cash Flow included in consolidated Free Cash Flow | (14,936 | ) | (10,862 | ) | ||||||||||||
MICs share of MIC Hawaii Free Cash Flow | 14,933 | 10,862 | ||||||||||||||
Free Cash Flow Proportionately Combined basis | $ | 144,573 | $ | 133,395 | 11,178 | 8.4 |
| an increase in revenue from spill response activities; and |
| an increase in revenue from firm commitments; partially offset by |
| decrease in other income; and |
| an increase in costs. |
8
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Quarter Ended March 31, |
Change
Favorable/(Unfavorable) |
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2017 | 2016 | |||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Revenue | 138,817 | 135,425 | 3,392 | 2.5 | ||||||||||||
Cost of services | 49,846 | 50,301 | 455 | 0.9 | ||||||||||||
Selling, general and administrative expenses | 9,038 | 8,174 | (864 | ) | (10.6 | ) | ||||||||||
Depreciation and amortization | 31,520 | 32,621 | 1,101 | 3.4 | ||||||||||||
Operating income | 48,413 | 44,329 | 4,084 | 9.2 | ||||||||||||
Interest expense, net (1) | (8,757 | ) | (19,871 | ) | 11,114 | 55.9 | ||||||||||
Other income, net | 708 | 2,988 | (2,280 | ) | (76.3 | ) | ||||||||||
Provision for income taxes | (16,548 | ) | (11,229 | ) | (5,319 | ) | (47.4 | ) | ||||||||
Net income (2) | 23,816 | 16,217 | 7,599 | 46.9 | ||||||||||||
Less: net income attributable to noncontrolling
interests |
| 59 | 59 | 100.0 | ||||||||||||
Net income attributable to MIC (2) | 23,816 | 16,158 | 7,658 | 47.4 | ||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
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Net income (2) | 23,816 | 16,217 | ||||||||||||||
Interest expense, net (1) | 8,757 | 19,871 | ||||||||||||||
Provision for income taxes | 16,548 | 11,229 | ||||||||||||||
Depreciation and amortization | 31,520 | 32,621 | ||||||||||||||
Pension expense (3) | 2,416 | 1,831 | ||||||||||||||
Other non-cash expense, net | 68 | 443 | ||||||||||||||
EBITDA excluding non-cash items | 83,125 | 82,212 | 913 | 1.1 | ||||||||||||
EBITDA excluding non-cash items | 83,125 | 82,212 | ||||||||||||||
Interest expense, net (1) | (8,757 | ) | (19,871 | ) | ||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (1,320 | ) | 9,610 | |||||||||||||
Amortization of debt financing costs (1) | 411 | 420 | ||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (2,258 | ) | (1,230 | ) | ||||||||||||
Changes in working capital | 736 | (2,807 | ) | |||||||||||||
Cash provided by operating activities | 71,937 | 68,334 | ||||||||||||||
Changes in working capital | (736 | ) | 2,807 | |||||||||||||
Maintenance capital expenditures | (2,460 | ) | (6,297 | ) | ||||||||||||
Free cash flow | 68,741 | 64,844 | 3,897 | 6.0 |
(1) | Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees. |
(2) | Corporate allocation expense, intercompany fees and the tax effect have been excluded from the above table as they are eliminated on consolidation. |
(3) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. |
9
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 at March 31, 2017, had a revenue weighted average remaining life of 2.2 years. Revenue from firm commitments comprised 80.1% of total revenue for the quarter ended March 31, 2017.
For the quarter ended March 31, 2017, total revenue increased by $3.4 million compared with the quarter ended March 31, 2016 primarily due to an increase in the level of spill response activity on the part of IMTTs subsidiary, OMI, and an increase in revenue from firm commitments. The increase in revenue was partially offset by an absence in rail services revenue principally in connection with the reduced demand for Canadian crude oil in the U.S.
Consistent with strong demand for liquid product storage generally, capacity utilization was higher than historically normal levels at 96.3% for the quarter ended March 31, 2017 and higher than the 96.1% recorded for the quarter ended March 31, 2016. The business views historically normal utilization levels as in a range of 94% to 96%.
Cost of services and selling, general and administrative expenses combined increased in the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016. The increase was primarily the result of higher costs associated with OMI as a result of increased spill related activity, costs associated with the implementation of our shared services initiative and franchise taxes associated with newly enacted legislation in Louisiana, partially offset by savings from ongoing cost control initiatives.
Interest expense includes gains on derivative instruments of $521,000 and losses on derivative instruments of $10.8 million for the quarters ended March 31, 2017 and 2016, respectively. Excluding the derivative adjustments, interest expense decreased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 due to lower average interest rates partially offset by a higher average debt balance. Cash interest expense was $9.7 million and $9.8 million for the quarters ended March 31, 2017 and 2016, respectively.
Other income, net, included insurance recoveries totaling $2.5 million during the first quarter of 2016 from losses in connection with damaged docks.
The federal taxable income generated by IMTT is reported as part of our consolidated federal tax return. The business files state income tax returns in the states in which it operates. For the year ending December 31, 2017, the business expects to pay state income taxes of approximately $6.0 million. The Provision for income taxes, net of changes in deferred taxes of $2.3 million for the quarter ended March 31, 2017 in the above table includes $1.9 million of state income tax expense and $352,000 of federal income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.
The difference between IMTTs book and federal taxable income relates to depreciation of terminal 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 terminal fixed assets placed in service between 2012 through 2016 qualified for the federal 50% bonus tax depreciation. A significant portion of Louisiana terminal fixed assets constructed after Hurricane Katrina were 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. 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.
10
During the quarter ended March 31, 2017, IMTT incurred maintenance capital expenditures of $2.5 million and $5.3 million on an accrual basis and cash basis, respectively, compared with $6.3 million and $8.7 million on an accrual basis and cash basis, respectively, for the quarter ended March 31, 2016. The decrease in maintenance capital expenditures for the quarter ended March 31, 2017 was the result of high tank utilization levels and the timing of planned maintenance for the year. IMTT anticipates making between $30.0 million and $35.0 million of maintenance capital expenditures in 2017.
Atlantic Aviation generates a significant portion of its revenue from sales of jet fuel. Accordingly, revenue can fluctuate significantly based on the cost of the commodity and reported revenue may not reflect the business ability to effectively manage volume and price. For example, an increase in revenue may be attributable to an increase in the cost of the jet fuel and not an increase in the volume sold or price per gallon. Conversely, a decline in revenue may be attributable to a decrease in the cost of jet fuel and not a reduction in the volume sold or price.
Gross margin, which we define as revenue less cost of services, excluding depreciation and amortization, is the effective top line for Atlantic Aviation as it is reflective of the business ability to drive growth in the volume of products and services sold and the margins earned on those sales over time. We similarly believe that our investors view gross margin as reflective of managements performance in managing volume and price throughout the commodity cycle. Gross margin can be reconciled to operating income the most comparable GAAP measure by subtracting selling, general and administrative expenses and depreciation and amortization in the table below.
| an increase in gross margin; partially offset by |
| higher selling, general and administrative expenses. |
11
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|
||||||||||||
Quarter Ended March 31, |
Change
Favorable/(Unfavorable) |
|||||||||||||||
2017 | 2016 | |||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Revenue | 212,753 | 177,988 | 34,765 | 19.5 | ||||||||||||
Cost of services (exclusive of depreciation and amortization of intangibles shown separately below) | 93,922 | 66,162 | (27,760 | ) | (42.0 | ) | ||||||||||
Gross margin | 118,831 | 111,826 | 7,005 | 6.3 | ||||||||||||
Selling, general and administrative expenses | 53,890 | 52,611 | (1,279 | ) | (2.4 | ) | ||||||||||
Depreciation and amortization | 25,033 | 22,191 | (2,842 | ) | (12.8 | ) | ||||||||||
Operating income | 39,908 | 37,024 | 2,884 | 7.8 | ||||||||||||
Interest expense, net (1) | (3,446 | ) | (13,314 | ) | 9,868 | 74.1 | ||||||||||
Other (expense) income, net | (86 | ) | 390 | (476 | ) | (122.1 | ) | |||||||||
Provision for income taxes | (14,550 | ) | (9,742 | ) | (4,808 | ) | (49.4 | ) | ||||||||
Net income (2) | 21,826 | 14,358 | 7,468 | 52.0 | ||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
|
||||||||||||||||
Net income (2) | 21,826 | 14,358 | ||||||||||||||
Interest expense, net (1) | 3,446 | 13,314 | ||||||||||||||
Provision for income taxes | 14,550 | 9,742 | ||||||||||||||
Depreciation and amortization | 25,033 | 22,191 | ||||||||||||||
Pension expense (3) | 5 | 17 | ||||||||||||||
Other non-cash expense (income), net | 62 | (91 | ) | |||||||||||||
EBITDA excluding non-cash items | 64,922 | 59,531 | 5,391 | 9.1 | ||||||||||||
EBITDA excluding non-cash items | 64,922 | 59,531 | ||||||||||||||
Interest expense, net (1) | (3,446 | ) | (13,314 | ) | ||||||||||||
Convertible senior notes interest (4) | (1,744 | ) | | |||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | 133 | 5,608 | ||||||||||||||
Amortization of debt financing costs (1) | 314 | 800 | ||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (2,872 | ) | (1,452 | ) | ||||||||||||
Changes in working capital | (6,116 | ) | 6,044 | |||||||||||||
Cash provided by operating activities | 51,191 | 57,217 | ||||||||||||||
Changes in working capital | 6,116 | (6,044 | ) | |||||||||||||
Maintenance capital expenditures | (925 | ) | (2,284 | ) | ||||||||||||
Free cash flow | 56,382 | 48,889 | 7,493 | 15.3 |
(1) | Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees. |
(2) | Corporate allocation expense, intercompany fees and the tax effect have been excluded from the above table as they are eliminated on consolidation. |
(3) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. |
(4) | Represents the cash interest expense reclassified from MIC Corporate related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviations credit facility in October 2016. |
12
The majority of the revenue and gross margin earned by Atlantic Aviation is generated through fueling GA aircraft at facilities located at the 69 U.S. airports at which Atlantic Aviation operates. The business pursues a strategy of maintaining and, where appropriate, increasing dollar-based margins on fuel sales. Generally, fluctuations in the cost of jet fuel are passed through to the customer.
Revenue and gross margin are driven, in part, by the volume of fuel sold and the dollar-based margin/fee per gallon on those sales. Revenue increased 19.5% for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 as a result of an increase in the volume of fuel sold, a higher wholesale cost of fuel and higher rental and ancillary services revenue. The increase in the wholesale cost of fuel was largely offset by a corresponding increase in cost of services, resulting in an increase in gross margin of 6.3% for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016.
Atlantic Aviation seeks to extend FBO leases prior to their maturity to improve our visibility into the cash generating capacity of these assets. Atlantic Aviation calculates the weighted average lease life based on EBITDA excluding non-cash items in the prior calendar year adjusted for the impact of acquisitions/dispositions. The weighted average lease life was 19.4 years at March 31, 2017 compared with 19.5 years at March 31, 2016, notwithstanding the passage of one year, as a result of successful extensions and acquisition of leaseholds.
Selling, general and administrative expenses increased 2.4% for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to higher salaries and benefits.
Depreciation and amortization expense increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily as a result of assets placed in service during 2016.
Operating income increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 due to the increase in gross margin, partially offset by the increase in depreciation and amortization and selling, general and administrative expenses.
Interest expense includes losses on derivative instruments of $133,000 and $7.7 million for the quarters ended March 31, 2017 and 2016, respectively. Excluding the derivative adjustments, interest expense decreased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 due to lower interest rates attributable to the October 2016 refinancing.
Cash interest expense was $4.7 million and $6.9 million for the quarters ended March 31, 2017 and 2016, respectively. Cash interest expense for the quarter ended March 31, 2017 is inclusive of the interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, proceeds of which were used in part to reduce the drawn balance of Atlantic Aviations revolving credit facility.
The federal taxable income generated by Atlantic Aviation is reported 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 the year ending December 31, 2017, the business expects to pay state income taxes of approximately $7.0 million. The Provision for income taxes, net of changes in deferred taxes of $2.9 million for the quarter ended March 31, 2017 in the above table includes $1.7 million of state income tax expense and $1.2 million of federal income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.
13
For the quarter ended March 31, 2017, Atlantic Aviation incurred maintenance capital expenditures of $925,000 and $1.7 million on an accrual basis and cash basis, respectively, compared with $2.3 million both on an accrual basis and cash basis for the quarter ended March 31, 2016.
| a decrease in revenue from BEC and the wind facilities; and |
| an incremental increase in cost of product sales from a new acquisition; partially offset by |
| contribution of revenue from a new acquisition and an increase in other income, net. |
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Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
2017 | 2016 | |||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Product revenue | 28,070 | 30,179 | (2,109 | ) | (7.0 | ) | ||||||||||
Cost of product sales | 4,859 | 4,357 | (502 | ) | (11.5 | ) | ||||||||||
Selling, general and administrative expenses | 5,165 | 5,960 | 795 | 13.3 | ||||||||||||
Depreciation and amortization | 15,340 | 13,846 | (1,494 | ) | (10.8 | ) | ||||||||||
Operating income | 2,706 | 6,016 | (3,310 | ) | (55.0 | ) | ||||||||||
Interest expense, net (1) | (5,383 | ) | (17,848 | ) | 12,465 | 69.8 | ||||||||||
Other income, net | 765 | 305 | 460 | 150.8 | ||||||||||||
(Provision) benefit for income taxes | (27 | ) | 2,304 | (2,331 | ) | (101.2 | ) | |||||||||
Net loss (2) | (1,939 | ) | (9,223 | ) | 7,284 | 79.0 | ||||||||||
Less: net loss attributable to noncontrolling interest | (3,349 | ) | (2,238 | ) | 1,111 | 49.6 | ||||||||||
Net income (loss) attributable to MIC (2) | 1,410 | (6,985 | ) | 8,395 | 120.2 | |||||||||||
Reconciliation of net loss to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
|
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Net loss (2) | (1,939 | ) | (9,223 | ) | ||||||||||||
Interest expense, net (1) | 5,383 | 17,848 | ||||||||||||||
Provision (benefit) for income taxes | 27 | (2,304 | ) | |||||||||||||
Depreciation and amortization | 15,340 | 13,846 | ||||||||||||||
Other non-cash income, net (3) | (2,024 | ) | (2,020 | ) | ||||||||||||
EBITDA excluding non-cash items | 16,787 | 18,147 | (1,360 | ) | (7.5 | ) | ||||||||||
EBITDA excluding non-cash items | 16,787 | 18,147 | ||||||||||||||
Interest expense, net (1) | (5,383 | ) | (17,848 | ) | ||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (1,834 | ) | 11,268 | |||||||||||||
Amortization of debt financing costs (1) | 379 | 383 | ||||||||||||||
Provision/benefit for income taxes, net of changes in deferred taxes | (88 | ) | (7 | ) | ||||||||||||
Changes in working capital | 142 | 2,612 | ||||||||||||||
Cash provided by operating activities | 10,003 | 14,555 | ||||||||||||||
Changes in working capital | (142 | ) | (2,612 | ) | ||||||||||||
Maintenance capital expenditures | (22 | ) | | |||||||||||||
Free cash flow | 9,839 | 11,943 | (2,104 | ) | (17.6 | ) |
(1) | Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees. |
14
(2) | Corporate allocation expense, intercompany fees and the tax effect have been excluded from the above table as they are eliminated on consolidation. |
(3) | Other non-cash income, net, primarily includes amortization of tolling liabilities. See Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics above for further discussion. |
Revenue generated by CP decreased by $2.1 million for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016. At BEC, revenue for the quarter ended March 31, 2017 was lower than the quarter ended March 31, 2016 as a result of lower capacity prices and energy margins. Capacity prices impact only the 37.5% untolled portion of BECs revenue and were lower than in the prior comparable period due to the regional system operators updated capacity requirements. Energy margins for the 37.5% untolled portion were lower as a result of the milder than average weather in January and February 2017. BEC also underwent a required five-year stack emissions test during the first quarter of 2017. The test required the plant to run on fuel oil during specified periods even when uneconomical. The 62.5% of BECs revenue is generated pursuant to a fixed price tolling agreement with a creditworthy off-taker.
Solar and wind output decreased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016. The decrease was primarily due to lower wind and solar resources in the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016. For the quarter ended March 31, 2017 and 2016, solar resources were approximately 90% and 106%, respectively, of long-term historical average and wind resources were approximately 88% and 94%, respectively, of long-term historical average. The decrease in revenue was partially offset by contributions from an acquisition.
Cost of product sales increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to incremental costs associated with an acquisition completed in December 2016.
Selling, general and administrative expenses decreased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to decreases in professional fees, property taxes and salaries and benefits. The decrease in selling, general and administrative expenses are partially offset by incremental costs associated with an acquisition completed in December 2016.
Depreciation and amortization expense increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to incremental expenses associated with an acquisition completed in December 2016.
Other income, net, increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to financing income earned from a third party renewables developer on a revolving credit facility provided by the business.
Interest expense includes gains on derivative instruments of $410,000 and losses on derivative instruments of $13.2 million for the quarters ended March 31, 2017 and 2016, respectively. Excluding the derivative adjustments, interest expense increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to debt assumed in an acquisition completed in December 2016, partially offset by lower average debt balances on all other existing facilities. Cash interest expense was $6.8 million and $6.2 million for the quarters ended March 31, 2017 and 2016, respectively.
15
Our solar and wind facilities are held in limited liability companies 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 the year ending December 31, 2017, MIC expects its allocated share of the federal taxable income from these facilities to be a loss of approximately $10.0 million. For 2016, MICs allocated share of the federal taxable income from these facilities was a loss of approximately $23.0 million.
The federal taxable income generated by BEC is reported as part of our consolidated federal income tax return and is subject to New York state income tax as part of a combined return. For the year ending December 31, 2017, the business does not expect to have a federal or a state income tax liability. Future current federal taxable income attributable to BEC may be offset in consolidation with the application of NOLs at the MIC holding company level.
CP relies on a small number of suppliers to provide long term operations and maintenance (O&M) and other services for its facilities. One of those O&M providers, SunEdison, Inc. (SunEdison), filed for bankruptcy in April 2016. SunEdison has continued to perform its obligations as an O&M provider, and we expect it to continue to do so. CP has implemented contingency plans to mitigate any potential operational issues that might arise as a result of the inability of SunEdison to provide agreed upon services.
MIC Hawaii comprises Hawaii Gas and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. The businesses of MIC Hawaii generate revenue primarily from the provision of gas services to commercial, residential and governmental customers, the generation of power and the design and construction of building mechanical systems.
Hawaii Gas generates a significant portion of its revenue from sales of gas. Accordingly, revenue can fluctuate significantly based on the cost of the commodity and may not reflect the business ability to effectively manage volume and price. For example, an increase in revenue may be attributable to an increase in the cost of gas and not an increase in the volume sold or price per therm. Conversely, a decline in revenue may be attributable to a decrease in the cost of gas and not a reduction in volume sold or price per therm.
Gross margin, which we define as revenue less cost of product sales and services, excluding depreciation and amortization, is the effective top line for Hawaii Gas as it is reflective of the business ability to drive growth in the volume of products and services and the margins earned on those sales over time. We similarly believe that investors utilize gross margin as it is reflective of our performance in managing volume and price throughout the commodity cycle. Gross margin is reconciled to operating income the most comparable GAAP measure by subtracting selling, general and administrative expenses and depreciation and amortization in the table below.
| contributions from acquisitions; and |
| an increase in the volume of gas sold; partially offset by |
| unrealized losses from commodity hedges; and |
| an increase in selling, general and administrative costs. |
16
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Quarter Ended March 31, |
Change
Favorable/(Unfavorable) |
|||||||||||||||
2017 | 2016 | |||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Product revenue | 59,583 | 53,967 | 5,616 | 10.4 | ||||||||||||
Service revenue | 13,457 | | 13,457 | NM | ||||||||||||
Total revenue | 73,040 | 53,967 | 19,073 | 35.3 | ||||||||||||
Cost of product sales (exclusive of depreciation and amortization of intangibles shown separately below) | 42,366 | 28,703 | (13,663 | ) | (47.6 | ) | ||||||||||
Cost of services (exclusive of depreciation and amortization of intangibles shown separately below) | 10,940 | | (10,940 | ) | NM | |||||||||||
Cost of revenue total | 53,306 | 28,703 | (24,603 | ) | (85.7 | ) | ||||||||||
Gross margin | 19,734 | 25,264 | (5,530 | ) | (21.9 | ) | ||||||||||
Selling, general and administrative expenses | 6,085 | 5,256 | (829 | ) | (15.8 | ) | ||||||||||
Depreciation and amortization | 3,481 | 2,350 | (1,131 | ) | (48.1 | ) | ||||||||||
Operating income | 10,168 | 17,658 | (7,490 | ) | (42.4 | ) | ||||||||||
Interest expense, net (1) | (1,711 | ) | (2,424 | ) | 713 | 29.4 | ||||||||||
Other expense, net | (205 | ) | (254 | ) | 49 | 19.3 | ||||||||||
Provision for income taxes | (3,379 | ) | (5,911 | ) | 2,532 | 42.8 | ||||||||||
Net income (2) | 4,873 | 9,069 | (4,196 | ) | (46.3 | ) | ||||||||||
Less: net loss attributable to noncontrolling interests | (28 | ) | | 28 | NM | |||||||||||
Net income attributable to MIC (2) | 4,901 | 9,069 | (4,168 | ) | (46.0 | ) | ||||||||||
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
|
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Net income (2) | 4,873 | 9,069 | ||||||||||||||
Interest expense, net (1) | 1,711 | 2,424 | ||||||||||||||
Provision for income taxes | 3,379 | 5,911 | ||||||||||||||
Depreciation and amortization | 3,481 | 2,350 | ||||||||||||||
Pension expense (3) | 273 | 350 | ||||||||||||||
Other non-cash expense (income), net (4) | 5,571 | (2,752 | ) | |||||||||||||
EBITDA excluding non-cash items | 19,288 | 17,352 | 1,936 | 11.2 | ||||||||||||
EBITDA excluding non-cash items | 19,288 | 17,352 | ||||||||||||||
Interest expense, net (1) | (1,711 | ) | (2,424 | ) | ||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (226 | ) | 119 | |||||||||||||
Amortization of debt financing costs (1) | 105 | 664 | ||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (1,451 | ) | (3,017 | ) | ||||||||||||
Changes in working capital | (8,480 | ) | 2,937 | |||||||||||||
Cash provided by operating activities | 7,525 | 15,631 | ||||||||||||||
Changes in working capital | 8,480 | (2,937 | ) | |||||||||||||
Maintenance capital expenditures | (1,069 | ) | (1,832 | ) | ||||||||||||
Free cash flow | 14,936 | 10,862 | 4,074 | 37.5 |
NM Not meaningful
(1) | Interest expense, net, includes adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees. For the quarter ended March 31, 2016, interest expense also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas. |
(2) | Corporate allocation expense, intercompany fees and the tax effect have been excluded from the above table as they are eliminated on consolidation. |
17
(3) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. |
(4) | Other non-cash expense (income), net, primarily includes non-cash adjustments related to unrealized gains (losses) on commodity hedges. See Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics above for further discussion. |
Revenue increased by $19.1 million for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016. The increase is primarily attributable to contribution from acquisitions, an increase in the cost of gas and an increase of 4.2% in the volume of gas sold by Hawaii Gas. On an underlying basis, adjusting for changes in customer inventory, the volume of gas sold increased by 1.2% in the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016.
Gross margin decreased by $5.5 million for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016. The decrease is primarily attributable to unrealized losses on commodity hedges of $5.2 million at Hawaii Gas for the quarter ended March 31, 2017 compared with unrealized gains on commodity hedges of $3.3 million for the quarter ended March 31, 2016. Gross margin, excluding the impact of unrealized gains and losses on commodity hedges, increased by $3.0 million, or 13.7%, for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily as a result of acquisitions.
Selling, general and administrative expenses increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily due to incremental costs from acquisitions.
Operating income decreased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 due to the decrease in gross margin, an increase in depreciation and amortization expense and an increase in selling, general and administrative expenses.
Interest expense includes gains on derivative instruments of $156,000 and losses on derivative instruments of $165,000 for the quarters ended March 31, 2017 and March 31, 2016, respectively. 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 and its $60.0 million revolving credit facility. Excluding the derivative adjustments and the write-off of the deferred financing costs, interest expense increased for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 primarily attributable to debt assumed from acquisitions and the financing of solar facilities. Cash interest expense was $1.8 million and $1.6 million for the quarters ended March 31, 2017 and 2016, respectively.
The federal taxable income generated by the MIC Hawaii businesses is reported as part of our consolidated federal income tax return and is subject to Hawaii state income tax on a stand-alone basis. The tax expense in the table above includes both state tax and the portion of the consolidated federal tax liability attributable to the businesses. For the year ending December 31, 2017, the business expects to pay state income taxes of approximately $1.5 million. The Provision for income taxes, net of changes in deferred taxes of $1.5 million for the quarter ended March 31, 2017 in the above table, includes $1.2 million of federal income tax expense and $267,000 of state income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.
For the quarter ended March 31, 2017, MIC Hawaii incurred maintenance capital expenditures of $1.1 million and $1.5 million on an accrual basis and cash basis, respectively, compared with $1.8 million and $2.6 million on an accrual basis and cash basis, respectively, for the quarter ended March 31, 2016.
18
The financial results below reflect Corporate and Others performance during the periods below.
|
|
|
|
|
||||||||||||
Quarter Ended March 31, |
Change
Favorable/(Unfavorable) |
|||||||||||||||
2017 | 2016 | |||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Fees to Manager-related party | 18,223 | 14,796 | (3,427 | ) | (23.2 | ) | ||||||||||
Selling, general and administrative expenses (1) | 3,995 | 1,455 | (2,540 | ) | (174.6 | ) | ||||||||||
Operating loss | (22,218 | ) | (16,251 | ) | (5,967 | ) | (36.7 | ) | ||||||||
Interest expense, net (2) | (6,151 | ) | (3,405 | ) | (2,746 | ) | (80.6 | ) | ||||||||
Benefit for income taxes | 12,431 | 9,411 | 3,020 | 32.1 | ||||||||||||
Net loss (3) | (15,938 | ) | (10,245 | ) | (5,693 | ) | (55.6 | ) | ||||||||
Reconciliation of net loss to EBITDA excluding non-cash items and a reconciliation of cash used in operating activities to Free Cash Flow:
|
||||||||||||||||
Net loss (3) | (15,938 | ) | (10,245 | ) | ||||||||||||
Interest expense, net (2) | 6,151 | 3,405 | ||||||||||||||
Benefit for income taxes | (12,431 | ) | (9,411 | ) | ||||||||||||
Fees to Manager-related party | 18,223 | 14,796 | ||||||||||||||
Other non-cash expense | 188 | 188 | ||||||||||||||
EBITDA excluding non-cash items | (3,807 | ) | (1,267 | ) | (2,540 | ) | NM | |||||||||
EBITDA excluding non-cash items | (3,807 | ) | (1,267 | ) | ||||||||||||
Interest expense, net (2) | (6,151 | ) | (3,405 | ) | ||||||||||||
Convertible senior notes interest (4) | 1,744 | | ||||||||||||||
Amortization of debt financing costs (2) | 993 | 612 | ||||||||||||||
Amortization of debt discount (2) | 619 | | ||||||||||||||
Benefit for income taxes, net of changes in deferred taxes | 2,948 | 3,200 | ||||||||||||||
Changes in working capital | (8,434 | ) | (6,311 | ) | ||||||||||||
Cash used in operating activities | (12,088 | ) | (7,171 | ) | ||||||||||||
Changes in working capital | 8,434 | 6,311 | ||||||||||||||
Free cash flow | (3,654 | ) | (860 | ) | (2,794 | ) | NM |
NM Not meaningful
(1) | For the quarter ended March 31, 2017, selling, general and administrative expenses included $2.3 million of costs related to the implementation of a shared services initiative. |
(2) | Interest expense, net, includes non-cash amortization of deferred financing fees and amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023. |
(3) | Corporate allocation expense, intercompany fees and the tax effect have been excluded from the above table as they are eliminated on consolidation. |
(4) | Represents the cash interest expense reclassified to Atlantic Aviation related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviations credit facility in October 2016. |
19
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, raise new equity or debt or sell assets to generate cash.
At March 31, 2017, our consolidated debt outstanding totaled $3,180.1 million (excluding adjustments for unamortized debt discounts), our consolidated cash balance totaled $29.6 million and consolidated available capacity under our revolving credit facilities totaled $1,345.0 million.
The following table shows MICs proportionate debt obligations at May 2, 2017 ($ in thousands):
|
|
|
|
|
||||||||||||
Business | Debt |
Weighted
Average Remaining Life (in years) |
Balance
Outstanding (1) |
Weighted
Average Rate (2) |
||||||||||||
MIC Corporate | Convertible Senior Notes | 4.5 | $ | 752,454 | 2.41 | % | ||||||||||
IMTT | Senior Notes | 9.0 | 600,000 | 3.97 | % | |||||||||||
Tax-Exempt Bonds | 5.1 | 508,975 | 2.70 | % | ||||||||||||
Revolving Facility | 3.1 | 90,000 | 2.50 | % | ||||||||||||
Atlantic Aviation (3) | Term Loan | 4.4 | 397,500 | 3.00 | % | |||||||||||
Revolving Facility | 4.4 | 99,500 | 3.00 | % | ||||||||||||
CP | Renewables Project Finance | 15.1 | 273,209 | 4.80 | % | |||||||||||
BEC Term Loan | 5.3 | 258,500 | 3.91 | % | ||||||||||||
MIC Hawaii (4) | Term Loan | 5.6 | 97,175 | 2.85 | % | |||||||||||
Senior Notes | 5.3 | 100,000 | 4.22 | % | ||||||||||||
Total | 6.4 | $ | 3,177,313 | 3.24 | % |
(1) | Proportionate to MICs ownership interest. |
(2) | Reflects annualized interest rate on all facilities including interest rate hedges. |
(3) | Excludes $1.6 million of stand-alone debt facility used to fund construction of a certain FBO. |
(4) | Excludes $3.0 million of equipment loans at MIC Hawaii business. |
The following table profiles each revolving credit facility at our businesses and at MIC Corporate as of May 2, 2017 ($ in thousands):
|
|
|
|
|
||||||||||||
Business | Debt |
Weighted Average Remaining Life
(in years) |
Undrawn Amount | Interest Rate (1) | ||||||||||||
MIC Corporate | Revolving Facility | 2.2 | $ | 410,000 | LIBOR + 1.750% | |||||||||||
IMTT | USD Revolving Facility | 3.1 | 460,000 | LIBOR + 1.500% | ||||||||||||
CAD Revolving Facility | 3.1 | 50,000 | Bankers Acceptance Rate + 1.500% | |||||||||||||
Atlantic Aviation | Revolving Facility | 4.4 | 250,500 | LIBOR + 2.000% | ||||||||||||
CP BEC | Revolving Facility | 5.3 | 25,000 | LIBOR + 2.125% | ||||||||||||
CP Renewables | Revolving Facility | 2.6 | 19,980 | LIBOR + 2.000% | ||||||||||||
MIC Hawaii | Revolving Facility | 4.8 | 60,000 | LIBOR + 1.250% | ||||||||||||
Total | 3.2 | $ | 1,275,480 |
(1) | Excludes commitment fees. |
20
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.
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:
| our businesses overall generate, and are expected to continue to generate, significant operating cash flow; |
| the ongoing capital expenditures associated with our businesses are readily funded from their respective operating cash flow or available debt facilities; and |
| we will be able to refinance, extend and/or repay the principal amount of maturing long-term debt on terms that can be supported by our businesses. |
We capitalize our businesses in part using floating rate bank debt with medium-term maturities between five and seven years. In general, we hedge 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 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.
Our solar and wind facilities are financed primarily with fully amortizing non-recourse project finance style debt with maturities prior to or coterminous with the expiration of the underlying PPAs. On a multiple of EBITDA basis, we use a higher initial level of leverage in these projects than 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 table as these transactions are eliminated on consolidation.
|
|
|
|
|
||||||||||||
Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
2017 | 2016 | |||||||||||||||
($ In Thousands) | $ | $ | $ | % | ||||||||||||
Cash provided by operating activities | 128,568 | 148,566 | (19,998 | ) | (13.5 | ) | ||||||||||
Cash used in investing activities | (67,736 | ) | (65,698 | ) | (2,038 | ) | (3.1 | ) | ||||||||
Cash used in financing activities | (75,981 | ) | (83,217 | ) | 7,236 | 8.7 |
Consolidated 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 Managements 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 above.
The decrease in consolidated cash provided by operating activities for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 was primarily due to:
| absence of insurance recoveries for losses in connection with damaged docks at IMTT; |
| timing of payment of insurance premiums; |
| timing and increased cost of inventory purchases at MIC Hawaii and Atlantic Aviation; and |
21
| an increase in current state taxes; partially offset by |
| an increase in EBITDA excluding non-cash items. |
The drivers of consolidated cash provided by investing activities include proceeds from divestitures of businesses and fixed assets. The drivers of consolidated cash used in investing activities 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.
In general, maintenance capital expenditures are funded by cash from operating activities and growth capital expenditures are funded by drawing on our available credit facilities or with equity capital. See Managements 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, 2017 compared with the quarter ended March 31, 2016 was primarily due to drawings from a third party renewables developer on a revolving credit facility provided by our CP business, partially offset by a decrease in capital expenditures.
We invested $51.4 million and $49.4 million of growth capital expenditures in our existing businesses during the quarters ended March 31, 2017 and 2016, respectively.
We continuously evaluate opportunities to deploy capital in both growth projects and in acquisitions of additional businesses, whether as part of 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 ordinary course bolt-on acquisitions, such as an acquisition of an FBO. In aggregate, we currently anticipate deploying approximately $350.0 million in these types of activities in 2017.
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.
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. The construction of the additional 130 MW of power generating capacity on land adjacent to BEC is expected to require the deployment of approximately $130.0 million in growth capital, the majority of which is likely to be deployed in 2017. We are also in the process of connecting the BEC facility to a second gas pipeline that runs beneath our IMTT-Bayonne property, which we expect to complete in the second quarter of 2017.
Through May 2, 2017, our backlog of approved growth capital projects was valued at approximately $280.0 million and we have deployed approximately $117.0 million into growth projects and smaller acquisitions by our existing businesses. The amount of capital deployed to date is consistent with our expectation that we will deploy a total of approximately $350.0 million for the full year.
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 stockholders.
22
The decrease in consolidated cash used in financing activities for the quarter ended March 31, 2017 compared with the quarter ended March 31, 2016 was primarily due to the increase in net borrowing during the quarter ended March 31, 2017 and the absence of the purchase of the remaining 33.3% interest in IMTTs Quebec marine terminal that it did not previously own in March 2016. The decrease in consolidated cash used in financing activities are partially offset by an increase in dividends paid to stockholders during the quarter ended March 31, 2017.
During the quarter ended March 31, 2017, IMTT borrowed $104.0 million and repaid $46.0 million on its revolving credit facility primarily for general corporate purposes. At March 31, 2017, IMTT had $1.2 billion of debt outstanding consisting of $600.0 million of senior notes and $509.0 million of tax-exempt bonds. IMTT has access to $600.0 million of revolving credit facilities, of which $90.0 million was drawn at March 31, 2017. Cash interest expense was $9.7 million and $9.8 million for the quarters ended March 31, 2017 and 2016, respectively. At March 31, 2017, IMTT was in compliance with its financial covenants.
At March 31, 2017, Atlantic Aviation had total debt outstanding of $429.1 million comprising $397.5 million senior secured, first lien term loan facility and a $1.6 million stand-alone debt facility used to fund construction at a certain FBO. Atlantic Aviation also has access to a $350.0 million senior secured, first lien revolving credit facility, of which $30.0 million was drawn at March 31, 2017. From April 1, 2017, the business drew down an additional $69.5 million to fund an FBO acquisition and for general corporate purposes.
Cash interest expense was $4.7 million and $6.9 million for the quarters ended March 31, 2017 and 2016, respectively. Cash interest expense for the quarter ended March 31, 2017 is inclusive of the interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, the proceeds of which were used in part to reduce the drawn balance of Atlantic Aviations revolving credit facility. At March 31, 2017, Atlantic Aviation was in compliance with its financial covenants.
At March 31, 2017, the CP segment had $599.2 million in term loans outstanding. Cash interest expense was $6.8 million and $6.2 million for the quarters ended March 31, 2017 and 2016, respectively.
BEC had $258.5 million of an amortizing term loan facility outstanding and a revolving credit facility of $25.0 million that remained undrawn. Cash interest expense was $2.7 million for both the quarters ended March 31, 2017 and 2016. BEC was in compliance with its financial covenants.
The solar and wind facilities had $340.7 million in term loan debt outstanding. Cash interest expense was $4.1 million and $3.5 million for the quarters ended March 31, 2017 and 2016, respectively. All of the solar and wind facilities were in compliance with their respective financial covenants.
At March 31, 2017, MIC Hawaii had total debt outstanding of $200.4 million in term loans and senior secured note borrowings and a revolving credit facility of $60.0 million that remained undrawn. Cash interest expense was $1.8 million and $1.6 million for the quarters ended March 31, 2017 and 2016, respectively.
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. Cash interest paid was $1.7 million and $1.6 million for the quarters ended March 31, 2017 and 2016, respectively. Hawaii Gas was in compliance with its financial covenants.
23
In February 2017, Hawaii Gas exercised the first of two one-year extensions related to its $80.0 million secured term loan facility and its $60.0 million revolving credit facility. The maturities have been extended to February 2022 and no changes were made to any other terms.
The other businesses within MIC Hawaii has $20.4 million in outstanding debt, consisting primarily of $17.4 million term loan debt related to our solar facilities. These businesses were in compliance with their financial covenants.
At March 31, 2017, MIC had $350.0 million and $402.5 million in convertible senior notes outstanding that bear interest at 2.875% and 2.00%, respectively. MIC also had a senior secured revolving credit facility of $410.0 million that remained undrawn. Cash interest expense was $2.8 million for both the quarters ended March 31, 2017 and 2016. Cash interest expense for the quarter ended March 31, 2017 excludes the cash interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, proceeds of which were used in part to reduce the drawn balance of Atlantic Aviations revolving credit facility. See Atlantic Aviation above. 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 7, Long-Term Debt, in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Except as noted above, at March 31, 2017, there had been no material changes in our commitments and contingencies compared with our commitments and contingencies at December 31, 2016. At March 31, 2017, 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, 2016, filed with the SEC on February 21, 2017.
At March 31, 2017, 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:
| cash generated from our operations (see Operating Activities in Liquidity and Capital Resources); |
| issuance of shares or debt securities (see Financing Activities in Liquidity and Capital Resources); |
| refinancing of our current credit facilities on or before maturity (see Financing Activities in Liquidity and Capital Resources); |
| cash available from our undrawn credit facilities (see Financing Activities in Liquidity and Capital Resources); and |
| if advantageous, sale of all or part of any of our businesses (see Investing Activities in Liquidity and Capital Resources). |
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, 2016 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.
24
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.
Significant assets acquired in connection with our acquisition of businesses include contract rights, customer relationships, non-compete agreements, trademarks, property and equipment and goodwill.
Trademarks are generally considered to be indefinite life intangibles. Trademarks and goodwill are not amortized in most circumstances. It may be appropriate to amortize some trademarks. However, for unamortized intangible assets, we are required to perform annual impairment reviews and more frequently in certain circumstances.
ASU No. 2011-08, Intangibles Goodwill and Other (Topic 350) : Testing Goodwill for Impairment , permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting units 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 units 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 and the MIC Hawaii businesses 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 change in relationship with significant customers.
Property and equipment is initially stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the property and equipment after consideration of historical results and anticipated results based on our current plans. Our estimated useful lives represent the period the asset remains in service assuming normal routine maintenance. We review the estimated useful lives assigned to property and equipment when our business experience suggests that they do not properly reflect the consumption of economic benefits embodied in the property and equipment nor result in the appropriate matching of cost against revenue. Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses on asset disposals and consideration of market trends such as technological obsolescence or change in market demand.
25
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.
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, 2016. Our exposure to market risk has not changed materially since February 21, 2017, the filing date for our Annual Report on Form 10-K.
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 SECs 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, 2017.
There have not been any 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, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
26
|
|
|
||||||
March 31,
2017 |
December 31,
2016 |
|||||||
(Unaudited) | ||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents | $ | 29,618 | $ | 44,767 | ||||
Restricted cash | 15,169 | 16,420 | ||||||
Accounts receivable, less allowance for doubtful accounts of $1,238 and
$1,434, respectively |
123,849 | 124,846 | ||||||
Inventories | 35,063 | 31,461 | ||||||
Prepaid expenses | 19,328 | 14,561 | ||||||
Fair value of derivative instruments | 4,515 | 5,514 | ||||||
Other current assets | 9,794 | 7,099 | ||||||
Total current assets | 237,336 | 244,668 | ||||||
Property, equipment, land and leasehold improvements, net | 4,346,597 | 4,346,536 | ||||||
Investment in unconsolidated business | 8,944 | 8,835 | ||||||
Goodwill | 2,024,484 | 2,024,409 | ||||||
Intangible assets, net | 871,278 | 888,971 | ||||||
Fair value of derivative instruments | 25,850 | 30,781 | ||||||
Other noncurrent assets | 24,073 | 15,053 | ||||||
Total assets | $ | 7,538,562 | $ | 7,559,253 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY
|
||||||||
Current liabilities:
|
||||||||
Due to Manager related party | $ | 6,366 | $ | 6,594 | ||||
Accounts payable | 62,820 | 69,566 | ||||||
Accrued expenses | 76,260 | 83,734 | ||||||
Current portion of long-term debt | 42,782 | 40,016 | ||||||
Fair value of derivative instruments | 5,902 | 9,297 | ||||||
Other current liabilities | 42,977 | 41,802 | ||||||
Total current liabilities | 237,107 | 251,009 | ||||||
Long-term debt, net of current portion | 3,070,883 | 3,039,966 | ||||||
Deferred income taxes | 914,461 | 896,116 | ||||||
Fair value of derivative instruments | 5,403 | 5,966 | ||||||
Tolling agreements noncurrent | 58,428 | 60,373 | ||||||
Other noncurrent liabilities | 160,787 | 158,289 | ||||||
Total liabilities | 4,447,069 | 4,411,719 | ||||||
Commitments and contingencies | | |
See accompanying notes to the consolidated condensed financial statements.
27
|
|
|
||||||
March 31,
2017 |
December 31,
2016 |
|||||||
(Unaudited) | ||||||||
Stockholders equity
(1)
:
|
||||||||
Common stock ($0.001 par value; 500,000,000 authorized; 82,306,372 shares issued and outstanding at March 31, 2017 and 82,047,526 shares issued and outstanding at December 31, 2016) | $ | 82 | $ | 82 | ||||
Additional paid in capital | 2,002,066 | 2,089,407 | ||||||
Accumulated other comprehensive loss | (28,960 | ) | (28,960 | ) | ||||
Retained earnings | 928,380 | 892,365 | ||||||
Total stockholders equity | 2,901,568 | 2,952,894 | ||||||
Noncontrolling interests | 189,925 | 194,640 | ||||||
Total equity | 3,091,493 | 3,147,534 | ||||||
Total liabilities and equity | $ | 7,538,562 | $ | 7,559,253 |
(1) | The Company is authorized to issue 100,000,000 shares of preferred stock, par value $0.001 per share. At March 31, 2017 and December 31, 2016, no preferred stock were issued or outstanding. The Company has 100 shares of special stock issued and outstanding to its Manager at March 31, 2017 and December 31, 2016. |
See accompanying notes to the consolidated condensed financial statements.
28
|
|
|
||||||
Quarter Ended
March 31, |
||||||||
2017 | 2016 | |||||||
Revenue
|
||||||||
Service revenue | $ | 363,804 | $ | 312,241 | ||||
Product revenue | 87,653 | 84,146 | ||||||
Total revenue | 451,457 | 396,387 | ||||||
Costs and expenses
|
||||||||
Cost of services | 154,706 | 116,463 | ||||||
Cost of product sales | 47,225 | 33,060 | ||||||
Selling, general and administrative | 76,952 | 72,284 | ||||||
Fees to Manager related party | 18,223 | 14,796 | ||||||
Depreciation | 57,681 | 53,221 | ||||||
Amortization of intangibles | 17,693 | 17,787 | ||||||
Total operating expenses | 372,480 | 307,611 | ||||||
Operating income | 78,977 | 88,776 | ||||||
Other income (expense)
|
||||||||
Interest income | 34 | 33 | ||||||
Interest expense (1) | (25,482 | ) | (56,895 | ) | ||||
Other income, net | 1,182 | 3,429 | ||||||
Net income before income taxes | 54,711 | 35,343 | ||||||
Provision for income taxes | (22,073 | ) | (15,167 | ) | ||||
Net income | $ | 32,638 | $ | 20,176 | ||||
Less: net loss attributable to noncontrolling interests | (3,377 | ) | (2,179 | ) | ||||
Net income attributable to MIC | $ | 36,015 | $ | 22,355 | ||||
Basic income per share attributable to MIC | $ | 0.44 | $ | 0.28 | ||||
Weighted average number of shares outstanding: basic | 82,138,168 | 80,113,011 | ||||||
Diluted income per share attributable to MIC | $ | 0.44 | $ | 0.28 | ||||
Weighted average number of shares outstanding: diluted | 82,147,763 | 81,171,346 | ||||||
Cash dividends declared per share | $ | 1.32 | $ | 1.20 |
(1) | Interest expense includes gains on derivative instruments of $954,000 and losses on derivative instruments of $31.8 million for the quarters ended March 31, 2017 and 2016, respectively. |
See accompanying notes to the consolidated condensed financial statements.
29
|
|
|
||||||
Quarter Ended March 31, | ||||||||
2017 | 2016 | |||||||
Net income | $ | 32,638 | $ | 20,176 | ||||
Other comprehensive income, net of taxes:
|
||||||||
Translation adjustment (1) (2) | | 3,563 | ||||||
Other comprehensive income | | 3,563 | ||||||
Comprehensive income | $ | 32,638 | $ | 23,739 | ||||
Less: comprehensive loss attributable to noncontrolling interests (2) | (3,377 | ) | (745 | ) | ||||
Comprehensive income attributable to MIC | $ | 36,015 | $ | 24,484 |
(1) | Translation adjustment is presented net of tax expense of $1.5 million for the quarter ended March 31, 2016. |
(2) | On March 31, 2016, IMTT acquired the remaining 33.3% interest in its Quebec terminal that it did not previously own. As part of this transaction, the translation adjustment of $4.6 million, net of taxes, was reclassified from noncontrolling interests to accumulated other comprehensive loss. See Note 8, Stockholders Equity, for disclosures on accumulated other comprehensive loss. |
See accompanying notes to the consolidated condensed financial statements.
30
|
|
|
||||||
Quarter Ended
March 31, |
||||||||
2017 | 2016 | |||||||
Operating activities
|
||||||||
Net income | $ | 32,638 | $ | 20,176 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization of property and equipment | 57,681 | 53,221 | ||||||
Amortization of intangible assets | 17,693 | 17,787 | ||||||
Amortization of debt financing costs | 2,202 | 2,879 | ||||||
Amortization of debt discount | 619 | | ||||||
Adjustments to derivative instruments | 1,972 | 23,278 | ||||||
Fees to Manager-related party | 18,223 | 14,796 | ||||||
Deferred taxes | 18,352 | 12,661 | ||||||
Pension expense | 2,694 | 2,198 | ||||||
Other non-cash income, net | (1,354 | ) | (905 | ) | ||||
Changes in other assets and liabilities, net of acquisitions:
|
||||||||
Restricted cash | 974 | 2,202 | ||||||
Accounts receivable | 1,059 | 3,910 | ||||||
Inventories | (3,718 | ) | 1,879 | |||||
Prepaid expenses and other current assets | (7,559 | ) | 9,352 | |||||
Due to Manager related party | 11 | (73 | ) | |||||
Accounts payable and accrued expenses | (12,382 | ) | (13,293 | ) | ||||
Income taxes payable | 1,341 | 2,753 | ||||||
Other, net | (1,878 | ) | (4,255 | ) | ||||
Net cash provided by operating activities | 128,568 | 148,566 | ||||||
Investing activities
|
||||||||
Acquisitions of businesses and investments, net of cash acquired | | (3,153 | ) | |||||
Purchases of property and equipment | (59,869 | ) | (62,593 | ) | ||||
Change in restricted cash | 83 | | ||||||
Other, net | (7,950 | ) | 48 | |||||
Net cash used in investing activities | (67,736 | ) | (65,698 | ) |
See accompanying notes to the consolidated condensed financial statements.
31
|
|
|
||||||
Quarter Ended
March 31, |
||||||||
2017 | 2016 | |||||||
Financing activities
|
||||||||
Proceeds from long-term debt | $ | 104,000 | $ | 176,000 | ||||
Payment of long-term debt | (72,634 | ) | (159,730 | ) | ||||
Proceeds from the issuance of shares | 2,049 | 1,093 | ||||||
Dividends paid to common stockholders | (107,714 | ) | (92,203 | ) | ||||
Purchase of noncontrolling interest | | (9,909 | ) | |||||
Distributions paid to noncontrolling interests | (1,351 | ) | (1,824 | ) | ||||
Offering and equity raise costs paid | (69 | ) | (105 | ) | ||||
Debt financing costs paid | (435 | ) | (1,119 | ) | ||||
Change in restricted cash | 194 | 5,013 | ||||||
Payment of capital lease obligations | (21 | ) | (433 | ) | ||||
Net cash used in financing activities | (75,981 | ) | (83,217 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | | 457 | ||||||
Net change in cash and cash equivalents | (15,149 | ) | 108 | |||||
Cash and cash equivalents, beginning of period | 44,767 | 22,394 | ||||||
Cash and cash equivalents, end of period | $ | 29,618 | $ | 22,502 | ||||
Supplemental disclosures of cash flow information
|
||||||||
Non-cash investing and financing activities:
|
||||||||
Accrued equity offering costs | $ | 93 | $ | 229 | ||||
Accrued financing costs | $ | | $ | 68 | ||||
Accrued purchases of property and equipment | $ | 25,598 | $ | 19,318 | ||||
Issuance of shares to Manager | $ | 18,462 | $ | 15,108 | ||||
Conversion of convertible senior notes to shares | $ | 17 | $ | 4 | ||||
Distributions payable to noncontrolling interests | $ | 29 | $ | 42 | ||||
Taxes paid (refund), net | $ | 2,379 | $ | (253 | ) | |||
Interest paid | $ | 26,764 | $ | 25,488 |
See accompanying notes to the consolidated condensed financial statements.
32
Macquarie Infrastructure Corporation is a Delaware corporation formed on May 21, 2015. MICs predecessor, Macquarie Infrastructure Company LLC, was formed on April 13, 2004. Macquarie Infrastructure Corporation, both on an individual entity basis and together with its consolidated subsidiaries, is referred to in these financial statements as the Company or MIC.
MIC is externally managed by Macquarie Infrastructure Management (USA) Inc. (the Manager) pursuant to the terms of a Management Services Agreement that is subject to the oversight and supervision of the Board of Directors. The majority of the members of the Board of Directors have no affiliation with Macquarie. The Manager is a member of the Macquarie Group of companies comprising the Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange.
The Company owns its businesses through its direct wholly-owned subsidiary MIC Ohana Corporation, the successor to Macquarie Infrastructure Company Inc. The Company owns and operates a diversified portfolio of businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses it owns and operates are organized into four segments:
| International-Matex Tank Terminals (IMTT) : a marine terminals business providing bulk liquid storage, handling and other services to third parties at ten terminals in the United States and two in Canada; |
| Atlantic Aviation : a provider of fuel, terminal, aircraft hangaring and other services primarily to owners and operators of general aviation (GA) jet aircraft at 69 airports throughout the U.S.; |
| Contracted Power (CP) : comprising a gas-fired facility and controlling interests in wind and solar facilities in the U.S.; and |
| MIC Hawaii : comprising an energy company that processes and distributes gas and provides related services (Hawaii Gas), and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy, all based in Hawaii. |
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, 2016 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, 2016 included in the Companys Annual Report on Form 10-K, as filed with the SEC on February 21, 2017. Operating results for the quarter ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or for any future interim periods.
33
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 revenue 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.
On January 26, 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which simplifies the measurement of goodwill subsequent to a business combination, and no longer requires an entity to perform a hypothetical purchase price allocation when computing implied fair value to measure goodwill impairment. Instead, impairment will be assessed by quantifying the difference between the fair value of a reporting unit and its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting units fair value, on condition that the charge doesnt exceed the total amount of goodwill allocated to that reporting unit. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for public issuers and shall be applied prospectively. Early adoption is permitted. The Company will evaluate this ASU prospectively as part of its goodwill impairment testing when it adopts the provisions of this ASU.
On January 5, 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , which provides a restrictive framework for determining whether business transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Determining whether a Company acquires a set of assets or a business will impact the initial measurement, the accounting treatment of direct acquisition related costs, contingent considerations and the bargain purchase price. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 for public issuers and shall be applied prospectively. Early adoption is permitted. The Company will evaluate this ASU prospectively on asset acquisitions and business combinations when it adopts the provisions of this ASU.
On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash , which requires companies to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. The guidance will be applied retrospectively and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company will include appropriate disclosures related to restricted cash in accordance with the standard when it adopts the provisions of this ASU.
On February 25, 2016, FASB issued 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 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 with an initial term greater than one year to be recognized on the balance sheet as a right-of-use asset and a lease liability.
34
The Company also serves as a lessor primarily through operating leases. The accounting for lessors is not expected to fundamentally change except for changes to conform and align existing guidance to the lessee guidance under ASU 2016-02, as well as to the new revenue recognition guidance in ASU 2014-09. ASU 2016-02 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 has begun evaluating and planning for the adoption and implementation of ASU 2016-02, including assessing the overall impact. ASU 2016-02 will have a material impact on the Companys consolidated balance sheets; however, the full impact to the overall financial statements has not yet been determined. The impact on the Companys results of operations is being evaluated. The impact of this ASU is non-cash in nature and will not affect the Companys cash position.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The new guidance sets forth a five-step revenue recognition model which replaces the current revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance and requires more detailed disclosures. To further assist with adoption and implementation of ASU 2014-09, the FASB issued the following ASUs:
| ASU 2015-14 (Issued August 2015) Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ; |
| ASU 2016-08 (Issued March 2016) Principal versus Agent Consideration (Reporting Revenue Gross versus Net) ; |
| ASU 2016-10 (Issued April 2016) Identifying Performance Obligations and Licensing ; |
| ASU 2016-12 (Issued May 2016) Narrow-Scope Improvements and Practical Expedients ; and |
| ASU 2016-20 (Issued December 2016) Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . |
With the deferral, the new standard is effective for the Company on January 1, 2018.
There are two adoption methods available for implementation of the standard related to the recognition of revenue from contracts with customers. Under one method, the new guidance is applied retrospectively to contracts for each reporting period presented, subject to allowable practical expedients. Under the other method, the new guidance is applied only to the most current period presented, recognizing the cumulative effect of the change as an adjustment to the beginning balance of retained earnings, and also requires additional disclosures comparing the results to the previous guidance. The Company is going to adopt this standard using the modified retrospective method and is currently evaluating the impact that this standard will have on the Companys consolidated financial statements, and the changes to its systems, processes and internal controls to meet the reporting and disclosure requirements.
Upon initial evaluation, the Company believes key changes in the standard that impact the Companys revenue recognition relate to the allocation of contract revenue between various services and equipment, and the timing of when those revenue are recognized. The Company is still in the process of evaluating these impacts and other areas of the standard and its effect on the Companys financial statements and related disclosures. The Company currently includes sales, excise and value-added taxes related to sales transactions within revenue on the consolidated statements of operations. Upon adoption of ASU 2014-09, the Company will exclude sales-based taxes collected on behalf of third parties from service and product revenue and include these amounts in cost of services and product sales. The result will be a reclassification on the consolidated statements of operations.
35
ASU 2014-09 also introduces new qualitative and quantitative disclosure requirements about contracts with customers including revenue and impairments recognized, disaggregation of revenue and information about contract balance and performance obligations. Information is required about significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations. Additionally, the Company is in the process of evaluating what additional information will be disclosed, but expects the overall level of disclosures related to revenue recognition to increase.
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. The Company has adopted this ASU and determined that it had an immaterial impact to the Companys financial condition, results of operations and cash flows.
Following is a reconciliation of the basic and diluted income per share computations ($ in thousands, except share and per share data):
|
|
|
||||||
Quarter Ended March 31, | ||||||||
2017 | 2016 | |||||||
Numerator:
|
||||||||
Net income attributable to MIC | $ | 36,015 | $ | 22,355 | ||||
Diluted net income attributable to MIC | $ | 36,015 | $ | 22,355 | ||||
Denominator:
|
||||||||
Weighted average number of shares outstanding: basic | 82,138,168 | 80,113,011 | ||||||
Dilutive effect of restricted stock unit grants | 9,595 | 8,660 | ||||||
Dilutive effect of fees to Manager-related party (1) | | 1,049,675 | ||||||
Weighted average number of shares outstanding: diluted | 82,147,763 | 81,171,346 | ||||||
Income per share:
|
||||||||
Basic income per share attributable to MIC | $ | 0.44 | $ | 0.28 | ||||
Diluted income per share attributable to MIC | $ | 0.44 | $ | 0.28 |
(1) | Represents $67.8 million of the performance fee for the quarter ended June 30, 2015, which was reinvested in shares by the Manager on August 1, 2016. The weighted average potentially dilutive shares of common stock in the above table include shares assumed to have been reinvested in shares by the Manager in July 2015. |
The effect of potentially dilutive shares for the quarter ended March 31, 2017 is calculated assuming that the restricted stock unit grants totaling 8,604 (net of forfeitures of 2,151 restricted stock unit grants forfeited on September 30, 2016) provided to the independent directors on May 18, 2016 and restricted stock units grants of 991 provided to a new independent director on November 1, 2016, which will all vest during the second quarter of 2017, had been fully converted to shares on those grant dates. The 2.875% Convertible Senior Notes due July 2019 and the 2.00% Convertible Senior Notes due October 2023 were anti-dilutive for the quarter ended March 31, 2017.
36
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 vested during the second quarter of 2016, had been fully converted to shares on the grant date and (ii) the $67.8 million of the performance fee for the quarter ended June 30, 2015, which was reinvested in shares by the Manager on August 1, 2016, had been reinvested in shares by the Manager in July 2015. The 2.875% Convertible Senior Notes due July 2019 that were issued on July 15, 2014 were anti-dilutive for the quarter ended March 31, 2016.
The following represents the weighted average potential dilutive shares of common stock that were excluded from the diluted income per share calculation:
|
|
|
||||||
Quarter Ended March 31, | ||||||||
2017 | 2016 | |||||||
2.875% Convertible senior notes due July 2019 | 4,222,378 | 4,139,250 | ||||||
2.00% Convertible senior notes due October 2023 | 3,596,901 | | ||||||
Total | 7,819,279 | 4,139,250 |
Property, equipment, land and leasehold improvements at March 31, 2017 and December 31, 2016 consist of the following ($ in thousands):
|
|
|
||||||
March 31, 2017 | December 31, 2016 | |||||||
Land | $ | 304,236 | $ | 304,240 | ||||
Easements | 131 | 131 | ||||||
Buildings | 43,279 | 41,711 | ||||||
Leasehold and land improvements | 698,412 | 673,122 | ||||||
Machinery and equipment | 3,777,536 | 3,764,553 | ||||||
Furniture and fixtures | 36,031 | 35,454 | ||||||
Construction in progress | 249,076 | 233,184 | ||||||
5,108,701 | 5,052,395 | |||||||
Less: accumulated depreciation | (762,104 | ) | (705,859 | ) | ||||
Property, equipment, land and leasehold improvements, net | $ | 4,346,597 | $ | 4,346,536 |
Intangible assets at March 31, 2017 and December 31, 2016 consist of the following ($ in thousands):
|
|
|
||||||
March 31, 2017 | December 31, 2016 | |||||||
Contractual arrangements | $ | 912,728 | $ | 912,728 | ||||
Non-compete agreements | 10,014 | 10,014 | ||||||
Customer relationships | 348,678 | 348,678 | ||||||
Leasehold rights | 350 | 350 | ||||||
Trade names | 16,091 | 16,091 | ||||||
Technology | 8,760 | 8,760 | ||||||
1,296,621 | 1,296,621 | |||||||
Less: accumulated amortization | (425,343 | ) | (407,650 | ) | ||||
Intangible assets, net | $ | 871,278 | $ | 888,971 |
37
The goodwill balance as of March 31, 2017 is comprised of the following ($ in thousands):
|
|
|||
Goodwill acquired in business combinations, net of disposals, at
December 31, 2016 |
$ | 2,149,894 | ||
Accumulated impairment charges | (123,200 | ) | ||
Other | (2,285 | ) | ||
Balance at December 31, 2016 | 2,024,409 | |||
Purchase accounting adjustments related to prior year acquisition | 75 | |||
Balance at March 31, 2017 | $ | 2,024,484 |
The Company tests for goodwill impairment at the reporting unit level on an annual basis on October 1 st of each year and between annual tests if a triggering event indicates impairment. There were no triggering events indicating impairment for the quarter ended March 31, 2017.
At March 31, 2017 and December 31, 2016, the Companys consolidated long-term debt comprised the following ($ in thousands):
|
|
|
||||||
March 31, 2017 | December 31, 2016 | |||||||
IMTT | $ | 1,198,975 | $ | 1,140,975 | ||||
Atlantic Aviation | 429,129 | 449,691 | ||||||
CP | 599,160 | 604,862 | ||||||
MIC Hawaii | 200,375 | 200,744 | ||||||
MIC Corporate | 727,332 | 726,730 | ||||||
Total | 3,154,971 | 3,123,002 | ||||||
Current portion | (42,782 | ) | (40,016 | ) | ||||
Long-term portion | 3,112,189 | 3,082,986 | ||||||
Unamortized deferred financing costs (1) | (41,306 | ) | (43,020 | ) | ||||
Long-term portion less unamortized debt discount and deferred financing costs | $ | 3,070,883 | $ | 3,039,966 |
(1) | The weighted average remaining life of the deferred financing costs at March 31, 2017 was 6.1 years. |
The total undrawn capacity on the revolving credit facilities was $1.3 billion at March 31, 2017.
At March 31, 2017 and December 31, 2016, the Company had $350.0 million aggregate principal outstanding on its five-year, 2.875% convertible senior notes due July 2019. On March 1, 2017, the Company increased the conversion rate to 12.1717 shares of common stock per $1,000 principal amount in accordance with the agreement. The adjustment reflects the impact of dividends paid by the Company. At March 31, 2017, the fair value of these convertible senior notes was approximately $393.5 million. These convertible senior notes fall within Level 1 of the fair value hierarchy.
38
At March 31, 2017 and December 31, 2016, the Company had $377.4 million and $376.8 million, respectively, outstanding on its seven year, 2.0% convertible senior notes due October 2023. At March 31, 2017, the fair value of the liability component of these convertible senior notes was approximately $371.0 million. These convertible senior notes fall within Level 1 of the fair value hierarchy. The 2.00% Convertible Senior Notes due October 2023 consisted of the following ($ in thousands):
|
|
|
||||||
March 31, 2017 | December 31, 2016 | |||||||
Liability Component:
|
||||||||
Principal | $ | 402,500 | $ | 402,500 | ||||
Unamortized debt discount | (25,122 | ) | (25,741 | ) | ||||
Long-term debt, net of unamortized debt discount | 377,378 | 376,759 | ||||||
Unamortized deferred financing costs | (9,771 | ) | (9,934 | ) | ||||
Net carrying amount | $ | 367,607 | $ | 366,825 | ||||
Equity Component | $ | 26,748 | $ | 26,748 |
For the quarter ended March 31, 2017, total interest expense recognized related to the 2.00% Convertible Senior Notes due October 2023 ($ in thousands):
|
|
|||
Quarter Ended
March 31, 2017 |
||||
Contractual interest expense | $ | 1,744 | ||
Amortization of debt discount | 619 | |||
Amortization of deferred financing costs | 381 | |||
Total interest expense | $ | 2,744 |
During the quarter ended March 31, 2017, IMTT drew down $104.0 million and repaid $46.0 million on its USD revolving credit facility primarily for general corporate purposes. At March 31, 2017, the undrawn portion on its USD revolving credit facility and CAD revolving credit facility were $460.0 million and $50.0 million, respectively.
From April 1, 2017, Atlantic Aviation drew down an additional $69.5 million to fund a fixed based operation (FBO) acquisition and for general corporate purposes.
In February 2017, Hawaii Gas exercised the first of two one-year extensions related to its $80.0 million secured term loan facility and its $60.0 million revolving credit facility. The maturities have been extended to February 2022 and no changes were made to any other terms.
39
The Company and certain of its businesses have in place variable-rate debt. Management believes that it is prudent to limit the variability of a portion of the business interest payments. To meet this objective, the Company enters into interest rate agreements, primarily using interest rate swaps and from time to time using interest rate caps, to manage fluctuations in cash flows resulting from interest rate risk on a portion of its debt with a variable-rate component. Interest rate swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the portion of the debt that is swapped.
At March 31, 2017, the Company had $3.2 billion of current and long-term debt, of which $1.4 billion was economically hedged with interest rate contracts, $1.6 billion was fixed rate debt and $128.2 million was unhedged. The Company does not use hedge accounting. All movements in the fair value of the interest rate derivatives are recorded directly through earnings.
The risk associated with fluctuations in the prices at Hawaii Gas, a business within the MIC Hawaii reportable segment, pays for propane is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. Hawaii Gas gross margin (revenue less cost of product sales excluding depreciation and amortization) is sensitive to changes in propane supply costs and Hawaii Gas may not always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly. In order to reduce the volatility of the business propane market price risk, Hawaii Gas has used and expects to continue to use over-the-counter commodity derivative instruments including price swaps. Hawaii Gas does not use commodity derivative instruments for speculative or trading purposes. Over-the-counter derivative commodity instruments used by Hawaii Gas to hedge forecasted purchases of propane are generally settled at expiration of the contract.
The Company measures derivative instruments at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations utilize primarily observable (level 2) inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals.
The Companys fair value measurements of its derivative instruments and the related location of the assets and liabilities within the consolidated condensed balance sheets at March 31, 2017 and December 31, 2016 were ($ in thousands):
|
|
|
||||||
Assets (Liabilities) at Fair Value | ||||||||
Balance Sheet Location | March 31, 2017 | December 31, 2016 | ||||||
Fair value of derivative instruments current assets | $ | 4,515 | $ | 5,514 | ||||
Fair value of derivative instruments noncurrent assets | 25,850 | 30,781 | ||||||
Total derivative contracts assets | $ | 30,365 | $ | 36,295 | ||||
Fair value of derivative instruments current liabilities | $ | (5,902 | ) | $ | (9,297 | ) | ||
Fair value of derivative instruments noncurrent liabilities | (5,403 | ) | (5,966 | ) | ||||
Total derivative contracts liabilities | $ | (11,305 | ) | $ | (15,263 | ) |
40
The Companys hedging activities for the quarters ended March 31, 2017 and 2016 and the related location within the consolidated condensed statements of operations were ($ in thousands):
|
|
|
||||||
Amount of (Loss) Gain Recognized in
Consolidated Condensed Statements of Operations for the Quarter Ended March 31, |
||||||||
Financial Statement Account | 2017 | 2016 | ||||||
Interest expense interest rate caps | $ | (133 | ) | $ | | |||
Interest expense interest rate swaps | 1,087 | (31,826 | ) | |||||
Cost of product sales commodity swaps | (3,984 | ) | 2,306 | |||||
Total | $ | (3,030 | ) | $ | (29,520 | ) |
All of the Companys derivative instruments are collateralized by the assets of the respective businesses.
On May 18, 2016, the Company adopted the 2016 Omnibus Employee Incentive Plan (Plan). The Plan provides for the issuance of equity awards covering up to 500,000 shares of common stock to attract, retain, and motivate employees, consultants and others who perform services for the Company and its subsidiaries. Under the Plan, the Compensation Committee determines the persons who will receive awards, the time at which they are granted and the terms of the awards. Type of awards include stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and other stock-based awards. At March 31, 2017, there were no awards outstanding under this Plan.
On April 5, 2016, the Company filed an automatic shelf registration statement on Form S-3 (shelf) with the SEC to issue and sell an indeterminate amount of its common stock, preferred stock and debt securities in one or more future offerings.
On June 24, 2015, the Company entered into an equity distribution agreement providing for the sale by the Company, from time to time, of shares of its common stock having an aggregate gross offering price of up to $400.0 million. Sales of shares may be made in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an at the market offering, which includes sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange. Under the terms of the equity distribution agreement, the Company may also sell shares to any sales agent as principal for its own account. The Company is under no obligation to sell shares under the ATM Program. From inception, the Company sold 153,692 shares of common stock pursuant to the agreement for net proceeds of $12.6 million (after commissions and fees).
The Company maintains a dividend reinvestment/direct stock purchase program, named MIC Direct, that allows for the issuance of up to 1.0 million additional shares of common stock to participants in this program. At March 31, 2017, 908,209 shares remained unissued under MIC Direct. The Company may also choose to fill requests for reinvestment of dividends or share purchases through MIC Direct via open market purchases.
41
The following represents the changes and balances to the components of accumulated other comprehensive loss for the quarters ended March 31, 2017 and 2016 ($ in thousands):
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|
|
|
|||||||||||||||
Post-Retirement
Benefit Plans, net of taxes |
Translation
Adjustment, net of taxes (1) |
Total
Accumulated Other Comprehensive Loss, net of taxes |
Noncontrolling
Interests |
Total
Stockholders Accumulated Other Comprehensive Loss, net of taxes |
||||||||||||||||
Balance at December 31, 2015 | $ | (14,788 | ) | $ | (14,530 | ) | $ | (29,318 | ) | $ | 6,023 | $ | (23,295 | ) | ||||||
Translation adjustment | | 3,563 | 3,563 | (1,434 | ) | 2,129 | ||||||||||||||
Purchase of noncontrolling interest (2) | | | | (4,589 | ) | (4,589 | ) | |||||||||||||
Balance at March 31, 2016 | $ | (14,788 | ) | $ | (10,967 | ) | $ | (25,755 | ) | $ | | $ | (25,755 | ) | ||||||
Balance at December 31, 2016 | $ | (16,805 | ) | $ | (12,155 | ) | $ | (28,960 | ) | $ | | $ | (28,960 | ) | ||||||
Balance at March 31, 2017 | $ | (16,805 | ) | $ | (12,155 | ) | $ | (28,960 | ) | $ | | $ | (28,960 | ) |
(1) | Translation adjustment is presented net of tax expense of $1.5 million for the quarter ended March 31, 2016. |
(2) | On March 31, 2016, IMTT acquired the remaining 33.3% interest in its Quebec terminal that it did not previously own. As part of this transaction, the translation adjustment of $4.6 million, net of taxes, was reclassified from noncontrolling interests to accumulated other comprehensive loss. |
At March 31, 2017, the Companys businesses consist of four reportable segments: IMTT, Atlantic Aviation, CP and MIC Hawaii.
IMTT provides bulk liquid storage, handling and other services in North America through ten terminals located in the United States, one terminal in Quebec, Canada and one partially owned terminal in Newfoundland, Canada. IMTT derives the majority of its revenue from storage and handling of petroleum products, various chemicals, renewable fuels, and vegetable and animal oils. Based on storage capacity, IMTT operates one of the largest third-party bulk liquid terminals businesses in the United States. Revenue from IMTT is included in service revenue.
Atlantic Aviation derives the majority of its revenue from fuel delivery services and from other airport services, including de-icing and aircraft hangar rental. All of the revenue of Atlantic Aviation is generated at airports in the U.S. At March 31, 2017, the business operates at 69 airports. Revenue from Atlantic Aviation is included in service revenue.
The CP business segment derives revenue from solar, wind and gas-fired power facilities. Revenue from the solar, wind and gas-fired power facilities are included in product revenue. As of March 31, 2017, the Company has controlling interests in six utility-scale solar photovoltaic facilities, two wind facilities and 100% ownership of a gas-fired facility that are located in the United States.
42
The solar and wind facilities that are operational at March 31, 2017 have an aggregate generating capacity of 340 megawatt (MW) of wholesale electricity to utilities. These facilities sell substantially all of the electricity generated, subject to agreed upon pricing formulas, to electric utilities pursuant to long-term (typically 20 25 years) power purchase agreements (PPAs). These projects are held in LLCs, and are treated as partnerships for income tax purposes, with co-investors. The acquisition price on these projects can vary depending on, among other things, factors such as the size of the project, PPA terms, eligibility for tax incentives, debt package, operating cost structure and development stage. A completed project takes out all of the construction risk, testing and costs associated with construction contracts.
The Company has certain rights to make decisions over the management and operations of these solar and wind facilities. The Company has determined that it is appropriate to consolidate these projects, with the co-investors interest reflected as noncontrolling interests in the consolidated condensed financial statements.
The Company owns 100% of Bayonne Energy Center (BEC), a 512 MW gas-fired facility located in Bayonne, New Jersey, adjacent to IMTTs Bayonne facility. BEC has tolling agreements with a creditworthy off-taker for 62.5% of its power generating capacity and power produced is delivered to New York City via a dedicated transmission cable under New York Harbor. The tolling agreements generate revenue whether or not the facility is in use for power production. In addition to revenue related to the tolling agreement and capacity payments from the grid operator, BEC generates an energy margin when the facility is dispatched.
MIC Hawaii comprises: Hawaii Gas, Hawaiis only government-franchised gas utility and an unregulated liquefied petroleum gas distribution business providing gas and related services to commercial, residential and governmental customers; a mechanical contractor focused on designing and constructing energy efficient and related building infrastructure; and controlling interests in renewable and distributed power facilities including two facilities on Oahu. Revenue from Hawaii Gas and the renewable power facilities are recorded in product revenue. Revenue from the mechanical contractor business is recorded in service revenue.
Revenue from the Hawaii Gas business is generated from the distribution and sales of synthetic natural gas (SNG), liquefied petroleum gas (LPG) and liquefied natural gas (LNG). Revenue is primarily a function of the volume of SNG, LPG and LNG consumed by customers and the price per thermal unit or gallon charged to customers. Revenue levels, without organic growth, will generally track global commodity prices, namely petroleum and natural gas, as its products are derived from these commodities.
All of the MIC business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered. Selected information by segment is presented in the following tables.
43
Revenue from external customers for the Companys consolidated reportable segments were ($ in thousands):
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Quarter Ended March 31, 2017 | ||||||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Intersegment
Revenue |
Total
Reportable Segments |
|||||||||||||||||||
Service revenue | $ | 138,817 | $ | 212,753 | $ | | $ | 13,457 | $ | (1,223 | ) | $ | 363,804 | |||||||||||
Product revenue | | | 28,070 | 59,583 | | 87,653 | ||||||||||||||||||
Total revenue | $ | 138,817 | $ | 212,753 | $ | 28,070 | $ | 73,040 | $ | (1,223 | ) | $ | 451,457 |
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Quarter Ended March 31, 2016 | ||||||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Intersegment
Revenue |
Total
Reportable Segments |
|||||||||||||||||||
Service revenue | $ | 135,425 | $ | 177,988 | $ | | $ | | $ | (1,172 | ) | $ | 312,241 | |||||||||||
Product revenue | | | 30,179 | 53,967 | | 84,146 | ||||||||||||||||||
Total revenue | $ | 135,425 | $ | 177,988 | $ | 30,179 | $ | 53,967 | $ | (1,172 | ) | $ | 396,387 |
In accordance with FASB ASC 280, Segment Reporting , the Company has disclosed earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items as a key performance indicator for the businesses. EBITDA excluding non-cash items is reflective of the businesses ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of its businesses. The Company defines EBITDA excluding non-cash items as net income (loss) or earnings the most comparable GAAP measure before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations.
EBITDA excluding non-cash items for the Companys consolidated reportable segments is shown in the tables below ($ in thousands). Allocations of corporate expenses, intercompany fees and the tax effect have been excluded as they are eliminated on consolidation.
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Quarter Ended March 31, 2017 | ||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Total
Reportable Segments |
||||||||||||||||
Net income (loss) | $ | 23,816 | $ | 21,826 | $ | (1,939 | ) | $ | 4,873 | $ | 48,576 | |||||||||
Interest expense, net | 8,757 | 3,446 | 5,383 | 1,711 | 19,297 | |||||||||||||||
Provision for income taxes | 16,548 | 14,550 | 27 | 3,379 | 34,504 | |||||||||||||||
Depreciation | 28,760 | 11,589 | 14,233 | 3,099 | 57,681 | |||||||||||||||
Amortization of intangibles | 2,760 | 13,444 | 1,107 | 382 | 17,693 | |||||||||||||||
Pension expense | 2,416 | 5 | | 273 | 2,694 | |||||||||||||||
Other non-cash expense (income) | 68 | 62 | (2,024 | ) | 5,571 | 3,677 | ||||||||||||||
EBITDA excluding non-cash items | $ | 83,125 | $ | 64,922 | $ | 16,787 | $ | 19,288 | $ | 184,122 |
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Quarter Ended March 31, 2016 | ||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Total
Reportable Segments |
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Net income (loss) | $ | 16,217 | $ | 14,358 | $ | (9,223 | ) | $ | 9,069 | $ | 30,421 | |||||||||
Interest expense, net | 19,871 | 13,314 | 17,848 | 2,424 | 53,457 | |||||||||||||||
Provision (benefit) for income taxes | 11,229 | 9,742 | (2,304 | ) | 5,911 | 24,578 | ||||||||||||||
Depreciation | 29,865 | 8,373 | 12,739 | 2,244 | 53,221 | |||||||||||||||
Amortization of intangibles | 2,756 | 13,818 | 1,107 | 106 | 17,787 | |||||||||||||||
Pension expense | 1,831 | 17 | | 350 | 2,198 | |||||||||||||||
Other non-cash expense (income) | 443 | (91 | ) | (2,020 | ) | (2,752 | ) | (4,420 | ) | |||||||||||
EBITDA excluding non-cash items | $ | 82,212 | $ | 59,531 | $ | 18,147 | $ | 17,352 | $ | 177,242 |
Reconciliations of total reportable segments EBITDA excluding non-cash items to consolidated net income before income taxes were ($ in thousands):
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Quarter Ended March 31, | ||||||||
2017 | 2016 | |||||||
Total reportable segments EBITDA excluding non-cash items | $ | 184,122 | $ | 177,242 | ||||
Interest income | 34 | 33 | ||||||
Interest expense | (25,482 | ) | (56,895 | ) | ||||
Depreciation | (57,681 | ) | (53,221 | ) | ||||
Amortization of intangibles | (17,693 | ) | (17,787 | ) | ||||
Selling, general and administrative expenses - Corporate and Other | (3,995 | ) | (1,455 | ) | ||||
Fees to Manager related party | (18,223 | ) | (14,796 | ) | ||||
Pension expense | (2,694 | ) | (2,198 | ) | ||||
Other (expense) income, net | (3,677 | ) | 4,420 | |||||
Total consolidated net income before income taxes | $ | 54,711 | $ | 35,343 |
Capital expenditures, on a cash basis, for the Companys reportable segments were ($ in thousands):
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Quarter Ended March 31, | ||||||||
2017 | 2016 | |||||||
IMTT | $ | 15,263 | $ | 23,408 | ||||
Atlantic Aviation | 19,245 | 21,271 | ||||||
Contracted Power | 19,179 | 5,840 | ||||||
MIC Hawaii | 6,115 | 12,074 | ||||||
Total capital expenditure of reportable segments | $ | 59,802 | $ | 62,593 | ||||
Corporate and other | 67 | | ||||||
Total consolidated capital expenditure | $ | 59,869 | $ | 62,593 |
45
Property, equipment, land and leasehold improvements, net, goodwill and total assets for the Companys reportable segments and its reconciliation to consolidated total assets were ($ in thousands):
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Property, Equipment,
Land and Leasehold Improvements, net |
Goodwill | Total Assets | ||||||||||||||||||||||
March 31,
2017 |
December 31,
2016 |
March 31,
2017 |
December 31,
2016 |
March 31,
2017 |
December 31,
2016 |
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IMTT | $ | 2,200,816 | $ | 2,218,256 | $ | 1,411,029 | $ | 1,411,029 | $ | 3,944,515 | $ | 3,978,379 | ||||||||||||
Atlantic Aviation | 469,309 | 465,096 | 468,419 | 468,419 | 1,552,016 | 1,564,668 | ||||||||||||||||||
Contracted Power | 1,393,722 | 1,383,289 | 21,628 | 21,628 | 1,532,279 | 1,516,602 | ||||||||||||||||||
MIC Hawaii | 282,589 | 279,863 | 123,408 | 123,333 | 507,860 | 501,713 | ||||||||||||||||||
Total assets of reportable segments | $ | 4,346,436 | $ | 4,346,504 | $ | 2,024,484 | $ | 2,024,409 | $ | 7,536,670 | $ | 7,561,362 | ||||||||||||
Corporate and other | 161 | 32 | | | 1,892 | (2,109 | ) | |||||||||||||||||
Total consolidated assets | $ | 4,346,597 | $ | 4,346,536 | $ | 2,024,484 | $ | 2,024,409 | $ | 7,538,562 | $ | 7,559,253 |
At March 31, 2017 and December 31, 2016, the Manager held 4,719,044 shares and 4,510,795 shares, respectively, of the Company. Pursuant to the terms of the Third Amended and Restated Management Services Agreement (Management Agreement), the Manager may sell these shares at any time. Under the Management Agreement, the Manager, at its option, may reinvest base management fees and performance fees, if any, in shares of the Company.
Since January 1, 2016, the Company paid the Manager cash dividends on shares held for the following periods:
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Declared
|
Period Covered |
$ per
Share |
Record Date | Payable Date |
Cash Paid
to Manager (in thousands) |
|||||||||||||||
May 2, 2017 | First quarter 2017 | $ | 1.32 | May 15, 2017 | May 18, 2017 | (1) | ||||||||||||||
February 17, 2017 | Fourth quarter 2016 | 1.31 | March 3, 2017 | March 8, 2017 | $ | 6,080 | ||||||||||||||
October 27, 2016 | Third quarter 2016 | 1.29 | November 10, 2016 | November 15, 2016 | 5,620 | |||||||||||||||
July 28, 2016 | Second quarter 2016 | 1.25 | August 11, 2016 | August 16, 2016 | 8,743 | |||||||||||||||
April 28, 2016 | First quarter 2016 | 1.20 | May 12, 2016 | May 17, 2016 | 6,981 | |||||||||||||||
February 18, 2016 | Fourth quarter 2015 | 1.15 | March 3, 2016 | March 8, 2016 | 6,510 |
(1) | The amount of dividends payable to the Manager for the first quarter of 2017 will be determined on May 15, 2017, the record date. |
Under the Management Agreement, subject to the oversight and supervision of the Companys Board of Directors, the Manager is responsible for and oversees the management of the Companys operating businesses. In addition, the Manager has the right to appoint the Chairman of the Board of the Company, subject to minimum equity ownership, and to assign, or second, to the Company, two of its employees to serve as chief executive officer and chief financial officer of the Company and seconds or makes other personnel available as required.
In accordance with the Management Agreement, the Manager is entitled to a monthly base management fee based primarily on the Companys market capitalization, and potentially a quarterly performance fee based on the total shareholder return relative to a U.S. utilities index. Currently, the Manager has elected to reinvest
46
the future base management fees and performance fees, if any, in additional shares. For the quarters ended March 31, 2017 and 2016, the Company incurred base management fees of $18.2 million and $14.8 million, respectively. For the quarters ended March 31, 2017 and 2016, the Manager did not earn any performance fees. For the quarter ended June 30, 2015, the Company incurred a performance fee of $135.6 million. In July 2015, the Board requested, and the Manager agreed, that $67.8 million of the performance fee be settled in cash in July 2015 to minimize dilution. The remaining $67.8 million obligation was settled and reinvested in 944,046 shares by the Manager on August 1, 2016. In all of the periods shown below, our Manager elected to reinvest any fees to which it was entitled in additional shares.
The unpaid portion of the base management fees and performance fees, if any, at the end of each reporting period is included in Due to Manager-related party in the consolidated condensed balance sheets.
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|
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Period |
Base Management
Fee Amount ($ in Thousands) |
Performance
Fee Amount ($ in Thousands) |
Shares
Issued |
|||||||||
2017 Activity:
|
||||||||||||
First quarter 2017 | $ | 18,223 | $ | | 232,398 | (1) | ||||||
2016 Activities:
|
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Fourth quarter 2016 | $ | 18,916 | $ | | 230,773 | |||||||
Third quarter 2016 | 18,382 | | 232,488 | |||||||||
Second quarter 2016 | 16,392 | | 232,835 | |||||||||
First quarter 2016 | 14,796 | | 234,179 |
(1) | The Manager elected to reinvest all of the monthly base management fees for the first quarter of 2017 in shares. The Company issued 232,398 shares for the quarter ended March 31, 2017, including 77,563 shares that were issued in April 2017 for the March 2017 monthly base management fee. |
The Manager is not entitled to any other compensation and all costs incurred by the Manager, including compensation of seconded staff, are paid by the Manager out of its base management fee. However, the Company is responsible for other direct costs including, but not limited to, expenses incurred in the administration or management of the Company and its subsidiaries, income taxes, audit and legal fees, acquisitions and dispositions and its compliance with applicable laws and regulations. During the quarters ended March 31, 2017 and 2016, the Manager charged the Company $289,000 and $71,000, respectively, for reimbursement of out-of-pocket expenses. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is included in Due to Manager-related party in the consolidated condensed balance sheets.
The Company uses the resources of the Macquarie Group with respect to a range of advisory, procurement, insurance, hedging, lending and other services. Engagements involving members of the Macquarie Group are reviewed and approved by the Audit Committee of the Companys Board of Directors. Macquarie Group affiliates are engaged on an arms length basis and frequently as a member of syndicate of providers whose other members establish the terms of the interaction.
The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited (MBL) and Macquarie Capital (USA) Inc. (MCUSA) have provided various advisory and other services and incurred expenses in connection with the Companys equity raising activities, acquisitions and debt structuring for the Company and its businesses. Underwriting fees are recorded in stockholders equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are expensed as incurred. Debt arranging fees are deferred and amortized over the term of the credit facility.
47
On June 24, 2015, the Company commenced the ATM program where the Company may offer and sell shares of its common stock, par value $0.001 per share, from time to time having an aggregate gross offering price of up to $400.0 million. These sales, if any, will be made pursuant to the terms of an equity distribution agreement entered into between the Company and the sales agents, with MCUSA being one of the sales agents. Under the terms of the equity distribution agreement, the Company may also sell shares to any sales agent as principal for its own account at a price agreed upon at the time of the sale. For the quarters ended March 31, 2017 and 2016, the Company did not engage MCUSA for such activities.
Atlantic Aviations $70.0 million revolving credit facility was provided by various financial institutions, including MBL which provided $15.7 million. For the quarter ended March 31, 2016, Atlantic Aviation incurred and paid $29,000 in interest expense related to MBLs portion of the revolving credit facility. In October 2016, the revolving credit facility was terminated in conjunction with the completion of the refinancing of Atlantic Aviations new credit facility.
The Company has a $410.0 million senior secured revolving credit facility at the holding company that is provided by various financial institutions, of which $50.0 million is provided by MIHI LLC. For the quarters ended March 31, 2017 and 2016, the Company incurred $34,000 and $40,000, respectively, in interest expense related to MIHI LLCs portion of the MIC senior secured revolving credit facility.
Macquarie Energy North America Trading, Inc. (MENAT), an indirect subsidiary of Macquarie Group Limited, enters into contracts with IMTT to lease capacity. At March 31, 2017 and 2016, MENAT leased 200,000 and 921,000 barrels of capacity from IMTT, respectively, and recognized $613,000 and $1.2 million in revenue during the quarters ended March 31, 2017 and 2016, respectively.
The Company expects to incur federal consolidated taxable income for the year ending December 31, 2017, which will be fully offset by the Companys net operating loss (NOL) carryforwards. The Company believes that it will be able to utilize all of its federal prior year NOLs, which will begin to expire after 2028 and completely expire after 2035.
The Company and its subsidiaries are subject to legal proceedings arising in the ordinary course of business. In managements opinion, the Company has adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions, and does not believe the outcome of any pending legal proceedings will be material to the Companys financial position or result of operations.
On May 2, 2017, the Board of Directors declared a dividend of $1.32 per share for the quarter ended March 31, 2017, which is expected to be paid on May 18, 2017 to holders of record on May 15, 2017.
48
There have been no changes to legal proceedings set forth under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 21, 2017.
There have been no material changes to the risk factors set forth under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 21, 2017.
None.
None.
Not Applicable.
None.
An exhibit index has been filed as part of this Report on page E- 1 and is incorporated herein by reference.
49
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MACQUARIE INFRASTRUCTURE CORPORATION
(Registrant) |
||
Dated: May 3, 2017 |
By:
/s/ James Hooke
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Dated: May 3, 2017 |
By:
/s/ Liam Stewart
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50
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|
Number | Description | |
3.1 | Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrants Current Report on Form 8-K filed with the SEC on May 21, 2015). | |
3.2 | Amended and Restated Bylaws of the Registrant, dated as of February 18, 2016 (incorporated by reference to Exhibit 3.2 of the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on February 23, 2016). | |
10.1* | Amendment No. 1, dated as of February 21, 2017, to the Amended and Restated Credit Agreement, dated as of February 10, 2016, among HGC Holdings LLC, Wells Fargo Bank N.A., as administrative agent, and the lenders party thereto. | |
10.2* | Amendment No. 1, dated as of February 21, 2017, to the Amended and Restated Credit Agreement, dated as of February 10, 2016, among The Gas Company LLC, Wells Fargo Bank N.A., as administrative agent, and the lenders party thereto. | |
31.1* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer | |
32.1** | Section 1350 Certification of Chief Executive Officer | |
32.2** | Section 1350 Certification of Chief Financial Officer | |
101.0* | The following materials from the Quarterly Report on Form 10-Q of Macquarie Infrastructure Corporation for the quarter ended March 31, 2017, filed on May 3, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016, (ii) the Consolidated Condensed Statements of Operations for the quarters ended March 31, 2017 and 2016 (Unaudited), (iii) the Consolidated Condensed Statements of Comprehensive Income for the quarters ended March 31, 2017 and 2016 (Unaudited), (iv) the Consolidated Condensed Statements of Cash Flows for the quarters ended March 31, 2017 and 2016 (Unaudited) and (v) the Notes to Consolidated Condensed Financial Statements (Unaudited). |
* | Filed herewith. |
** | Furnished herewith. |
| The Registrant does not deem this agreement material pursuant to Regulation S-K Item 601(b)(10). |
E-1
Exhibit 10.1
Execution Version
AMENDMENT NO. 1
AMENDMENT NO. 1, dated as of February 21, 2017 (this “ Amendment No. 1 ”), to the Amended and Restated Credit Agreement, dated as of February 10, 2016 (as may be further amended, modified, restated and supplemented from time to time, the “ HGC Credit Agreement ”), among HGC Holdings LLC, a Hawaii limited liability company (the “ Borrower ”), the several lenders from time to time parties thereto (the “ Lenders ”) and Wells Fargo Bank, National Association, as administrative agent (the “ Administrative Agent ”).
WITNESSETH :
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to the HGC Credit Agreement;
WHEREAS, the Borrower has requested that (i) certain provisions of the HGC Credit Agreement be amended and waived as set forth herein and (ii) pursuant to Section 2.5 of the HGC Credit Agreement, each Lender extend its Term Loan Maturity Date for one additional year from the Term Loan Maturity Date in effect under the HGC Credit Agreement immediately prior to this Amendment No. 1;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms . Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the HGC Credit Agreement.
SECTION 2. Amendments to the HGC Credit Agreement .
(a) Additional Defined Terms . The following definitions are hereby added in the appropriate alphabetical order to Section 1.1 of the HGC Credit Agreement:
“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ EEA Financial Institution ” means (a) any institution established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent;
“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“ First Amendment Effective Date ” means the date on which all conditions precedent to the first amendment to this Agreement are satisfied.
“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
(b) Revised Defined Term . The definition of “Defaulting Lender” set forth in Section 1.1 of the HGC Credit Agreement, is hereby amended by adding the words “or a Bail-In Action” immediately following the words “Debtor Relief Law” in clause (d)(i) thereof.
(c) Additional Representation . The following representation is hereby added to the HGC Credit Agreement as a new Section 5.31:
“ SECTION 5.31. EEA Financial Institutions . No Credit Party is an EEA Financial Institution.
(d) Acknowledgement of Bail-In Provisions . The following provision is hereby added to the HGC Credit Agreement as a new Section 10.24:
“SECTION 10.24. Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.”
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(e) Amendments to Section 2.5 . Each occurrence of the term “Business Days” in Section 2.5(a) and Section 2.5(b), and the first occurrence of the term “Business Days” in Section 2.5(c) is hereby replaced with the word “days”.
(f) Amendments to Section 5.18 and Schedule 5.18 . (i) Section 5.18 is hereby amended by replacing the term “Closing Date” in Section 5.18 with the term “First Amendment Effective Date” and (ii) Schedule 5.18 to the HGC Credit Agreement is hereby amended and restated in its entirety as set forth in Exhibit A hereto.
(g) Amendments to Section 7.18 . Section 7.18 is hereby amended by deleting the word “and” before “(ii)” and adding the following clause at the end of the sentence “and (iii) any bank accounts and securities accounts which are (a) pension, 401(k) or payroll accounts or other accounts used for employee benefits, (b) accounts with Cash Management Banks in connection with purchase cards (including so called “procurement cards” or “P-cards”), credit or debit cards or similar products, (c) petty cash accounts, amounts on deposit in which do not exceed $250,000 in the aggregate at any one time, (d) zero balance or daily sweep accounts, (e) withholding tax accounts or (f) escrow, trust or fiduciary accounts.”
SECTION 3. Extension . Pursuant to Section 2.5 of the HGC Credit Agreement, the Borrower has notified the Administrative Agent of its request to extend the Term Loan Maturity Date set forth in clause (a) of the definition thereof for an additional year from February 10, 2021 to February 10, 2022. As of the date hereof, Lenders (the “ Extending Lenders ”) holding more than 50% of the outstanding Loans (who, for the avoidance of doubt, constitute the Required Lenders) (i) waive the notice requirement set forth in Section 2.5(a) of the HGC Credit Agreement and (ii) have approved the Borrower’s request to extend their outstanding Loans and, subject to the satisfaction of the conditions precedent set forth in Section 4 herein (and the other terms and conditions set forth in the HGC Credit Agreement), the Term Loan Maturity Date as to the Extending Lenders shall be extended for an additional year from the then-applicable Term Loan Maturity Date. The Term Loan Maturity Date as to any Non-Extending Lender remains unchanged. In connection with the foregoing, the Borrower waives the notice requirement set forth in Section 2.5(c) of the HGC Credit Agreement.
SECTION 4. Waiver . The Lenders party hereto constituting the Required Lenders hereby waive any Default or Event of Default arising from the Borrower’s failure to cause its Subsidiary, The Gas Company, LLC (“ TGC ”) to enter into a control agreement with respect to TGC’s deposit account, with account number 4093206506, established at Wells Fargo Bank, N.A. (the “ Subject Account ”), pursuant to Section 7.18 of the HGC Credit Agreement.
SECTION 5. Effective Date . This Amendment No. 1 shall become effective on the date (the “ Effective Date ”) on which conditions set forth in this Section 5 have been satisfied:
(a) the Administrative Agent shall have received (i) a counterpart of this Amendment No. 1, executed and delivered by a Responsible Officer of the Borrower and (ii) counterparts of this Amendment No. 1, executed and delivered by each Extending Lender, which Lenders shall constitute the Required Lenders;
(b) no Default shall have occurred and be continuing on the Effective Date;
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(c) the representations and warranties contained in the HGC Credit Agreement that are qualified by materiality shall be true and correct on and as of the date of such extension and after giving effect thereto, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such extension and after giving effect thereto, in each case as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, true and correct in all material respects as of such specific date ( provided , that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) and, the representations and warranties contained in Section 5.15 of the HGC Credit Agreement shall be deemed to refer to the most recent statements delivered pursuant to clauses (a) and (b) of Section 6.1 of the HGC Credit Agreement);
(d) the Administrative Agent shall have received a certificate executed and delivered by a Responsible Officer of the Borrower certifying as to the matters set forth in clauses (b) and (c) above; and
(e) the Borrower shall have paid (i) to the Administrative Agent, for the account of each Extending Lender, an extension fee in an amount equal to 0.06% of such Extending Lender’s outstanding Loans as of the Effective Date, which extension fee once paid shall be fully earned and nonrefundable and (ii) all other fees and reasonable expenses of the Administrative Agent and the Lenders required under the HGC Credit Agreement and any other Loan Document to be paid on or prior to the Effective Date (including reasonable fees and expenses of counsel) in connection with this Agreement.
SECTION 6. Acknowledgment and Confirmation of the Borrower . The Borrower hereby confirms and agrees that after giving effect to this Amendment No. 1, the HGC Credit Agreement and the other Loan Documents remain in full force and effect and enforceable against the Borrower in accordance with their respective terms and shall not be discharged, diminished, limited or otherwise affected in any respect. The Borrower represents and warrants to the Lenders that it has no knowledge of any claims, counterclaims, offsets, or defenses to or with respect to its obligations under the Loan Documents, or if the Borrower has any such claims, counterclaims, offsets, or defenses to the Loan Documents or any transaction related to the Loan Documents, the same are hereby waived, relinquished, and released in consideration of the execution of this Amendment No. 1. This acknowledgment and confirmation by the Borrower is made and delivered to induce the Administrative Agent and the Lenders to enter into this Amendment No. 1.
SECTION 7. GOVERNING LAW; WAIVER OF JURY TRIAL . THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTION 10.6 OF THE HGC CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.
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SECTION 8. Miscellaneous .
(a) Except as expressly modified hereby, the HGC Credit Agreement and the other Loan Documents shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the HGC Credit Agreement, “hereinafter,” “hereto,” “hereof,” and words of similar import shall, unless the context otherwise requires, mean the HGC Credit Agreement after giving effect to this Amendment No. 1. Any reference to the HGC Credit Agreement or any of the other Loan Documents herein or in any such documents shall refer to the HGC Credit Agreement and Loan Documents as modified hereby. This Amendment No. 1 is limited as specified and shall not constitute or be deemed to constitute an amendment, modification or waiver of any provision of the Credit Agreement except as expressly set forth herein. This Amendment No. 1 shall constitute a Loan Document under the terms of the HGC Credit Agreement.
(b) This Amendment No. 1 may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same document.
(c) With respect to successors and assigns, each party hereto hereby agrees as set forth in Section 10.10 of the HGC Credit Agreement as if such section were set forth in full herein.
(d) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.
HGC HOLDINGS LLC | ||
By: | /s/ Dan Reinheimer | |
Name: | Dan Reinheimer | |
Title: | CFO |
[Signature Page to HGC Credit Agreement Amendment No. 1]
WELLS FARGO BANK, NATIONAL | ||
ASSOCIATION, as Administrative | ||
Agent and Lender | ||
By: | /s/ Keith Luettel | |
Name: | Keith Luettel | |
Title: | Director |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
AMERICAN SAVINGS BANK, F.S.B., | ||
as a Lender | ||
By: | /s/ Edward Chin | |
Name: | Edward Chin | |
Title: | First Vice President |
[Signature Page to HGC Credit Agreement Amendment No. 1]
BANK OF HAWAII, | ||
as a Lender | ||
By: | /s/ John McKenna | |
Name: | John McKenna | |
Title: | Senior Vice President |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
Central Pacific Bank, | ||
as a Lender | ||
By: | /s/ Carl A. Morita | |
Name: | Carl A. Morita | |
Title: | Vice President |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
CoBank, ACB, | ||
as a Lender | ||
By: | /s/ Josh Batchelder | |
Name: | Josh Batchelder | |
Title: | Vice President |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
First Commercial Bank, Ltd., New York Branch | ||
as a Lender | ||
By: | /s/ Bill Wang | |
Name: | Bill Wang | |
Title: | Senior Vice President & General Manager |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
Hua Nan Commercial Bank, Ltd., Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Howard Hung | |
Name: | Howard Hung | |
Title: | Assistant General Manager |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
Regions Bank, | ||
as a Lender | ||
By: | /s/ Jerry Wells | |
Name: | Jerry Wells | |
Title: | Director |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
Taiwan Business Bank, Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Sam Chiu | |
Name: | Sam Chiu | |
Title: | General Manager |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
Taiwan Cooperative Bank, Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Li Yin Wang | |
Name: | Li Yin Wang | |
Title: | AVP & Assistant General Manager |
[Signature Page to A&R HGC Credit Agreement Amendment No. 1]
Exhibit 10.2
Execution Version
AMENDMENT NO. 1
AMENDMENT NO. 1, dated as of February 21, 2017 (this “ Amendment No. 1 ”), to the Amended and Restated Credit Agreement, dated as of February 10, 2016 (as may be further amended, modified, restated and supplemented from time to time, the “ TGC Credit Agreement ”), among The Gas Company, LLC, a Hawaii limited liability company (the “ Borrower ”), the several lenders from time to time parties thereto (the “ Lenders ”) and Wells Fargo Bank, National Association, as administrative agent (the “ Administrative Agent ”).
WITNESSET H :
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to the TGC Credit Agreement;
WHEREAS, the Borrower has requested that (i) certain provisions of the TGC Credit Agreement be amended and waived as set forth herein and (ii) pursuant to Section 2.7 of the TGC Credit Agreement, each Lender extend its Revolving Credit Maturity Date for one additional year from the Revolving Credit Maturity Date in effect under the TGC Credit Agreement immediately prior to this Amendment No. 1;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms . Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the TGC Credit Agreement.
SECTION 2. Amendments to the TGC Credit Agreement .
(a) Additional Defined Terms . The following definitions are hereby added in the appropriate alphabetical order to Section 1.1 of the TGC Credit Agreement:
“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ EEA Financial Institution ” means (a) any institution established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent;
“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“ First Amendment Effective Date ” means the date on which all conditions precedent to the first amendment to this Agreement are satisfied.
“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
(b) Revised Defined Term . The definition of “Defaulting Lender” set forth in Section 1.1 of the TGC Credit Agreement, is hereby amended by adding the words “or a Bail-In Action” immediately following the words “Debtor Relief Law” in clause (d)(i) thereof.
(c) Additional Representation . The following representation is hereby added to the TGC Credit Agreement as a new Section 6.31:
“ SECTION 6.31. EEA Financial Institutions . No Credit Party is an EEA Financial Institution.
(d) Acknowledgement of Bail-In Provisions . The following provision is hereby added to the TGC Credit Agreement as a new Section 11.24:
“SECTION 11.24. Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.”
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(e) Amendments to Section 2.7 . Each occurrence of the term “Business Days” in Section 2.7(a) and Section 2.7(b), and the first occurrence of the term “Business Days” in Section 2.7(c) is hereby replaced with the word “days”.
(f) Amendments to Section 6.18 and Schedule 6.18 . (i) Section 6.18 is hereby amended by replacing the term “Signing Date” in Section 6.18 with the term “First Amendment Effective Date” and (ii) Schedule 6.18 to the TGC Credit Agreement is hereby amended and restated in its entirety as set forth in Exhibit A hereto.
(g) Amendments to Section 8.17 . Section 8.17 is hereby amended by deleting the word “and” before “(ii)” and adding the following clause at the end of the sentence “and (iii) any bank accounts and securities accounts which are (a) pension, 401(k) or payroll accounts or other accounts used for employee benefits, (b) accounts with Cash Management Banks in connection with purchase cards (including so called “procurement cards” or “P-cards”), credit or debit cards or similar products, (c) petty cash accounts, amounts on deposit in which do not exceed $250,000 in the aggregate at any one time, (d) zero balance or daily sweep accounts, (e) withholding tax accounts or (f) escrow, trust or fiduciary accounts.”
SECTION 3. Extension . Pursuant to Section 2.7 of the TGC Credit Agreement, the Borrower has notified the Administrative Agent of its request to extend the Revolving Credit Maturity Date set forth in clause (a) of the definition thereof for an additional year from February 10, 2021 to February 10, 2022. As of the date hereof, Lenders (the “ Extending Lenders ”) holding more than 50% of the Commitments (who, for the avoidance of doubt, constitute the Required Lenders) (i) waive the notice requirement set forth in Section 2.7(a) of the TGC Credit Agreement and (ii) have approved the Borrower’s request to extend their Commitments and, subject to the satisfaction of the conditions precedent set forth in Section 4 herein (and the other terms and conditions set forth in the TGC Credit Agreement), the Revolving Credit Maturity Date as to the Extending Lenders shall be extended for an additional year from the then-applicable Revolving Credit Maturity Date. The Revolving Credit Maturity Date as to any Non-Extending Lender remains unchanged. In connection with the foregoing, the Borrower waives the notice requirement set forth in Section 2.7(c) of the TGC Credit Agreement.
SECTION 4. Waiver . The Lenders party hereto constituting the Required Lenders hereby waive any Default or Event of Default arising from the Borrower’s failure to enter into a control agreement with respect to the Borrower’s deposit account, with account number 4093206506, established at Wells Fargo Bank, N.A. (the “ Subject Account ”), pursuant to Section 8.17 of the TGC Credit Agreement.
SECTION 5. Effective Date . This Amendment No. 1 shall become effective on the date (the “ Effective Date ”) on which conditions set forth in this Section 5 have been satisfied:
(a) the Administrative Agent shall have received (i) a counterpart of this Amendment No. 1, executed and delivered by a Responsible Officer of the Borrower and (ii) counterparts of this Amendment No. 1, executed and delivered by each Extending Lender, which Lenders shall constitute the Required Lenders;
(b) no Default shall have occurred and be continuing on the Effective Date;
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(c) the representations and warranties contained in the TGC Credit Agreement that are qualified by materiality shall be true and correct on and as of the date of such extension and after giving effect thereto, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such extension and after giving effect thereto, in each case as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, true and correct in all material respects as of such specific date ( provided , that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) and, the representations and warranties contained in Section 6.15 of the TGC Credit Agreement shall be deemed to refer to the most recent statements delivered pursuant to clauses (a) and (b) of Section 7.1 of the TGC Credit Agreement)
(d) the Administrative Agent shall have received a certificate executed and delivered by a Responsible Officer of the Borrower certifying as to the matters set forth in clauses (b) and (c) above; and
(e) the Borrower shall have paid (i) to the Administrative Agent, for the account of each Extending Lender, an extension fee in an amount equal to 0.06% of such Extending Lender’s Commitment as of the Effective Date, which extension fee once paid shall be fully earned and nonrefundable and (ii) all other fees and reasonable expenses of the Administrative Agent and the Lenders required under the TGC Credit Agreement and any other Loan Document to be paid on or prior to the Effective Date (including reasonable fees and expenses of counsel) in connection with this Agreement.
SECTION 6. Acknowledgment and Confirmation of the Credit Parties . Each of the Credit Parties hereby confirms and agrees that after giving effect to this Amendment No. 1, the TGC Credit Agreement and the other Loan Documents remain in full force and effect and enforceable against each Credit Party in accordance with their respective terms and shall not be discharged, diminished, limited or otherwise affected in any respect. Each of the Credit Parties represents and warrants to the Lenders that it has no knowledge of any claims, counterclaims, offsets, or defenses to or with respect to its obligations under the Loan Documents, or if a Credit Party has any such claims, counterclaims, offsets, or defenses to the Loan Documents or any transaction related to the Loan Documents, the same are hereby waived, relinquished, and released in consideration of the execution of this Amendment No. 1. This acknowledgment and confirmation by the Credit Parties is made and delivered to induce the Administrative Agent and the Lenders to enter into this Amendment No. 1.
SECTION 7. GOVERNING LAW; WAIVER OF JURY TRIAL . THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTION 11.6 OF THE TGC CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.
SECTION 8. Miscellaneous .
(a) Except as expressly modified hereby, the TGC Credit Agreement and the other Loan Documents shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the TGC Credit Agreement, “hereinafter,” “hereto,” “hereof,” and words of similar import shall, unless the context otherwise requires, mean the TGC Credit Agreement after giving effect to this Amendment No. 1. Any reference to the TGC Credit Agreement or any of the other Loan Documents herein or in any such documents shall refer to the TGC Credit Agreement and Loan Documents as modified hereby. This Amendment No. 1 is limited as specified and shall not constitute or be deemed to constitute an amendment, modification or waiver of any provision of the Credit Agreement except as expressly set forth herein. This Amendment No. 1 shall constitute a Loan Document under the terms of the TGC Credit Agreement.
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(b) This Amendment No. 1 may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same document
(c) With respect to successors and assigns, each party hereto hereby agrees as set forth in Section 11.10 of the TGC Credit Agreement as if such section were set forth in full herein.
(d) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.
THE GAS COMPANY, LLC | ||
By: | /s/ Dan Reinheimer | |
Name: | Dan Reinheimer | |
Title: | CFO |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
WELLS FARGO BANK, NATIONAL | ||
ASSOCIATION, as Administrative | ||
Agent and Lender | ||
By: | /s/ Keith Luettel | |
Name: | Keith Luettel | |
Title: | Director |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
AMERICAN SAVINGS BANK, F.S.B., | ||
as a Lender | ||
By: | /s/ Edward Chin | |
Name: | Edward Chin | |
Title: | First Vice President |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
BANK OF HAWAII, | ||
as a Lender | ||
By: | /s/ John McKenna | |
Name: | John McKenna | |
Title: | Senior Vice President |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
Central Pacific Bank, | ||
as a Lender | ||
By: | /s/ Carl A. Morita | |
Name: | Carl A. Morita | |
Title: | Vice President |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
CoBank, ACB, | ||
as a Lender | ||
By: | /s/ Josh Batchelder | |
Name: | Josh Batchelder | |
Title: | Vice President |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
First Commercial Bank, Ltd., New York Branch | ||
as a Lender | ||
By: | /s/ Bill Wang | |
Name: | Bill Wang | |
Title: | Senior Vice President & General Manager |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
Hua Nan Commercial Bank, Ltd., Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Howard Hung | |
Name: | Howard Hung | |
Title: | Assistant General Manager |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
Regions Bank, | ||
as a Lender | ||
By: | /s/ Jerry Wells | |
Name: | Jerry Wells | |
Title: | Director |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
Taiwan Business Bank, Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Sam Chiu | |
Name: | Sam Chiu | |
Title: | General Manager |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
Taiwan Cooperative Bank, Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Li Yin Wang | |
Name: | Li Yin Wang | |
Title: | AVP & Assistant General Manager |
[Signature Page to A&R TGC Credit Agreement Amendment No. 1]
Exhibit 31.1
I, James Hooke, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Macquarie Infrastructure Corporation (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants Board of Directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
|
|
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Dated: May 3, 2017 |
By:
/s/ James Hooke
|
Exhibit 31.2
I, Liam Stewart, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Macquarie Infrastructure Corporation (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants Board of Directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Dated: May 3, 2017 |
By:
/s/ Liam Stewart
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Exhibit 32.1
In connection with the Quarterly Report of Macquarie Infrastructure Corporation (the Company) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, James Hooke, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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By:
/s/ James Hooke
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
In connection with the Quarterly Report of Macquarie Infrastructure Corporation (the Company) on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Liam Stewart, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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By:
/s/ Liam Stewart
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.