(Mark One) | ||
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2009
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
transition periodTransition Period from to
.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 43-2052503 | |
(Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
125 West
55th55th Street
New York, New York 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant'sRegistrant’s Telephone Number, Including Area Code:(212) 231-1000
Securities registered pursuantRegistered Pursuant to Section 12(b) of the Act:
Title of Each Class: | Name of Exchange on Which Registered: | |
Limited Liability Company Interests of Macquarie Infrastructure Company LLC (“LLC Interests”) | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Nox
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. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). Yeso Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants'registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | Accelerated Filer | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
The aggregate market value of the outstanding shares of stock held by non-affiliates of Macquarie Infrastructure Company LLC at June 30, 20082009 was $1,051,317,717$170,868,634 based on the closing price on the New York Stock Exchange on that date. This calculation does not reflect a determination that persons are affiliates for any other purposes.
There were 44,948,69445,292,913 shares of stock without par value outstanding at February 26, 2009.25, 2010.
The definitive proxy statement relating to Macquarie Infrastructure Company LLC'sLLC’s Annual Meeting of Shareholders for fiscal year ended December 31, 2008,2009, to be held June 4, 2009,3, 2010, is incorporated by reference in Part III to the extent described therein.
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We have included or incorporated by reference into this report, and from time to time may make in our public filings, press releases or other public statements, certain statements that may constitute forward-looking statements. These include without limitation those under “Risk Factors” in Part I, Item 1A, “Legal Proceedings” in Part I, Item 3, “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, and “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “may” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results to differ materially from those contained in any forward-looking statements made by us. Any such forward-looking statements are qualified by reference to the following cautionary statements.
Forward-looking statements in this report are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things:
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Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. A description of risks that could cause our actual results to differ appears under the caption “Risk Factors” in Part I, Item 1A and elsewhere in this report. It is not possible to predict or identify all risk factors and you should not consider that description to be a complete discussion of all potential risks or uncertainties that could cause our actual results to differ.
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this report may not occur. These forward-looking statements are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should, however, consult further disclosures we may make in future filings with the Securities and Exchange Commission, or the SEC.
In this report, we have converted foreign currency amounts into U.S. dollars using the Federal Reserve Bank noon buying rate at December 31, 2008 for our financial information and the Federal Reserve Bank noon buying rate at February 20, 2009 for all other information. At December 31, 2008, the noon buying rate of the Australian dollar was USD $0.6983 and the noon buying rate of the Pound Sterling was USD $1.4619. At February 20, 2009, the noon buying rate of the Australian dollar was USD $0.6419 and the noon buying rate of the Pound Sterling was USD $1.4333. The table below sets forth the high, low and average exchange rates for the Australian dollar and the Pound Sterling for the years indicated:
Time Period | U.S. Dollar/Australian Dollar | U.S. Dollar/Pound Sterling | ||||||||||||||||||||||
High | Low | Average | High | Low | Average | |||||||||||||||||||
2001 | 0.5552 | 0.5016 | 0.5169 | 1.4773 | 1.4019 | 1.4397 | ||||||||||||||||||
2002 | 0.5682 | 0.5128 | 0.5437 | 1.5863 | 1.4227 | 1.5024 | ||||||||||||||||||
2003 | 0.7391 | 0.5829 | 0.6520 | 1.7516 | 1.5738 | 1.6340 | ||||||||||||||||||
2004 | 0.7715 | 0.7083 | 0.7329 | 1.8950 | 1.7860 | 1.8252 | ||||||||||||||||||
2005 | 0.7974 | 0.7261 | 0.7627 | 1.9292 | 1.7138 | 1.8198 | ||||||||||||||||||
2006 | 0.7914 | 0.7056 | 0.7535 | 1.9794 | 1.7256 | 1.8294 | ||||||||||||||||||
2007 | 0.9369 | 0.7724 | 0.8389 | 2.1104 | 1.9235 | 2.0019 | ||||||||||||||||||
2008 | 0.9797 | 0.6073 | 0.8537 | 2.0311 | 1.4395 | 1.8526 |
Macquarie Infrastructure Company LLC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Infrastructure Company LLC.
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Except as otherwise specified, “Macquarie Infrastructure Company,Company”, “MIC,” “the Company”, “we,” “us,” and “our” refer to Macquarie Infrastructure Company LLC, a Delaware limited liability company, that we refer to as the Company, and its subsidiaries together. References to our “shareholders” herein means holders of LLC interests. The holders of LLC interests are also the members of our company. Macquarie Infrastructure Management (USA) Inc., the company that we refer to as our Manager, is part of the Macquarie Group of companies. References to the Macquarie Group means Macquarie Group Limited and its respective subsidiaries and affiliates worldwide.
We own, operate and invest in a diversified group of infrastructure businesses in the United States. We believe our infrastructure businesses, which provide basic everyday services, have a sustainable and stable cash flow profile and offer the potential for capital growth. We offer investors an opportunity to participate directly in the ownership of infrastructure businesses, which traditionally have been owned by governments or private investors, or have formed part of vertically integrated companies. Our businesses also constitute our operating segments and consist of the following:
(i) | a 50% interest in a bulk liquid storage terminal business (“International Matex Tank Terminals” or “IMTT”), which provides bulk liquid storage and handling services at ten marine terminals in the United States and two in Canada and is one of the largest participants in this industry in the U.S., based on capacity; |
(ii) | a gas production and distribution business (“The Gas Company”), which is a full-service gas energy company, making gas products and services available in Hawaii; and |
(iii) | a 50.01% controlling interest in a district cooling business (“District Energy”), which operates the largest such system in the U.S. and serves various customers in Chicago, Illinois and Las Vegas, Nevada. |
The Aviation-Related Business:an airport services business that operates(“Atlantic Aviation”), which comprises a network of 72 fixed base operations, or FBOs, providing products and services including fuel and aircraft hangaring/parking to owners and operators of private jets at 68 airports and one heliport;
The Company was formed on April 13, 2004. On December 21, 2004, we completed our initial public offering of shares representing beneficial interests in Macquarie Infrastructure Company Trust, or the Trust, and concurrent private placement of shares of trust stock. We used the majority of the proceeds of the offering and private placement to acquire our initial businesses and investments and to pay related expenses.
Our initial businesses and investments consisted of our airport services business, our district energy business,January 28, 2010, our airport parking business a toll road business through our 50% ownership(“Parking Company of America Airports” or “PCAA”) entered into an asset purchase agreement and filed for protection under Chapter 11 of the Yorkshire Link shadow toll road, and investments in South East Water (SEW) and Macquarie Communications Infrastructure Group (MCG). During 2006, we soldBankruptcy Code. We expect to complete the toll road business and investments in SEW and MCG.
Prior to June 25, 2007, our publicly traded entity was the Trust and the Trust held allsale of the LLC interestsassets in the company. On June 25, 2007, we dissolved the Trustfirst half of 2010. This business is now a discontinued operation and completedis therefore separately reported in our consolidated financial statements and is no longer a mandatory exchange of allreportable segment of the shares of beneficial interest in the Trust held by each of our shareholders for an equal number of LLC interests in the company. Each shareholder of the Trust at the time of the exchange became a shareholder of, and with the same percentage interest in, the company. The LLC interests were listed on the NYSE under the symbol “MIC” at the time of the exchange.Company.
Concurrent with the exchangeIn 2007, we made an election to be treatedtreat MIC as a corporation for federal income tax purposes. We requested, and the Internal Revenue Service, or IRS, approved, an effective date for the election of January 1, 2007. As a result, all investor tax reporting with respect to distributions made after December 31, 2006, and in all subsequent years, will beis based on our being a corporation for U.S. federal tax purposes and such reporting will be provided on Form 1099.
For additional informationOur Manager is a member of the Macquarie Group, a diversified international provider of financial, advisory and investment services. The Macquarie Group is headquartered in Sydney, Australia and is a global leader in advising on the dissolutionacquisition, disposition and financing of infrastructure assets and the Trust and concurrent mandatory share exchange, please refer to our Forms 8-K, filed with the SECmanagement of infrastructure investment vehicles on May 23, 2007 and June 22, 2007.behalf of third-party investors.
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We have entered into a management services agreement with our Manager. Our Manager is responsible for our day-to-day operations and affairs and oversees the management teams of our operating businesses. The Company neither has, nor will have, any employees. Our Manager has assigned, or seconded, to the Company, on a permanent and wholly dedicated basis, two of its employees to assume the offices of chief executive
officer and chief financial officer and seconds or makes other personnel available as required. The services performed for the companyCompany are provided at our Manager'sManager’s expense, includingand includes the compensation of our seconded personnel.
Our Manager is a member of the Macquarie Group, a diversified international provider of financial, advisory and investment services. The Macquarie Group is headquartered in Sydney, Australia and is a global leader in advising on the acquisition, disposition and financing of infrastructure assets and the management of infrastructure investment vehicles on behalf of third-party investors.
We believe that the Macquarie Group's demonstrated expertise and experience in the management, acquisition and funding of infrastructure businesses will provide us with a significant advantage in pursuing our strategy. Our Manager is part of the Macquarie Group's Capital Funds division. The Macquarie Capital Funds division manages a global portfolio of 118 assets across 26 countries including toll roads, airports and airport-related infrastructure, communications, media, electricity and gas distribution networks, water utilities, aged care, rail and ferry assets.
We expect that the Macquarie Group's infrastructure advisory division will be an important source of acquisition opportunities and advice for us. The Macquarie Group's infrastructure advisory division is separate from the Macquarie Capital Funds division. Historically, the Macquarie Group's advisory division has sought out and presented the various infrastructure investment vehicles in Macquarie Capital Funds, including us, with a significant number of high quality infrastructure acquisition opportunities.
Although it has no contractual obligation to do so, we expect that the Macquarie Group's infrastructure advisory division will continue to present our Manager with opportunities to acquire or invest in complementary businesses. Under the terms of the management services agreement, our Manager is obliged to present to us, on a priority basis, acquisition opportunities in the United States that are consistent with our strategy, as discussed below, and the Macquarie Group is our preferred financial advisor. Refer to the discussion under “U.S. Acquisition Priorities” for further information.
Growth through acquisition remains an important component of our long-term strategy. However, current market conditions, primarily the tightening of the credit markets, price declines and the historically high level of volatility in the equity markets, effectively prevent us from making acquisitions. We expect that when the capital markets are again functioning normally we will continue our pursuit of value-enhancing acquisition opportunities.
We also believe that once the credit markets resume normal functions our relationship with the Macquarie Group will enable us to take advantage of its expertise and experience in securing debt financing for infrastructure assets. As the typically strong, stable cash flows of infrastructure assets are usually able to support above average levels of debt relative to equity, we believe that the ability of our Manager and the Macquarie Group to source and structure low-cost project and other debt financing provides us with a significant advantage when acquiring assets. We believe that these relatively lower costs will enhance our ability to generate attractive returns for shareholders from those assets.
We pay our Manager a quarterly management fee based primarily on our market capitalization. Our Manager can also earn a performance fee if the quarterly total return for ourto shareholders (capital appreciation plus dividends) exceeds the quarterly total return of a weighted average of two benchmark indices, a U.S. utilities index and a European utilities index, weighted in proportion to our U.S. and non-U.S. equity investments. We currently do not have any non-U.S. equity investments. The performance fee is equal to 20% of the difference between the benchmark return for this benchmark and the return for our shareholders. To be eligible for the performance fee, our Manager must deliver quarterly total returns that are positive and in excess of any prior underperformance. Please see the management services agreement filed as an exhibit to this Annual Report on Form 10-K for the full terms of this agreement.
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TABLE OF CONTENTSWe believe that Macquarie Group’s demonstrated expertise and experience in the management, acquisition and funding of infrastructure businesses will provide us with a significant advantage in pursuing our strategy. Our Manager is part of Macquarie Group’s Capital Funds division. The Macquarie Capital Funds division manages a global portfolio of 110 businesses including toll roads, airports and airport-related infrastructure, ports, communications, media, electricity and gas distribution networks, water utilities, aged care, rail and ferry assets across 22 countries.
Infrastructure businesses are characterized in part by the essential nature of the services they provide. For example, our district energy business, a producer of chilled water for building cooling, provides a basic, everyday service to its customers. Infrastructure businesses are further characterized by their employment of long-lived, high-value physical assets having low ongoing maintenance capital expenditure requirements. These characteristics tend to make infrastructure businesses scalable and offer significant barriers to entry for new participants. Our airport services and bulk liquid storage terminal businesses are good illustrations of these characteristics. We invest in infrastructure businesses that we believe provide sustainable cash flows and the opportunity for future growth. We focus on the ownership and operation of infrastructure businesses in the following categories:
Our infrastructure businesses tend to generate sustainable and growing long-term cash flows resulting from relatively inelastic customer demand and the businesses’ strong competitive positions. The strengthpositions of our competitive position stems from the high barriers to entry intobusinesses. Characteristics of infrastructure businesses combined with our active management of these businesses. We believe the ongoing cash flows of our infrastructure businesses are protected by the nature of our businesses, including:include:
BeyondIn addition to the benefits related to these characteristics, the revenues generated by our infrastructure businesses generally can generally be expected to keep pace with inflation. The price increasesescalators built into the agreements with customers of contracted businesses, and the inflation and cost pass-through adjustments typically a part of pricing dynamicsterms in user pays businesses or provided for by the regulatory process to regulated businesses, serve to insulate infrastructure businesses to a significant degree from the negative effects of inflation and commodity price risk. Deflation, if any, would have a negligible impact on the revenue or profitability of our businesses. In addition, weWe also employ interest rate swaps in connection with our businesses’ floating rate debt to protecteffectively fix our earnings fromcash flows for the higherinterest costs that may resultand hedge variability from interest rate increases.changes.
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We focus on the ownership and operation of infrastructure businesses in the following categories:
The challenges posed by the current economic conditions of the past 18 to 24 months have caused us to adopt a near-term strategy focused on reducing debt, reducing expensesimproving operational performance and curtailing acquisition activities andeffectively deploying available growth capital expenditures.capital. We believe that our focus on these elements is appropriate to maximizing cash flows and ensuring that our businesses are well positioned to entersurvive and grow regardless of the period beyondbroader economic backdrop. This strategy included our decisions to sell a non-controlling interest in District Energy, repay our holding company level debt and reduce indebtedness at Atlantic Aviation.
Over the current economic uncertainty.medium term, subject to having access to external sources of capital at a reasonable cost, we may resume growth through acquisition of additional infrastructure businesses. Such acquisitions may be bolt-ons to existing business platforms.
We intendhave reduced long-term debt balances through the application of accumulated cash generated by our businesses (which was historically distributed to shareholders) and proceeds from the sale of the non-controlling stake in District Energy. We have eliminated all debt at the MIC holding company level and reduced the balance outstanding on the primary facility at Atlantic Aviation. We expect to continue to reduce the debt in large partof Atlantic Aviation through the suspensionapplication of quarterly distributions to shareholders. We intend to apply accumulated cash to the reduction of both holding company debt and operating company debt at businesses where the underlying fundamentals are strong.generated by that business. This component of our strategy should further strengthenhas strengthened our balance sheet and is expected to reduce the risk of violating financial covenants in ouron the debt agreements resulting fromat Atlantic Aviation, where financial results have been negatively affected by declines in overall economic activity. WeLowering debt levels may also expect that it will reduce the risks associated with refinancing our debt facilities in the event that credit markets remain tight through to the maturity of these facilities.tighten again.
We intend to continue reducingto seek opportunities to reduce expenses through rationalization of staffing and business process improvementimprovements. In addition, we are actively seeking opportunities to improve the marketing and actively andorganic growth of our businesses. We are prudently managing reinvestment in our businesses in the form of maintenance capital expenditures. This effortexpenditures without compromising service levels or operational capabilities of these businesses. Executing this component of our strategy is expected to improve operating income andthe generation of free cash flows fromflow by our businesses.
VolatilityWe have reinvested substantially all of the cash flows generated at IMTT in economically attractive growth opportunities, primarily additional storage capacity. We will continue to reinvest cash flow generated by this business in additional growth projects that we expect will also generate appropriate returns.
We have also reinvested a portion of the cash generated by each of District Energy and The Gas Company into projects that support customer acquisition. We will continue to reinvest in such opportunities in the equity markets and the associated decline in our share price have made it inappropriate for us to raise new capital for acquisitions given the dilutive effect that such raising would have on existing shareholders. We have suspended our efforts with respect to acquisitions of additional infrastructure businesses until such time as the capital markets are functioning in a historically normal manner. We intend to concentrate management resources on optimizing our performance in the current environment.future.
We intend to meet our contractual obligations with respect to the deployment of growth capital, i.e.such as our leasehold improvement obligations in the airport services business, for which weat Atlantic Aviation. We have sufficient committed financing.financing to meet these expenditures. We expect that these projects will have a positive impact on cash from operations.
Our bulk liquid storage business intends to complete growth projects to which it has committed. The business intends to secure additional external funding for a portion of these projects. If sufficient external funding is not available the business will fund the completion of the growth projects with cash from operating activities. The storage rates at which these projects have been contracted will generate attractive levels of additional gross profit, EBITDA and operating cash flow.
Our airport services business, Atlantic Aviation FBO Inc., operates 72 fixed-based operations, or FBOs, at 68 airports and one heliport throughout the United States. Our FBOs primarily provide fuelling and fuel-related services, aircraft parking and hangarage to owners/operators of jet aircraft in the general aviation sector of the air transportation industry.
Financial information for this business is as follows ($ in millions):
As at, and for the Year Ended, December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenue | $ | 716.3 | $ | 534.3 | $ | 312.9 | ||||||
Operating (loss) income(1) | (9.2 | ) | 76.4 | 47.9 | ||||||||
Total assets(1) | 1,660.8 | 1,763.7 | 932.6 | |||||||||
% of our consolidated revenue | 68.1 | % | 64.3 | % | 60.1 | % |
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On the day following our initial public offering, we purchased 100% of the ordinary shares in Atlantic Aviation FBO Inc., or Atlantic Aviation, the holding company of our airport services business, from the Macquarie Group for a purchase price of $118.2 million (including transaction costs) and assumed $130.0 million of senior debt. On the day following our initial public offering, we also acquired AvPorts from Macquarie Global Infrastructure Funds for cash consideration of $42.4 million (including transaction costs) and assumption of existing debt.
Since our initial acquisition, we have grown our airport services business through acquisitions of additional FBOs. We acquired three FBOs in 2005, 23 FBOs in 2006, 29 FBOs in 2007 and three FBOs in 2008.
In December 2008, we completed the sale of our airport management contracts at seven regional airports. Revenues from the airport management contracts account for less than one half of one percent of the revenues of our airport services business in 2008.
FBOs predominantly service the general aviation segment of the air transportation industry. General aviation, which includes corporate and leisure flying, pilot training, helicopter, medivac and certain air freight operations, is the largest segment of U.S. civil aviation and represents the largest percentage of the active civil aircraft fleet. General aviation does not include commercial air carriers or military operations. Local airport authorities grant FBO operators the right to provide fuelling and other services. Fuel sales provide most of an FBO's revenue.
FBOs generally operate in an environment of limited competition and high barriers to entry. Airports have limited physical space for additional FBOs. Airport authorities generally do not have an incentive to add additional FBOs unless there is a significant demand for additional capacity, as profit-making FBOs are more likely to reinvest in the airport and provide a broad range of services, thus attracting increased airport traffic. The increased traffic tends to generate additional revenue for the airport authority in the form of landing and fuel flowage fees. Government approvals and design and construction of a new FBO can also take significant time.
Demand for FBO services is driven by the number and size of general aviation aircraft in operation and average flight hours per aircraft. Both factors grew substantially through 2007. According to the Federal Aviation Administration, or the FAA, from 1996 to 2007, the active fleet of fixed-wing turbine aircraft, which includes turbojet and turboprop aircraft, increased at an average rate of 6.0% per year. Reported general aviation aircraft deliveries for 2008 suggest that the fixed wing turbine aircraft fleet expanded at a slower rate during 2008 than the historical growth rate. The slower fleet expansion rate reflects a reduction in aircraft deliveries as funding for aircraft acquisitions has become more difficult to obtain and more expensive. Fixed-wing turbine aircraft are the major consumers of our FBO services, especially fuel related services. Over the 1996 to 2007 period, the number of hours flown by fixed-wing general aviation turbine aircraft increased at an average rate of 6.5% per year. This growth was driven by a number of factors, in addition to general economic growth over the period, that included:
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Total general aviation flight hours for the year ended December 31, 2008 have not yet been published by the FAA. However, a reported 12% decline in general aviation flight movements (take offs and landings) for the 12 months ended December 31, 2008 suggests a decline in flight hours in 2008.
General aviation activity slowed down in 2008 relative to historical trends based on lower fixed-wing turbine aircraft expansion rate and the declining flight movements. In addition, orders of new business airplanes have decreased.
Management of the airport services business believes that despite improved access to general aviation and the challenges facing commercial aviation associated with higher load levels, potential mainline carrier consolidation and security-related delays, all of which strengthened the general aviation industry, FBO revenues are affected by a prolonged economic downturn. See “Risk Factors” in Part I, Item 1A.
We believe that our airport services business and the demand for the services that our business offers will grow at or above rates associated with the fundamental drivers of growth in the general aviation jet market, including fleet expansion and the increase in the number of hours that the aircraft are being flown. Underpinning our belief is a strategy based on effective marketing and the delivery of superior service relative to our competitors. Additionally, we believe that we can maintain the profitability of our airport services business during challenging economic conditions through sound business management.
Business Management: The senior managers of our airport services business are acutely focused on managing costs effectively. In light of the recent slowdown in general aviation activity, the management team has implemented initiatives that have reduced operating costs at a rate exceeding $20.0 million per annum. We continue to evaluate opportunities to reduce expenses through more efficient purchasing, reorganization of our commercial fuelling operations and increasing synergies resulting from recent acquisitions.
Marketing: Marketing of our airport services business is based extensively on a proprietary point of sale system. The system supports flight tracking and provides customer relationship management data that facilitates upselling of fuel. For example, based on tracking of general aviation jets by tail number, we know about the buying patterns and particular needs and service desires of each of our customers. We use this information to help deliver high quality service and to optimize the amount of fuel we sell and the dollar-based margin per gallon. The majority of our FBOs have access to the point of sale system.
Our Atlantic Awards program has also been an important component of our marketing. Atlantic Awards are credits based on fuel purchases that pilots can accumulate and download from a secure website onto a debit card. We believe that the Atlantic Awards program is a valued component of our offering and has led to incremental sales of jet fuel.
Service: We make concierge services available at our major locations. Our concierge staff is available to assist pilots and passengers with accommodations, transportation, meals and entertainment and a wide variety of other personal services.
In addition to meeting the needs of the individuals transiting our FBOs, our line personnel strive to ensure the security, safe refuelling and prompt availability of the aircraft in our care.
Our airport services business has high-quality facilities and focuses on attracting customers who desire a high level of personal service. Fuel and fuel-related servicesfree cash flow generated 79% of our airport services business revenue and accounted for 65% of our airport services business gross profit in 2008. Other services including de-icing, aircraft parking, hangar rental and catering provided the remaining balance. Fuel is stored in fuel farms and each FBO operates refuelling vehicles owned or leased by the FBO. The FBO either owns or has access to the fuel storage tanks to support its fuelling activities. At some of our locations, services are also provided to commercial carriers and may include refuelling from the carrier's own fuel supplies stored in the carrier's fuel farm, de-icing and ground and ramp handling services.this business.
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We buy fuel at the wholesale price and sell fuel to customers at a contracted price, or at a price negotiated at the point of purchase. While our fuel costs can be volatile, we generally pass fuel cost changes through to customers and attempt to maintain and, when possible, grow a dollar-based margin per gallon of fuel sold. We also fuel aircraft with fuel owned by other parties and charge customers a service fee.
Our FBO facilities operate pursuant to long-term leases from airport authorities or local government agencies. Our airport services business and its predecessors have a strong history of successfully renewing leases, and have held some leases for over 40 years. We are the sole FBO at 34 of the airports at which we operate.
The existing leases have a weighted average remaining length of 17.9 years. The leases for 8 of our 72 FBOs will expire within the next five years. Our FBO at Atlanta Hartsfield Airport currently operates with an annual lease expiring in April 2009. We intend to participate in the process of renewal for a longer lease. The operating results of our San Jose location accounted for approximately 7.7% of the gross profit of our airport service business for 2008. No other FBO leases are individually significant to our business.
The airport authorities have termination rights in each of our leases. Standard terms allow for termination if we default on the terms and conditions of the lease, abandon the property or become insolvent or bankrupt. Fewer than 10 of our leases may be terminated with notice by the airport authority for convenience or other similar reasons. In each case, there are compensation agreements or obligations of the authority to make best efforts to relocate the FBO. Most of the leases allow for termination if liens are filed against the property.
Our airport services business has an experienced marketing team and marketing programs that are sophisticated relative to those of other industry participants. Our airport services business' marketing activities support its focus on attracting customers who prefer high-quality service and amenities.
Atlantic Aviation has two primary marketing programs. Each utilizes an internally-developed point-of-sale system that tracks all aircraft flight movements and records which FBO the aircraft uses (where there is more than one FBO). In the first, when an aircraft is a customer of an Atlantic Aviation FBO but did not use the Atlantic Aviation FBO at a particular airport, a member of Atlantic Aviation's customer service team will contact the pilot or corporate flight department to alert them to Atlantic Aviation's presence at that airport and invite them to visit next time they are at that location.
The second is a customer loyalty program known as “Atlantic Awards”. The point-of-sale system tracks “points” given to pilots based on the amount of fuel purchased. The points are translated into cash awards that can be downloaded from the Atlantic website to a debit-type card. This program has gained wide acceptance among pilots and is encouraging “upselling” of fuel, where pilots purchase a larger portion of their overall fuel requirement at our locations. These awards are recorded as a reduction in revenue in our consolidated financial statements.
Competition in the FBO business exists on a local basis at most of the airports at which our airport services business operates. Our FBO at the East 34th Street Heliport in New York and 33 of our remaining FBOs are the only FBOs at their respective airports, either because of the lack of suitable space at the airfield, or because the level of demand for FBO services at the airport would not support more than one FBO. The remaining 38 FBOs have one or more competitors at the airport or, to a lesser extent, at nearby airports. FBO operators compete based on a number of factors, including location of the facility relative to runways and street access, service, value-added features, reliability and price. Our airport services business positions itself as a provider of superior service to general aviation pilots and passengers. Employees are provided with comprehensive and ongoing training to ensure high level and consistent quality of service. Our airport services business markets high net worth individuals and corporate flight departments for whom we believe fuel price tends to be less important than service and facilities.
We believe there are fewer than 10 competitors with operations at five or more U.S. airports. These include Signature Flight Support, Encore (formerly known as Landmark Aviation) and Million Air Interlink.
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Other than Signature, these competitors are privately owned. Some present and potential competitors have or may obtain greater financial and marketing resources than Atlantic and this may negatively impact our ability to compete at an airport or for acquisitions. Some of our competitors are pursuing more aggressive pricing strategies that have contributed to increased margin pressure at some of our locations. However, we believe that the airport authorities are satisfied with the performance of our FBOs overall and are not seeking additional service providers.
The aviation industry is overseen by a number of regulatory bodies, with the primary one being the FAA. Our airport services business is also regulated by the local airport authorities through lease contracts with those authorities. The business must comply with federal, state and local environmental statutes and regulations associated in part with numerous underground fuel storage tanks. These requirements include, among other things, tank and pipe testing for tightness, soil sampling for evidence of leaking and remediation of detected leaks and spills. Our FBO operations are subject to regular inspection by federal and local environmental agencies and local fire and airline quality control departments. We do not expect that compliance and related remediation work will have a material negative impact on earnings or the competitive position of our airport services business. Our airport services business has not received notice requiring it to cease operations at any location or of any abatement proceeding by any government agency as a result of failure to comply with applicable environmental laws and regulations.
The day-to-day operations of our airport services business are managed by individual site managers who are responsible for all aspects of the operations at their site. Responsibilities include ensuring that customer requirements are met by the staff employed at the site and that revenue is collected, and expenses incurred, in accordance with internal guidelines. Local managers are, within the specified guidelines, empowered to make decisions as to fuel pricing and other services, improving responsiveness and customer service. Local managers within a geographic region are supervised by a regional manager. Atlantic Aviation has a team of five regional managers covering the United States.
Atlantic Aviation's operations are overseen by a group of senior personnel that averages approximately 22 years experience in the aviation industry. The business management team has established close and effective working relationships with local authorities, customers, service providers and subcontractors. The team is responsible for overseeing the FBO operations, setting strategic direction and ensuring compliance with all contractual and regulatory obligations.
Atlantic Aviation's head office is in Plano, Texas. The head office provides the business with overall management and performs centralized functions including accounting, information technology, risk management, human resources, payroll and insurance arrangements. We believe our head office facilities are adequate to meet our present and foreseeable operational needs.
As of December 31, 2008, our airport services business employed 2,281 employees at its various sites. Approximately 16% of employees are covered by collective bargaining agreements. We believe that employee relations at our airport services business are good.
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We provide below information about our businesses and investments, including key financial information for each business. In previous filings, we disclosed operating income for each of our businesses as a measure of business segment profit or loss calculated in accordance with GAAP. Effective this reporting period, we are disclosing earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items as defined by us. We believe EBITDA excluding non-cash items provides additional insight into the performance of our operating businesses relative to each other and similar businesses without regard to their capital structure, and their ability to service or reduce debt, fund capital expenditures and/or support distributions to the holding company. Additionally, EBITDA excluding non-cash items is a key performance metric relied on by management in evaluating the performance of the Company and our operating segments. Therefore, this Annual Report on Form 10-K discloses EBITDA excluding non-cash items in addition to the other financial information provided in accordance with GAAP.
We own 50% of International-Matex Tank Terminals, or IMTT, which provides bulk liquid storage and handling services in North America through ten marine terminals located on the East, West and Gulf Coasts, the Great Lakes regionIMTT. The 50% we do not own is owned by members of the United States and a partially owned terminal in each of Quebec and Newfoundland, Canada. The largest terminals are located on the New York Harbor and on the Mississippi River near New Orleans.founding family. IMTT stores and handles petroleum products, various chemicals, renewable fuels and vegetable and animal oils. IMTT is one of the largest companies in theproviders of bulk liquid storage terminal industry,services in the U.S., based on capacity, in the United States.capacity.
Financial information for this business is as follows ($ in millions):
As at, and for the Year Ended, December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenue | $ | 352.6 | $ | 275.2 | $ | 225.5 | ||||||
Operating income | 88.2 | 59.7 | 48.0 | |||||||||
Total assets(1) | 1,006.3 | 862.5 | 630.4 |
For the year ended December 31, 2008,2009, IMTT generated approximately 45%43% of its terminal revenue and approximately 46%42% of its terminal gross profit at its Bayonne, New Jersey facility in New York Harbor. Approximately 37%41% of IMTT’s total terminal revenue and approximately 41%48% of its terminal gross profit was generated by its St. Rose, Gretna, Avondale and Geismar Louisiana facilities, which together service the lower Mississippi River region (with St. Rose as the largest contributor).
The table below summarizes the proportion of the terminal revenue generated from the commodities stored at IMTT's terminal at Bayonne, IMTT's four terminals in Louisiana and IMTT's other U.S. terminals for the year ended December 31, 2008:
Black oil includes #6 oil, a heavy fuel used in electricity generation, as bunker fuel for ships and for other industrial uses. Black oil also includes vacuum gas oil, which is used as a feedstock for tertiary stages in oil refining. Distillate products include diesel fuel and home heating oil.
IMTT also owns Oil Mop, an environmental response and spill clean-up business. Oil Mop has a network of facilities along the U.S. Gulf Coast between Houston and New Orleans. These facilities service predominantly the Gulf region, but also respond to spill events as needed throughout the United States and internationally.
We completedThe table below summarizes the acquisition of our 50% economic and voting interest in IMTT Holdings Inc. (formerly known as Loving Enterprises, Inc.) on May 1, 2006. The shares we acquired were newly issued by IMTT Holdings Inc., which is the ultimate holding company for International-Matex Tank Terminals. The balanceproportion of the sharesterminal revenue generated from the commodities stored at IMTT’s U.S. terminals for the year ended December 31, 2009:
Proportion of Terminal Revenue from Major Commodities Stored | ||||||
Petroleum/Asphalt | Chemical | Renewables/Vegetable & Animal Oil | Other | |||
58% | 29% | 9% | 4% |
Financial information for 100% of this business is as follows ($ in IMTT Holdings Inc. is beneficially held by a number of related individuals.millions):
As of, and for the Year Ended, December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Revenue | $ | 346.2 | $ | 352.6 | $ | 275.2 | ||||||
EBITDA excluding non-cash items | 147.7 | 136.6 | 89.0 | |||||||||
Total assets | 1,064.8 | 1,006.3 | 862.5 |
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Bulk liquid storage terminals provide an essential link in the supply chain for major commodities such as crude oil, refined petroleum products and basic and specialized chemicals. In addition to renting storage tanks, bulk liquid storage terminals generate revenues by offering ancillary services including product transfer (throughput), heating and blending. Pricing for storage and other services typically reflects local supply and demand as well as the specific attributes of each terminal including access to deepwater berths and connections to land-based infrastructure such as a pipelineroads, pipelines and rail.
Both domestic and international factors influence demand for bulk liquid storage in the United States. The need of customers to rentDemand for storage tanks for product inventories rises and falls according to local and regional consumption, which largely reflects the underlying economic activity over the medium term. In addition to these domestic forces, import and export activity also accounts for a material portion of the business. Shippers require storage for the staging, aggregation and/or distribution of products before and after shipment. The extent of import/export activity depends on macroeconomic trends such as currency fluctuations as well as industry-specific conditions, such as supply and demand balances in different geographic regions. The medium-term length of storage contracts tends to offset short-term fluctuations in demand for storage.storage in both the domestic and import/export markets.
Potential entrants into the bulk liquid storage terminal business face several substantial barriers. Strict environmental regulations, limited availability of waterfront land with the necessary access to land-based infrastructure, local community resistance to new fuel/chemical sites, and high initial investment costs impede the construction of new bulk liquid storage facilities. These deterrents are most formidable around New York Harbor and other waterways near major urban centers. As a consequence, new supply is generally created by the addition of tankage to existing terminals where existing infrastructure can be leveraged, resulting in higher returns on invested capital. However, restrictions on land use, difficulties in securing environmental permits, and the potential for operational bottlenecks due to infrastructure constraints may limit the ability of existing terminals to expand the storage capacity of their facilities.
The key components of IMTT’s strategy are designed to drive growth in revenue and cash flows by attracting and retaining customers who place a premium on flexibility, speed and efficiency in bulk liquid storage.storage and to invest in additional storage capacity. IMTT believes that the successful execution of this strategy will be a function ofaided by its being one of the largest, technologically advanced,size, technology and well-run suppliers of bulk liquid storage services in the key markets that it serves.service capability.
Flexibility: Operational flexibility is essential to make IMTT is one of the mostan attractive supplierssupplier of bulk liquid storage services in its key markets as a result of its operational flexibility.markets. Its facilities operate 24/7 providing shippers, refiners, manufacturers, traders and distributors with prompt access to a wide range of storage services. In each of its two key markets, IMTT’s scale ensures availability of sophisticated product handling and storage capabilities along with ancillary services such as heating and blending. In support of this flexibility, IMTT continues to improve its facilitiesfacilities’ speed and flexibility of operations by investing in upgrades of its docks, pipelines and pumping infrastructure, and facility management systems.
Investment in Growth: IMTT seeks to increase its share of available storage capacity, especially in New York Harbor and the lower Mississippi River, and thereby improve its competitive position in these key markets through a combination of:
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The following table summarizes the location of each IMTT facility and the corresponding number of tanks in service, storage capacity in service, and number of ship and barge docks available for product transfer. This information reflects the site assets as of December 31, 20082009 and does not include tanks used in packaging, recovery tanks, andand/or other storage capacity not typically available for rent.
Facility | Land | Number of Storage Tanks in Service | Aggregate Capacity of Storage Tanks in Service | Number of Ship & Barge Berths in Service | Land | Number of Storage Tanks in Service | Aggregate Capacity of Storage Tanks in Service | Number of Ship & Barge Berths in Service | ||||||||||||||||||||||||
(millions of barrels) | (Millions of Barrels) | |||||||||||||||||||||||||||||||
Facilities in the United States: | ||||||||||||||||||||||||||||||||
Bayonne, NJ | Owned | 480 | 15.7 | 18 | Owned | 600 | 16.0 | 18 | ||||||||||||||||||||||||
St. Rose, LA | Owned | 187 | 12.8 | 16 | ||||||||||||||||||||||||||||
Gretna, LA | Owned | 54 | 2.0 | 5 | ||||||||||||||||||||||||||||
Avondale, LA | Owned | 81 | 1.1 | 4 | ||||||||||||||||||||||||||||
Geismar, LA | Owned | 34 | 0.9 | 3 | ||||||||||||||||||||||||||||
St. Rose, LA* | Owned | 205 | 13.4 | 16 | ||||||||||||||||||||||||||||
Gretna, LA* | Owned | 56 | 2.0 | 5 | ||||||||||||||||||||||||||||
Avondale, LA* | Owned | 82 | 1.1 | 4 | ||||||||||||||||||||||||||||
Geismar, LA* | Owned | 34 | 0.9 | 3 | ||||||||||||||||||||||||||||
Lemont, IL | Owned/ Leased | 144 | 0.9 | 3 | Owned/Leased | 155 | 1.1 | 3 | ||||||||||||||||||||||||
Joliet, IL | Owned | 70 | 0.7 | 2 | Owned | 71 | 0.7 | 2 | ||||||||||||||||||||||||
Richmond, CA | Owned | 42 | 0.7 | 1 | Owned | 46 | 0.6 | 1 | ||||||||||||||||||||||||
Chesapeake, VA | Owned | 25 | 1.0 | 1 | Owned | 23 | 1.0 | 1 | ||||||||||||||||||||||||
Richmond, VA | Owned | 12 | 0.4 | 1 | Owned | 12 | 0.4 | 1 | ||||||||||||||||||||||||
Facilities in Canada: | ||||||||||||||||||||||||||||||||
Quebec City, Quebec(1) | Leased | 47 | 2.0 | 2 | Leased | 53 | 1.9 | 2 | ||||||||||||||||||||||||
Placentia Bay, Newfoundland(2) | Owned | 6 | 3.0 | 2 | Leased | 6 | 3.0 | 2 | ||||||||||||||||||||||||
Total | 1,182 | 41.2 | 58 | 1,343 | 42.1 | 58 |
* | Collectively the “Louisiana” facilities. |
(1) | Indirectly 66.7% owned and managed by IMTT. |
(2) | Indirectly 20.1% owned and managed by IMTT. |
IMTT conducts operations predominantly on owned land. In addition toAll facilities have marine access, all facilities have road access and, except for Richmond, Virginia and Placentia Bay, Newfoundland, all sites have rail access.
The 15.716 million barrel storage terminal at Bayonne, New Jersey has the most storage capacity of any IMTT site. Located on the Kill Van Kull between New Jersey and Staten Island, the terminal occupies a strategically advantageous position in New York Harbor, or NYH. As the largest third-partyindependent bulk liquid storage facility in NYH, IMTT-Bayonne has substantial market share for third-party storage of refined petroleum products and chemicals.
NYH serves as the main petroleum trading hub in the northeast United States and the physical delivery point for the gasoline and heating oil futures contracts traded on New York Mercantile Exchange (NYMEX). In addition to waterborne shipments, products reach NYH through major refined petroleum product pipelines from the U.S. Gulf region, where approximately half of U.S. domestic refining capacity resides. NYH also serves as the starting point for refined product pipelines linked to inland markets and as a key port for U.S. refined petroleum product imports. IMTT-Bayonne has connections to the Colonial, Buckeye and Harbor refined petroleum product pipelines as well as rail and road connections. As a result, IMTT-Bayonne provides its customers with substantial logistical flexibility comparable or superior to those of its competitors.flexibility.
IMTT-Bayonne has the capability to quickly load and unload the largest bulk liquid transport ships entering NYH. The U.S. Army Corp of Engineers (USACE) has dredged the Kill Van Kull channel passing the IMTT-Bayonne docks to 45 feet (IMTT has dredged some but not all of its docks to that depth). Most competitors in NYH have facilities located on the southern portion of the Arthur Kill (water depth substantially less than 45of approximately 35 feet) and force large ships to transfer product through lightering or the process of
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using(transferring cargo to barges to ferry product between the large ships in the harbor and the storage terminals.at anchorage) before docking. This latter technique substantially increases the cost of loading and unloading vessels. This competitive advantage for Bayonne may improve as the USACE has announced plans to dredge the Kill Van Kull to 50 feet (with no planned increase in the depth of the southern portion of the Arthur Kill).
Demand for third-party bulk liquid storage in NYH has remained strong during the past several years, as illustrated by the capacity utilization at the Bayonne facility. For the three years ended December 31, 2008,2009, IMTT-Bayonne on average rented over 95%94% of its available storage capacity.
On the lower Mississippi River, IMTT currently operates four bulk liquid storage terminals (St. Rose, Gretna, Avondale Gretna and Geismar). With combined storage capacity of 16.817.4 million barrels, the four sites give IMTT substantial market share in third-party storage for black oil, bulk liquid chemicals, and vegetable oils on the lower Mississippi River.
The Louisiana terminalsfacilities give IMTT a substantial presence in a key domestic transport hub. The lower Mississippi River serves as a major transshipment point between the central United States and the rest of the world for exported agricultural products (such as vegetable oils) and imported chemicals (such as methanol). The region also has substantial domestic traffic related to the petroleum industry. The U.S. Gulf Coast region hosts approximately half of U.S. refining capacity yet accounts for only one-quarter of its consumption. As a result, Gulf Coast refiners send their products to other sectionsregions of the U.S. and overseas and require storage capacity and ancillary services to facilitate distribution. Thus, IMTT'sIMTT’s Louisiana facilities, with their deep water ship and barge docks as well as access to rail and road infrastructure, are highly capable of performing thethese functions.
Demand for third-party bulk liquid storage on the lower Mississippi River has remained strong during the past several years, as illustrated by the capacity utilization at the IMTT Louisiana facilities. For the three years ended December 31, 2008,2009, IMTT rented approximately 95%96% of the aggregate available storage capacity at St. Rose, Gretna, Avondale Gretna and Geismar.
In addition to Bayonne and the four Louisiana sites, IMTT has smaller domestic operations in Chesapeake, Virginia; Richmond, Virginia; Lemont, Illinois; Joliet, Illinois; and Richmond, California. IMTT purchased the Joliet, IL facility, which it had operated and managed since 2003, in November 2007. In Canada, IMTT owns 66.7% of a terminal located at the Port of Quebec on the St. Lawrence River and a 20.1% interest in a facility located on Placentia Bay, Newfoundland. The latter facility serves as a transshipment point for crude oil from fields off the east coast of Canada. As a group, these U.S. and Canadian facilities have a total storage capacity of 8.6 million barrels and generated 13% of IMTT's terminal gross profit during 2008.
The competitive environment in which IMTT operates varies by terminal location. The principal competition for each of IMTT'sIMTT’s facilities comes from other third-party bulk liquid storage facilities located in the same regional market. Kinder Morgan, which owns three bulk liquid storage facilities in New Jersey and Staten Island, NY,New York, represents IMTT'sIMTT’s major competitor in the NYH market. Kinder Morgan also owns facilities along the lower Mississippi River near New Orleans. In both the NYH and lower Mississippi River markets, IMTT operates the largest third-party terminal by capacity which, combined with the capabilities of IMTT'sIMTT’s facilities, provides IMTT with a strong competitive position in both of these key bulk liquid storage markets.markets.
IMTT'sIMTT’s minor facilities in Illinois, California and Virginia represent only a small proportion of available bulk liquid storage capacity in their respective markets and have numerous competitors with facilities of similar or larger size and with similar capabilities.
Secondary competition for IMTT'sIMTT’s facilities comes from bulk liquid storage facilities located in the same broad geographic region as IMTT'sIMTT’s terminals. For example, bulk liquid storage facilities located on the Houston Ship Channel provide a moderate level ofindirect competition for IMTT'sIMTT’s Louisiana facilities.
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IMTT provides bulk liquid storage services principally to vertically integrated petroleum product producers petroleum productand refiners, chemical manufacturers, food processors and traders of bulk liquid petroleum, chemical and agricultural products. No single customer represented greater than 10% of IMTT'sIMTT’s total revenue for the year ended December 31, 2008.2009.
IMTT generally rents storage tanks to customers under contracts with typical terms of three to five years. Pursuant to these contracts, customers generally pay for the capacity of the tank irrespective of whether they actually store product in the tank and the contracts generally have no early termination provisions. Customers generally pay rental charges monthly at rates stated in terms of cents per barrel of storage capacity per month. Tank rental rates vary by commodity stored and by location. IMTT'sIMTT’s standard form of customer contract generally permits a certain number of free product movements into and out of the storage tank with charges for throughput exceeding the prescribed levels. In cases where stored liquids require heating to keep viscosity at acceptable levels, IMTT generally charges the customer for the heating with such charges essentially reflecting a pass-through of IMTT'sIMTT’s cost. Heating charges principally cover the cost of fuel used to produce steam. Pursuant to IMTT'sIMTT’s standard form of customer contract, tank rental rates, throughput rates and the rates for some other services generally increase based on annual inflation indices. Customers retain title to productproducts stored in the tanks and have responsibility for securing insurance against loss. As a result, IMTT has no commodity price risk on liquidrelated to the liquids stored in its tanktanks and havehas limited liability from product loss. IMTT is responsible for ensuring appropriate care of products stored at its facilities and maintains adequate insurance with respect to its exposure.
The rates that IMTT charges for theits services are not subject to regulation. However, a number of regulatory bodies oversee IMTTIMTT’s operations. IMTT must comply with numerous federal, state and local environmental, occupational health and safety, security, tax and planning statutes and regulations. These regulations require IMTT to obtain and maintain permits to operate its facilities and impose standards that govern the way IMTT operates its business. If IMTT does not comply with the relevant regulations, it could lose its operating permits and/or incur fines and increased liability. As a result, IMTT has developed environmental and health and safety compliance functions which are overseen by the terminal managers at the terminal level and IMTT'sIMTT’s Director of Environmental, Health and Safety, Chief Operating Officer and Chief Executive Officer. While changes in environmental, health and safety regulations pose a risk to IMTT'sIMTT’s operations, such changes are generally phased in over time to manage the impact on industry.
The Bayonne New Jersey terminal, which has beenwas acquired and expanded over a 2526 year period, contains pervasive remediation requirements that were partially assumed at the time of purchase from the various former owners. One former owner retained environmental remediation responsibilities for a purchased site as well as sharing other remediation costs. These remediation requirements are documented in two memoranda of agreement and an administrative consent order with the State of New Jersey. Remediation efforts entail removal of the free product, soil treatment, repair/replacement of sewer systems, and the implementation of containment and monitoring systems. These remediation activities are expected to span a period of ten to twenty years or more.
The Lemont terminal has entered into a consent order with the State of Illinois to remediate contamination at the site that pre-dated IMTT'sIMTT’s ownership. Remediation is also required as a result of the renewal of a lease with a government agency for a portion of the terminal. This remediation effort, including the implementation of extraction and monitoring wells and soil treatment, is estimated to span a period of ten to twenty years.
See “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7 for discussion of the expected future capitalized cost of environmental remediation.
The day-to-day operations of IMTT'sIMTT’s terminals are overseen by individual terminal managers who are responsible for all aspects of the operations at their respective sites. IMTT'sIMTT’s terminal managers have on average 3031 years experience in the bulk liquid storage industry and 1718 years service with IMTT.
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The IMTT head office in New Orleans provides the business with central management, performs support functions such as accounting, tax, finance, human resources, insurance, information technology and legal services and provides support for functions that have been partially de-centralized to the terminal level such as engineering and environmental and occupational health and safety regulatory compliance. IMTT'sIMTT’s senior management team, other than the terminal managers, have on average 3536 years experience in the bulk liquid storage industry and 2728 years service with IMTT.
The Board of IMTT Holdings consists of six members with three appointees each from Macquarie Terminal Holdings, LLC, our wholly owned subsidiary, and our co-shareholder. All decisions of the Board require majority approval, including the approval of at least one member appointed by Macquarie Terminal Holdings, LLC and one member appointed by our co-shareholder. The shareholders’ agreement to which we became a party at the time of our investment in IMTT contains a customary list of items that must be referred to the Board for approval.
The shareholders’ agreement is filed as an exhibit to this Annual Report on Form 10-K.
As atof December 31, 2008,2009, IMTT (excluding non-consolidated sites) had a total of 1,0611,022 employees, with 789 employed at the bulk liquid storage terminals, 150including 133 employed by Oil Mop, 51 employed by St. Rose Nursery and 71 employed at the head office in New Orleans.Mop. At the Bayonne terminal, 137 staff members142 employees are unionized, 5452 of the staff membersemployees are unionized at the Lemont and Joliet terminals and 34 staff members33 employees are unionized at the Quebec terminal. We believe employee relations at IMTT are good.
Upon acquisition of our interest in IMTT we became a party to a shareholders' agreement relating to IMTT Holdings Inc.
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Founded in 1904, The Gas Company LLC, or TGC, is Hawaii'sHawaii’s only government franchised full-service gas energy company, makingmanufacturing and distributing gas products and services available in Hawaii. The market includes Hawaii'sHawaii’s approximately 1.3 million residents and its approximately 6.86.5 million visitors in 2008. TGC2009. The Gas Company manufactures synthetic natural gas, or SNG, for its utility customers on Oahu. TGC also provides both regulatedOahu, and unregulated gas distribution services ondistributes Liquefied Petroleum Gas, or LPG, to utility and non-utility customers throughout the state'sstate’s six primary islands.
TGCThe Gas Company has two primary businesses, utility (or regulated) and non-utility (or unregulated):
TGC believes it supplies all of the regulated market and approximately 75% of the non-regulated gas market, or approximately 90% of the state's overall gas market. TGC hasThe Gas Company’s two products:products, SNG and LPG. Both productsLPG, are relatively clean-burning fuels that produce lower levels of carbon emissions than other hydrocarbon fuels such as coal or oil. This is particularly important in Hawaii where heightened public awareness of environmental impact makes lower emission products attractive to customers.
SNG and LPG have a wide number of commercial and residential applications including water heating, drying, cooking, emergency power generation and decorative lighting.tiki torches. LPG is also used as a fuel for specialty vehicles such as forklifts. Gas customers include residential customers for whom TGC has nearly all of the market, and a wide variety of commercial, hospitality, military, public sector and wholesale customers.
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Although the Hawaii Public Utilities Commission, or HPUC, sets the base price for the SNG and LPG sold by our regulated business, TGC is permitted to pass through changes in its raw materials cost by means of a monthly fuel adjustment charge.
As with many businesses in Hawaii, TGC is affected by the tourism industry, which can be measured by visitor arrivals. According to the State of Hawaii Department of Business and Economic Development and Tourism, 2008 visitor arrivals decreased by approximately 11% from 2007 and for 2009, visitor arrivals are expected to decline by a further 2%. In the near-term, TGC will face challenges resulting from a slower economy, primarily due to fewer visitor arrivals as noted above. As the number of visitors decline, tourism-related businesses, such as hotels and restaurants, experience less gas demand for water heating, drying and cooking. In 2008, the state of Hawaii initiated the Hawaii Clean Energy Initiative with a goal of creating a 70% clean energy economy by 2030. We believe this initiative will enhance TGC’s opportunities as a clean energy provider.
Financial information for this business is as follows ($ in millions):
As at, and for the Year Ended, December 31, | As of, and for the Year Ended, December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||
Revenue | $ | 213.0 | $ | 170.4 | $ | 160.9 | $ | 175.4 | $ | 213.0 | $ | 170.4 | ||||||||||||
Operating income | 19.8 | 17.7 | 16.6 | |||||||||||||||||||||
EBITDA excluding non-cash items | 37.6 | 27.9 | 25.6 | |||||||||||||||||||||
Total assets | 330.2 | 313.1 | 308.5 | 344.9 | 330.2 | 313.1 | ||||||||||||||||||
% of our consolidated revenue | 20.2 | % | 20.5 | % | 16.9 | % | 24.7 | % | 21.8 | % | 22.6 | % |
On June 7, 2006, we completed the acquisition of TGC from k1 Ventures Limited. The cost of the acquisition, including working capital adjustments and transaction costs, was approximately $263.2 million. In addition, we incurred financing costs of approximately $3.3 million.
TGC’sThe Gas Company’s long-term strategy is focused on increasingto increase and diversifyingdiversify its customer base and, accordingly, its revenue and cash flow. To succeed with this strategy we intendbase. The business intends to develop opportunities arising from growth in Hawaii's population, expandedincrease penetration of the residential, the expanding government operations (primarily military) and the tourism industry. In addition, we intendtourism-related markets. The business also intends to invest in and promote the value of TGC'sThe Gas Company’s products and services and theirits attractiveness as ana cleaner alternative to other energy sources in Hawaii. Although
As a second component of its strategy, The Gas Company intends to diversify its sources of feedstock and LPG to ensure reliable supply and to mitigate any potential cost increases to its customers. The Gas Company is exploring other clean and renewable energy alternatives that may be distributed using its existing infrastructure.
The Gas Company also recognizes the impact of the economic slowdown on the tourism industry in particular may adversely affect the financial performance of the businessimportant role it plays in the near term, we believe that over the long term TGC is well positioned to generate stablelocal community and growing cash flows basedas a component of its strategy will focus on its established customer base, a locally well-known and respected brand and its strong competitive position in Hawaii.
New Opportunities: The growth of Hawaii's resident population and tourism-fueled economic growth present opportunities for increasing TGC's base of residential and commercial customers. We will position TGC to take advantage of future growth by strengtheningmaintaining good relationships with hotel, restaurantregulators, governments and residential developers, along with representatives of the military community and other commercial customers.
Value Proposition: We market TGC’s gas products as an environmentally friendlier alternative to electricity generation and TGC itself as an established, reliable and cost-effective distributor of those products. We believe that our gas products are among the most efficient sources of energy in Hawaii for applications including cooking, laundry and decorative lighting, particularly when compared with electricity generated from oil and or diesel. TGC will continue to invest in the development and improvement of its SNG distribution system and increase its LPG storage capacity, both of which will enhance the reliability and cost effectiveness of our service.
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TABLE OF CONTENTScommunities it serves.
While the continentalcontiguous U.S. obtains natural gas from wells drilled into underground reservoirs of porous rock, Hawaii relies solely on manufactured and imported alternatives. Hawaii does not have any sources forhas no natural gas.gas reserves.
Synthetic Natural Gas. TGC catalyticallyThe business converts a light hydrocarbon feedstock (currently naphtha) to SNG. The product is chemically similar in most respects to natural gas and has a similar heating value on a per cubic foot basis. TGCThe Gas Company has the only SNG manufacturing capability in Hawaii at its plant located on the island of Oahu. All SNG is delivered by underground piping systems to customers on Oahu.
Liquefied Petroleum Gas. LPG is a generic name for a mixture of hydrocarbon gases, typically propane and butane. LPG liquefies at a relatively low pressure under normal temperature conditions. As a result, LPG can be stored or transported more easily than natural or synthetic natural gas. LPG is typically transported in cylinders or tanks. Domestic and commercial applications of LPG are similar to those of natural gas and synthetic natural gas.
TGC'sThe Gas Company’s utility business is regulated by the Hawaii Public Utilities Commission, or HPUC, while TGC'sthe business’ non-utility business is not. The HPUC exercises broad regulatory oversight and investigative authority over all public utility companies doing business in the state of Hawaii.
Rate Regulation. The HPUC regulatesestablishes the rates that TGCThe Gas Company can charge its utility customers via cost of service regulation. The rate approval process is intended to ensure that a public utility has a reasonable opportunity to recover costs that are prudently incurred and earn a fair return on its investments, while protecting consumer interests.
TGC'sAlthough the HPUC sets the base rate for the SNG and LPG sold by The Gas Company’s utility business, the business is permitted to pass through changes in its raw materials cost by means of a monthly fuel adjustment charge, or FAC. The adjustment protects the business’ earnings from volatility in feedstock commodity costs.
The business’ utility rates are established by the HPUC in periodic rate cases typically initiated by TGC when it has the need to do so. Historically, this has occurred approximately every five years. TGCThe Gas Company. The business initiates a rate case by submitting a request to the HPUC for an increase in the rates based, for example, upon materially higher costs related to providing the service. Following initiation of the rate increase request by The HPUCGas Company and submission by the Hawaii Division of Consumer Advocacy or DCA, may also initiate a rate case, although such proceedings have been relatively rare in Hawaii and will generally only occur if the HPUC or DCA receive numerous complaints about the rates being charged or if there is a concern that TGC's regulated operations may be earning a greater than authorized rate of return on investment for an extended period of time.
During the rate approval process, TGC must demonstrate that, at its current rates and using a forward projected test year, its revenue will not provide a reasonable opportunity to recover costs and obtain a fair return on its investment. Following submission by the DCA and other intervening parties of their positions on the rate request, and potentially an evidentiary hearing, the HPUC issues a decision establishing the revenue requirements and the resulting rates that TGCThe Gas Company will be allowed to charge. This decision relies on statutes, rules, regulations, precedent and well-recognized ratemaking principles.
Other Regulations. The HPUC is statutorily requiredregulates all franchised or certificated public service companies operating in Hawaii; prescribes rates, tariffs, charges and fees; determines the allowable rate of earnings in establishing rates; issues guidelines concerning the general management of franchised or certificated utility businesses; and acts on requests for the acquisition, sale, disposition or other exchange of utility properties, including mergers and consolidations. When we acquired The Gas Company, we agreed to issue an interim decision on a rate case application within a certain time period, generally ten months following application, depending on the circumstances and subject to TGC's compliance14 regulatory conditions with procedural requirements. In addition to formal rate cases, tariff changes and capital additions are also approved by the HPUC.
The most recent TGC rate case, resulting in a 9.9% increase, was approved by the HPUC that address a variety of matters including: a requirement that the ratio of consolidated debt to total capital for The Gas Company, LLC and HGC Holdings LLC, or HGC, does not exceed 65%; and a requirement to maintain $20.0 million in May 2002. In August 2008, TGC submitted its application for an 8.4% increase in its utility rates. If approved, the new rates could be effective as early as July 2009.readily-available cash resources at The rate case application is currently under review by the HPUC and the independent Consumer Advocate. The outcome of the company’s rate application cannot be estimated. As permitted by the HPUC, changes in TGC's gas feedstock costs since the last rate case have been passed through to customers via a monthly fuel adjustment charge.Gas Company, HGC or MIC.
Depending upon the end-use, the business competes with electricity, diesel, solar energy, geo-thermal, wind, other gas providers and alternative energy sources. Hawaii’s electricity is generated by four electric utilities and various non-utility generators.
RegulatedUtility Business. TGCThe Gas Company holds the only government franchise for regulated gas services in Hawaii. This enables it to utilize public easements for its pipeline distribution systems. This franchise also provides some protection from competition within the same gas-energy sector since TGCthe business has developed and owns extensive below-ground distribution infrastructure. The costs associated with developing distribution
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infrastructure are significant. However, gas products can be stored in LPG tanks, and TGC's regulated customers, in most instances, the business’ utility customers also have the ability to use unregulatednon-utility gas supplied by TGCThe Gas Company or its competitors by using LPG tanks.
Since electricity has similar markets and uses, TGC's regulated business also competes with electric utilities in Hawaii. Hawaii's electricity is generated by four electric utilities and various non-utility generators. Non-utility generators, such as agricultural producers, can enter into power purchase agreements with electric utilities or others to sell any excess power. In addition, some large customers have the ability to utilize diesel fuel or other petroleum products to provide heat energy for uses that compete with gas.
UnregulatedNon-Utility Business. TGCThe Gas Company also sells LPG in an unregulated market on the six primary islands of Hawaii. There are two other wholesale companies and several small retail distributors that share the LPG market. The largest of these is AmeriGas. We believe TGCThe Gas Company believes it has a competitive advantage because of its established customer base, storage facilities, distribution network and reputation for reliable cost-effective service. Depending upon the end-use, the unregulated business also competes with electricity, diesel and solar energy providers. For example, diesel, solar energy, gas and electricity are all used for water heating in Hawaii.
TGCThe business obtains its LPG from foreign importssources and twoeach of the Chevron and Tesoro oil refineries located on Oahu. The Gas Company has LPG supply agreements with each refinery. The business purchases its LPG from foreign sources under foreign supply agreements and through spot-market purchases, if needed.
In January 2010, Chevron announced that it plans to reduce the islandsize of Oahu.its global oil refining business, although it has not made any decisions regarding its refinery in Hawaii. Chevron could decide to continue operating in Hawaii, cease operations entirely or convert a portion of its operations into a terminal for importation of energy products. Chevron’s Hawaii refinery supplies The Gas Company with over half of its total LPG purchases. The refinery also supplies the business’ competitors in the non-utility market.
Any decision by Chevron regarding its operations in Hawaii could affect the business’ cost of LPG and may adversely impact its non-utility contribution margin and profitability. In an effort to mitigate the risk of supply disruption and/or a potential increase in costs, the business is supplied to TGC's non-Oahu customers by direct deliveries from the overseas suppliers and by barge delivery pursuant to the termsevaluating a number of an exclusive charter contract.alternatives, including additional shipments of foreign sourced product.
TGCThe business also obtains its raw feedstock and fuel for SNG production, naphtha, from onethe Tesoro refinery on Oahu. The Gas Company has an agreement with Tesoro that expires April 30, 2010 and both parties have the desire to renegotiate and extend the contract. Under the rate structures in place in Hawaii, The Gas Company’s utility business has the ability to pass fluctuations in the cost of the Oahu refineries. TGC owns the pipelines, storagefeedstock through to its customers.
TGCThe Gas Company manufactures SNG at its SNG plant located west of the Honolulu business district, by converting naphtha purchased from the Tesoro refinery.district. The SNG plant configuration is effectively two production units. For most major pieces of equipment the configuration provides redundancy and helps ensure continuous and adequate supply. A propane air unit, near the Honolulu business district, provides backup in the event of a SNG plant shutdown. The SNG plant operates continuously with only a 15% seasonal variation in production and operates well within its design capacity of 150,000 therms per day. We believe that as of December 31, 2008 the SNG plant has with an appropriate level of maintenance capital investment, an estimated remaining economic life of approximately 20 years and that theyears. The economic life of the plant is further extendablemay be extended with additional capital investment.
The SNG plant receives feedstock and fuel from the Tesoro refinery under a Petroleum Feedstock Agreement, or PFA, and an Interruptible Supply Agreement. The PFA has an initial term ending April 30, 2009 and continues thereafter from year to year until terminated by either party upon at least 90 days notice prior to the end of the then current term. The Interruptible Supply Agreement has a 90 day term which either party can terminate upon 90 days notice. Together the contracts provide that TGC will purchase the first 3.5 million gallons of its requirements of feedstock per month from Tesoro. The PFA is sufficient to meet the needs of the SNG plant for firm load requirements. The pricing of the firm feedstock is based on a blended gasoline and diesel index.
A 22-mile transmission linepipeline links the SNG plant to a distribution system that ends at Pier 38 in south Oahu. The transmission pipeline is predominately sixteen-inch piping and is utilized to move SNG from the plant to Pier 38 near the financial district in Honolulu. This line also provides short-term storage of SNG. From Pier 38 a pipeline distribution system consisting of approximately 900 miles of transmission, distribution and service pipelines takes the gas to customers. Additionally, LPG is trucked to holding tanks on Oahu and shipped by barge to the neighboring islands where it is distributed via pipelines to utility customers that are not connected to the Oahu SNG pipeline system. Approximately 90% of TGC'sthe business’ pipeline system is on Oahu.
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The non-utility business serves gas on all six primary islands to customers that are not connected to the TGCbusiness’ utility pipeline system. The LPG is acquired frommajority of The Gas Company’s non-utility customers are on the two Oahu refineries and from foreign suppliers. Itneighboring islands. LPG is distributed to the neighboring islandislands by direct deliveries from overseas suppliers and by barge delivery. The business also owns the infrastructure to distribute LPG to its customers, utilizing two LPG-dedicated barges exclusively time-chartered from a third-party,such as harbor pipelines, trucks, several holding facilities and storage base-yards on Kauai, Maui and Hawaii.
TGC is the only unregulated LPG provider in Hawaii that has three sources of LPG supply: two petroleum refineries on the island of Oahu and foreign sources received from ships through TGC’s harbor facilities. Both LPG agreements with the Hawaii refineries have initial terms ending in 2009 with one-year renewal periods, unless terminated by either party upon at least 90 days notice. TGC purchases LPG from foreign sources pursuant to a foreign supply agreement and through spot-market purchases, if needed.
The barges transporting LPG between Oahu and its neighbor islands must comply with the requirements of the Jones Act (Section 27 of the Merchant Marine Act of 1920). TGC currently has the use of two Jones Act-qualified barges, having the capability of transporting 424,000 gallons and 500,000 gallons of LPG, respectively, under a time charter arrangement with a third-party.
Because there are no Jones Act-qualified ships transporting LPG in the Pacific, TGC cannot purchase LPG from the U.S. mainland. Therefore, TGC can only supplement its local purchases with LPG imported from outside the U.S. and carried on foreign tankers.
As of December 31, 2008, TGC2009, The Gas Company had 308 active306 employees, of which 209206 are unionized. The unionized employees are subject to a collective bargaining agreement that became effective May 1, 2008 and expires on April 30, 2013. TGCThe business believes it has a good relationship with the union and there have been no major disruptions in operations due to labor matters for over 30 years. Management of TGCthe business is headquartered in Honolulu, Oahu with branch managersoffice management at operating locations.
Environmental Permits: Gas distribution systems requiremanufacturing requires environmental operating permits. The most significant are air and wastewater permits that are required for the SNG plant. These permits contain restrictions and requirements that are typical for an operation of this type. To date, TGC has beenThe Gas Company is in compliance in all material respects with all applicable provisions of these permits.
Environmental Compliance: TGCThe business believes that it is in compliance in all material respects with applicable state and federal environmental laws and regulations. With regard to hazardous waste, all TGC facilities are generally classified as conditionally exempt small quantity generators, which means they generate between zero and one hundred kilograms of hazardous waste in a calendar month. Under normal operating conditions, theits facilities do not generate hazardous waste. Hazardous waste, when produced, poses little ongoing risk to the facilities from a regulatory standpoint because SNG and LPG dissipate quickly if released.
Other Environmental Matters. Pier 38 and Parcels 8 and 9, which are owned by the State of Hawaii Department of Transportation — Harbors Division, or DOT, and which are currently used or have been used previously by TGC or its predecessors, have known environmental contamination and have undergone remediation work. Prior operations on these parcels included a parking lot, propane loading and unloading facilities, a propane air system and a propane tank storage and maintenance facility. In 2005, Parcel 8 and a portion of Parcel 9 were returned to DOT under an agreement that did not require remediation by TGC. We believe that the contamination on the portion of Parcel 9 that TGC continues to use resulted from sources other than TGC's operations because the contamination is not consistent with TGC's past uses of the property.
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Our district energy business consistsThrough December 22, 2009, District Energy consisted of a 100% ownership of Thermal Chicago and a 75% interest in Northwind Aladdin. We also ownAladdin and all of the senior debt of Northwind Aladdin. The remaining 25% equity interest in Northwind Aladdin is owned by Nevada Electric Investment Company, or NEICO, an indirect subsidiary of NV Energy, Inc. (formerly known as Sierra Pacific Resources).
Financial information forOn December 23, 2009, we sold 49.99% of our membership interests in this business is as follows ($ in millions):to John Hancock Life Insurance Company and John Hancock Life Insurance Company (U.S.A.) (collectively “John Hancock”) for $29.5 million. The financial results discussed below reflect 100% of District Energy’s full year performance.
As at, and for the Year Ended, December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenue | $ | 48.0 | $ | 49.5 | $ | 43.6 | ||||||
Operating income | 11.6 | 11.8 | 9.0 | |||||||||
Total assets | 227.1 | 232.6 | 236.1 | |||||||||
% of our consolidated revenue | 4.6 | % | 6.0 | % | 8.4 | % |
Thermal ChicagoDistrict Energy operates the largest district cooling system in the United States. The system currently serves approximatelyover 100 customers in downtown Chicago under long-term contracts and one customer outside the downtown area. Thermal Chicago has signed contracts with six additional customers that are expected to start service in 2009 and beyond. Our district energy businessDistrict Energy produces chilled water at five modern plants located in downtown Chicago and distributes it through a closed loop of underground piping for use in the air conditioning systems of large commercial, retail and residential buildings in the central business district. The first of the plants became operational in 1995, and the most recent came on line in June 2002. OurWith modifications made in 2009, the downtown system currently has athe capacity ofto produce approximately 87,00092,000 tons of chilled water, whichalthough it has approximately 102,000 tons of cooling under contract. The business is expectedable to increase to approximately 92,000 tons by mid-2009 upon completionsell continuous service capacity in excess of the modification work at one of the Chicago plants. The downtown system's deliverable capacity is approximately 4,000 tons more than thetotal system capacity due tobecause not all customers use their full capacity at the reduced rate arrangements with interruptible customers who, when called upon, could meet their own cooling needs during periods of peak demand.same time.
Thermal ChicagoDistrict Energy also owns a site-specific heating and cooling plant that serves a single customer in Chicago outside of the downtown area. This plant has the capacity to produce 4,900 tons of cooling and 58.258 million British Thermal Units, or BTUs, of heating per hour.
Northwind AladdinDistrict Energy’s Las Vegas operation owns and operates a stand-alone facility that provides cold and hot water (for chilling and heating, respectively) to several customers in Las Vegas, Nevada. Northwind AladdinThe Las Vegas operation represented 19%approximately 25% of the operating cash flows of our district energy businessDistrict Energy in 2008. The Northwind Aladdin plant has been2009. Approximately 65% of cash flows generated by the Las Vegas operation in 2009 were from a long-term contract to service a resort and casino including a hotel, convention and conference facility and an adjacent shopping complex. In early 2009, the operation since 2000 and hasbegan providing service to a new customer building that was constructed on the capacity to produce approximately 9,300 tons of chilled water, 40 million BTUs of heating per hour and to generate approximately 5 megawatts of electricitysame property. This new customer began receiving full service in emergencies.February 2010. All three Las Vegas contracts expire in February 2020.
On the day following our initial public offering, we acquiredFinancial information for 100% of the membership intereststhis business is as follows ($ in Macquarie District Energy Holdings, LLC, the holding company of our district energy business, from the Macquarie Group, for $67.0 million (including transaction costs) and assumed $120.0 million of senior debt.millions):
As of, and for the Year Ended, December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Revenue | $ | 48.6 | $ | 48.0 | $ | 49.5 | ||||||
EBITDA excluding non-cash items | 20.8 | 21.1 | 5.5 | |||||||||
Total assets | 234.8 | 227.1 | 232.6 | |||||||||
% of our consolidated revenue | 6.8 | % | 4.9 | % | 6.6 | % |
District energy is the provision ofsystems provide chilled water, steam and/or hot water from a centralized plant through underground piping for cooling and heating purposes. A typical district energy customer is the owner/manager of a large office or residential building or facilities such as hospitals, universities or municipal buildings. District energy systems exist in most major North American and European cities and some have been in operation for over 100 years. District energy is not, however, an efficient option for suburban areas where customers are widely dispersed.
Revenue from providing district energy services under contract are usually fixed capacity payments and variable usage payments. Capacity payments are made regardless of the actual volume of services used. Usage payments are based on the level of services consumed.
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OurDistrict Energy’s strategy for our district energy business is to position district energythe business in the market as the most efficient and effective method of providing building cooling such that we attractit attracts and connectconnects new customers to ourthe system and can invest in further expansion. We believe that our district energy businessDistrict Energy will continue to generate consistent revenue and stable cash flows as a result of the long-term contractual relationships with ourits customers and ourthe management team’s proven ability to improve the operating performance of the business.
Organic Growth: We intendThis business intends to grow revenue and profits by successfully marketing ourits services to developers in the downtown Chicago market. OurIts value proposition is centered on high reliability, efficiency and ease of maintenance. OurThe management team develops and maintains relationships with property developers, engineers, architects and city planners as a means of keeping our district energy businessDistrict Energy and these attributes “top of mind” when they select among building cooling systems and services.
Business Management: The business focuses on minimizing the cost of electricity consumed per unit of chilled water produced by operating its plants to maximize efficient use of electricity. These cost savings are passed through to its customers.
System Expansion: Since our acquisition in 2004, system modifications and expansion of one of ourat the business’ plants have increased total cooling capacity by approximately 10,00015,000 tons or 10%15%. Projects currently under development will further expand the system capability and accommodate an expected increase in demand for district cooling in Chicago.
Each chilled water plant is staffed when in operation and has a central control room from which the plant can be operated and customer site parameters can be monitored and controlled. The plant operators can monitor, and in some cases control, the functions of other plants allowing them to cross-monitor critical functions.
Since the commencement of operations, there have been no unplanned interruptions of service to any customer. Occasionally, we have experienced plant or equipment outages due to electricity loss or equipment failure, however, in these cases we have had sufficient idle capacity to maintain customer loads. When maintenance work performed on the system has required customer interruption, we have been able to coordinate our operations so as to continue to meet customer needs. The effect of major electric outages is generally mitigated since the plants affected by the outages cannot produce cooling and affected customers are unable to use the cooling service.
Corrective maintenance is typically performed by qualified contract personnel and off-season maintenance is performed by a combination of plant staff and contract personnel. The majority of preventive maintenance is conducted off-season.
WeDistrict Energy currently serveserves approximately 100 customers in downtown Chicago and one outside the downtown area, and have signed contracts with six additional customers expected to begin service in 2009 and beyond. Ourarea. Its customer base is diverse and consists of retail stores, office buildings, residential buildings, theaters and government facilities. Office and commercial buildings constitute approximately 70% of ourits customer base. No one customer accounts for more than 10% of total contracted capacity and only two customers account for more than 5% of total contracted capacity each. The top 20% of our customers account for approximately 60% of contracted capacity.
Our downtown district energy system has approximately 98,000 tons of cooling under contract and in service. Service to interruptible customers may be discontinued at any time and in return interruptible customers pay lower prices for the service. We are able to sell continuous service capacity in excess of the total system capacity because not all customers use their full capacity at the same time. Because of this variation in customer usage patterns, we have not had to discontinue service to any interruptible customer since the initial phases of system construction.
WeThe business typically enterenters into contracts with the owners of the buildings to which the chilled water service is provided. The termsweighted average life of customer contracts vary, however, theas of December 31, 2009 is approximately 13 years. The majority require a make wholetermination payment if a customer wishes to terminate a contract early or if we terminatethe business terminates the contract for customer default. The make
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wholetermination payment allows usthe business to recover a portion of the remaining capital that weit invested to provide service to the customer. The weighted average life of customer contracts as of December 31, 2008 is approximately 13 years.
Customers pay two charges to receive chilled water services: a fixed or capacity charge, and a variable or consumption charge. The capacity charge is a fixed monthly amount based on the maximum number of tons of chilled water that we havethe business has contracted to make available to the customer at any point in time. The consumption charge is a variable amount based on the volume of chilled water actually used during a billing period.
AdjustmentsContractual adjustments to the capacity charge and consumption charge occur periodically, typically annually, either based on changes in certain economic indices or, under some contracts, at a flat rate.annually. Capacity charges generally increase at a fixed rate or are indexed to the Consumer Price Index, or CPI, as a broad measure of inflation. Consumption charges arepayments generally indexed to changesincrease in line with a number of indices. These indices measure changes inthat reflect the costscost of electricity, labor and chemicals in the region in which we operate. While the indices used vary, consumption charges in approximately 75% of our contracts (by capacity) are indexed to indices weighted at least 50%other input costs relevant to the CPI, costsoperations of labor and chemicals with the balance reflecting changes in electricity costs.business. The largest and most variable direct expense of the operation is electricity. District Energy passes through to its customers changes in electricity comprisedcosts. The business focuses on minimizing the cost of three major components: generation, transmission and distribution. Illinois' electricity generation market deregulated as anticipated in January 2007. We believe that the termsconsumed per unit of our customer contracts permit uschilled water produced by operating its plants to fully pass through our electricity cost increases or decreases.maximize efficient use of electricity.
Consumption revenue is higher in the summer months when the demand for chilled water is at its highest. Approximately 80% of consumption revenue is received in the second and third quarters combined each year.
Thermal ChicagoDistrict Energy is not subject to substantial competitive pressures. Per their contracts with us, customersCustomers are generally not allowed to cool their premises by means other than the chilled water service we provide.the business provides. In addition, the primary alternative available to building owners is the installation of a stand-alone water chilling system (self-cooling). While competition from self-cooling exists, we expectthe business expects that the vast majority of ourits current contracts will be renewed at maturity. Installation of a water chilling system requirescan require significant building reconfiguration as well as space for reconfiguration, and capital expenditure, whereas our district energy businessDistrict Energy has the advantage of economies of scale in terms of plant efficiency, staff and power purchasing.electricity procurement.
We believeDistrict Energy believes competition from an alternative district energy system in the Chicago downtown market is unlikely. There are significant barriers to entry including the considerable capital investment required, the need to obtain City of Chicago consent and the difficulty in obtaining sufficient customers given the number of buildings in downtown Chicago already committed under long-term contracts to use ourits system.
We areThe business is not subject to specific government regulation, but ourits downtown Chicago system operates under the terms of a Use Agreement with the City of Chicago. The Use Agreement establishes the rights and obligations of our district energy businessDistrict Energy and the City of Chicago with respect to ourits use of the public ways. Under the Use Agreement, we havethe business has a non-exclusive right to construct, install, repair, operate and maintain the plants, facilities and piping essential in providing district cooling chilled water service to customers.
During 2008, the Chicago City Council approved Amendment 25 to our Use Agreement which extendsextended the term of the Use Agreement for an additional 20 years until December 31, 2040. Any proposed renewal, extension or modification of the Use Agreement will be subject to the approval by the City Council of Chicago.
The day-to-day operations of our district energy businessDistrict Energy are managed by a team located in Chicago, Illinois. OurThe management team has a broad range of experience that includes engineering, construction and
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project management, business development, operations and maintenance, project consulting, energy performance contracting, and retail electricity sales. The team also has significant financial and accounting experience.
Approximately 90%The business is governed by a Board of Northwind Aladdin's 2008 operating cash flows were generated fromdirectors on which we have three representatives and our co-shareholder has two. Although we control decisions that require a long-term contract withsimple majority, certain issues require super majority approval including sale or other disposal of all or substantially all of the Planet Hollywood resortCompany’s property or assets, entry into a new line of business, modifications of constituent or governing document and casino. The Planet Hollywood resort and casino in Las Vegas includes a hotel with over 2,500 rooms, a 100,000 square foot casino and a 75,000 square foot convention and conference facility. An additional building is being constructed on the property, and the Northwind Aladdin plant has the capability to serve this building. The existing contracts with the resort and casino expire in February 2020. At expiration, the plant will either be abandoned by us and ownership will pass to the resort and casino for no compensation, or the plant will be removed by us at a cost to the resort and casino.
The Northwind Aladdin plant has been in operation since 2000 and has the capacity to produce approximately 9,300 tonspursuit of chilled water, 40 million BTUsan initial public offering of heating per hour and to generate approximately 5 megawatts of electricity. The plant is staffed 24 hours a day. The plant supplies district energy services to its customers via an underground pipe system.any membership interests.
As of December 31, 2008, our district energy business2009, District Energy had 42 full-time employees and one part-time employee. In Chicago, 28 plant staff members are employed under a three-year collective bargaining agreement expiring on January 14, 2012. In Las Vegas, the 7 plant staff members are employed under a four-year labor agreement expiring on March 31, 2009. We have begun negotiations on an extension of the labor agreement in Las Vegas.2013. We believe ouremployee relations with employeesat District Energy are good.
Our airport parking business is the largest provider of off-airport parking services in the United States, as measured by number of facilities. The business, Atlantic Aviation FBO Inc., operates 31 facilities comprising over 40,000 parking spaces near 20 major72 fixed-based operations, or FBOs, at 68 airports acrossand one heliport throughout the United States. Our airportAtlantic Aviation’s FBOs primarily provide fueling and fuel-related services, aircraft parking business provides customers with 24-hour secure parking closeand hangar services to airport terminals, as well as transportation via shuttle bus to and from their vehicles and the terminal. Operations are carried out on either owned or leased land at locations near the airports. Operations on owned land or land subject to leases longer than 20 years (including extension options) account for a majorityowners/operators of operating income.
The day-to-day operations of our airport parking business are managed by a team primarily located at its head office. We arejet aircraft in the processgeneral aviation sector of relocating the head office from Downey, California to existing facilities in Philadelphia, Pennsylvania.air transportation industry.
Financial information for this business is as follows ($ in millions):
As at, and for the Year Ended, December 31, | As of and for the Year Ended, December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||
Revenue | $ | 74.7 | $ | 77.2 | $ | 76.1 | $ | 486.1 | $ | 716.3 | $ | 534.3 | ||||||||||||
Operating (loss) income(1) | (165.1 | ) | 5.9 | (10.1 | ) | |||||||||||||||||||
EBITDA excluding non-cash items | 106.5 | 137.1 | 119.9 | |||||||||||||||||||||
Total assets | 199.0 | 280.4 | 283.5 | 1,473.2 | 1,660.8 | 1,763.7 | ||||||||||||||||||
% of our consolidated revenue | 7.1 | % | 9.3 | % | 14.6 | % | 68.5 | % | 73.3 | % | 70.8 | % |
FBOs predominantly service the general aviation segment of the air transportation industry. General aviation includes corporate and leisure flying and does not include commercial air carriers or military operations. Local airport authorities, the owners of the airport property, grant FBO operators the right to provide fueling and other services pursuant to a long-term ground lease. Fuel sales provide the majority of an FBO’s revenue and gross profit.
FBOs generally operate in environments with high barriers to entry. Airports often have limited physical space for additional FBOs. Airport authorities generally do not have an incentive to add additional FBOs unless there is a significant demand for additional capacity, as profit-making FBOs are more likely to reinvest in the airport and provide a broad range of services, thus attracting increased airport traffic. The increased traffic tends to generate additional revenue for the airport authority in the form of landing and fuel flowage fees. Government approvals and design and construction of a new FBO can also take significant time.
Demand for FBO services is driven by the level of general aviation aircraft activity and the number of take-offs and landings specifically. General aviation business jet take-offs and landings, declined by 17.3% in 2009 compared with 2008. According to flight data reported by the Federal Aviation Administration, or “FAA”, fourth quarter take-offs and landings were flat year-over-year and increased 1.9% over the third quarter of 2009. The number of aircraft operations is typically lower in the fourth quarter compared to the third quarter as a result of reduced business-related aircraft traffic in November and December.
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In December 2004, following our initial public offering, we acquired interests in companies forming our airport parking businessDespite improved access to general aviation resulting from various companies within, or managedan expansion of fractional and charter offerings and the challenges facing commercial aviation including potential mainline carrier consolidation and security-related delays, all of which strengthened the general aviation industry, FBO gross profit has been negatively affected by the Macquarie Group.economic downturn which resulted in a reduction in the volume of fuel sold. See “Risk Factors” in Part I, Item 1A.
Atlantic Aviation is pursuing a strategy that has four principal components. The total purchase price was $63.8 million. Upon closing these transactions, we owned 100% of PCAA Holdings and 87.2% of PCAA Parent, twofirst component is to delever the business. The second component encompasses an overarching commitment to provide superior service to its customers. The third is to aggressively manage the business so as to minimize, to the extent possible, its operating expenses. The fourth component addresses organic growth of the holding companiesbusiness and focuses on leveraging the size of the Atlantic Aviation network and its information technology capabilities to identify marketing leads and implement cross-selling initiatives. These components are discussed in greater detail in the Operations andMarketingsections below.
The business has high-quality facilities and focuses on attracting customers who desire a high level of personal service. Fuel and fuel-related services generated 75% of Atlantic Aviation’s revenue and accounted for 63% of Atlantic Aviation’s gross profit in 2009. Other services, including de-icing, aircraft parking, hangar rental and catering, provided the balance. Fuel is stored in fuel tank farms and each FBO operates refueling vehicles owned or leased by the FBO. The FBO either owns or has access to the fuel storage tanks to support its fueling activities. At some of Atlantic Aviation’s locations, services are also provided to commercial carriers. These may include refueling from the carrier’s own fuel supplies stored in the carrier’s fuel farm, de-icing and/or ground and ramp handling services.
Atlantic Aviation buys fuel at the wholesale price and sells fuel to customers at a contracted price, or at a price negotiated at the point of purchase. While fuel costs can be volatile, Atlantic Aviation generally passes fuel cost changes through to customers and attempts to maintain and, when possible, grow a dollar-based margin per gallon of fuel sold. Atlantic Aviation also fuels aircraft with fuel owned by other parties and charges customers a service fee.
Atlantic Aviation has limited exposure to commodity price risk as it generally carries a limited inventory of jet fuel on its books and passes fluctuations in the wholesale cost of fuel through to its customers.
Atlantic Aviation is particularly focused on managing costs effectively. In light of the recent slowdown in general aviation activity, initiatives have been implemented that have reduced operating costs by more than $27.0 million per year. Atlantic Aviation will continue to evaluate opportunities to reduce expenses through, for example, more efficient purchasing and capturing synergies resulting from recent acquisitions.
Atlantic Aviation’s FBO facilities operate pursuant to long-term leases from airport authorities or local government agencies. The business and its predecessors have a strong history of successfully renewing leases, and have held some leases for over 40 years.
The existing leases have a weighted average remaining length of 17.6 years including extension options. The leases at 12 of Atlantic Aviation’s 72 FBOs will expire within the airport parkingnext five years and one currently operates on a month-to-month lease. No individual FBO generates more than 10% of the gross profit of the business.
On October 3, 2005, ourThe airport parking business acquiredauthorities have termination rights in each of Atlantic Aviation’s leases. Standard terms allow for termination if Atlantic Aviation defaults on the terms and conditions of the lease, abandons the property or becomes insolvent or bankrupt. Less than ten leases may be terminated with notice by the airport authority for convenience or other similar reasons. In each of these cases, there are compensation agreements or obligations of the authority to make best efforts to relocate the FBO. Most of the leases allow for termination if liens are filed against the property.
Atlantic Aviation has a totalnumber of eight facilities. We contributed $14.4 million to partially finance these transactions,marketing programs, each utilizing an internally-developed point-of-sale system that tracks all aircraft flight movements. One program supports flight tracking and provides customer relationship management data that facilitates upselling of fuel and optimization of revenue per customer.
Another program is a customer loyalty program known as “Atlantic Awards”. The Atlantic Awards program is a pilot loyalty program, which has gained wide acceptance among pilots and is encouraging “upselling” of fuel, where pilots purchase a larger portion of their overall fuel requirement at Atlantic Aviation’s locations. These awards are recorded as a result, our ownership interestreduction in the airport parking business increased to 88.0%.revenue in Atlantic Aviation’s consolidated financial statements.
In April 2008, we contributed $13.3 million cash2009, in response to customer demand, Atlantic Aviation introduced the ability to pay for fuel and services through third party fuel brokers. While there are no binding, long term agreements with any of the brokers, Atlantic Aviation will continue to offer this payment channel so long as it remains popular with customers. This program allows Atlantic Aviation to offer additional flexibility, while allowing the business to facilitate the acquisition of a property in Oakland for $13.5 million, including transaction costs. The property was previously leasedmaintain first hand contact with its customers and the purchase eliminated approximately $1.2 million of annual cash rent expense. In July 2008, our airport parking business acquired a self-park facility in Newark, New Jersey for which we contributed $11.4 million to finance the acquisition, and related transaction costs. At December 31, 2008, our ownership interestreduce credit card fees.
Competition in the airport parkingFBO business was 91.0%.
Customersexists on a local basis at most of the airport parking business either park their own cars or utilize our valet parking services. A shuttle bus fleet provides transit from the parking facility to the airport terminal or from the terminal to the parking facility, as the case may be.airports at which Atlantic Aviation operates. The parking facility is typically within a five to seven minute bus ride from the terminal.
In addition to reserved parking and shuttle services, we provide ancillary services such as car washes and auto repairs at some parking facilities to attract customers to the facility and/or to earn additional revenueFBO at the facility.
Our marketing platform consistsEast 34th Street Heliport in New York and 32 of our online efforts and promotions, cross-selling through and with third parties, and advertisingthe other FBOs in media such as in-flight magazines.
In general, on and off-airport parking facilitiesthe network are the only FBOs at their respective airports. The remaining 39 FBOs have one or more competitors at the airport. The FBOs compete on the basis of location (relativeof the facility relative to runways and street access, service, value-added features, reliability and price. To a lesser extent, each FBO also faces competitive pressure from the airportfact that aircraft may take on sufficient fuel at one location and major access roads), quality of facilities (including whether the facilities are covered), type of service provided (self-park or valet), security, service (especially relatingnot need to shuttle bus transportation and frequency and convenience of drop-off), price and marketing. Werefuel at a specific destination. FBO operators also face directindirect competition from the on-airport parking facilities operated by each airport, manylocated at other nearby airports.
Atlantic Aviation believes there are fewer than 10 competitors with operations at five or more U.S. airports. These include Signature Flight Support, Encore (formerly known as Landmark Aviation) and Million Air Interlink. Other than Signature, these competitors are privately owned. Some of whichAtlantic Aviation’s competitors are located closer to passenger terminals than our locations. Airports generally have significantlypursuing more parking spaces than we do and provide different parking alternatives, including self-park short-term and long-term, off-airport lots and valet parking options.
We also face competition from existing and new off-airport competitors at our airports. While competition is local in each market, we face strong, and in some of our more profitable markets, growing competition and aggressive pricing instrategies that have contributed to increased margin pressure at some cases. To the extent that new competitors, whether local operators or national firms, enter or expand in one of our existing markets they could cause a reduction in our revenue by putting pressure on margins, takinglocations, although Atlantic Aviation’s aggregate market share from us, or both.at the airports on which it operates increased in 2009.
Our airport parkingThe aviation industry is overseen by a number of regulatory bodies, but primarily the FAA. The business is subject toalso regulated by the local airport authorities through lease contracts with those authorities. The business must comply with federal, state and local regulation relating to environmental protection. In addition, we transport customers by shuttle bus betweenstatutes and regulations associated in part with the airport terminalsoperation of underground fuel storage tanks. These requirements include, among other things, tank and our parking facilitiespipe testing for tightness, soil sampling for evidence of leaking and remediation of detected leaks and spills. Atlantic Aviation’s FBO operations are subject to the rulesregular inspection by federal and policies of the local airport.environmental agencies and local fire and airline quality control departments. The FAAbusiness does not expect that compliance and Transportation Safety Administration,related remediation work will have a material negative impact on earnings or the TSA, generally have the authoritycompetitive position of Atlantic Aviation. The business has not received notice requiring it to restrict accesscease operations at any location or of any abatement proceeding by any government agency as a result of failure to airports as well as to impose parkingcomply with applicable environmental laws and other restrictions near the airport sites.
Municipal and state authorities sometimes directly regulate parking facilities. We also may be affected periodically by government condemnation of our properties, in which case we will generally be compensated.regulations.
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The day-to-day operations of Atlantic Aviation are managed by individual site managers who are responsible for all aspects of the operations at their site. Responsibilities include ensuring that customer requirements are met by the staff employed at the site and that revenue is collected, and expenses incurred, in accordance with internal guidelines. Local managers are, within the specified guidelines, empowered to make decisions as to fuel pricing and other services, thereby improving responsiveness and customer service. Local managers within a geographic region are supervised by one of five regional managers covering the United States.
Atlantic Aviation’s operations are overseen by senior personnel with an average of approximately 20 years experience each in the aviation industry. The business management team has established close and effective working relationships with local authorities, customers, service providers and subcontractors. The team is responsible for overseeing the FBO operations, setting strategic direction and ensuring compliance with all contractual and regulatory obligations.
Atlantic Aviation’s head office is in Plano, Texas. The head office provides the business with overall management and performs centralized functions including accounting, information technology, risk management, human resources, payroll and insurance arrangements. We believe Atlantic Aviation’s head office facilities are also affected periodically by changes in traffic patternsadequate to meet its present and roadway systems near our properties and by laws and regulations (such as zoning ordinances) that are common to any business that deals with real estate.foreseeable operational needs.
As of December 31, 2008, our airport parking2009, the business employed approximately 1,060 individuals. Approximately 14%1,751 people across all of its employees aresites. Approximately 8.5% of the employee population is covered by collective bargaining agreements. We believe that employee relations at this businessAtlantic Aviation are generally good.
As of December 31, 2008,2009, we hademployed approximately 3,600 employees at2,100 people across our fourthree ongoing, consolidated businesses (excluding IMTT) of which approximately 20% are18% were subject to collective bargaining agreements. The Company itself does not have any employees.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at the SEC'sSEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the operations of the public reference room. The SEC maintains a website that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including Macquarie Infrastructure Company)Company LLC) file electronically with the SEC. The SEC'sSEC’s website iswww.sec.gov.
Our website iswww.macquarie.com/mic. You can access our Investor Center through this website. We make available free of charge, on or through our Investor Center, our proxy statements, annual reports to shareholders, annual reportreports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reportsthese filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as amended, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available through our Investor Center statements of beneficial ownership of the LLC interests filed by our Manager, our directors and officers, any holders of 10% or greater shareholdersmore of our LLC interests outstanding and others under Section 16 of the Exchange Act.
You can also access our Governance webpage through our Investor Center. We post the following on our Governance webpage:
Our Code of Ethics and Conduct applies to all of our directors, officers and employees as well as all directors, officers and employees of our Manager involved in the management of the companyCompany and its businesses. We will post any amendments to the Code of Ethics and Conduct, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange or NYSE,(“NYSE”), on our website. The information on our website is not incorporated by reference into this report.
You can request a copy of these documents at no cost, excluding exhibits, by contacting Investor Relations at 125 West 55th55th Street, New York, NY 10019 (212-231-1000).
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An investment in our LLC interests involves a number of risks. Any of these risks could result in a significant or material adverse effect on our results of operations or financial condition and a corresponding decline in the market price of the LLC interests.
The equity and credit markets have been experiencing extreme volatility and disruption. In some cases, the markets have exerted downward pressure on the availability of liquidity and credit capacity. In response to recent market disruptions, legislators and financial regulators implemented and have proposed a number of mechanisms designed to add stability and liquidity to the financial markets. The overall effects of these and other legislative and regulatory efforts on the financial markets are uncertain, and they may not have the intended stabilization effects. Should these initiatives fail or should credit and financial market conditions continue to experience further disruption, our ability to raise equity or obtain capital, including to repay or refinance credit facilities at maturity, pay significant capital expenditures or fund growth, is likely to be costly and/or impaired. Our access to debt financing in particular will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit history and credit capacity, as well as the historical performance of our businesses and lender perceptions of their and our financial prospects. In the event we are unable to obtain debt financing, particularly as significant credit facilities mature, our internal sources of liquidity may not be sufficient.
The current economic recession also increases our counterparty risk, particularly in those businesses whose revenues are determined under multi-year contracts, such as IMTT and our district energy business.District Energy. In this environment, we would expect to see increases in counterparty defaults and/or bankruptcies, which could result in an increase in bad debt expense and may cause our revenuesoperating results to decline.
The volatility in the financial markets makes projections regarding future obligations under pension plans difficult. Two of our businesses, TGCThe Gas Company and IMTT, have defined benefit retirement plans. Future funding obligations under those plans depend in large part on the future performance of plan assets and the mix of investment assets. Our defined benefit plans hold a significant amount of equity securities as well as fixed income securities. If the market values of these securities decline further or if interest rates decline, our pension expense and cash funding requirements would increase and, as a result, could materially adversely affect our results and liquidity.
A large part of our revenue is derived from fuel sales and other services provided to general aviation customers and, to a lesser extent, commercial air travelers. A sustained economic downturn could reduce the level of air travel generally, adversely affecting our airport services and airport parking business. General aviation travel is more expensive than alternative modes of travel. Consequently, during periods of economic downturn, FBO customers are more likely to travel by less expensive means. In particular, the recent substantial stress, volatility, illiquidity and disruption in the global credit and other financial markets have resulted in the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial and industrial institutions. These events have also led to criticism by regulators, shareholders and the public in general over the purchase and/or use of corporate jets, which may continue during the current economic downturn and possibly longer.
These market developments and the potential for a continuing economic downturn have had a significant impact on the activity levels and customer price sensitivity of many corporate customers of our airport services business, which has resulted in significant declines in the gross profit of this business. If recent or proposed legislative or regulatory initiatives fail to stimulate the economy and stabilize the credit and financial markets or negative sentiment regarding corporate jet usage continues or increases, we may see continued declines in volumes of fuel sold, which would materially adversely affect the results of this business and
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which could cause it to fail to meet the financial covenants of its debt arrangements and allow its lenders to declare its entire indebtedness immediately due and payable.
Air travel and air traffic volume can also be affected by events that have nationwide and industry-wide implications, such as the events of September 11, 2001, as well as local circumstances. Events such as wars, outbreaks of disease such as SARS, and terrorist activities in the United States or overseas may reduce air travel. In addition, commercial traffic at an airport at which we have parking facilities may be reduced if airlines reduce the number of flights at that airport. Local circumstances include downturns in the general economic conditions of the area where an airport is located or other situations in which our major FBO customers relocate their home base or preferred fuelling stop to alternative locations.
In addition, changes to regulations governing the tax treatment relating to general aviation travel, either for businesses or individuals may cause a reduction in general aviation travel. Increased environmental regulation restricting or increasing the cost of aviation activities could also cause our revenue to decline.
As of December 31, 2008,2009, on a consolidated basis, wecontinuing operations had total long-term debt outstanding of $1,529.1 million, $1,460.1 million of which is at the operating business level,$1.2 billion, plus additional availability under existing credit facilities, including $69.0facilities. In addition, IMTT had total long-term debt outstanding of $632.2 million under the MIC Inc. revolving credit facility. IMTT also has a significant level of debt.at December 31, 2009. The terms of these debt arrangements generally require compliance with significant operating and financial covenants. The ability of each of our businesses or investments to meet their respective debt service obligations and to refinance or repay their outstanding indebtedness will depend primarily upon cash produced by that business.
This indebtedness could have important consequences, including:
If weour businesses are unable to comply with the terms of any of ourtheir various debt agreements, wethey may be required to refinance a portion or all of the related debt or obtain additional financing. As discussed further
herein, weour businesses may not be able to refinance or obtain additional financing because of ourtheir high levels of debt and debt incurrence restrictions under ourtheir debt agreements or because of adverse conditions in credit markets generally. WeOur businesses also may be forced to default on our various debt obligations if cash flow from the relevant operating business is insufficient and refinancing or additional financing is unavailable, and, as a result, the relevant debt holdersproviders may accelerate the maturity of their obligations. As discussed below, we currently anticipate that our airport parking business will not be able to repay or refinance its indebtedness maturing in 2009. If any of our businesses or investments wereare unable to repay itstheir debts when due, itthey would become insolvent. Many of our property leases, particularly in our airport services business, may be terminated in the event of insolvency, which could impair our ability to achieve a restructuring plan for that business if those leases are in fact terminated.
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Our total assets reflect a substantial amount of goodwill and other intangible assets. At December 31, 2008,2009, goodwill and other intangible assets, net, represented approximately 55.2%56.3% of total assets.assets from continuing operations. Goodwill and other intangible assets were primarily recognized as a result of the acquisitions of our businesses and investments. Other intangible assets consist primarily of airport operating rights, tradenamestrade names and customer relationships. On at least an annual basis, we assess whether there has been an impairment in the value of goodwill and assess for impairment of other intangible assets with indefinite lives.lives when there are triggering events or circumstances. If the carrying value of the tested asset exceeds its estimated fair value, impairment is deemed to have occurred. In this event, the amount is written down to fair value. Under current accounting rules, this would result in a charge to reported earnings. AnyWe have recognized significant impairments in the past, and any future determination requiring the write-off of a significant portion of goodwill or other intangible assets would negatively affect our reported earnings and total capitalization, whichand could be material.
As discussed elsewhere, the decline in our stock price, particularly over the latter part of 2008, has caused our book value to exceed our market capitalization. As a result, we have booked non-cash impairment charges to goodwill, property, equipment, land and leasehold improvements and intangible assets of $253.5 million in the fourth quarter of 2008 in accordance with Statement of Financial Accounting Standard No. 142,“Goodwill and Other Intangible Assets”, or SFAS No. 142, and Statement of Financial Accounting Standard No. 144,“Long-Lived Assets”. A portion of the non-cash impairment charges was reflected in the earnings for both our airport services and airport parking businesses.
We have substantialThe majority of indebtedness with maturities ranging from 9 monthsat our businesses mature within three to 18 years, of which $201 million matures during 2009.five years. Refinancing this debt may result in substantially higher interest rates or margins or substantially more restrictive covenants. Either event may limit operational flexibility or reduce dividends and/or distributions from our operating businesses to us, which would have an adverse impact on our ability to pay dividends to shareholders.freely deploy free cash flow. We also cannot assure youprovide assurance that we or the other owners of any of our businesses will be able to make capital contributions to repay some or all of the debt if required.
In addition, we do not currently have any interest rate hedges in placeThe debt facilities at our businesses contain terms that become more restrictive over time, with stricter covenants and increased amortization schedules. Those terms will limit our ability to cover any borrowings under our MIC Inc. revolving credit facility. If we draw down on our MIC Inc. revolving credit facility, an increase in interest rates would directly reduce our profitability andfreely deploy free cash flows. Our MIC Inc. revolving credit facility matures in March 2010 and we expect to repay or refinance any borrowing outstanding at that time and, if available on acceptable terms, enter into a similar facility. An increase in interest rates or margins at that time may significantly increase the cost of any repayment or the terms associated with any refinancing.flow.
The Company is a holding company with no operations. Therefore, it is dependent upon the ability of our businesses and investments to pay dividends and make distributions to the companyCompany to enable it to meet its expenses, reduce any outstanding debt at the holding company level or at other businesses and to make distributions to shareholders in the future. The ability of our operating subsidiaries and the businesses in which we will hold investments to make distributions to the companyCompany is subject to limitations based on their operating performance, the terms of their debt agreements and the applicable laws of their respective jurisdictions. In addition, the ability of each business to reduce its outstanding debt will be similarly limited by its operating performance, as discussed below and in Part 1, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If, as a consequence of these various limitations and restrictions, we are unable to receive sufficient dividends and/or distributions from our businesses, we may be limited in our ability to reduce the level of ourany outstanding debt and declare distributions on our LLC interests.
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One component of our strategy over the long term is the pursuit of growth through selective acquisitions. In order to make acquisitions, we will generally require funding from external sources. Since the timing and size of acquisitions cannot be readily predicted,addition, we may needbe unable to be ablepay our management fees to obtain funding on short notice to benefit fully from attractive opportunities. Sufficient funding for an acquisition may not be available on short notice or may not be available on terms acceptable to us, particularly in light of the ongoing difficulties inour Manager. If our Manager resigned, it would trigger a change-in-control default provision under the credit and capital markets. Furthermore, the levelfacilities of our subsidiary indebtedness may limit our ability to obtain additional financing at the corporate holding company level.
In addition to debt financing, our strategy over the long term is to fund or refinance a portion of the consideration for future acquisitions through the issuance of additional LLC interests. If our LLC interests do not have a sufficient per share market value, issuance of new LLC interests may not be economically attractive or, if issued regardless, may result in significant dilution of our then-existing shareholders. In addition, issuances of new LLC interests, either privately or publicly, may occur at a discount to the price of our LLC interests on the NYSE at the time. Our equity financing activities may cause the market price of our stock to decline. Alternatively, we may not be able to complete the issuance of the required amount of LLC interests on short notice or at all due to a lack of investor demand for the LLC interests at prices that we find acceptable.
An inability to fund acquisitions on acceptable terms or at all would prevent us from pursuing our acquisition strategy.
A major component of our strategy over the long term is to acquire additional infrastructure businesses both within the sectors in which we currently operate and in sectors where we currently have no presence. Acquisitions involve a number of special risks, including failure to successfully integrate acquired businesses in a timely manner, failure of the acquired business to implement strategic initiatives we set for it, achieve expected synergies and/or achieve expected results, failure to identify material risks or liabilities associated with the acquired business prior to its acquisition, diversion of management's attention and internal resources away from the management of existing businesses and operations, and the failure to retain key personnel of the acquired business.
We expect to face significant competition for acquisition opportunities, and some of our competitors may have greater financial resources or access to financing on more favorable terms than we will. This competition may limit our acquisition opportunities, lead to higher acquisition prices or both. We cannot assure you that we will benefit from our relationship with the Macquarie Group to help us make or finance acquisitions. The successful implementation of our acquisition strategy to date, particularly acquisitions in the airport services business and of a 50% interest in IMTT, has resulted in the rapid growth of our business and places significant demands on management, administrative, operational and financial resources. We have devoted significant resources to integrating acquired businesses of which most, if not all, would have been privately owned and not subject to financial and disclosure requirements and controls applicable to U.S. public companies. We have and may in the future expend significant time and resources to develop and implement effective systems and procedures, including accounting and financial reporting systems, for these acquired businesses. Furthermore, other than our Chief Executive Officer and Chief Financial Officer, the personnel of Macquarie’s Capital Funds division performing services for us under the management services agreement may work on matters unrelated to the Company and its businesses, which may result in a further diversion of management time and resources. Our abilitywould permit the relevant lenders to manage our growth will depend on our maintaining and allocating an appropriate level of internal resources, information systems and controls throughout our business. Our inability to successfully implement our growth strategy or successfully manage growth could have a material adverse effect on our business, cash flow and ability to pay distributions on our LLC interests.accelerate the indebtedness.
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We own 50% of IMTT and 50.01% of District Energy and may acquire less than majority ownership in other businesses in the future. Our ability to influence the management of jointly controlledowned businesses, and the ability of these businesses to continue operating without disruption, depends on our reaching agreement with our co-investors and reconciling investment and performance objectives for these businesses. To the extent that we are unable to agree with co-investors regarding the business and operations of the relevant investment, the performance of the investment and level of distributions to us are likely tothe operations may suffer, and could have a material adverse effect on our results and our ability to raise capital or pay distributions on our LLC interests.results. Furthermore, we may, from time to time, own non-controlling interests in investments. Management and controlling shareholders of these investments may develop different objectives than we have and may not make distributions to us at levels that we had anticipated. Our inability to exercise significant influence over the operations, strategies and policies of non-controlled investments means that decisions could be made that could adversely affect our results and our ability to generate cash and pay distributions on our LLC interests.
Our businessbusinesses generally is,are, and will continue to be, subject to substantial regulation by governmental agencies. In addition, our business reliesbusinesses rely on obtaining and maintaining government permits, licenses, concessions, leases or contracts. Government entities, due to the wide-ranging scope of their authority, have significant leverage over us in their contractual and regulatory relationships with us that they may exercise in a manner that causes us delays in the operation of our businessbusinesses or pursuit of our strategy, or increased administrative expense. Furthermore, government permits, licenses, concessions, leases and contracts are generally very complex, which may result in periods of non-compliance, or disputes over interpretation or enforceability. If we fail to comply with these regulations or contractual obligations, we could be subject to monetary penalties or we may lose our rights to operate the affected business, or both. Where our ability to operate an infrastructure business is subject to a concession or lease from the government, the concession or lease may restrict our ability to operate the business in a way that maximizes cash flows and profitability. Further, our ability to grow our current and future businesses will often require consent of numerous government regulators. Increased regulation restricting the ownership or management of U.S. assets, particularly infrastructure assets, by non-U.S. persons, given the non-U.S. ultimate ownership of our Manager, may limit our ability to pursue acquisitions. Any such regulation may also limit our Manager'sManager’s ability to continue to manage our operations, which could cause disruption to our businessbusinesses and a decline in our performance. In addition, any required government consents may be costly to seek and we may not be able to obtain them. Failure to obtain any required consents could limit our ability to achieve our growth strategy.
Our contracts with government entities may also contain clauses more favorable to the government counterparty than a typical commercial contract. For instance, a lease, concession or general service contract may enable the government to terminate the agreement without requiring them to pay adequate compensation. In addition, government counterparties also may have the discretion to change or increase regulation of our operations, or implement laws or regulations affecting our operations, separate from any contractual rights they may have. Governments have considerable discretion in implementing regulations that could impact these businesses. Because our businesses provide basic everyday services, and face limited competition, governments may be influenced by political considerations to take actions that may hinder the efficient and profitable operation of our businesses and investments.
Where our businesses or investments are sole or predominant service providers in their respective service areas and provide services that are essential to the community, they are likely to be subject to rate regulation by governmental agencies that will determine the prices they may charge. We may also face fees or other charges imposed by government agencies that increase our costs and over which we have no control. We may
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be subject to increases in fees or unfavorable price determinations that may be final with no right of appeal or that, despite a right of appeal, could result in our profits being negatively affected. In addition, we may have very little negotiating leverage in establishing contracts with government entities, which may decrease the prices that we otherwise might be able to charge or the terms upon which we provide products or services. Businesses and investments we acquire in the future may also be subject to rate regulation or similar negotiating limitations.
Our businesses (including businesses in which we invest) are subject to numerous statutes, rules and regulations relating to environmental protection. Our airport services and airport parking businesses areAtlantic Aviation is subject to environmental protection requirements relating to the storage, transport, pumping and transfer of fuel, and our district energy businessDistrict Energy is subject to requirements relating mainly to its handling of significant amounts of hazardous materials. Our gas production and distribution businessThe Gas Company is subject to risks and hazards associated with the refining, handling, storage and transportation of combustible products. These risks could result in substantial losses due to personal injury, loss of life, damage or destruction of property and equipment, and environmental damage. Any losses we face could be greater than insurance levels maintained by our businesses, which could have an adverse effect on their and our financial results. In addition, disruptions to physical assets could reduce our ability to serve customers and adversely affect sales and cash flows.
IMTT'sIMTT’s operations in particular are subject to complex, stringent and expensive environmental regulation and future compliance costs are difficult to estimate with certainty. IMTT also faces risks relating to the handling and transportation of significant amounts of hazardous materials. Failure to comply with regulations or other claims may give rise to interruptions in operations and civil or criminal penalties and liabilities that could adversely affect the profitability of this business and the distributions it makes to us, as could significant unexpected compliance costs. Further, these rules and regulations are subject to change and compliance with any changes could result in a restriction of the activities of our businesses, significant capital expenditures and/or increased ongoing operating costs.
A number of the properties owned by IMTT have been subject to environmental contamination in the past and require remediation for which IMTT is liable. These remediation obligations exist principally at IMTT'sIMTT’s Bayonne and Lemont facilities and could cost more than anticipated or could be incurred earlier than anticipated or both. In addition, IMTT may discover additional environmental contamination at its Bayonne, Lemont or other facilities that may require remediation at significant cost to IMTT. Further, the past contamination of the properties owned by IMTT, including by former owners or operators of such properties, could result in remediation obligations, personal injury, property damage, environmental damage or similar claims by third parties.
We may also be required to address other prior or future environmental contamination, including soil and groundwater contamination that results from the spillage of fuel, hazardous materials or other pollutants. Under various federal, state, local and foreign environmental statutes, rules and regulations, a current or previous owner or operator of real property may be liable for noncompliance with applicable environmental and health and safety requirements and for the costs of investigation, monitoring, removal or remediation of hazardous materials. These laws often impose liability, whether or not the owner or operator knew of, or was responsible for, the presence of hazardous materials. Persons who arrange for the disposal or treatment of hazardous materials may also be liable for the costs of removal or remediation of those materials at the disposal or treatment facility, whether or not that facility is or ever was owned or operated by that person and whether or not the original disposal or treatment activity accorded with all regulatory requirements. The presence of hazardous materials on a property could result in personal injury, loss of life, damage or destruction of property and equipment, environmental damage and similar claims by third parties that could have a material adverse effect on our financial condition or operating income.results.
We believe that infrastructure businesses face a greater risk of terrorist attack than other businesses, particularly those businesses that have operations within the immediate vicinity of metropolitan and suburban areas. Specifically, because of the combustible nature of the products of our gas production and distribution
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businessThe Gas Company and consumer reliance on these products for basic services, the business’ SNG plant, transmission pipelines, barges and storage facilities may be at greater risk for terrorism attacks than other businesses, which could affect its operations significantly. Any terrorist attacks that occur at or near our business locations would likely cause significant harm to our employees and assets. As a result of the terrorist attacks in New York on September 11, 2001, insurers significantly reduced the amount of insurance coverage available for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events. A terrorist attack that makes use of our property, or property under our control, may result in liability far in excess of available insurance coverage. In addition, any further terrorist attack, regardless of location, could cause a disruption to our business and a decline in earnings. Furthermore, it is likely to result in an increase in insurance premiums and a reduction in coverage, which could cause our profitability to suffer.
We operate our businesses on a stand-alone basis, relying on existing management teams for day-to-day operations. Consequently, our operational success, as well as the success of our internal growth strategy, will be dependent on the continued efforts of the management teams of our businesses, who have extensive experience in the day-to-day operations of these businesses. Furthermore, we will likely be dependent on the operating management teams of businesses that we may acquire in the future. The loss of key personnel, or the inability to retain or replace qualified employees, could have an adverse effect on our business, financial condition and results of operations.
Our businesses and investments are subject to federal, state and local safety, health and environmental laws and regulations. These laws and regulations affect all aspects of their operations and are frequently modified. There is a risk that any one of our businesses or investments may not be able to comply with some aspect of these laws and regulations, resulting in fines or penalties. Additionally, if new laws and regulations are adopted or if interpretations of existing laws and regulations change, we could be required to increase capital spending and incur increased operating expenses in order to comply. Because the regulatory environment frequently changes, we cannot predict when or how we may be affected by such changes.
A significant and sustained increase in the price of oil could have a negative impact on the profitability of a number of our businesses. Higher prices for jet fuel could result in less use of aircraft by general aviation customers, which would have a negative impact on the profitability of our airport services business. Higher prices for jet fuel will increase the cost of traveling by commercial aviation, which could result in lower enplanements at the airports where our airport parking business operates and therefore less patronage of our parking facilities and lower revenue.Atlantic Aviation. Higher fuel prices could increase the cost of power to our businesses generally which they may not be able to fully pass on to customers.
Some of our competitors in our airport services business are pursuing more aggressive pricing strategies. These competitors operate FBOs at number of airports where we operate or at airports near where we operate. This competition, combined with the continuation or worsening of current economic conditions, may result in increased focus on cost among our customers and, consequently, a decline in corporate jet usage and increased price sensitivity. These factors may cause our volumes of fuel sales and market share to decline and may result in increased margin pressure, adversely affecting the profitability of this business.
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FBO operators at a particular airport compete based on a number of factors, including location of the facility relative to runways and street access, service, value added features, reliability and price. Many of our FBOs compete with one or more FBOs at their respective airports, and, to a lesser extent, with FBOs at nearby airports. Furthermore, leases related to our FBO operations may be subject to competitive bidding at the end of their term. Some present and potential competitors have or may obtain greater financial and marketing resources than we do, which may negatively impact our ability to compete at each airport or for lease renewal.
Our FBOs do not have the right to be the sole provider of FBO services at any of our FBO locations. The authority responsible for each airport has the ability to grant other FBO leases at the airport and new competitors could be established at those FBO locations. The addition of new competitors is particularly likely if we are seen to be earning significant profits from these FBO operations. Any such actions, if successful, may reduce, or impair our ability to increase, the revenue of the FBO business.
Our airport services revenue is derived from long-term leases at 68 airports and one heliport. If we default on the terms and conditions of our leases, including upon an insolvency, the relevant authority may terminate the lease without compensation. Additionally, our leases at Chicago Midway, Philadelphia, North East Philadelphia, New Orleans International and Orange County airports and the Metroport 34th Street Heliport in New York City, representing approximately 13% of our airport service business gross profit in 2008, allow the relevant authority to terminate the lease at their convenience. In each case, we would then lose the income from that location and potentially the expected returns from prior capital expenditures. We would also likely be in default under the loan agreements of our airport services business and be obliged to repay our lenders a portion or all of our outstanding loan amount.
The TSA has proposed new regulations known as the Large Aircraft Security Program (LASP), which would require all U.S. operators of general aviation aircraft exceeding 12,500 pounds maximum take-off weight to implement security programs that are subject to TSA audit. In addition, the proposed regulation would require airports servicing these aircraft to implement security programs involving additional security measures, including passenger and baggage screening. We believe these new regulations, if implemented, will affect many of our customers and all of the airports at which we operate. These rules, if adopted, could decrease the convenience and attractiveness of general aviation travel relative to commercial air travel and, therefore, may adversely impact demand for our airport services business.
Demand for IMTT'sIMTT’s bulk liquid storage is largely a function of U.S. domestic demand for chemical, petroleum and vegetable and animal oil products and, less significantly, the extent to which such products are imported into and/or exported out of the United States. U.S. domestic demand for chemical, petroleum and V&Avegetable and animal oil products is influenced by a number of factors, including economic conditions, growth in the U.S. economy, the pricing of chemical, petroleum and V&Avegetable and animal oil products and their substitutes. Import and export volumes of these products to and from the United States are influenced by demand and supply imbalances in the United States and overseas, the cost of producing chemical, petroleum and V&Avegetable and animal oil products domestically vis-à-vis overseas and the cost of transporting the products between the United States and overseas destinations. In addition, changes in government regulations that affect imports and exports of bulk chemical, petroleum and V&Avegetable and animal oil products, including the imposition of surcharges or taxes on imported or exported
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products, could adversely affect import and export volumes to and from the United States. A reduction in demand for bulk liquid storage, particularly in the New York Harbor or the lower Mississippi River, as a consequence of lower U.S. domestic demand for, or imports/exports of, chemical, petroleum or V&Avegetable and animal oil products, could lead to a decline in storage rates and tankage volumes rented out by IMTT and adversely affect IMTT'sIMTT’s revenue and profitability and the distributions it makes to us.
An increase in available bulk liquid storage capacity in excess of growth in demand for such storage in the key locations in which IMTT operates, such as New York Harbor and the lower Mississippi River, could result in overcapacity and a decline in storage rates and tankage volumes rented out by IMTT and could adversely affect IMTT'sIMTT’s revenue and profitability and the distributions it makes to us.
IMTT has a number of customers that together generate a material proportion of IMTT’s revenue and gross profit. In 2008,2009, IMTT’s ten largest customers by revenue generated approximately 40.0%50.2% of total revenues.revenue. The insolvency of any of these large customers could result in an increase in unutilized storage capacity in the absence of such capacity being rented to other customers and adversely affect IMTT’s revenue and profitability and the distributions it makes to us.
The transportation, handling and storage of petroleum, chemical and V&Avegetable and animal oil products are subject to the risk of spills, leakage, contamination, fires and explosions. Any of these events may result in loss of revenue, loss of reputation or goodwill, fines, penalties and other liabilities. In certain circumstances, such events could also require IMTT to halt or significantly alter operations at all or part of the facility at which the event occurred. Consistent with industry practice, IMTT carries insurance to protect against most of the accident-related risks involved in the conduct of the business; however, the limits of IMTT'sIMTT’s coverage mean IMTT cannot insure against all risks. In addition, because IMTT'sIMTT’s facilities are not insured against loss from terrorism or acts of war, such an attack that significantly damages one or more of IMTT'sIMTT’s major facilities would have a negative impact on IMTT'sIMTT’s future cash flow and profitability and the distributions it makes to us. Further, future losses sustained by insurers during hurricanes in the U.S. Gulf region may result in lower insurance coverage andand/or increased insurance premiums for IMTT'sIMTT’s properties in Louisiana.
The primary driver of Hawaii's economy is tourism. A significant portion of the sales of our gas production and distribution business is generated from businesses that rely on tourism as their primary source of revenue. These businesses include hotels and resorts, restaurants and laundries, comprising nearly half of sales. As a result of the current economic climate, Hawaii has recently experienced significant declines in levels of tourism which has affected the local economy generally and has caused declines in the business’ volume of gas sold. If the level of tourism fails to improve or continues to decline, the business’ commercial contribution margin and profitability could be materially adversely affected. In addition, a reduction in new housing starts and commercial development may reduce growth opportunities for the business.
Disruptions at the SNG plant resulting from mechanical or operational problems or power failures could affect the ability of our gas production and distribution business to produce SNG. Most of the regulated sales on Oahu are of SNG and are produced at this plant. Disruptions to the primary and redundant production systems would have a significant adverse effect on sales and cash flows.
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Our gas production and distribution business comprises the manufacture ofThe Gas Company manufactures SNG and the distribution ofdistributes SNG and liquefied petroleum gas, or LPG. AnySNG feedstock SNG or LPG supply disruptions or refinery shutdowns that limit itsthe business’ ability to manufacture andand/or deliver gas to customers would adversely affect the costcould increase costs as a result of our operations. Increased costs could result from an inability to source feedstock at favorable costs,acceptable rates. The extended unavailability of one or both of the Oahu refineries or disruption to crude oil supplies or feedstock to Hawaii resultingcould also result in higheran increased reliance on imports.imported sources. Due to lack of Jones Act-qualified vessels, the business is unable to purchase LPG from the mainland U.S. An inability to purchase LPG from foreign sources would materially adversely affect our operations. In addition, because we haveThe business is also limited in its ability to store LPG, and any disruption in supply may cause a depletion of LPG stocks. Currently, the business has only one current contracted source of feedstock for our SNG, the Tesoro refinery, and if Tesoro chooses to discontinue the production or sale of feedstock to us,the business, which they could do with little notice, ourThe Gas Company’s utility business would suffer a significant disruption and potentially significant operating costs andcost increases and/or capital expenditures until alternative supplies of feedstock could be arranged. Our gas production and distribution business is also limited in its ability to store both foreign-sourced LPG and domestic LPG at the same location at the same time and, therefore, any disruption in supply may cause a short-term depletion of LPG.developed. All supply disruptions of SNG or LPG, if occurring for an extended period, could materially adversely impact the business'business’ contribution margin and cash flows.
In January 2010, Chevron announced that it plans to reduce the size of its global oil refining business, although it has not made any decisions regarding its refinery in Hawaii. Chevron could decide to continue operating in Hawaii, cease operations entirely or convert a portion of its operations into a terminal for importation of energy products. Chevron’s Hawaii refinery supplies The Gas Company with over half of its total LPG purchases. Any decision by Chevron regarding its operations in Hawaii could affect the business’ cost of LPG and may adversely impact its non-utility contribution margin and profitability.
The profitability of our gas production and distribution businessThe Gas Company is based on the margin of sales prices over costs. Since LPG and feedstock for the SNG plant are commodities, changes in the marketglobal supply of and demand for these products can have a significant impact on costs. In addition, increased reliance on higher-priced foreign sources of LPG, whether dueas a result of disruptions to disruptions or shortages in local sources or otherwise, could also have a significant impact on costs. Our gas production and distribution businessThe Gas Company has no control over these costs, and, to the extent that these costs cannot be passed on to customers, the business’ financial condition and the results of operations would be adversely affected. Higher prices could result in reduced customer demand or could result in customer conversion to alternative energy sources. Thissources, or both, that would reduce salesthe volume of gas sold and adversely affect profits.the profitability of The Gas Company.
Disruptions at the SNG plant resulting from mechanical or operational problems or power failures could affect the ability of operations.
Our gas productionThe Gas Company to produce SNG. Most of the utility sales on Oahu are of SNG and distribution business has time charter agreements allowingall SNG is produced at the use of two barges that have the capability of transporting 424,000 gallons and 500,000 gallons of LPG, respectively. The Jones Act requires that vessels carrying cargo between two U.S. ports meet certain requirements. The barges used by our gas production and distribution business are the only two Jones Act qualified barges available in the Hawaiian Islands and capable of carrying large volumes of LPG. They are near the end of their useful economic lives, and the barge owner intends to replace one or both of them in the near future. To the extent that the barge owner is unable to replace these barges, or alternatively, these barges are unable to transport LPG from Oahu and the business is not able to secure foreign-source LPG or obtain an exemptionplant. Disruptions to the Jones Act, the storage capacityprimary and redundant production systems would have a significant adverse effect on those islands could be depleted andThe Gas Company’s sales and cash flows could be adversely affected.flows.
In the past, our gas production and distribution business has requested rate increases from the HPUC approximately every five years as its operating costs increased and as capital investments were committed.
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When the HPUC approved our purchase of the business, it stipulated that no rate increase may be implemented until 2009. Our gas production and distribution business is currently seeking an 8.4% increase in its utility rates with interim rate increases expected as early as July 2009. However, there is a risk that the HPUC will not grant any such rate increases or it will permit only part of the increase, which may have a material adverse effect on the business’ financial condition and results of operations.
In Hawaii, gas is largely used by commercial and residential customers for water heating and cooking. Our gas production and distribution business also has wholesale customers that resell product to other end-users. Gas end-use applications may be substituted by otherOther fuel sources such as electricity, diesel, solar energy, geo-thermal, wind, other gas providers and wind,alternative energy sources may be substituted for certain gas end-use applications, particularly if the price of gas increases relative to other fuel sources, whether due to higher commodity supply costs or otherwise. Customers could, for a number of reasons, including increased gas prices, lower costs of alternative energy or convenience, meet their energy needs through alternative sources. This could have an adverse effect on the business' sales,business’ revenue and cash flows.
If the business fails to comply with certain HPUC regulatory conditions, the profitability of our gas productionThe Gas Company could be adversely impacted. The business agreed to 14 regulatory conditions with the HPUC that address a variety of matters including: a requirement that The Gas Company and distributionHGC’s ratio of consolidated debt to total capital does not exceed 65%; and a requirement to maintain $20.0 million in readily-available cash resources at The Gas Company, HGC or MIC. The HPUC regulates all franchised or certificated public service companies operating in Hawaii; prescribes rates, tariffs, charges and fees; determines the allowable rate of earnings in establishing rates; issues guidelines concerning the general management of franchised or certificated utility businesses; and acts on requests for the acquisition, sale, disposition or other exchange of utility properties, including mergers and consolidations. Any adverse decision by the HPUC concerning the level or method of determining utility rates, the items and amounts that may be included in the rate base, the returns on equity or rate base found to be reasonable, the potential consequences of exceeding or not meeting such returns, or any prolonged delay in rendering a decision in a rate or other proceeding, could have an adverse effect on the business.
The Jones Act requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships and that they meet certain other requirements. The business has time charter agreements allowing the use of two barges that currently have a cargo capacity of approximately 420,000 gallons and 550,000 gallons of LPG each. The barges used by the business are membersthe only two Jones Act qualified barges available in the Hawaiian Islands capable of a labor union. A work interruption may adversely affect our gas productioncarrying large volumes of LPG. They are near the end of their useful economic lives, and distribution business.
Approximately two-thirdsthe barge owner intends to refurbish one or both of them in the near future. If the barges are unable to transport LPG from Oahu and the business is not able to secure foreign-source LPG or obtain an exemption to the Jones Act, the profitability of the employeesbusiness could be adversely impacted.
Tourism and government activities (including the military) are two of our gas productionthe largest components of Hawaii’s economy. Hawaii’s economy is heavily influenced by economic conditions in the U.S. and distribution business are covered under a collective bargaining agreement that expiresAsia and their impact on April 30, 2013. Labor disruptions related to that contract or to other disputes could affect gas manufacturing, gas distribution systems, gas delivery and customer services. Any labor dispute,tourism, as well as by government spending. As a result of the processeconomic downturn, Hawaii has experienced significant declines in levels of contract negotiations, hastourism which have affected the potentiallocal economy generally. A large portion of creating morale issues, which, if severe enough mayThe Gas Company’s sales are generated by businesses that rely on tourism. If the local economy fails to improve or declines, the volume of gas sold could be negatively affected by business closures and/or lower usage and adversely impact productivity.the business’ financial performance. Additionally, a lack of growth in the Hawaii economy could reduce the level of new residential construction, and adversely impact growth in volume from new residential customers. A reduction in government activity, particularly military activity, or a shift by either away from the use of gas products, could also have a negative impact on The Gas Company’s results.
Hawaii is subject to earthquakes and certain weather risks, such as hurricanes, floods, heavy and sustained rains and tidal waves. Because the business’ SNG plant, SNG transmission line and several storage facilities are close to the ocean, weather-related disruptions to operations are possible. In addition, earthquakes may cause disruptions. These events could damage itsthe business’ assets or could result in wide-spread damage to its customers, thereby reducing sales volumes and, to the extent such damages are not covered by insurance, the business’ revenue and cash flows.
In order to operate ourthe district cooling system in downtown Chicago, we havethe business has obtained the right to use certain public ways of the City of Chicago under a use agreement, which we refer to as the Use Agreement. Under the terms of the Use Agreement, the City of Chicago retains the right to use the public ways for a public purpose and has the right in the interest of public safety or convenience to cause usthe business to remove, modify, replace or relocate ourits facilities at our own expense.the expense of the business. If the City of Chicago exercises these rights, weDistrict Energy could incur significant costs and ourits ability to provide service to ourits customers could be disrupted, which would have an adverse effect on our business,the business’ financial condition and results of operations. In addition, the Use Agreement is non-exclusive, and the City of Chicago is entitled to enter into use agreements with ourthe business’ potential competitors.
The Use Agreement expires on December 31, 2040 and may be terminated by the City of Chicago for any uncured material breach of its terms and conditions. The City of Chicago also may require usDistrict Energy to pay liquidated damages of $6,000 a day if we failthe business fails to remove, modify, replace or relocate ourits facilities when required to do so, if we installit installs any facilities that are not properly authorized under the Use Agreement or if ourthe district cooling system does not conform to the City of Chicago'sChicago’s standards. Each of these non-compliance penalties could result in substantial financial loss or effectively shut down ourthe district cooling system in downtown Chicago.
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Any proposed renewal, extension or modification of the Use Agreement requires approval by the City Council of Chicago. Extensions and modifications subject to the City of Chicago'sChicago’s approval include those to enable the expansion of chilling capacity and the connection of new customers to the district cooling system. The City of Chicago'sChicago’s approval is contingent upon the timely filing of an Economic Disclosure Statement, or EDS, by us and certain of the beneficial owners of our stock. If any of these investors fails to file a completed EDS form within 30 days of the City of Chicago'sChicago’s request or files an incomplete or inaccurate EDS, the City of Chicago has the right to refuse to provide the necessary approval for any extension or modification of the Use Agreement or to rescind the Use Agreement altogether. If the City of Chicago declines to approve extensions or modifications to the Use Agreement, weDistrict Energy may not be able to increase the capacity of ourits district cooling system and pursue ourits growth strategy for our district energy business.strategy. Furthermore, if the City of Chicago rescinds or voids the Use Agreement, ourthe district cooling system in downtown Chicago would be effectively shut down and our business,the business’ financial condition and results of operations would be materially and adversely affected as a result.
In order to secure any amendment to the Use Agreement with the City of Chicago to pursue expansion plans or otherwise, or to enter into other contracts with the City of Chicago, the City of Chicago may require any person who owns or acquires 7.5% or more of our LLC interests to make a number of representations to the City of Chicago by filing a completed EDS. Our LLC agreement requires that in the event that we need to obtain approval from the City of Chicago in the future for any specific matter, including to expand the district cooling system or to amend the Use Agreement, we and each of our then 7.5% investors would need to submit an EDS to the City of Chicago within 30 days of the City of Chicago'sChicago’s request. In addition, our LLC agreement requires each 7.5% investor to provide any supplemental information needed to update any EDS filed with the City of Chicago as required by the City of Chicago and as requested by us from time to time.
Any EDS filed by an investor may become publicly available. By completing and signing an EDS, an investor will have waived and released any possible rights or claims which it may have against the City of Chicago in connection with the public release of information contained in the EDS and also will have authorized the City of Chicago to verify the accuracy of information submitted in the EDS. The requirements and consequences of filing an EDS with the City of Chicago will make compliance with the EDS requirements difficult for our investors.
If any investor fails to comply with the EDS requirements on time or the City of Chicago determines that any information provided in any EDS is false, incomplete or inaccurate, the City of Chicago may rescind or void the Use Agreement or any other arrangements Thermal Chicago has with the City of Chicago, and pursue any other remedies available to them. If the City of Chicago rescinds or voids the Use Agreement, ourthe business’ district cooling system in downtown Chicago would be effectively shut down and our business,the business’ financial condition and results of operations would be adversely affected as a result.
In the event of a shutdown of one or more of our district energy business'District Energy’s plants due to operational breakdown, strikes, the inability to retain or replace key technical personnel or events outside its control, such as an electricity blackout, or unprecedented weather conditions in Chicago, our district energy businessDistrict Energy may be unable to continue to provide chilling and heating services to all of its customers. As a result, our district energy businessDistrict Energy may be in breach of the terms of some or all of its customer contracts. In the event that such customers elect to terminate their contracts with our district energy businessDistrict Energy as a consequence of their loss of
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service, its revenue may be materially adversely affected. In addition, under a number of contracts, our district energy businessDistrict Energy may be required to pay damages to a customer in the event that a cessation of service results in loss to that customer.
Northwind Aladdin derives mosta majority of its cash flows from a contract with the Planet Hollywood resort and casino (formerly known as the Aladdin resort and casino) in Las Vegas to supply cold and hot water and back-up electricity. The Aladdin resort and casino emerged from bankruptcy immediately prior to MDE'sDistrict Energy’s acquisition of Northwind Aladdin in September 2004, and, during the course of those proceedings, the contract with Northwind Aladdin was amended to reduce the payment obligations of the Aladdin resort and casino. If the Planet Hollywood resort and casino were to enter into bankruptcy again and a cheaper source of the services that Northwind Aladdin provides can be found, ourthis contract may be terminated or amended. This could result in a total loss or significant reduction in ourDistrict Energy’s income from Northwind Aladdin, for which wethe business may receive no compensation.
Atlantic Aviation’s current debt-to-EBITDA ratio as defined under its loan agreement is substantial doubt7.97x. This compares to a maximum permitted debt-to-EBITDA ratio of 8.25x. The maximum permitted debt-to-EBITDA ratio drops to 8.00x from March 31, 2010. A further decline in business jet take-offs and landings at airports where Atlantic Aviation operates FBOs could result in a reduction of Atlantic Aviation’s EBITDA as defined under its loan agreement. Consequently, Atlantic Aviation could exceed the maximum permitted debt-to-EBITDA ratio under its loan agreement and default on its debt obligations. If the default remains uncured, the lenders under the loan agreement may accelerate the repayment of the outstanding balance of the borrowings under the agreement. If Atlantic Aviation is unable to repay or refinance this debt, it may be rendered insolvent. A default on the debt obligations leading to bankruptcy or insolvency would cause Atlantic Aviation to default on its FBO leases and would allow the local airport authorities to terminate the leases.
A large part of the business’ revenue is derived from fuel sales and other services provided to general aviation customers and, to a lesser extent, commercial air travelers. A further economic downturn could reduce
the level of air travel, adversely affecting Atlantic Aviation. General aviation travel is primarily a function of economic activity. Consequently, during periods of economic downturn, FBO customers are more likely to curtail air travel.
The economic downturn of 2008 and 2009 had a significant impact on the activity levels of many FBO customers, which resulted in significant declines in the gross profit of this business. If the economy does not continue to improve or negative sentiment regarding corporate jet usage persists or increases, we may see future declines in volumes of fuel sold, which could materially adversely affect the results of this business and which could cause it to fail to meet the financial covenants of its debt arrangements and allow its lenders to declare its entire indebtedness immediately due and payable.
Air travel and air traffic volume can also be affected by events that have nationwide and industry-wide implications, such as the events of September 11, 2001, as well as local circumstances. Events such as wars, outbreaks of disease such as SARS, and terrorist activities in the United States or overseas may reduce air travel. Local circumstances include downturns in the general economic conditions of the area where an airport is located or other situations in which our major FBO customers relocate their home base or preferred fueling stop to alternative locations.
In addition, changes to regulations governing the tax treatment relating to general aviation travel, either for businesses or individuals may cause a reduction in general aviation travel. Increased environmental regulation restricting or increasing the cost of aviation activities could also cause the business’ revenue to decline.
Some of Atlantic Aviation’s competitors are pursuing more aggressive pricing strategies. These competitors operate FBOs at a number of airports where Atlantic Aviation operates or at airports near where it operates. This competition, combined with the continuation or worsening of current economic conditions, has in recent periods and may continue to result in increased focus on cost among customers and, consequently, a decline in corporate jet usage and increased price sensitivity. These factors may cause volumes of fuel sales and market share to decline and may result in increased margin pressure, adversely affecting the profitability of this business.
FBO operators at a particular airport compete based on a number of factors, including location of the facility relative to runways and street access, service, value added features, reliability and price. Many of Atlantic Aviation’s FBOs compete with one or more FBOs at their respective airports, and, to a lesser extent, with FBOs at nearby airports. Furthermore, leases related to FBO operations may be subject to competitive bidding at the end of their term. Some present and potential competitors have or may obtain greater financial and marketing resources than Atlantic Aviation, which may negatively impact Atlantic’s Aviation ability to compete at each airport or for lease renewal.
Atlantic Aviation’s FBOs do not have the right to be the sole provider of FBO services at any of its FBO locations. The authority responsible for each airport has the ability to grant other FBO leases at the airport and new competitors could be established at those FBO locations. The addition of our parking businessnew competitors may reduce, or impair Atlantic Aviation’s ability to continueincrease, the revenue of the FBO business.
Atlantic Aviation’s revenue is derived from long-term leases at 68 airports and one heliport. If Atlantic Aviation defaults on the terms and conditions of its leases, including upon insolvency, the relevant authority may terminate the lease without compensation. Additionally, leases at Chicago Midway, Philadelphia, North East Philadelphia, New Orleans International and Orange County airports and the Metroport 34th Street Heliport in New York City, representing approximately 12% of Atlantic Aviation’s gross profit in 2009, allow
the relevant authority to terminate the lease at their convenience. In each case, Atlantic Aviation would then lose the income from that location and potentially the expected returns from prior capital expenditures. Atlantic Aviation would also likely be in default under the loan agreements and be obliged to repay its lenders a portion or the entire outstanding loan amount.
The TSA has proposed new regulations known as a going concernthe Large Aircraft Security Program (LASP), which would require all U.S. operators of general aviation aircraft exceeding 12,500 pounds maximum take-off weight to implement security programs that are subject to TSA audit. In addition, the proposed regulations would require airports servicing these aircraft to implement security programs involving additional security measures, including passenger and baggage screening. We believe these new regulations, if implemented, will affect many of Atlantic Aviation’s customers and all of the airports at which it operates. These rules, if adopted, could decrease the convenience and attractiveness of general aviation travel relative to commercial air travel and, therefore, may adversely impact demand for Atlantic Aviation’s services.
The ongoing downturnPCAA is in the U.S. economy and the decline in commercial air travel have caused the resultsprocess of our airport parking business to decline, particularlycompleting a sale of its revenues, EBITDA and cash from operations. In the past, the business has funded its operations in part with its own cash on hand; however, in the second and third quarters of 2008, we contributed cash to the business to enable it to meet its liquidity requirements. We have not contributed any cash to the business for the fourth quarter of 2008 nor do we intend to make any cash contributions to this business in the future other than potentially obligations that we have guaranteed. It is highly likely that our airport parking business will not be able to refinance or pay its debt obligations that mature in 2009. In light of the current credit markets and performance of the airport parking business, there is substantial doubt as to the parking business’ ability to continue asassets through a going concern. Upon an event of default under the airport parking business’ debt agreements or an insolvency, creditors of the business may choose to foreclose on or assume control of the business’ assets.Chapter 11 bankruptcy. Creditors of the business may also attempt to seek recovery from the Company and, through the Company, seek recourse to the assets of our other businesses, regardless of the merits of such a claim or lack thereof, which could result in substantial legal costs and significant disruption of management time and resources, thereby adversely affecting our profitability.
At each of the locations at which our airport parking business operates, it competes with both on-airport parking facilities, many of which are located closer to passenger terminals, and other off-airport parking facilities. If an airport expands its parking facilities or if new off-airport parking facilities are opened or existing facilities expanded, customers may be drawn away from our sites or we may have to reduce our parking rates, or both.
Parking rates charged by us at each of our locations are set with reference to a number of factors, including prices charged by competitors and quality of service by on-airport and off-airport competitors, the location and quality of the facility and the level of service provided. Additional sources of competition to our parking operations may come from new or improved transportation to the airports where our parking facilities are located. Improved rail, bus or other services may encourage our customers not to drive to the airport and therefore negatively impact revenue.
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Our airport parking business' shuttle operations transport customers between the airport terminals and its parking facilities and are regulated by, and are subject to, the rules and policies of the relevant local airport authority, which may be changed at their discretion. Some airport authorities levy fees on off-airport parking operators for the right to transport customers to the terminals. There is a risk that airport authorities may deny or restrict our access to terminals, impede our ability to manage our shuttle operations efficiently, impose new fees or increase the fees currently levied.
Further, the FAA and the Transportation Security Administration, or TSA, regulate the operations of all the airports at which our airport parking business has locations. The TSA has the authority to restrict access to airports as well as to impose parking and other restrictions around the airports. The TSA could impose more stringent restrictions in the future that would inhibit the ability of customers to use our parking facilities.
Our Manager is an affiliate of Macquarie Group Limited and a member of the Macquarie Group. From time to time, we have entered into, and in the future we may enter into, transactions and relationships involving Macquarie Group Limited, its affiliates, or other members of the Macquarie Group. Such transactions have included and may include, among other things, the acquisition of businesses and investments from Macquarie Group members, the entry into debt facilities and derivative instruments with members of the Macquarie Group serving as lender or counterparty, and financial advisory services provided to us by the Macquarie Group.
Although our audit committee, all of the members of which are independent directors, is required to approve of any related party transactions, including those involving members of the Macquarie Group or its affiliates, the relationship of our Manager to the Macquarie Group may result in conflicts of interest.
In addition, as a result of our Manager’s being a member of the Macquarie Group, negative market perceptions of Macquarie Group Limited generally or of Macquarie’s infrastructure management model, or Macquarie Group statements or actions with respect to other managed vehicles, may affect market perceptions of our company and cause a decline in the price of our LLC interests unrelated to our financial performance and prospects.
Our Manager has the right, under the management services agreement, to resign at any time with 90 days notice, whether we have found a replacement or not. The resignation of our Manager will trigger mandatory repayment obligations under debt facilities at all of our operating companies other than IMTT. If our Manager resigns, we may not be able to find a new external manager or hire internal management with similar expertise within 90 days to provide the same or equivalent services on acceptable terms, or at all. If we are
unable to do so quickly, our operations are likely to experience a disruption, our financial results could be adversely affected, perhaps materially, and the market price of our LLC interests may decline substantially. In addition, the coordination of our internal management, acquisition activities and supervision of our businesses and investments are likely to suffer if we were unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Manager and its affiliates.
Furthermore, if our Manager resigns, the Company and its subsidiaries will be required to cease use of the Macquarie brand entirely, and change their names to remove any reference to “Macquarie.” This may cause the value of the Company and the market price of our LLC interests to decline.
Under the terms of the management services agreement, our Manager must significantly underperform in order for the management services agreement to be terminated. The Company'sCompany’s Board of Directors cannot remove our Manager unless:
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Because our Manager'sManager’s performance is measured by the market performance of our LLC interests relative to a weighted average of two benchmark indices, even if the absolute market performance of our LLC interests does not meet expectations, the Company'sCompany’s Board of Directors cannot remove our Manager unless the market performance of our LLC interests also significantly underperforms the weighted average of the benchmark indices. If we were unable to remove our Manager in circumstances where the absolute market performance of our LLC interests does not meet expectations, the market price of our LLC interests could be negatively affected.
Our Manager has the right, under the management services agreement, to resign at any time on 90 days notice, whether we have found a replacement or not. If our Manager resigns, we may not be able to find a new external manager or hire internal management with similar expertise within 90 days to provide the same or equivalent services on acceptable terms, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial results could be adversely affected, perhaps materially, and the market price of our LLC interests may decline substantially. In addition, the coordination of our internal management, acquisition activities and supervision of our businesses and investments are likely to suffer if we were unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Manager and its affiliates.
Furthermore, if our Manager resigns, the Company and its subsidiaries will be required to cease using the Macquarie brand entirely, including changing their names to remove any reference to “Macquarie.” This may cause the value of the Company and the market price of our LLC interests to decline.
In addition to the limited circumstances in which our Manager can be terminated under the terms of the management services agreement, the management services agreement provides that in circumstances where the stock ceases to be listed on a recognized U.S. exchange as a result of the acquisition of stock by third parties in an amount that results in the stock ceasing to meet the distribution and trading criteria on such exchange or market, the Manager has the option to either propose an alternate fee structure and remain our Manager or resign, terminate the management services agreement upon 30 days written notice and be paid a substantial termination fee. The termination fee payable on the Manager'sManager’s exercise of its right to resign as our Manager subsequent to a delisting of our LLC interests could delay or prevent a change in control that may favor our shareholders. Furthermore, in the event of such a delisting, any proceeds from the sale, lease or exchange of a significant amount of assets must be reinvested in new assets of our company, subject to debt repayment obligations. We would also be prohibited from incurring any new indebtedness or engaging in any transactions with shareholders of the Company or its affiliates without the prior written approval of the Manager. These provisions could deprive shareholders of opportunities to realize a premium on the LLC interests owned by them.
The operating agreement of the Company, which we refer to as the LLC agreement, contains a number of provisions that could have the effect of making it more difficult for a third-party to acquire, or discouraging a third-party from acquiring, control of the company. These provisions include:
42
The market price of our LLC interests may fluctuate significantly. Many factors that are beyond our control may significantly affect the market price and marketability of our LLC interests and may adversely affect our ability to raise capital through equity financings. These factors include the following:
We have accumulated over $116.0 million in federal Net Operating Loss (NOL) carryforwards. While we have concluded that all but $15.2 million of the NOLs will more likely than not be realized, there can be no assurance that we will utilize the NOLs generated to date or any NOLs we might generate in the future. In addition, we have incurred state NOLs and have provided a valuation allowance against a portion of those state NOLs. As with our federal NOLs, there is also no assurance that we will utilize those state losses or future losses.
Under current law, qualified dividend income and long-term capital gains are taxed to non-corporate investors at a maximum U.S. federal income tax rate of 15%. This tax treatment may be adversely affected, changed or repealed by future changes in tax laws at any time and is currently scheduled to expire for tax years beginning after December 31, 2010.
None.
In general, the assets of our businesses, including real property, are pledged to secure the financing arrangements of each business on a stand-alone basis. See “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7 for a further discussion of these financing arrangements.
43
Our airport services business does not own any real property. Its operations are carried out under various long-term leases. Our airport services business leases office space for its head office in Plano, Texas, and satellite offices in Baltimore, Maryland and at Teterboro Airport. For more information regarding our FBO locations, see “Our Businesses and Investments — Airport Services Business — Business — Locations” in Part I, Item 1. The lease in Plano expires in 2012 and the lease in Baltimore renews automatically every 90 days until terminated by either party. We believe that these facilities are adequate to meet current and foreseeable future needs.
Our airport services business owns or leases a number of vehicles, including fuel trucks and other equipment needed to provide service to customers. Some phased replacement and routine maintenance is performed on this equipment. We believe that the equipment is generally well maintained and adequate for present operations.
IMTT operates ten wholly-owned bulk liquid storage facilities in the United States and has part ownership in two companies that each own bulk liquid storage facilities in Canada. The land on which the facilities are located is either owned or leased by IMTT with leased land comprising a small proportion of the total land in use. IMTT also owns the storage tanks, piping and transportation infrastructure such as truck and rail loading equipment located at the facilities. IMTT also ownsfacilities and related ship docks, except in Quebec and Geismar, LA. where the docks are leased. We believe that the aforementioned equipment is generally well maintained and adequate for the present operations. For further details, see “Our Businesses and Investments — Bulk Liquid Storage Terminal BusinessIMTT — Locations” in Part I, Item 1.
The Gas Company or TGC, has facilities and equipment on all major Hawaiian Islands providing support for our regulated and non-regulated operations. Property used in the regulated operations includesincluding: land beneath the SNG plant and underground distribution piping. Regulated operations also includeplant; several LPG holding tanks and trucks used to transport LPG to these holding tanks. TGC hascylinders; approximately 1,000 miles of underground piping, used in regulated operations, of which approximately 900 miles are on Oahu.
Non-regulated operations include tanksOahu; and cylinders useda 22-mile transmission pipeline from the SNG plant to store LPG as well as trucks used to transport LPG. TGC also maintains a fleet of service vehicles and other heavy equipment necessary to provide installation and perform repairs and maintenance to our distribution systems.Pier 38 in Honolulu.
A summary of property, by island, follows. For more information regarding TGC'sThe Gas Company’s operations, see “Our Businesses and Investments — The Gas Production and Distribution BusinessCompany — Fuel Supply, SNG Plant and Distribution System” in Part I, Item 1.
Island | Description | Use | Own/Lease | |||
Oahu | SNG Plant | Production of SNG | Lease | |||
Kamakee Street Buildings and Maintenance yard | Engineering, Maintenance Facility, Warehouse | Own | ||||
LPG Baseyard | Storage facility for tanks and cylinders | Lease | ||||
Topa Fort Street Tower | Executive Offices | Lease | ||||
Various Holding Tanks | Store and supply LPG to utility customers | Lease | ||||
Maui | Office, tank storage facilities and baseyard | Island-wide operations | Lease | |||
Kauai | Office | Island-wide operations | Own | |||
Kauai | Tank storage facility and baseyard | Island-wide operations | Lease | |||
Hawaii | Office, tank storage facilities and baseyard | Island-wide operations | Own |
44
Thermal ChicagoDistrict Energy owns or leases six plants in Chicago as follows:
Plant Number | Ownership or Lease Information | |
P-1 | ||
P-2 | Property, building and | |
P-3 | ||
P-4 | ||
P-5 | ||
Stand-Alone |
These six plants have sufficient capacity with which to serve existing customer needs. To serve new customers, the system expansion discussed in the growth capital expenditures section of this document will need to be made. Please see “Our Businesses and Investments — District Energy Business — Overview”also owns approximately 14 miles of underground piping from which it distributes chilled water from its facilities to the customers in Item 1. Business, for a discussion of system capacity.downtown Chicago.
Northwind Aladdin's plantThe equipment at District Energy’s Las Vegas facility is housed in its own building on a parcel of leased landproperty within the perimeter of the Planet Hollywood resort and casino.casino, which expires in 2020. The property lease is co-terminus with the supply contract with the Planet Hollywood resort and casino. The plant isbuilding and equipment are owned by Northwind AladdinDistrict Energy and upon expiration of the lease we arethe business is required to either abandon the plantbuilding and equipment or remove itthem at the landlord'slandlord’s expense.
Atlantic Aviation does not own any real property. Its operations are carried out under various long-term leases. The plant has sufficient capacity to servebusiness leases office space for its customershead office in Plano, Texas. For more information regarding Atlantic Aviation’s FBO locations, see “Our Businesses and isInvestments — Atlantic Aviation — Business — Locations” in the process of being modified to serve an additional customer.
Our airport parking business has 31 off-airport parking facilities located near 20 commercial airports throughout the United States.Part I, Item 1. The land on which thelease in Plano expires in 2012. We believe that these facilities are located is either ownedadequate to meet current and foreseeable future needs.
Atlantic Aviation owns or leased by us. Over half of our land, measured byleases a number of spaces,vehicles, including fuel trucks and other equipment needed to provide service to customers. Routine maintenance is owned. None of these locationsperformed on this equipment and a portion is individually material.
Our airport parking businessreplaced in accordance with a pre-determined schedule. Atlantic Aviation believes that the equipment is in the process of relocating its corporate headquarters from Downey, California to Philadelphia, Pennsylvania.
The airport parking business operates a fleet of approximately 190 shuttle buses used to transport customers togenerally well maintained and from the airport and its parking facilities.adequate for present operations.
Section 185 of the Clean Air Act (CAA) requires states (or in the absence of state action, the EPA) in severe and extreme non-attainment areas to adopt a penalty fee for major stationary sources of volatile organic compounds and nitrogen oxides if the area fails to attain the one-hour ozone National Ambient Air Quality Standard (NAAQS) set by the EPA. IMTT'sIMTT’s Bayonne NJ facility is a major stationary source of volatile organic compounds and nitrogen oxides in the New Jersey-Connecticut severe non-attainment area. Although we believe ourIMTT’s Bayonne NJ facility is in substantial compliance with CAA obligations, the subject area failed to meet the required NAAQS by the attainment date in 2007 and as a consequence IMTT-Bayonne believes it is likely to be assessed a penalty fee linked to its 2008 and 2009 emissions that were in excess of baseline levels. IMTT anticipatesexpects that the penalty feerelated to these matters will be less than $500,000 in the aggregate and that it will not be in excess of $1.0 million relating to this matter which is likely to
45
be payable in 2010.until 2011 or later. IMTT is currently reviewing its operations with the intent of reducing, to the extent feasible, its emissions in order to avoid or reduce potential future penalty fees.penalties.
There are no legal proceedings pending that we believe will have a material adverse effect on us other than ordinary course litigation incidental to our businesses. We are involved in ordinary course legal, regulatory, administrative and environmental proceedings. Typically, expenses associated with these proceedings are covered by insurance.
None.
46
Our LLC interests are traded on the NYSE under the symbol “MIC.” Our shares of trust stock began trading on the NYSE on December 16, 2004. The following table sets forth, for the fiscal periods indicated, the high and low sale prices per LLC interest (or per share of trust stock prior to dissolution of the Trust) on the NYSE:
High | Low | High | Low | |||||||||||||
Fiscal 2006 | ||||||||||||||||
First Quarter | $ | 35.23 | $ | 30.64 | ||||||||||||
Second Quarter | 32.27 | 26.06 | ||||||||||||||
Third Quarter | 32.68 | 23.84 | ||||||||||||||
Fourth Quarter | 35.79 | 29.20 | ||||||||||||||
Fiscal 2007 | ||||||||||||||||
First Quarter | $ | 39.30 | $ | 34.88 | ||||||||||||
Second Quarter | 44.86 | 39.05 | ||||||||||||||
Third Quarter | 44.03 | 35.99 | ||||||||||||||
Fourth Quarter | 41.76 | 37.94 | ||||||||||||||
Fiscal 2008 | ||||||||||||||||
First Quarter | $ | 39.01 | $ | 29.13 | $ | 39.01 | $ | 29.13 | ||||||||
Second Quarter | 33.24 | 25.29 | 33.24 | 25.29 | ||||||||||||
Third Quarter | 25.00 | 12.63 | 25.00 | 12.63 | ||||||||||||
Fourth Quarter | 12.90 | 2.32 | 12.90 | 2.32 | ||||||||||||
Fiscal 2009 | ||||||||||||||||
First Quarter (through February 20, 2009) | $ | 5.74 | $ | 2.97 | ||||||||||||
First Quarter | $ | 5.74 | $ | 0.79 | ||||||||||||
Second Quarter | 4.36 | 1.50 | ||||||||||||||
Third Quarter | 9.38 | 3.10 | ||||||||||||||
Fourth Quarter | 12.60 | 7.38 | ||||||||||||||
Fiscal 2010 | ||||||||||||||||
First Quarter (through February 18, 2010) | $ | 13.96 | $ | 12.20 |
As atof February 20, 200925, 2010, we had 44,948,69445,292,913 LLC interests outstanding that were held by 8290 holders of record representing over 45,00016,000 beneficial holders.
Because our LLC interests are listed on the NYSE, our Chief Executive Officer is required to make, and on July 2, 20086, 2009 did make, an annual certification to the NYSE stating that he was not aware of any violation by the Company of the corporate governance listing standards of the NYSE. In addition, we have filed, as exhibits to this annual report on Form 10-K, the certifications of the Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002 to be filed with the SEC regarding the quality of our public disclosure.
Current conditions in the U.S. economy and the capital markets are such thatIn February 2009, we have modified our long-term distribution policy. Our long-term distribution policy has been to declare and pay regular quarterly cash distributions on all outstanding LLC interests. Our policy was based on the predictable and stable cash flows of our businesses and investments and our intention to pay out as distributions to our shareholders the majority of our cash in excess of prudent reserves in our operating subsidiaries.
Our Board of Directors has decided to suspendsuspended payment of quarterly cash distributions to shareholders in orderfavor of applying the cash generated by our operating businesses to reduce boththe reduction of holding company debt and operating company debt, principally at businesses where the underlying fundamentals are strong. The suspensionAtlantic Aviation. This policy is likely to remain in effect until such time as, a) we have achieved a prudent level of cash reserves at both our holding company and operating company entities, and b) the credit markets and customer spending patterns at the “user-pay” businesses regain a level of stability and predictability that enables us to confidently estimate long term cash flows and refinancing capability.
We intendterms relating to finance our internal growth strategy primarily with selective operating cash flow and using existing debt and other resources. We intend to finance our acquisition strategy primarily through a combination of issuing new equity and incurring debt and not through operating cash flow.long-term debt.
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Since January 1, 2005,2008, we have made or declared the following distributions:
Declared | Period Covered | $ per LLC Interest/Share of Trust Stock | Record Date | Payable Date | ||||||||||||
May 14, 2005 | Dec 15 to Dec 31, 2004 | $ | 0.0877 | June 2, 2005 | June 7, 2005 | |||||||||||
May 14, 2005 | First quarter 2005 | $ | 0.50 | June 2, 2005 | June 7, 2005 | |||||||||||
August 8, 2005 | Second quarter 2005 | $ | 0.50 | September 6, 2005 | September 9, 2005 | |||||||||||
November 7, 2005 | Third quarter 2005 | $ | 0.50 | December 6, 2005 | December 9, 2005 | |||||||||||
March 14, 2006 | Fourth quarter 2005 | $ | 0.50 | April 5, 2006 | April 10, 2006 | |||||||||||
May 4, 2006 | First quarter 2006 | $ | 0.50 | June 5, 2006 | June 9, 2006 | |||||||||||
August 7, 2006 | Second quarter 2006 | $ | 0.525 | September 6, 2006 | September 11, 2006 | |||||||||||
November 8, 2006 | Third quarter 2006 | $ | 0.55 | December 5, 2006 | December 8, 2006 | |||||||||||
February 27, 2007 | Fourth quarter 2006 | $ | 0.57 | April 4, 2007 | April 9, 2007 | |||||||||||
May 3, 2007 | First quarter 2007 | $ | 0.59 | June 5, 2007 | June 8, 2007 | |||||||||||
August 7, 2007 | Second quarter 2007 | $ | 0.605 | September 6, 2007 | September 11, 2007 | |||||||||||
November 6, 2007 | Third quarter 2007 | $ | 0.62 | December 5, 2007 | December 10, 2007 | |||||||||||
February 25, 2008 | Fourth quarter 2007 | $ | 0.635 | March 5, 2008 | March 10, 2008 | |||||||||||
May 5, 2008 | First quarter 2008 | $ | 0.645 | June 4, 2008 | June 10, 2008 | |||||||||||
August 4, 2008 | Second quarter 2008 | $ | 0.645 | September 4, 2008 | September 11, 2008 | |||||||||||
November 4, 2008 | Third quarter 2008 | $ | 0.20 | December 3, 2008 | December 10, 2008 |
Declared | Period Covered | $ per LLC Interest | Record Date | Payable Date | ||||||||||||
February 25, 2008 | Fourth quarter 2007 | $ | 0.635 | March 5, 2008 | March 10, 2008 | |||||||||||
May 5, 2008 | First quarter 2008 | $ | 0.645 | June 4, 2008 | June 10, 2008 | |||||||||||
August 4, 2008 | Second quarter 2008 | $ | 0.645 | September 4, 2008 | September 11, 2008 | |||||||||||
November 4, 2008 | Third quarter 2008 | $ | 0.20 | December 3, 2008 | December 10, 2008 |
The declaration and payment of any future distribution will be subject to a decision of the Company'sCompany’s Board of Directors, which includes a majority of independent directors. The Company'sCompany’s Board of Directors will take into account such matters as the state of the capital markets and general business conditions, our financial condition, results of operations, capital requirements and any contractual, legal and regulatory restrictions on the payment of distributions by us to our shareholders or by our subsidiaries to us, and any other factors that the Board of Directors deems relevant. In particular, each of our businesses and investments have substantial debt commitments and restrictive covenants, which must be satisfied before any of them can pay dividends or make distributions to us. Any or all of these factors could affect both the timing and amount, if any, of future distributions. See “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7.
The table below sets forth information with respect to LLC interests authorized for issuance as of December 31, 2008:2009:
Plan Category | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Under Column (a)) (c) | |||||||||
Equity compensation plans approved by securityholders(1) | $ | — | (1) | |||||||||
Equity compensation plans not approved by securityholders | — | — | — | |||||||||
Total | — | (1) |
(1) | Information represents number of LLC interests issuable upon the vesting of director stock units pursuant to our independent |
48
The selected financial data includes the results of operations, cash flow and balance sheet data of North America Capital Holding Company, or NACH (now known as Atlantic Aviation FBO Inc., or Atlantic Aviation), which was deemed to be our predecessor. We have included the results of operations and cash flow data of NACH for the period from January 1, 2004 through July 29, 2004years ended, and for the period July 30, 2004 through December 22, 2004. The period from December 23, 2004 throughas of, December 31, 2004 includes the results of operations and cash flow data for our businesses and investments from December 23 through December 31, 2004 and the results of the company from April 13, 2004 through December 31, 2004. The years ended December 31,2009, 2008, 2007, 2006 and 2005 include the full year of results for our consolidated group, with the results of businesses acquired during 2008, 2007, 2006 and 2005those years being included from the date of each acquisition. We have included our consolidated balance sheet data at December 31, 2004, 2005, 2006, 2007 and 2008.
49
Macquarie Infrastructure Company | NACH | Macquarie Infrastructure Company | ||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended Dec 31, 2008 | Year Ended Dec 31, 2007 | Year Ended Dec 31, 2006 | Year Ended Dec 31, 2005 | Dec 22 through Dec 31, 2004 | July 30 through Dec 22, 2004 | Jan 1 through July 29, 2004 | Year Ended Dec 31, 2009 | Year Ended Dec 31, 2008(1) | Year Ended Dec 31, 2007(1) | Year Ended Dec 31, 2006(1) | Year Ended Dec 31, 2005(1) | |||||||||||||||||||||||||||||||||||||||
($ in thousands, except per LLC interest/trust stock data) | ($ In Thousands, Except Per LLC Interest/Trust Stock Data) | |||||||||||||||||||||||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from product sales | $ | 586,054 | $ | 445,852 | $ | 262,432 | $ | 142,785 | $ | 1,681 | $ | 29,465 | $ | 41,146 | $ | 394,200 | $ | 586,054 | $ | 445,852 | $ | 262,432 | $ | 142,785 | ||||||||||||||||||||||||||
Revenue from product sales – utility | 121,770 | 95,770 | 50,866 | — | — | — | — | 95,769 | 121,770 | 95,770 | 50,866 | — | ||||||||||||||||||||||||||||||||||||||
Service revenue | 339,543 | 284,860 | 201,835 | 156,655 | 3,257 | 9,839 | 14,616 | 215,349 | 264,851 | 207,680 | 125,773 | 96,800 | ||||||||||||||||||||||||||||||||||||||
Financing and equipment lease income | 4,686 | 4,912 | 5,118 | 5,303 | 126 | — | — | 4,758 | 4,686 | 4,912 | 5,118 | 5,303 | ||||||||||||||||||||||||||||||||||||||
Total revenue | 1,052,053 | 831,394 | 520,251 | 304,743 | 5,064 | 39,304 | 55,762 | 710,076 | 977,361 | 754,214 | 444,189 | 244,888 | ||||||||||||||||||||||||||||||||||||||
Cost of revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of product sales | 406,997 | 302,283 | 192,399 | 84,480 | 912 | 16,599 | 21,068 | 231,139 | 406,997 | 302,283 | 192,399 | 84,480 | ||||||||||||||||||||||||||||||||||||||
Cost of product sales – utility | 103,216 | 64,371 | 14,403 | — | — | — | — | 71,252 | 103,216 | 64,371 | 14,403 | — | ||||||||||||||||||||||||||||||||||||||
Cost of services | 143,294 | 113,203 | 92,542 | 82,160 | 1,633 | 849 | 1,428 | 46,317 | 63,850 | 53,387 | 37,905 | 37,085 | ||||||||||||||||||||||||||||||||||||||
Gross profit | 398,546 | 351,537 | 220,907 | 138,103 | 2,519 | 21,856 | 33,266 | 361,368 | 403,298 | 334,173 | 199,482 | 123,323 | ||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 242,373 | 193,887 | 120,252 | 82,636 | 7,953 | 13,942 | 22,378 | 214,865 | 231,273 | 185,370 | 114,333 | 78,127 | ||||||||||||||||||||||||||||||||||||||
Fees to manager – related party | 12,568 | 65,639 | 18,631 | 9,294 | 12,360 | — | — | |||||||||||||||||||||||||||||||||||||||||||
Fees to manager - related party | 4,846 | 12,568 | 65,639 | 18,631 | 9,294 | |||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment(3) | 190,751 | — | — | — | — | — | — | 71,200 | 52,000 | — | — | — | ||||||||||||||||||||||||||||||||||||||
Depreciation(4) | 40,140 | 20,502 | 12,102 | 6,007 | 175 | 1,287 | 1,377 | 36,813 | 40,140 | 20,502 | 12,102 | 6,007 | ||||||||||||||||||||||||||||||||||||||
Amortization of intangibles(5) | 72,352 | 35,258 | 43,846 | 14,815 | 281 | 2,329 | 849 | 60,892 | 61,874 | 32,356 | 18,283 | 11,013 | ||||||||||||||||||||||||||||||||||||||
Operating income | (159,638 | ) | 36,251 | 26,076 | 25,351 | (18,250 | ) | 4,298 | 8,662 | |||||||||||||||||||||||||||||||||||||||||
Operating (loss) income | (27,248 | ) | 5,443 | 30,306 | 36,133 | 18,882 | ||||||||||||||||||||||||||||||||||||||||||||
Dividend income | — | — | 8,395 | 12,361 | 1,704 | — | — | — | — | — | 8,395 | 12,361 | ||||||||||||||||||||||||||||||||||||||
Interest income | 1,207 | 5,963 | 4,887 | 4,064 | 69 | 28 | 17 | 119 | 1,090 | 5,705 | 4,670 | 4,034 | ||||||||||||||||||||||||||||||||||||||
Finance fees | — | — | — | — | — | (6,650 | ) | — | ||||||||||||||||||||||||||||||||||||||||||
Interest expense | (104,095 | ) | (81,653 | ) | (77,746 | ) | (33,800 | ) | (756 | ) | (2,907 | ) | (4,655 | ) | (91,154 | ) | (88,652 | ) | (65,356 | ) | (60,484 | ) | (23,449 | ) | ||||||||||||||||||||||||||
Loss on extinguishment of debt | — | (27,512 | ) | — | — | — | — | — | — | — | (27,512 | ) | — | — | ||||||||||||||||||||||||||||||||||||
Equity in earnings (loss) and amortization charges of investees | 1,324 | (32 | ) | 12,558 | 3,685 | (389 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Equity in earnings (losses) and amortization of charges of investees | 22,561 | 1,324 | (32 | ) | 12,558 | 3,685 | ||||||||||||||||||||||||||||||||||||||||||||
Loss on derivative instruments | (2,597 | ) | (1,220 | ) | (1,373 | ) | — | — | — | — | (29,540 | ) | (2,843 | ) | (1,362 | ) | (822 | ) | — | |||||||||||||||||||||||||||||||
Gain on sale of equity investment | — | — | 3,412 | — | — | — | — | — | — | — | 3,412 | — | ||||||||||||||||||||||||||||||||||||||
Gain on sale of investment | — | — | 49,933 | — | — | — | — | — | — | — | 49,933 | — | ||||||||||||||||||||||||||||||||||||||
Gain on sale of marketable securities | — | — | 6,738 | — | — | — | — | — | — | — | 6,737 | — | ||||||||||||||||||||||||||||||||||||||
Other income (expense), net | 38 | (815 | ) | 594 | 123 | 50 | (39 | ) | (5,135 | ) | 760 | (19 | ) | (1,088 | ) | 92 | 136 | |||||||||||||||||||||||||||||||||
(Loss) income from continuing operations before income taxes and minority interests | (263,761 | ) | (69,018 | ) | 33,474 | 11,784 | (17,572 | ) | (5,270 | ) | (1,111 | ) | ||||||||||||||||||||||||||||||||||||||
Net (loss) income from continuing operations before income taxes and noncontrolling interests | (124,502 | ) | (83,657 | ) | (59,339 | ) | 60,624 | 15,649 | ||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes | 15,818 | 14,061 | 16,764 | 4,287 | 3,615 | |||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income from continuing operations before noncontrolling interests | (108,684 | ) | (69,596 | ) | (42,575 | ) | 64,911 | 19,264 | ||||||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | 486 | 585 | 554 | 528 | 719 | |||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income from continuing operations | $ | (109,170 | ) | $ | (70,181 | ) | $ | (43,129 | ) | $ | 64,383 | $ | 18,545 | |||||||||||||||||||||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss from discontinued operations before income taxes and noncontrolling interests | $ | (23,647 | ) | (180,104 | ) | $ | (9,679 | ) | $ | (27,150 | ) | $ | (3,865 | ) | ||||||||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 84,120 | 16,483 | 16,421 | 3,615 | — | (286 | ) | 597 | 1,787 | 70,059 | (281 | ) | 12,134 | — | ||||||||||||||||||||||||||||||||||||
Minority interests | (1,168 | ) | (481 | ) | (23 | ) | 203 | 16 | — | — | ||||||||||||||||||||||||||||||||||||||||
(Loss) income from continuing operations | (178,473 | ) | (52,054 | ) | 49,918 | 15,196 | (17,588 | ) | (5,556 | ) | (514 | ) | ||||||||||||||||||||||||||||||||||||||
Discontinued operations: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income from operations of discontinued operations | — | — | — | — | — | 116 | 159 | |||||||||||||||||||||||||||||||||||||||||||
Income on disposal of discontinued operations (net of applicable income tax provisions) | — | — | — | — | — | 116 | 159 | |||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (178,473 | ) | $ | (52,054 | ) | $ | 49,918 | $ | 15,196 | $ | (17,588 | ) | $ | (5,440 | ) | $ | (355 | ) |
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Macquarie Infrastructure Company | NACH | |||||||||||||||||||||||||||
Year Ended Dec 31, 2008 | Year Ended Dec 31, 2007 | Year Ended Dec 31, 2006 | Year Ended Dec 31, 2005 | Dec 22 through Dec 31, 2004 | July 30 through Dec 22, 2004 | Jan 1 through July 29, 2004 | ||||||||||||||||||||||
($ in thousands, except per LLC interest/trust stock data) | ||||||||||||||||||||||||||||
Basic and diluted (loss) earnings per LLC interest/trust stock(6) | (3.97 | ) | (1.27 | ) | 1.73 | 0.56 | (17.38 | ) | — | — | ||||||||||||||||||
Cash dividends declared per LLC interest/trust stock | 2.125 | 2.385 | 2.075 | 1.5877 | — | — | — | |||||||||||||||||||||
Cash Flow Data: | ||||||||||||||||||||||||||||
Cash provided (used in) by operating activities | 93,675 | 96,550 | 46,365 | 43,547 | (4,045 | ) | (577 | ) | 7,757 | |||||||||||||||||||
Cash (used in) provided by investing activities | (83,400 | ) | (644,010 | ) | (686,196 | ) | (201,950 | ) | (467,477 | ) | (228,145 | ) | 3,011 | |||||||||||||||
Cash provided by (used in) financing activities | 483 | 567,546 | 562,328 | 133,847 | 611,765 | 231,843 | (5,741 | ) | ||||||||||||||||||||
Effect of exchange rate | — | (1 | ) | (272 | ) | (331 | ) | (193 | ) | — | — | |||||||||||||||||
Net increase (decrease) in cash | 10,758 | 20,085 | (77,775 | ) | (24,887 | ) | 140,050 | 3,121 | 5,027 |
Macquarie Infrastructure Company | ||||||||||||||||||||||
Year Ended Dec 31, 2009 | Year Ended Dec 31, 2008(1) | Year Ended Dec 31, 2007(1) | Year Ended Dec 31, 2006(1) | Year Ended Dec 31, 2005(1) | ||||||||||||||||||
($ In Thousands, Except Per LLC Interest/Trust Stock Data) | ||||||||||||||||||||||
Net loss from discontinued operations before noncontrolling interests | (21,860 | ) | (110,045 | ) | (9,960 | ) | (15,016 | ) | (3,865 | ) | ||||||||||||
Noncontrolling interests | (1,863 | ) | (1,753 | ) | (1,035 | ) | (551 | ) | (516 | ) | ||||||||||||
Net loss from discontinued operations | $ | (19,997 | ) | $ | (108,292 | ) | $ | (8,925 | ) | $ | (14,465 | ) | $ | (3,349 | ) | |||||||
Net loss | $ | (129,167 | ) | $ | (178,473 | ) | $ | (52,054 | ) | $ | 49,918 | $ | 15,196 | |||||||||
Basic and diluted (loss) earnings per LLC interest/trust stock from continuing operations | $ | (2.43 | ) | $ | (1.56 | ) | $ | (1.05 | ) | $ | 2.23 | $ | 0.69 | |||||||||
Basic and diluted loss per LLC interest/trust stock from discontinued operations | (0.44 | ) | (2.41 | ) | (0.22 | ) | (0.50 | ) | (0.13 | ) | ||||||||||||
Weighted average number of shares outstanding: basic | 45,020,085 | 44,944,326 | 40,882,067 | 28,895,522 | 26,919,608 | |||||||||||||||||
Weighted average number of shares outstanding: diluted | 45,020,085 | 44,944,326 | 40,882,067 | 28,912,346 | 26,929,219 | |||||||||||||||||
Cash dividends declared per LLC interest/trust stock | $ | — | $ | 2.125 | $ | 2.385 | $ | 2.0750 | $ | 1.5877 | ||||||||||||
Statement of cash flows data: | ||||||||||||||||||||||
Cash flow from continuing operations | ||||||||||||||||||||||
Cash provided by operating activities | $ | 82,976 | $ | 95,579 | $ | 93,499 | $ | 38,979 | $ | 39,033 | ||||||||||||
Cash used in investing activities | (516 | ) | (56,716 | ) | (638,853 | ) | (681,994 | ) | (126,262 | ) | ||||||||||||
Cash (used in) provided by financing activities | (117,818 | ) | 1,698 | 570,618 | 556,259 | 77,945 | ||||||||||||||||
Effect of exchange rate | — | — | (1 | ) | (272 | ) | (331 | ) | ||||||||||||||
Net (decrease) increase in cash | $ | (35,358 | ) | $ | 40,561 | $ | 25,263 | $ | (87,028 | ) | $ | (9,615 | ) | |||||||||
Cash flow from discontinuing operations | ||||||||||||||||||||||
Cash (used in) provided by operating activities | $ | (4,732 | ) | $ | (1,904 | ) | $ | 3,051 | $ | 7,386 | $ | 4,514 | ||||||||||
Cash used in investing activities | (445 | ) | (26,684 | ) | (5,157 | ) | (4,202 | ) | (75,688 | ) | ||||||||||||
Cash provided by (used in) financing activities | 2,144 | (1,215 | ) | (3,072 | ) | 6,069 | 55,902 | |||||||||||||||
Net (decrease) increase in cash(6) | (3,033 | ) | (29,803 | ) | (5,178 | ) | 9,253 | (15,272 | ) | |||||||||||||
Change in cash of discontinued operations held for sale(6) | $ | (208 | ) | $ | 2,459 | $ | 5,902 | $ | (2,740 | ) | $ | (5,931 | ) |
NM – Not meaningful
(1) | Reclassified to conform to current period presentation. |
(2) | Includes depreciation expense of |
(3) | Reflects non-cash impairment charge of $71.2 million and $52.0 million recorded during the first six months of 2009 and |
(4) | Includes a non-cash impairment charge |
(5) | Includes a non-cash impairment charge of $23.3 million and $21.7 million for contractual arrangements recorded in the first six months of 2009 and the fourth quarter of 2008, respectively, at |
(6) |
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Macquarie Infrastructure Company | ||||||||||||||||||||
Year Ended Dec 31, 2008 | Year Ended Dec 31, 2007 | Year Ended Dec 31, 2006 | Year Ended Dec 31, 2005 | Year Ended Dec 31, 2004 | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Total current assets | 193,424 | 210,467 | 230,966 | 156,676 | 167,769 | |||||||||||||||
Property, equipment, land and leasehold improvements, net(1) | 673,981 | 674,952 | 522,759 | 335,119 | 284,744 | |||||||||||||||
Intangible assets, net(2) | 812,184 | 857,345 | 526,759 | 299,487 | 254,330 | |||||||||||||||
Goodwill(3) | 586,249 | 770,108 | 485,986 | 281,776 | 217,576 | |||||||||||||||
Total assets | 2,534,250 | 2,813,029 | 2,097,533 | 1,363,298 | 1,208,487 | |||||||||||||||
Current liabilities(4) | 352,606 | 133,515 | 72,139 | 34,598 | 39,525 | |||||||||||||||
Deferred tax liabilities | 65,042 | 202,683 | 163,923 | 113,794 | 123,429 | |||||||||||||||
Long-term debt, including related party, net of current portion | 1,327,800 | 1,426,494 | 959,906 | 629,095 | 434,352 | |||||||||||||||
Total liabilities | 1,899,989 | 1,839,305 | 1,224,927 | 786,693 | 603,676 | |||||||||||||||
Members’ equity/stockholders’ equity | 628,838 | 966,552 | 864,425 | 567,665 | 596,296 |
Macquarie Infrastructure Company | ||||||||||||||||||||||
Year Ended Dec 31, 2009 | Year Ended Dec 31, 2008(1) | Year Ended Dec 31, 2007(1) | Year Ended Dec 31, 2006(1) | Year Ended Dec 31, 2005(1) | ||||||||||||||||||
($ In Thousands) | ||||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||
Assets of discontinued operations held for sale | $ | 86,695 | $ | 105,725 | $ | 258,899 | $ | 268,327 | $ | 288,846 | ||||||||||||
Total current assets from continuing operations | 129,866 | 193,890 | 201,604 | 216,620 | 144,856 | |||||||||||||||||
Property, equipment, land and leasehold improvements, net(2) | 580,087 | 592,435 | 577,498 | 425,045 | 240,260 | |||||||||||||||||
Intangible assets, net(3) | 751,081 | 811,973 | 846,941 | 513,466 | 260,849 | |||||||||||||||||
Goodwill(4) | 516,182 | 586,249 | 636,336 | 352,213 | 148,122 | |||||||||||||||||
Total assets | 2,339,221 | 2,552,436 | 2,813,029 | 2,097,531 | 1,363,300 | |||||||||||||||||
Liabilities of discontinued operations held for sale | $ | 220,549 | $ | 224,888 | $ | 225,042 | $ | 220,452 | $ | 207,321 | ||||||||||||
Total current liabilities from continuing operations | 174,647 | 135,311 | 121,892 | 62,981 | 26,322 | |||||||||||||||||
Deferred income taxes | 107,840 | 83,228 | 202,683 | 163,923 | 113,794 | |||||||||||||||||
Long-term debt, including related party, net of current portion | 1,166,379 | 1,327,800 | 1,225,150 | 758,400 | 438,247 | |||||||||||||||||
Total liabilities | 1,764,453 | 1,918,175 | 1,841,159 | 1,227,946 | 790,632 | |||||||||||||||||
Members' equity | $ | 578,526 | $ | 628,838 | $ | 966,552 | $ | 864,425 | $ | 567,665 |
(1) |
(2) | Includes a non-cash impairment charge of $7.5 million and $13.8 million recorded during the first six months of 2009 and the fourth quarter of 2008, respectively, at Atlantic Aviation. |
(3) | Includes a non-cash impairment charge of $23.3 million and $21.7 million for contractual arrangements recorded in the first six months of 2009 and the fourth quarter of 2008, respectively, at |
Reflects non-cash impairment charge of $71.2 million and $52.0 million recorded during the first six months of 2009 and |
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The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere herein.
InWe own, operate and invest in a diversified group of infrastructure businesses that provide basic services, such as chilled water for building cooling and gas utility services to businesses and individuals primarily in the latterU.S. The businesses we own and operate are energy-related businesses consisting of IMTT, The Gas Company, and our controlling interest in District Energy, and an aviation-related business consisting of Atlantic Aviation.
On January 28, 2010, we agreed to sell the assets of PCAA through a bankruptcy process, which we expect to complete in the first half of 20082010. This business is now a discontinued operation and continuing into 2009,is therefore separately reported in our economy has seen majorconsolidated financial institutionsstatements and multinational corporations face liquidity shortfalls, seekis no longer a reportable segment.
Our infrastructure businesses generally operate in sectors with limited competition and barriers to entry resulting from a variety of factors including high initial development and construction costs, the existence of long-term contracts or the requirement to obtain government financial supportapprovals and declare bankruptcy. Thesea lack of immediate cost-efficient alternatives to the services provided. Overall they tend to generate sustainable and other macroeconomic factors have resulted in decreased business activity levels generally and have adversely affected all of our businesses to some extent. growing long-term cash flows.
Our bulk liquid storage, gas production and distribution and district energyenergy-related businesses have proven, to date, largely resistant to the economic downturn of the past 18 to 24 months, primarily due to the contracted or utility-like nature of their revenues combined with the essential nature of the services they provide.provide and the contractual or regulatory ability to pass through most cost increases to customers. We believe these businesses are generally able to generate consistent cash flows throughout the business cycle.
Our airport services business’The results of Atlantic Aviation have been negatively affected since mid-2008 by lower overall economic and declining general aviation activity levels through mid-2009. However, general activity levels stabilized in the second half of 2009 and finally showed some year on year growth in December. This stabilization, combined with expense reduction efforts, resulted in an improving outlook for the business.
The uncertainty and instability in the credit markets appears to be subsiding. This is evident in the increase in the volume of lending activity and decreased usethe price at which such lending is occurring compared with levels during the height of general aviation jets. However, we believe the fundamental strength of our airport services business, based on the important role of general aviation in the air transportation industry, will be sustained over the long term.
The current economic climate and our inability to accurately forecast when these conditions will improve have led us to focus more intently on managing our businesses to prudently reduce costs and operating expenditures, selectively reduce debt levels, anticipate and mitigate potential refinancing risk and conservatively approach growth expenditures. We have taken a number of steps to retain cash, reduce debt levels in our airport services business and manage all of our businesses through the current environment. These measures are discussed in more detail directly below and in more detail under the discussion regarding each business in “Results of Operations” and “Liquidity and Capital Resources.”
global financial crisis. We believe that our active management ofthis improvement in the credit market has had a beneficial impact on the outlook for our businesses, along withgiven the essential services naturesignificant amount of ourlong-term debt those businesses overall will enable themhave outstanding.
Despite the improvement in the credit markets, we expect to continue to operatestrengthen our consolidated balance sheet and generate cash, if at somewhat reduced levels, until economic conditions improve.
Our Boardthose of Directors has decidedour operating entities through prudent reduction in the amount of long-term debt outstanding, further increasing the likelihood that we will be able to suspend paymentsuccessfully refinance this debt as it matures over approximately the next four years. In 2009, we accomplished a portion of quarterly cash distributions to shareholdersthis objective by repaying in order to reduce bothfull our holding company debt and operating company debt atby reaching an agreement to sell the assets of PCAA, as discussed below. To the extent that our businesses where the underlying fundamentals are strong. The suspension is likelygenerate excess cash, we expect to remain in effect untilretain such time as the credit markets and consumer spending patterns regain a level of stability and predictability that enables us to confidently estimate long term cash flows and refinancing capability.
In our airport services business, we are aggressively managing operations, debt level and liquidity position in response to the current economic climate. We have implemented a number of measures that have successfully reduced operating expenses. The savings have partially offset the decline in volume and margins on fuel sales that we believe have resulted from decreased general aviation activity levels. As of September 2008, we have reduced run-rate costs by approximately $1.8 million per month or approximately $22.0 million on an annual basis, primarily through synergies realized in the integration of acquired sites and rationalization of staffing levels.
On February 25, 2009, we amended our airport services business’ credit facility to reduce the principal amount due under that facility and provide us additional financial flexibility over the near term.
On January 28, 2010, we announced that PCAA had entered into an asset purchase agreement with Bainbridge ZKS — Corinthian Holdings, LLC. This agreement, which is subject to approval by the bankruptcy court, will result in the sale of the assets of PCAA for $111.5 million, subject to certain adjustments and medium term. We used $50.0 millionwill result in cash on hand to pay down $44.9the elimination of $201.0 million of current debt from liabilities of discontinued operations held for sale in the outstanding term loanconsolidated balance sheet. The cancelled debt underin excess of the facilitysale proceeds used to repay such debt would result in cancellation of debt income and $5.1 millionthe proceeds in excess of interest rate swap break fees,the business’ net assets as a gain on sale. As a part of which $1.1 million was paidthe bankruptcy sale process, all cash proceeds would be court. If approved, we expect to Macquarie Bank Limited, a related party. Additionally, undercomplete the amended terms, we will apply all excess cash flow fromsale of the business to prepay additional debt wheneverassets in the leverage ratio (debt to adjusted EBITDA) equal to or more than 6.0x to 1.0 for the trailing twelve months and will use 50%first half of excess cash flow to prepay debt whenever leverage ratio is equal to or greater than 5.5x to 1.0 and below 6.0x to 1.0.2010.
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The resultsAs part of operationsthe bankruptcy filing, we have no obligation to and financial conditionhave no intention of committing additional capital to this business and our airportongoing liabilities are expected to be no more than $5.3 million in guarantees of a single parking business have suffered in the wake of continuing declines in commercial enplanements and increasing tightening of consumer spending. Our airport parking business has $201.3 million of total debt due on or before September 2009, secured by the assets and other collateral of this business.facility lease. Creditors of this business do not have recourse to any assets of the Companyour holding company or any assets of our other businesses, other than through approximately $12.0$5.3 million in guaranteesa lease guarantee as of February 25, 2010.
On December 23, 2009, we sold 49.99% of the non-controlling interest of District Energy to John Hancock Life Insurance Company and interest rate swap liabilities.John Hancock Life Insurance Company (U.S.A.) (collectively “John Hancock”) for $29.5 million. The proceeds of the sale, along with other cash resources, were used to fully repay the $66.4 million balance on our holding company revolving credit facility as described below.
At March 31, 2009, we reclassified the outstanding balance drawn on the revolving credit facility at our non-operating holding company from long-term debt to current portion of long-term debt on our consolidated balance sheet due to its scheduled maturity on March 31, 2010. During the year, we were in discussions with our lenders to convert the facility to a term loan and extend the maturity date of the $66.4 million outstanding balance.
The airport parking business does not have sufficient liquidity or capital resources to pay its maturing debt obligations and, based on current results and market conditions,By December 2009, we do not expect that the airport parking business will be able to refinance its debt as it matures. We have notifiedhad received unanimous approval from the lenders to this business thatextend the term of the facility. However, using the net cash proceeds we have no intention of contributing any further capital to this business other than potentially obligations that we have guaranteed. As a result, it is likely that this business will default on its existing debt obligations without substantial concessionsreceived from the lenderssale of the 49.99% non-controlling interest in District Energy, and there iscash on hand, we paid off the outstanding principal balance on December 28, 2009 and avoided the substantial doubt regardingcosts that would have been incurred had the business’ abilityterms of the facility been amended. Shortly thereafter we elected to continue as a going concern. We are in discussion with lenders and are pursuing strategic alternatives for this business including asset sales, restructuring plans or filing for protection under bankruptcy laws.
Although our gas production and distribution business results have not been affected byreduce the current economic climateamount available on the revolving credit facility from $97.0 million to $20.0 million through to the same extent as our airport services and airport parking businesses, the volume of gas products sold in 2008 declined by approximately 3% compared with 2007, including a 8.5% decline in fourth quarter 2008 over the prior period. These declines result from lower business activity in Hawaii largely caused by declines in tourism. According to the Hawaii Department of Business, Economic Development and Tourism, visitor arrivals to Hawaii were down by 11% in 2008 over 2007 and are expected to decline by a further 1.9% in 2009. We have implemented a number of margin management actions in the non-utility partmaturity of the business to partially offset declining volumes, which we discuss in more detail below.facility at March 31, 2010.
The macroeconomic factors and market conditions discussed above have not had a significant effect on our district energy business. This is primarily because of the contracted nature of the business and the contractual ability to pass through most cost variances to the customer.
The decline in our stock price, particularly over the latter part of 2008, has caused our book value to exceed our market capitalization. As a result we have booked a non-cash impairment charge of $190.8 million in the fourth quarter of 2008 in accordance with SFAS No. 142. A portion of the non-cash goodwill impairment charges was reflected in the financial results for both our airport services and airport parking businesses. See “Critical Accounting Estimates” and Note 7, Intangible Assets, to our consolidated financial statements included in this annual report on Form 10-K.
Through the year ended December 31, 2006, each holder of trust stock was required to include in U.S. federal taxable income its allocable share of the Trust’s income, gain, loss deductions and other items. The amounts shareholders include in taxable income may not have equaled the cash distributions to shareholders.
The agreement reached with the IRS referred to in Note 15, Income Taxes to our
We file a consolidated financial statements in Part II, Item 8 of this Form 10-K, allows the Company to be treated as a corporation for federal income tax purposes beginning January 1, 2007. Forreturn that includes the taxable income of all our businesses, except IMTT and, going forward, District Energy. IMTT and District Energy will file separate income tax years subsequent to 2006, shareholders need toreturns and we will include in our taxable income the taxable portion of ourany distributions characterized as a dividend. The Company has determined that 97.7% of ourfrom those businesses, which taxable distributions made in 2008 and all of our distributions made in 2007 were characterized as return of capital for tax purposes and will result in an adjustment to the shareholder’s basis rather than taxable income. The portion of the 2008 distribution that was characterized as a dividend was eligible for treatment as a qualified dividend.
The portion of our future distributions that will be treated as dividends for U.S. federal income tax purposes is subject to a number of uncertainties. We currently anticipate that all of our regular distributions
54
that are treated as dividends for U.S. federal income tax purposes will be eligible for treatment as qualified dividend income, subject to the shareholder having met the holding period requirements as defined by the IRS.
On December 21, 2004, we completed our IPO and concurrent private placement, issuing a total of 26,610,000 shares of trust stock at a price of $25.00 per share. Total gross proceeds were $665.3 million before offering costs and underwriting fees of $51.6 million. The majority of the proceeds were used to acquire our airports services business, district energy business, airport parking business, 50% share in a toll road business and investments in MCG and SEW in December 2004. Since our IPO, we have completed two additional equity raisings and have used these proceeds to partially finance additional acquisitions in our existing business segments and in new segments including the bulk liquid storage terminal business and gas production and distribution business. In 2006, we disposed of our toll road business and our investments in MCG and SEW.
Our airport services business has acquired the following FBOs since our initial acquisition of the business in 2004:
With these acquisitions, our airport services business owns and operates 72 FBOs at 68 airports and one heliport in the United States, which we believe is the largest such network of FBOs in the U.S.
On May 1, 2006, we completed the purchase of newly issued common stock of IMTT Holdings Inc., the holding company for a group of companies and partnerships that operate IMTT. As a result of this transaction, we own 50% of IMTT Holdings' issued and outstanding common stock.
We acquired TGC on June 7, 2006. TGC owns and operates the sole regulated synthetic natural gas production and distribution business in Hawaii and distributes and sells liquefied petroleum gas through unregulated operations.
In October 2005, our airport parking business acquired real property, and personal and intangible assets related to six off-airport parking facilities collectively referred to as “SunPark” as well as a leasehold facility in Cleveland. Our airport parking business also acquired a facility in Philadelphia in July 2005. In 2008, our airport parking business acquired a facility in Oakland and a facility in Newark. Following these acquisitions, our airport parking business has become the largest provider of off-airport parking services in the United States with 31 facilities at 20 airports across the United States.
See Note 4, Acquisitions, to the consolidated financial statements in Part II, Item 8 of this Form 10-K for further information on recent acquisitions and Note 9, Long-Term Debt, for information on the related financings.
55
During the fourth quarter of 2006, we completed an offering of an aggregate of 10,350,000 shares of trust stock at a price per share of $29.50 for which we received net proceeds of $291.1 million. The net cash proceeds from the equity offering and the sales of our interests in MCG and SEW were primarily used to repay in full indebtedness under the MIC Inc. revolving credit facility used to partially finance our acquisitions of IMTT, TGC and 23 FBOs in our airport services business.
In the third quarter of 2007, we completed an offering of an aggregate of 6,165,871 LLC interests at a price per interest of $40.99 for which we received proceeds of $241.3 million, net of underwriting fees and expenses. The net cash proceeds from the equity offering were used to partially finance the acquisitions of Mercury and San Jose within our airport services business.We did not undertake any offering of additional equity in 2008.
Results of the operations of each of our acquisitions are included in our consolidated results from the respective date of each acquisition. These acquisitions resulted in significant increases in the recorded value of our property, equipment, land and leasehold interests in our intangible assets, including goodwill, airport contract rights, customer relationships and technology; and in depreciation and amortization expense. Our acquisition of 50% of IMTT Holdings is reflected in our equity in earnings (losses) and amortization charges of investee line in our financial statements from May 1, 2006. We have financed a significant portion of our acquisitions with debt incurred at the business segment level, other than our investment in IMTT. The increased levels of debt have resulted in significant increases in interest expense from the respective date of each acquisition.
The performance of our airport services business depends upon the level of general aviation activity, and jet fuel consumption,should qualify for the largest portion of its gross profit. General aviation activity is in turn a function of economic activity80% dividends received deduction.
Fuel gross profit is a function of the volume (gallons) sold and the average dollar margin per gallon. The average price per gallon is based on our cost of fuel plus, where applicable, fees and taxes paid to airports or other local authorities (Cost of revenue — fuel), plus our margin. The dollar-based margin varies based on business considerations. Dollar-based margins per gallon have been relatively insensitive to the wholesale price of fuel with both increases and decreases in the wholesale price of fuel generally passed through to customers, subject to the level of price competition that exists at the various FBOs. Recent volatility in the price of jet fuel has resulted in an increased sensitivity to price on the part of some customers and a corresponding compression of our margins.
Our airport services business also earns revenue from activities other than fuel sales (non-fuel revenue). For example, we earn revenue from refuelling some general aviation customers and some commercial airlines on a “pass-through basis,” where we act as a fuelling agent for fuel suppliers and for commercial airlines. We receive a fee for this service, generally calculated on a per gallon basis. In addition, the business earns revenue from aircraft parking and hangar rental fees and by providing general aviation customers with other services, such as de-icing. At some facilities we also provide de-icing services to commercial airlines.
Expenses associated with non-fuel revenue (cost of revenue — non-fuel) include de-icing fluid costs and payments to airport authorities which vary from site to site. Cost of revenue — non-fuel is directly related to the volume of services provided and therefore generally increases in line with non-fuel revenue in dollar terms.
56
Our airport services business incurs expenses in operating and maintaining each FBO. Operating expenses include rent and insurance, which are generally fixed in nature and other expenses, such as salaries, that generally increase with the level of activity. In addition, our airport services business incurs general and administrative expenses at the head office that include senior management expenses as well as accounting, information technology, human resources, environmental compliance and other corporate costs.
IMTT provides bulk liquid storage and handling services in North America through ten terminals located on the East, West and Gulf Coasts, the Great Lakes region of the United States and partially owned terminals in Quebec and Newfoundland, Canada. The companyIMTT has its largest terminals in the strategically keystrategic locations of New York Harbor and the lower Mississippi River near New Orleans. IMTT stores and handles petroleum products, various chemicals, renewable fuels, and vegetable and animal oils and, based on storage capacity, operates one of the largest third-party bulk liquid storage terminal businesses in the United States.
The key drivers of IMTT'sIMTT’s revenue and gross profit include the amount of tank capacity rented to customers and the rental rates. Customers generally rent tanks under contracts with terms of between three and five years that require payment regardless of actual tank usage. Demand for storage capacity within a particular region (e.g. New York Harbor) serves as the key driver of storage capacity utilization and tank rental rates. This demand for capacity reflects both the level of consumption of the bulk liquid products stored by the terminals as well as import and export activity of such products. We believe major constraintconstraints on increases in the supply of new bulk liquid storage capacity in IMTT'sIMTT’s key markets hashave been and will continue to be limited by the availability of waterfront land with access to the infrastructure necessary for land based receipt and distribution of stored product (road, rail and pipelines), lengthy environmental permitting processes and high capital costs. We believe a favorable supply/demand balance for bulk liquid storage currently exists
in the markets serviced by IMTT’s major facilities. This condition, when combined with the attributes of IMTT'sIMTT’s facilities such as deep water drafts and access to land based infrastructure, have allowed IMTT to increase prices while maintaining very high storage capacity utilization rates.
IMTT earns revenue at its terminals from a number of sources including storage ofcharges for bulk liquids (per barrel, per month rental), throughput of liquids (handling charges), heating (a pass through of the cost associated with heating liquids to prevent excessive viscosity) and other (revenue from blending, packaging and warehousing, for example)etc.). Most customer contracts include provisions for annual price increases based on inflation.
In operating its terminals, IMTT incurs labor costs, fuel costs, repair and maintenance costs, real and personal property taxes and other costs (which include insurance and other operating costs such as utilities and inventory used in packaging and drumming activities).
In 2008,2009, IMTT generated approximately 45%43% of its total terminal revenue and approximately 46%42% of its terminal gross profit at its Bayonne NJ facility, which services New York Harbor, and approximately 37%41% of its total terminal revenue and approximately 41%48% of its terminal gross profit at its St. Rose, Gretna, Avondale and Geismar LA facilities, which together service the lower Mississippi River region (with St. Rose being the largest contributor).
Two key factors will likely have a material impact on IMTT'sIMTT’s total terminal revenue and terminal gross profit in the future. First, IMTT has achieved substantial increases in storage rates at its Bayonne and Louisiana facilities over the past few years. Based on the current level of demand for bulk liquid storage in New York Harbor and the lower Mississippi River, we anticipate that IMTT will achieve annual increases in average storage rates in excess of inflation at least through 2009.2010. Second, IMTT has committed toinvested in significant growth capital expenditureexpenditures over the past year that we expect should contribute to terminal gross profit in 2009 and beyond as discussed in Liquidity and Capital Resources.after 2009.
As prescribed in the shareholders'The shareholders’ agreement between us, IMTT Holdings and its other shareholders until December 31, 2008, IMTT Holdings was required to distribute $7.0 million per quarter to us. We received $28.0 million in cash distributions during 2008, including $7.0 million that was accrued atspecifies a default distribution policy for IMTT. Although the end of 2007. At December 31, 2008, we accrued $7.0 million for the fourth quarter distribution, which was received in January 2009. Subsequent to December 31, 2008, subject to the preconditions discussed in
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“Business — Bulk Liquid Storage Terminal Business — Shareholders’ Agreement” and subject to IMTT Holdings' consolidated adjusted net debt (excluding shareholder loans) to EBITDA ratio not exceeding 4.25:1 as at each quarter end, IMTT Holdings is required to distribute, quarterly, all of its consolidated cash flow from operations and cash flows from (but not used in) investing activities less maintenance and environmental remediation capital expenditure to its shareholders. However, we may agree to reduce the level of distributions actually paid by IMTT during 2009 and beyond below the amount prescribed bydefault under the shareholders’ agreement after consideration of, among other factors, the outlook for bulk liquid storage market conditions, the level of IMTT’s indebtedness and the availability of external sources of funding foris to distribute excess cash, shareholders have indicated that they are prepared to reinvest excess cash generated during 2010 in new growth capital projects. In particular, as discussed further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in Part I, Item 7 for Bulk Liquid Storage Terminal Business, the level of distributions anticipated to be paid by IMTT in 2009 and 2010 is highly dependent upon the raising of additional debt to fund committed growth projects and scheduled debt amortizations during 2009 and 2010.
Based on current market conditions and assuming completion during 2009 of some of the expansion projects currently under construction, it is anticipated that IMTT’s gross profit and EBITDA will increase to ranges of $165.0 million to $177.0 million and $140.0 million to $152.0 million, respectively in 2009. Increased maintenance and environmental capital expenditure and capitalized dredging expenditure in 2009 is anticipated to reduce IMTT’s cash available for distribution in 2009 to a range of $28.0 million to $36.0 million. IMTT anticipates that gross profit, EBITDA and cash available for distribution will increase from 2009 in 2010 due to the positive impact of a full-year contribution from growth projects coming on line part way through 2009 and a contribution from growth projects coming on line in 2010.opportunities rather than pay distributions.
Our interest in IMTT Holdings, from the date of closing our acquisition, May 1, 2006, is reflected in our equity in earnings and amortization charges of investee line in our consolidated statements of operations. Cash distributions received by us in excess of our equity in IMTT'sIMTT’s earnings and amortization charges are reflected in our consolidated statements of cash flows from investing activities under return on investment in unconsolidated business.
The Gas Company is Hawaii’s only government franchised full-service gas company, manufacturing and Distribution Business
TGC is a Hawaii limited liability company that ownsdistributing gas products and operates the regulated synthetic natural gas production and distribution businessservices in Hawaii and distributes and sells liquefied petroleum gas through unregulated operations. TGC operates in both regulated and unregulated markets on the islands of Oahu, Hawaii, Maui, Kauai, Molokai and Lanai.Hawaii. The Hawaii market includes Hawaii'sHawaii’s approximately 1.3 million residents and approximately 6.5 million visitors in 2009. The Gas Company manufactures synthetic natural gas, or SNG, for its approximately 6.8 million annual visitors.utility customers on Oahu, and distributes Liquefied Petroleum Gas, or LPG, to utility and non-utility customers throughout the state’s six primary islands.
TGCThe Gas Company has two primary businesses: utility (or regulated) and non-utility (or unregulated).
SNG and LPG have a wide number of commercial and residential applications, including electricity generation, water heating, drying, cooking, emergency power generation and decorative lighting.tiki torches. LPG is also used as a fuel for some automobiles, and specialty vehicles such as forklifts. Gas customers range frominclude residential customers for which TGC has nearly all of the market, toand a wide variety of commercial, hospitality, military, public sector and wholesale customers.
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Revenue is primarily a function of the volume of SNG and LPG consumed by customers and the price per thermal unit or gallon charged to customers. Because both SNG and LPG are derived from crude oil, revenue levels, without volume changes, will generally track global oil prices. Utility revenue includes fuel adjustment charges through which the changes in feedstock costs are passed through to utility customers. Evaluating the performance of this business based on contribution margin removes the volatility associated with fluctuations in the price of feedstock.
Volume is primarily driven by the tourism industry and economic growth in the state of Hawaii and by shifts of end users between gas and other energy sources and competitors. In 2008, tourism declined sharply in the wake of the broader economic slowdown and the decline had an impact on the volume of gas consumed by tourism dependent businesses such as restaurants and resorts/hotels. According to the State of Hawaii Department of Business and Economic Development and Tourism (DBEDT), visitor arrivals, one measure of the health of the tourism industry, decreased by approximately 11% in 2008 from 2007. In 2009, DBEDT expects visitor arrivals to decline by a further 2%.
There are approximately 220 entities regulated by the Hawaii Public Utilities Commission, or HPUC, excluding transportation businesses. They include one gas utility, four electric utilities, 37 water and sewage utilities and 178 telecommunications utilities. The four electric utility operators, combined, serve approximately 508,000 customers. Since all businesses and residences have electric service, this provides an estimate of the total market size. TGC's regulated customer base is approximately 35,500 accounts and its non-regulated customer base is approximately 33,000 accounts. Accordingly, TGC's overall market penetration, as a percentage of total electric utility customers in Hawaii, is approximately 13% of all businesses and residences. TGC has 100% of Hawaii's regulated gas business and approximately 75% of Hawaii's unregulated gas business.
Prices charged by TGCThe Gas Company to its customers for the utility gas business are based on HPUC-regulatedHPUC-utility rates that allow TGCthe business the opportunity to recover its costs of providing utility gas service, including operating expenses and taxes, and capital investments through recovery of depreciation and a return on the capital invested. TGC'sThe Gas Company’s rate structure generally allows it to maintain a relatively consistent dollar-based margin per thermal unit by passing increases or decreases in fuel costs through to customers via fuel adjustment charges without filing a general rate case.
In August 2008, TGC submitted its application for an 8.4% increase in its utility rates. If approved, the new rates could be effective as early as July 2009. The rate case application is currently under review by the HPUC and independent Consumer Advocate. The outcome of the company’s rate application cannot be estimated.
The rates that are charged to non-utility customers are based on the cost of LPG plus delivery costs, and on the cost of alternative fuels and competitive factors.
TGCThe Gas Company incurs expenses in operating and maintaining its facilities and distribution network, comprising a SNG plant, a 22-mile transmission line, 1,000900 miles of distribution and service pipelines, several tank storage facilities and a fleet of vehicles. These costs are generally fixed in nature. Other operating expenses incurred, such as for LPG, feedstock for the SNG plant and revenue-based taxes, generally fluctuate with the volume of product sold. In addition, TGCthe business incurs general and administrative expenses at its executive office that include expenses for senior management, accounting, information technology, human resources, environmental compliance, regulatory compliance, employee benefits, rents, utilities, insurance and other normal business costs.
As part of the regulatory approval process of our acquisition of TGC, we agreed to 14 regulatory conditions addressing a variety of matters. The more significant conditions include:
Our district energy businessDistrict Energy consists of Thermal Chicago and Northwind Aladdin, which are 100%50.01% and 75%37.51% indirectly owned by us. Thermal Chicago sells chilled water under long-term contracts to approximately 100 customers in downtown Chicago and one customer outside of the downtown area. Under the long-term
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contracts, Thermal Chicago receives both capacity and consumption payments. Capacity payments (cooling capacity revenue) are received regardless of the volume of chilled water used by a customer and these payments generally increase in line with inflation.
Consumption payments (cooling consumption revenue) are per unit charges for the volume of chilled water used. Such payments are higher in the second and third quarters of each year when the demand for building cooling is at its highest. Consumption payments also fluctuate moderately from year to year depending on weather conditions. By contract, consumption payments generally increase in line with a number of indices that reflect the cost of electricity, labor and other input costs relevant to the operations of Thermal Chicago. The weighting of the individual indices broadly reflects the composition of Thermal Chicago'sChicago’s direct expenses.
Thermal Chicago'sChicago’s principal direct expense is electricity. Other direct expenses are labor, operations and maintenance and depreciation and accretion.accretion. Electricity usage fluctuates in line with the volume of chilled water produced. Thermal Chicago focuses on minimizing the cost of electricity consumed per unit of chilled water produced by operating its plants to maximize efficient use of electricity. Other direct expenses are largely fixed regardless of the volumes of chilled water produced.
In 2007, the Illinois electricity generation market was deregulated. Thermal Chicago has entered into a contract with a retail energy supplier to provide the majority of ourthe business’ electricity in 20092010 at a fixed price. Electricity for one of ourthe plants is purchased by ourthe landlord/customer and the cost is passed through to us. We estimate our 2009the business. Based on Thermal Chicago’s retail contract, its 2010 electricity costs will increase by approximately 13%10% over 20082009 and wethe business will pass the increase through to its customers. WeThe business will need to enter into supply contracts for 20102011 and subsequent years and prices will fluctuate based on underlying power costs.
Northwind Aladdin services customers (a hotel/casino complex and a shopping mall) in Las Vegas, Nevada. Under its customer contracts, Northwind Aladdin receives monthly fixed payments totaling approximately $5.4$6.4 million per annum through March 2016 and monthly fixed payments totaling approximately $2.0$3.0 million per year thereafter through February 2020. In January 2009, Northwind Aladdin signed another contract
The performance of Atlantic Aviation depends upon the level of general aviation activity, and jet fuel consumption, for the largest portion of its gross profit. General aviation activity is in turn a function of economic activity and demographic trends in the regions serviced by the airport at which the business operates and the general level of economic activity in the United States. A number of these airports are located near key business centers such as New York, New York; Chicago, Illinois and Philadelphia, Pennsylvania as well as recreational destinations such as Aspen, Colorado and Sun Valley, Idaho.
Fuel gross profit is a function of the volume (gallons) sold and the average dollar margin per gallon. The average price per gallon is based on our cost of fuel plus, where applicable, fees and taxes paid to airports or other local authorities (cost of revenue — fuel), plus Atlantic Aviation’s margin. Dollar-based margins per gallon have been relatively insensitive to the wholesale price of fuel with both increases and decreases in the wholesale price of fuel generally passed through to customers, subject to the level of price competition that exists at the various FBOs. The average dollar-based margin varies based on business considerations and customer mix. Base tenants generally benefit from price discounts based on a new customer providinghigher utilization of Atlantic Aviation’s networks. Transient customers typically pay a higher price.
Atlantic Aviation also earns revenue from activities other than fuel sales (non-fuel revenue). For example, Atlantic Aviation earns revenue from refueling some general aviation customers on a “pass-through basis,” where it acts as a fueling agent for incremental monthly fixed payments totaling $300,000 in 2009 and $600,000fuel suppliers. Atlantic Aviation receives a fee for this service, generally calculated on a per annum from 2010 through March 2020.gallon basis. In addition, Northwind Aladdin receives consumptionthe business earns revenue from aircraft parking and hangar rental fees and by providing general aviation customers with other services, such as de-icing. At some sites where Atlantic Aviation operates an FBO business, Atlantic Aviation also earns revenue from refueling and de-icing some commercial airlines on a fee for service basis.
Expenses associated with non-fuel revenue (cost of revenue — non-fuel) include de-icing fluid costs and payments to airport authorities which vary from site to site. Cost of revenue — non-fuel is directly related to the volume of services provided and therefore generally increases in line with non-fuel revenue in dollar terms.
Atlantic Aviation incurs expenses in operating and maintaining each FBO. Operating expenses include rent and insurance, which are generally fixed in nature and other variable payments from its customersexpenses, such as salaries, that allow it to recover substantially all of its operating costs.
The revenue of our airport parking business is highly correlatedgenerally increase with the numberlevel of passengers boarding flights inactivity. In addition, Atlantic Aviation incurs general and administrative expenses at the 20 airport markets in which we operate. As discussed in prior filings, in the second quarterhead office that include senior management expenses as well as accounting, information technology, human resources, environmental compliance and other corporate costs.
Our revised expectations of enplanement growth and the consequential downward revision of our cash flow projections triggered an impairment analysis of our airport parking business. See “Critical Accounting Estimates” and Note 7, Intangible Assets, of our consolidated financial statements included in this Form 10-K for a discussion of the impairment analysis.
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Our consolidated results of operations are as follows ($ in thousands):
Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | Year Ended December 31 | Change (From 2008 to 2009) Favorable/(Unfavorable) | Change (From 2007 to 2008) Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | $ | % | $ | % | 2009 | 2008(1) | 2007(1) | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from product sales | $ | 586,054 | $ | 445,852 | $ | 262,432 | 140,202 | 31.4 | 183,420 | 69.9 | $ | 394,200 | $ | 586,054 | $ | 445,852 | (191,854 | ) | (32.7 | ) | 140,202 | 31.4 | ||||||||||||||||||||||||||||||||||
Revenue from product sales - utility | 121,770 | 95,770 | 50,866 | 26,000 | 27.1 | 44,904 | 88.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from product sales — utility | 95,769 | 121,770 | 95,770 | (26,001 | ) | (21.4 | ) | 26,000 | 27.1 | |||||||||||||||||||||||||||||||||||||||||||||||
Service revenue | 339,543 | 284,860 | 201,835 | 54,683 | 19.2 | 83,025 | 41.1 | 215,349 | 264,851 | 207,680 | (49,502 | ) | (18.7 | ) | 57,171 | 27.5 | ||||||||||||||||||||||||||||||||||||||||
Financing and equipment lease income | 4,686 | 4,912 | 5,118 | (226 | ) | (4.6 | ) | (206 | ) | (4.0 | ) | 4,758 | 4,686 | 4,912 | 72 | 1.5 | (226 | ) | (4.6 | ) | ||||||||||||||||||||||||||||||||||||
Total revenue | 1,052,053 | 831,394 | 520,251 | 220,659 | 26.5 | 311,143 | 59.8 | 710,076 | 977,361 | 754,214 | (267,285 | ) | (27.3 | ) | 223,147 | 29.6 | ||||||||||||||||||||||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of product sales | 406,997 | 302,283 | 192,399 | (104,714 | ) | (34.6 | ) | (109,884 | ) | (57.1 | ) | 231,139 | 406,997 | 302,283 | 175,858 | 43.2 | (104,714 | ) | (34.6 | ) | ||||||||||||||||||||||||||||||||||||
Cost of product sales – utility | 103,216 | 64,371 | 14,403 | (38,845 | ) | (60.3 | ) | (49,968 | ) | NM | 71,252 | 103,216 | 64,371 | 31,964 | 31.0 | (38,845 | ) | (60.3 | ) | |||||||||||||||||||||||||||||||||||||
Cost of services | 143,294 | 113,203 | 92,542 | (30,091 | ) | (26.6 | ) | (20,661 | ) | (22.3 | ) | 46,317 | 63,850 | 53,387 | 17,533 | 27.5 | (10,463 | ) | (19.6 | ) | ||||||||||||||||||||||||||||||||||||
Gross profit | 398,546 | 351,537 | 220,907 | 47,009 | 13.4 | 130,630 | 59.1 | 361,368 | 403,298 | 334,173 | (41,930 | ) | (10.4 | ) | 69,125 | 20.7 | ||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 242,373 | 193,887 | 120,252 | (48,486 | ) | (25.0 | ) | (73,635 | ) | (61.2 | ) | 214,865 | 231,273 | 185,370 | 16,408 | 7.1 | (45,903 | ) | (24.8 | ) | ||||||||||||||||||||||||||||||||||||
Fees to manager – related party | 12,568 | 65,639 | 18,631 | 53,071 | 80.9 | (47,008 | ) | NM | 4,846 | 12,568 | 65,639 | 7,722 | 61.4 | 53,071 | 80.9 | |||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | 190,751 | — | — | (190,751 | ) | NM | — | NM | 71,200 | 52,000 | — | (19,200 | ) | (36.9 | ) | (52,000 | ) | NM | ||||||||||||||||||||||||||||||||||||||
Depreciation | 40,140 | 20,502 | 12,102 | (19,638 | ) | (95.8 | ) | (8,400 | ) | (69.4 | ) | 36,813 | 40,140 | 20,502 | 3,327 | 8.3 | (19,638 | ) | (95.8 | ) | ||||||||||||||||||||||||||||||||||||
Amortization of intangibles | 72,352 | 35,258 | 43,846 | (37,094 | ) | (105.2 | ) | 8,588 | 19.6 | 60,892 | 61,874 | 32,356 | 982 | 1.6 | (29,518 | ) | (91.2 | ) | ||||||||||||||||||||||||||||||||||||||
Total operating expenses | 558,184 | 315,286 | 194,831 | (242,898 | ) | (77.0 | ) | (120,455 | ) | (61.8 | ) | 388,616 | 397,855 | 303,867 | 9,239 | 2.3 | (93,988 | ) | (30.9 | ) | ||||||||||||||||||||||||||||||||||||
Operating income | (159,638 | ) | 36,251 | 26,076 | (195,889 | ) | NM | 10,175 | 39.0 | |||||||||||||||||||||||||||||||||||||||||||||||
Operating (loss) income | (27,248 | ) | 5,443 | 30,306 | (32,691 | ) | NM | (24,863 | ) | (82.0 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend income | — | — | 8,395 | — | — | (8,395 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | 1,207 | 5,963 | 4,887 | (4,756 | ) | (79.8 | ) | 1,076 | 22.0 | 119 | 1,090 | 5,705 | (971 | ) | (89.1 | ) | (4,615 | ) | (80.9 | ) | ||||||||||||||||||||||||||||||||||||
Interest expense | (104,095 | ) | (81,653 | ) | (77,746 | ) | (22,442 | ) | (27.5 | ) | (3,907 | ) | (5.0 | ) | (91,154 | ) | (88,652 | ) | (65,356 | ) | (2,502 | ) | (2.8 | ) | (23,296 | ) | (35.6 | ) | ||||||||||||||||||||||||||||
Loss on extinguishment of debt | — | (27,512 | ) | — | 27,512 | NM | (27,512 | ) | NM | — | — | (27,512 | ) | — | NM | 27,512 | NM | |||||||||||||||||||||||||||||||||||||||
Equity in earnings (losses) and amortization charges of investees | 1,324 | (32 | ) | 12,558 | 1,356 | NM | (12,590 | ) | (100.3 | ) | 22,561 | 1,324 | (32 | ) | 21,237 | NM | 1,356 | NM | ||||||||||||||||||||||||||||||||||||||
Loss on derivative instruments | (2,597 | ) | (1,220 | ) | (1,373 | ) | (1,377 | ) | (112.9 | ) | 153 | 11.1 | (29,540 | ) | (2,843 | ) | (1,362 | ) | (26,697 | ) | NM | (1,481 | ) | (108.7 | ) | |||||||||||||||||||||||||||||||
Gain on sale of equity investment | — | — | 3,412 | — | — | (3,412 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||
Gain on sale of investment | — | — | 49,933 | — | — | (49,933 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||
Gain on sale of marketable securities | — | — | 6,738 | — | — | (6,738 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense), net | 38 | (815 | ) | 594 | 853 | 104.7 | (1,409 | ) | NM | 760 | (19 | ) | (1,088 | ) | 779 | NM | 1,069 | 98.3 | ||||||||||||||||||||||||||||||||||||||
Net (loss) income before income taxes and minority interests | (263,761 | ) | (69,018 | ) | 33,474 | (194,743 | ) | NM | (102,492 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||||
Net loss from continuing operations before noncontrolling interests | (124,502 | ) | (83,657 | ) | (59,339 | ) | (40,845 | ) | (48.8 | ) | (24,318 | ) | (41.0 | ) | ||||||||||||||||||||||||||||||||||||||||||
Benefit for income taxes | 84,120 | 16,483 | 16,421 | 67,637 | NM | 62 | 0.4 | 15,818 | 14,061 | 16,764 | 1,757 | 12.5 | (2,703 | ) | (16.1 | ) | ||||||||||||||||||||||||||||||||||||||||
Net (loss) income before minority interests | (179,641 | ) | (52,535 | ) | 49,895 | (127,106 | ) | NM | (102,430 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||||
Minority interests | (1,168 | ) | (481 | ) | (23 | ) | (687 | ) | (142.8 | ) | (458 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||
Net (loss) income | $ | (178,473 | ) | $ | (52,054 | ) | $ | 49,918 | (126,419 | ) | NM | (101,972 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||
Net loss from continuing operations before noncontrolling interests | (108,684 | ) | (69,596 | ) | (42,575 | ) | (39,088 | ) | (56.2 | ) | (27,021 | ) | (63.5 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | 486 | 585 | 554 | 99 | 16.9 | (31 | ) | (5.6 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Net loss from continuing operations | $ | (109,170 | ) | $ | (70,181 | ) | $ | (43,129 | ) | (38,989 | ) | (55.6 | ) | (27,052 | ) | (62.7 | ) | |||||||||||||||||||||||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss from discontinued operations before income taxes and noncontrolling interests | (23,647 | ) | (180,104 | ) | (9,679 | ) | 156,457 | 86.9 | (170,425 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 1,787 | 70,059 | (281 | ) | (68,272 | ) | (97.4 | ) | 70,340 | NM | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss from discontinued operations before noncontrolling interests | (21,860 | ) | (110,045 | ) | (9,960 | ) | 88,185 | 80.1 | (100,085 | ) | NM | |||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interests | (1,863 | ) | (1,753 | ) | (1,035 | ) | 110 | 6.3 | 718 | 69.3 | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss from discontinued operations | $ | (19,997 | ) | $ | (108,292 | ) | $ | (8,925 | ) | 88,295 | 81.5 | (99,367 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||
Net loss | $ | (129,167 | ) | $ | (178,473 | ) | $ | (52,054 | ) | 49,306 | 27.6 | (126,419 | ) | NM |
NM — Not meaningful
(1) | Reclassified to conform to current period presentation. |
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The decrease in our consolidated gross profit in 2009 was due to a decline in fuel volumes at Atlantic Aviation, partially offset by improved results at our consolidated energy-related businesses. The increase in our consolidated gross profit in 2008 was primarily due to acquisitions made by our airport services businessAtlantic Aviation in 2007 and the first quarter of 2008, partially offset by a decline in performance at existing locations.
The increasedecrease in our selling, general and administrative expenses in 2009 was primarily a result of cost reduction efforts at Atlantic Aviation, partially offset by higher costs at the holding company mainly attributable to the sale of the non-controlling stake in District Energy and increased incentive compensation, pension expense and professional services at our consolidated energy-related businesses. The increase in selling, general and administrative expenses in 2008 was primarily a result of acquisitions made by our airport services businessAtlantic Aviation in 2007 and 2008.
Base fees to our Manager decreased in 2009 due to our lower market capitalization. Our Manager elected to reinvest the second, third and fourth quarter of 2009 base management fees in additional LLC interests. LLC interests for the second and third quarters of 2009 were issued to our Manager during the second half of 2009. LLC interests for the fourth quarter of 2009 will be issued to our Manager during the first quarter of 2008. The ratio of selling, general and administrative expenses to gross profit increased due to declining activity levels, primarily in our airport services business, offset by various cost-saving initiatives.2010.
The fees payable to our Manager in 2008 were lower primarily due to performance fees of $957,000 and $43.0$44.0 million in the first and second quarters of 2007 that did not recur in 2008. Our Manager elected to reinvest these performance fees in additional LLC interests. Base fees paid to our Manager in 2008 also decreased by $9.1 million due to our lower market capitalization.
Our Board of Directors requested that the Manager reverse its decision to reinvest its base management in stock under the terms of the management services agreement due to the significant decline in the market price of our LLC interests between the end of the third quarter of 2008 and the time at which we would have issued those LLC interests and the resulting potential substantial dilution to existing shareholders. Our Manager agreed to this request and the third quarter 2008 base management fees have subsequently been paid in cash. Fourth quarter 2008 base management fees have also been paid in cash.
In accordance with SFAS No. 142, we performed our annual impairment test at the reporting unit level during the fourth quarter of 2008. Goodwill is considered impaired when the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, as determined under a two-step approach.value. Based on the testing performed, we recognized goodwill impairment charge of $52.0 millioncharges at our airport services and $138.8 million airport parking business during 2008.
The increaseAtlantic Aviation in depreciation was primarily due to acquisitions made by our airport services business in 2007 and the first quartersix months of 2008. Depreciation expense for 2008 also includes a non-cash impairment charge of $13.8 million2009 and $19.1 million at our airport services business and airport parking business, respectively, recorded during the fourth quarter of 2008.
Depreciation includes non-cash asset impairment charges of $7.5 million and $13.8 million recorded in 2009 and 2008, respectively, at Atlantic Aviation. Excluding these impairment charges, depreciation expense also increased each year as a result of capital expenditures by existingour businesses that createdresulting in higher asset balances.
Amortization of intangibles expense includes non-cash asset impairment charges of $23.3 million, $21.7 million and $1.3 million recorded by Atlantic Aviation in 2009, 2008 and 2007, respectively. Excluding these impairment charges, amortization of intangibles expense increased in 2008 due to acquisitions made by Atlantic Aviation in 2007 and 2008. Amortization of intangibles expense for 2008 includes a non-cash impairment charge2009 decreased due to the impairments previously discussed reducing the balance of $21.7 million for contractual arrangementsintangible assets being amortized.
Interest expense at our airport servicesAtlantic Aviation increased in 2009 primarily due to payments of interest rate swap breakage fees. This business and $8.1 million for customer relationships, leasehold rights and trademarks at our airport parking business. Amortization expense of 2007 included a $1.3 million non-cash impairment charge relatingexpects to airport management contracts at our airport services business. These management contracts were subsequently soldpay further interest rate swap breakage fees as it continues to pay down its term loan debt. This increase was partially offset by the favorable LIBOR movements on unhedged debt during the year, primarily from the MIC Inc. revolving credit facility, which was repaid in 2008.
December 2009. The increase in interest expense in 2008 was due to a higher average level of debt outstanding, resulting from additional debt drawn to fund acquisitions and refinancings in the second half of 2007.
We recognized a loss on extinguishment of debt of $27.5 million in 2007, related to refinancings at our airport servicesAtlantic Aviation and district energy businesses.District Energy. This loss included a $14.7 million make-whole payment in relation to the district energy business.for District Energy. The remainder was a non-cash write-off of previously deferred financing costs.
62
Our equity in the earnings of IMTT increased in 2009 due to improvedhigher operating results fromof the business for that business and a $12.3period, together with our share of the non-cash derivative gains of $15.3 million make-whole payment from a refinancing in 2007 that did not recur in 2008; offset by higher interest expense, due to a higher drawn debt balance andcompared with our share of non-cash derivative-relatedderivative losses of $46.3$23.1 million in 2008 compared with $21.0 million2008.
We discontinued hedge accounting at Atlantic Aviation as of February 25, 2009 and April 1, 2009 for our other businesses. In addition, in 2007. the first quarter of 2009, The Gas Company, District Energy and Atlantic Aviation each entered into LIBOR-based basis swaps. These basis swaps have lowered the effective cash interest rate on these businesses’ debt through March 2010.
For details on IMTT’s unrealized gains and offersthe year ended December 31, 2009, loss on derivative instruments please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations”represents the change in Part II, Item 7 for Bulk Liquid Storage Terminal Business.
Under our shareholders agreement, cash distributions to us from IMTT after December 31, 2008, will be based generally on IMTT’s cash flow from operating activities less maintenance and environmental capital expenditures, subject to the business maintaining prudent reserves and legal net asset requirements. Changes in the fair value of derivatives are unlikely to have a material impactinterest rate swaps from the dates that hedge accounting was discontinued. In addition, loss on net assets and do not impactderivative instruments includes the distributions under the shareholders agreementreclassification of amounts from accumulated other comprehensive loss into earnings, as they are non-cash in nature.
We completed our investment in IMTT in May of 2006 and have received $7.0 million in cash distributions from IMTT each quarter since second quarter of 2006. These distributions are not recorded in earnings, but are recorded against our investment in the business on our balance sheet and are shown as cash provided by operating activities in our statements of cash flows for the portion up to our 50% share of IMTT’s positive earnings. Distributions when IMTT records a net loss, or the amount of the distribution in excess of our share ofAtlantic Aviation pays down its earnings, are reflected in our consolidated cash flow from investing activities. For 2008, $1.3 million of the $28.0 million dividends received was included in cash from operating activities and $26.7 million was included in investing activities.debt more quickly than anticipated.
Our income tax benefit inFor the 2007 and 2008 differs from the statutory federal tax rate of 35% primarily due to stateyears, we reported a consolidated net loss before income taxes, the difference between the taxable income portionfor which we recorded a deferred tax benefit, net of our distributions from IMTTcertain state net operating losses and the book income attributable to our investment in IMTT and for 2008 thea portion of our impairment attributable to non-deductible goodwill.
For 2009, we expect to have consolidated current federal taxable income of approximately $16.7 million, which will be offset by a portion of our consolidated federal net operating loss (NOL) carryforward. Our federal taxable income includes a taxable gain from the sale of the non-controlling interest of District Energy. We expect to pay a $334,000 federal Alternative Minimum Tax for 2009.
We include dividends received from IMTT in our consolidated income tax return. Of the $7.0 million in distributions we received from that business in 2009, we expect that all of those distributions will be treated as a return of capital for income tax purposes, and not included in current taxable income.
Due to our NOL carryforwards, we do not expect to have regular taxable income or pay regular federal income tax payments through at least 2012. The cash state and local taxes paid by our businesses is discussed below in the sections entitledIncome Taxes for each of our individual businesses.
As discussed in Note 18, “Income Taxes” in our consolidated financial statements, in Part II, Item 8 of this Form 10-K, we now evaluate the need for a valuation allowance against our deferred tax assets without taking into consideration the deferred tax liabilities of District Energy. We have concluded that the scheduled reversal of deferred tax liabilities will more likely than not result in the realization of all our federal deferred tax assets, except for approximately $15.3 million. Accordingly, we have provided a valuation allowance against our deferred tax assets for this amount. Of this valuation allowance, $5.9 million is recorded on the books of PCAA, which is reported in our discontinued operations.
In calculating our consolidated state income tax provision, we have provided a valuation allowance for certain state income tax net operating loss carryforwards, the utilization of which is not assured beyond a reasonable doubt. In addition, we expect to incur certain expenses that will not be deductible in determining state taxable income. Accordingly, these expenses have also been excluded in determining our state income tax expense.
Further, approximately $53.4 million of the write-down of intangibles is attributable to goodwill and is a permanent book-tax difference, for which no tax benefit has been recognized.
On January 28, 2010, we agreed to sell the assets of PCAA through a bankruptcy process, which we expect to complete in the first half of 2010. This results of this business have been reported as a discontinued operation and prior comparable periods have been re-stated to conform to the current period presentation. See Note 4, “Discontinued Operations”, in our consolidated financial statements in Part II, Item 8 of this Form 10-K for financial information and further discussions.
Corporate allocation and other intercompany fees charged to PCAA have been reported in earnings from discontinued operations in our consolidated continuing results of operations.
In accordance with GAAP, we have disclosed EBITDA
We have included EBITDA, a non-GAAP financial measure, on a consolidated basis as well as excluding non-cash items for our Company and each of our businessesoperating segments in Note 16, “Reportable Segments”, in our consolidated financial statements, as we consider it to be an important measurea key performance metric relied on by management in evaluating our performance. EBITDA excluding non-cash items is defined as earnings before interest, taxes, depreciation and amortization and non-cash items, which includes impairments, derivative gains and losses and adjustments for other non-cash items reflected in the statements of our overall performance.operations. We believe our presentation of EBITDA excluding non-cash items provides additional insight into the performance of our operating companiesbusinesses relative to each other and similar businesses without regard to their capital structure, and their ability to service or reduce debt, fund capital expenditures and/or support distributions to the holding company.
Effective this reporting period, we are also disclosing Free Cash Flow, as defined by us, as a means of assessing the amount of cash generated by our businesses and supplementing other information provided in accordance with GAAP. We believe that reporting Free Cash Flow will provide our investors with additional insight into our future ability to deploy cash, as GAAP metrics such as net income and cash from operating activities do not reflect all of the items that our management considers in estimating the amount of cash generated by our operating entities. In this Annual Report on Form 10-K, we have disclosed Free Cash Flow for our consolidated results and for each of our operating segments.
We define Free Cash Flow as cash from operating activities, less maintenance capital expenditures and changes in working capital. Working capital movements are excluded on the basis that these are largely timing differences in payables and receivables, and are therefore not reflective of our ability to servicegenerate cash.
We note that Free Cash Flow does not fully reflect our ability to freely deploy generated cash, as it does not reflect required payments to be made on our indebtedness, pay dividends and other fixed obligations or the other cash items excluded when calculating Free Cash Flow. We also note that Free Cash Flow may be calculated in a different manner by other companies, which limits its usefulness as a comparative measure. Therefore, our Free Cash Flow should be used as a supplemental measure and not in lieu of our financial results reported under GAAP.
In 2008 and 2007, we disclosed EBITDA only. The following tables, reflecting results of operations for the consolidated group and for our businesses for the years ended December 31, 2008 and 2007, have been conformed to pay distributions.current periods’ presentation reflecting EBITDA excluding non-cash items and Free Cash Flow.
A reconciliation of net loss from continuing operations to free cash flow from continuing operations, on a consolidated basis, is provided below:
Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | ||||||||||||||||||||||||||
2008 | 2007 | 2006 | $ | % | $ | % | ||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||
Net (loss) income | $ | (178,473 | ) | $ | (52,054 | ) | $ | 49,918 | (126,419 | ) | NM | (101,972 | ) | NM | ||||||||||||||
Interest expense, net | 102,888 | 75,690 | 72,859 | (27,198 | ) | (35.9 | ) | (2,831 | ) | (3.9 | ) | |||||||||||||||||
Income tax benefit | (84,120 | ) | (16,483 | ) | (16,421 | ) | 67,637 | NM | 62 | 0.4 | ||||||||||||||||||
Depreciation(1) | 40,140 | 20,502 | 12,102 | (19,638 | ) | (95.8 | ) | (8,400 | ) | (69.4 | ) | |||||||||||||||||
Depreciation – cost of services(1) | 30,096 | 11,013 | 9,264 | (19,083 | ) | (173.3 | ) | (1,749 | ) | (18.9 | ) | |||||||||||||||||
Amortization(2) | 72,352 | 35,258 | 43,846 | (37,094 | ) | (105.2 | ) | 8,588 | 19.6 | |||||||||||||||||||
EBITDA | $ | (17,117 | ) | $ | 73,926 | $ | 171,568 | (91,043 | ) | (123.2 | ) | (97,642 | ) | (56.9 | ) |
Year Ended December 31, | Change (From 2008 to 2009) Favorable/(Unfavorable) | Change (From 2007 to 2008) Favorable/(Unfavorable) | ||||||||||||||||||||||||||
2009 | 2008 | 2007 | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Net loss from continuing operations | $ | (109,170 | ) | $ | (70,181 | ) | $ | (43,129 | ) | |||||||||||||||||||
Interest expense, net | 91,035 | 87,562 | 59,651 | |||||||||||||||||||||||||
Benefit for income taxes | (15,818 | ) | (14,061 | ) | (16,764 | ) | ||||||||||||||||||||||
Depreciation (1) | 36,813 | 40,140 | 20,502 | |||||||||||||||||||||||||
Depreciation - cost of services (1) | 6,086 | 5,813 | 5,792 | |||||||||||||||||||||||||
Amortization of intangibles (2) | 60,892 | 61,874 | 32,356 | |||||||||||||||||||||||||
Goodwill impairment | 71,200 | 52,000 | — | |||||||||||||||||||||||||
Non-cash loss on extinguishment of debt | — | — | 12,817 | |||||||||||||||||||||||||
Loss on derivative instruments | 29,540 | 2,843 | 1,362 | |||||||||||||||||||||||||
Equity in (earnings) losses and amortization charges of investees(3) | (15,561 | ) | — | 32 | ||||||||||||||||||||||||
Base management and performance fees settled/to be settled in LLC interests | 4,384 | — | 43,962 | |||||||||||||||||||||||||
Other non-cash expense | 2,784 | 4,883 | 7,858 | |||||||||||||||||||||||||
EBITDA excluding non-cash items from continuing operations | $ | 162,185 | $ | 170,873 | $ | 124,439 | (8,688 | ) | (5.1 | ) | 46,434 | 37.3 | ||||||||||||||||
EBITDA excluding non-cash items from continuing operations | $ | 162,185 | $ | 170,873 | $ | 124,439 | ||||||||||||||||||||||
Interest expense, net | (91,035 | ) | (87,562 | ) | (59,651 | ) | ||||||||||||||||||||||
Amounts relating to foreign currency contracts | — | — | (4,055 | ) | ||||||||||||||||||||||||
Amortization of debt financing costs | 5,121 | 4,762 | 4,429 | |||||||||||||||||||||||||
Make-whole payment on debt financing | — | — | 14,695 | |||||||||||||||||||||||||
Equipment lease receivables, net | 2,610 | 2,372 | 2,531 | |||||||||||||||||||||||||
Benefit for income taxes, net of changes in deferred taxes | (2,105 | ) | (1,976 | ) | (5,772 | ) | ||||||||||||||||||||||
Changes in working capital | 6,200 | 7,110 | 16,883 | |||||||||||||||||||||||||
Cash provided by operating activities from continuing operations | 82,976 | 95,579 | 93,499 | |||||||||||||||||||||||||
Changes in working capital | (6,200 | ) | (7,110 | ) | (16,883 | ) | ||||||||||||||||||||||
Maintenance capital expenditures | (9,453 | ) | (14,846 | ) | (14,834 | ) | ||||||||||||||||||||||
Free cash flow from continuing operations | $ | 67,323 | $ | 73,623 | $ | 61,782 | (6,300 | ) | (8.6 | ) | 11,841 | 19.2 |
NM — Not meaningful
(1) | Depreciation |
63
(2) | Amortization of intangibles does not include step-up amortization expense of $1.1 million for |
(3) | Equity in (earnings) losses and amortization charges of investees in the above table includes our 50% share of IMTT's earnings offset by distributions we received only up to our share of the earnings recorded. |
Net (loss)TABLE OF CONTENTS
We account for our 50% interest in this business under the equity method. We recognized income of $22.6 million in our consolidated results for 2009. This includes various non-cash items which haveour 50% share of IMTT’s net income, equal to $27.3 million for the period, offset by $4.7 million of additional depreciation and amortization expense (net of taxes). For the year ended December 31, 2008, we recognized income of $1.3 million in our consolidated results. This included our 50% share of IMTT’s net income, equal to $6.0 million for the period, offset by $4.7 million of additional depreciation and amortization expense (net of taxes).
Distributions from IMTT, to the degree classified as taxable dividends and not been reverseda return of capital for income tax purposes, qualify for the federal dividends received deduction. Therefore, 80% of any dividend is excluded in calculating EBITDA above. These non-cash items,our consolidated federal taxable income. Any distributions classified as a return of capital for income tax purposes will reduce our tax basis in IMTT. IMTT’s cash from operating activities for 2009 has been retained to fund IMTT’s growth capital expenditures and is expected to contribute significantly to IMTT’s future gross profit. See — “Liquidity and Capital Resources” for further discussion.
To enable meaningful analysis of IMTT’s performance across periods, IMTT’s overall performance is discussed below, rather than IMTT’s contribution to our consolidated results.
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2009 | 2008 | Change Favorable/(Unfavorable) | 2008 | 2007 | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||
Terminal revenue | 330,380 | 306,103 | 24,277 | 7.9 | 306,103 | 250,733 | 55,370 | 22.1 | ||||||||||||||||||||||||
Environmental response revenue | 15,795 | 46,480 | (30,685 | ) | (66.0 | ) | 46,480 | 24,464 | 22,016 | 90.0 | ||||||||||||||||||||||
Total revenue | 346,175 | 352,583 | (6,408 | ) | (1.8 | ) | 352,583 | 275,197 | 77,386 | 28.1 | ||||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||||||
Terminal operating costs | 156,552 | 155,000 | (1,552 | ) | (1.0 | ) | 155,000 | 135,726 | (19,274 | ) | (14.2 | ) | ||||||||||||||||||||
Environmental response operating costs | 14,792 | 34,658 | 19,866 | 57.3 | 34,658 | 19,339 | (15,319 | ) | (79.2 | ) | ||||||||||||||||||||||
Total operating costs | 171,344 | 189,658 | 18,314 | 9.7 | 189,658 | 155,065 | (34,593 | ) | (22.3 | ) | ||||||||||||||||||||||
Terminal gross profit | 173,828 | 151,103 | 22,725 | 15.0 | 151,103 | 115,007 | 36,096 | 31.4 | ||||||||||||||||||||||||
Environmental response gross profit | 1,003 | 11,822 | (10,819 | ) | (91.5 | ) | 11,822 | 5,125 | 6,697 | 130.7 | ||||||||||||||||||||||
Gross profit | 174,831 | 162,925 | 11,906 | 7.3 | 162,925 | 120,132 | 42,793 | 35.6 | ||||||||||||||||||||||||
General and administrative expenses | 27,437 | 30,076 | 2,639 | 8.8 | 30,076 | 24,435 | (5,641 | ) | (23.1 | ) | ||||||||||||||||||||||
Depreciation and amortization | 55,998 | 44,615 | (11,383 | ) | (25.5 | ) | 44,615 | 36,025 | (8,590 | ) | (23.8 | ) | ||||||||||||||||||||
Operating income | 91,396 | 88,234 | 3,162 | 3.6 | 88,234 | 59,672 | 28,562 | 47.9 | ||||||||||||||||||||||||
Interest expense, net | (29,510 | ) | (23,540 | ) | (5,970 | ) | (25.4 | ) | (23,540 | ) | (14,349 | ) | (9,191 | ) | (64.1 | ) | ||||||||||||||||
Loss on extinguishment of debt | — | — | — | NM | — | (12,337 | ) | 12,337 | NM | |||||||||||||||||||||||
Other income | 522 | 2,141 | (1,619 | ) | (75.6 | ) | 2,141 | 4,595 | (2,454 | ) | (53.4 | ) | ||||||||||||||||||||
Unrealized gains (losses) on derivative instruments | 30,686 | (46,277 | ) | 76,963 | 166.3 | (46,277 | ) | (21,022 | ) | (25,255 | ) | (120.1 | ) | |||||||||||||||||||
Provision for income taxes | (38,842 | ) | (9,452 | ) | (29,390 | ) | NM | (9,452 | ) | (7,076 | ) | (2,376 | ) | (33.6 | ) | |||||||||||||||||
Noncontrolling interest | 332 | 1,003 | (671 | ) | (66.9 | ) | 1,003 | 143 | 860 | NM | ||||||||||||||||||||||
Net income | 54,584 | 12,109 | 42,475 | NM | 12,109 | 9,626 | 2,483 | 25.8 | ||||||||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||
Net income | 54,584 | 12,109 | 12,109 | 9,626 | ||||||||||||||||||||||||||||
Interest expense, net | 29,510 | 23,540 | 23,540 | 14,349 | ||||||||||||||||||||||||||||
Provision for income taxes | 38,842 | 9,452 | 9,452 | 7,076 | ||||||||||||||||||||||||||||
Depreciation and amortization | 55,998 | 44,615 | 44,615 | 36,025 | ||||||||||||||||||||||||||||
Unrealized (gains) losses on derivative instruments | (30,686 | ) | 46,277 | 46,277 | 21,022 | |||||||||||||||||||||||||||
Other non-cash (income) expenses | (590 | ) | 601 | 601 | 860 | |||||||||||||||||||||||||||
EBITDA excluding non-cash items | 147,658 | 136,594 | 11,064 | 8.1 | 136,594 | 88,958 | 47,636 | 53.5 | ||||||||||||||||||||||||
EBITDA excluding non-cash items | 147,658 | 136,594 | 136,594 | 88,958 | ||||||||||||||||||||||||||||
Interest expense, net | (29,510 | ) | (23,540 | ) | (23,540 | ) | (14,349 | ) | ||||||||||||||||||||||||
Amortization of debt financing costs | 543 | 473 | 473 | — | ||||||||||||||||||||||||||||
Make-whole payment on debt financing | — | — | — | 12,337 | ||||||||||||||||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (1,593 | ) | (4,053 | ) | (4,053 | ) | (1,434 | ) | ||||||||||||||||||||||||
Changes in working capital | 16,284 | (15,387 | ) | (15,387 | ) | 5,919 | ||||||||||||||||||||||||||
Cash provided by operating activities | 133,382 | 94,087 | 94,087 | 91,431 | ||||||||||||||||||||||||||||
Changes in working capital | (16,284 | ) | 15,387 | 15,387 | (5,919 | ) | ||||||||||||||||||||||||||
Maintenance capital expenditures | (39,977 | ) | (42,690 | ) | (42,690 | ) | (32,746 | ) | ||||||||||||||||||||||||
Free cash flow | 77,121 | 66,784 | 10,337 | 15.5 | 66,784 | 52,766 | 14,018 | 26.6 |
NM — Not meaningful
The increase in terminal revenue primarily reflects growth in storage and other services revenues, partially offset by declines in throughput and heating revenues. Storage revenue grew primarily as average rental rates increased by 9.7% during the year. The increase in storage revenue also reflected an increase in storage capacity mainly attributable to certain expansion projects at IMTT’s Louisiana facilities. Demand for bulk liquid storage generally remains strong.
Gross profit increased primarily due to an increase in storage revenues and $15.2 million of additional revenue as a result of a full year of storage and related logistics services at IMTT’s Geismar terminal, which are described below, totaled ($was partially offset by a customer reimbursement for capital projects completed at Bayonne in thousands):2008 which did not recur. Throughput and heating revenues declined reflecting lower activity levels at IMTT’s facilities and lower heating costs due to the decline in fuel prices passed through to customers. Storage capacity utilization, defined as storage capacity rented divided by total capacity available, remained relatively constant at 94% during 2009 and 2008.
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Non-cash expense items, net | $ | 216,486 | $ | 89,374 | $ | 5,506 |
Non-cash items include:
Gross profit from environmental services decreased from 2008 to 2009 primarily due to higher spill response activity in 2008 relating to IMTT’s central role in response activities following the July 23, 2008 fuel oil spill on the Mississippi River near New Orleans.
Lower general and administrative costs during 2009 resulted primarily from the recovery of receivables that had been fully provisioned for in prior periods and reserves under bad debt expense in 2008 that did not recur in 2009.
Depreciation and amortization expense increased as IMTT completed several major expansion projects, resulting in higher asset balances.
Interest costs during 2009 increased primarily due to higher borrowings incurred to fund growth capital expenditures along with the discontinuation of the capitalization of construction period interest upon the commencement of operations at Geismar, partially offset by a decrease in interest rates on unhedged debt balances.
For the year ended December 31, 2009, IMTT expects to generate a loss for federal income tax purposes that can be carried forward and utilized to reduce current taxable income in 2010.
The business files separate state income tax returns in five states. For the year ended December 31, 2009, the business expects to pay state income taxes of approximately $1.5 million.
A significant difference between the IMTT’s book and federal taxable income relates to depreciation of fixed assets. For book purposes, fixed assets are depreciated primarily over 15 to 30 years using the straight-line method of depreciation. For federal income tax purposes, fixed assets are depreciated primarily over 5 to 15 years using accelerated methods. In addition, a significant portion of the fixed assets placed in service in 2009 qualify for the 50% federal bonus depreciation. Most of the states in which the business operates allow the use of the federal depreciation calculation methods. Louisiana is the only state where the business operates that allows the bonus depreciation deduction.
The increase in terminal revenue reflects growth in all major service segments. Storage revenue grew as the average rental rates charged to customers increased by 14.8% during 2008. The increase in storage revenue also reflected a 5.3% increase in storage capacity rented to customers for 2008, as the business completed certain expansion projects and reported contributions from a facility acquired in November 2007. In addition, the commencement of storage and related logistics services for our airport parking business;
Storage capacity utilization, defined as storage capacity rented divided by total capacity available, remained relatively constant at 94% during 2008 and 2007.
Increases in terminal revenue were offset by higher operating costs relating to the commencement of $44.0operations at Geismar, the increase in storage capacity and throughput associated with the expansion of existing facilities, the acquisition of a new facility at Joliet in November 2007 and IMTT’s extensive tank inspection and repair program being undertaken in Louisiana. Also operating costs in 2008 were increased by a $2.0 million excise tax settlement related to IMTT’s handling of alcohol during 2005 and a $1.0 million accrual for a potential air emission fee at Bayonne. Please see “Legal Proceedings” in Part I, Item 3 for discussion on the air emission fee.
Revenue and gross profit from environmental response services increased substantially during 2008 due to the central role played by Oil Mop in the response activities following the July 2008 fuel oil spill on the Mississippi River near New Orleans. Oil Mop generated $27.3 million in 2007;
Increased general and administrative costs during 2008 resulted from a bad debt reserve for customers under bankruptcy protection and increased overhead costs due to the significant increase in environmental response activity.
Depreciation and amortization expense increased by $8.6 million as IMTT completed several major expansion projects.
Interest costs increased during 2008 primarily due to higher borrowings incurred to fund growth capital expenditures.
Loss on extinguishment of debt in 2007 of $27.5comprised a $12.3 million from refinancingmake-whole payment associated with the repayment of the two tranches of senior notes in conjunction with the establishment of a new $625.0 million revolving credit facility.
Other income for 2008 declined primarily due to gains from insurance settlements in 2007, which did not recur in 2008.
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2009 | 2008 | Change Favorable/(Unfavorable) | 2008 | 2007 | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||||||
Contribution margin | ||||||||||||||||||||||||||||||||||||
Revenue – utility | 95,769 | 121,770 | (26,001 | ) | (21.4 | ) | 121,770 | 95,770 | 26,000 | 27.1 | ||||||||||||||||||||||||||
Cost of revenue – utility | 60,227 | 91,978 | 31,751 | 34.5 | 91,978 | 64,371 | (27,607 | ) | (42.9 | ) | ||||||||||||||||||||||||||
Contribution margin – utility | 35,542 | 29,792 | 5,750 | 19.3 | 29,792 | 31,399 | (1,607 | ) | (5.1 | ) | ||||||||||||||||||||||||||
Revenue – non-utility | 79,597 | 91,244 | (11,647 | ) | (12.8 | ) | 91,244 | 74,602 | 16,642 | 22.3 | ||||||||||||||||||||||||||
Cost of revenue – non-utility | 36,580 | 55,504 | 18,924 | 34.1 | 55,504 | 44,908 | (10,596 | ) | (23.6 | ) | ||||||||||||||||||||||||||
Contribution margin – non-utility | 43,017 | 35,740 | 7,277 | 20.4 | 35,740 | 29,694 | 6,046 | 20.4 | ||||||||||||||||||||||||||||
Total contribution margin | 78,559 | 65,532 | 13,027 | 19.9 | 65,532 | 61,093 | 4,439 | 7.3 | ||||||||||||||||||||||||||||
Production | 5,467 | 5,717 | 250 | 4.4 | 5,717 | 4,913 | (804 | ) | (16.4 | ) | ||||||||||||||||||||||||||
Transmission and distribution | 15,264 | 14,912 | (352 | ) | (2.4 | ) | 14,912 | 15,350 | 438 | 2.9 | ||||||||||||||||||||||||||
Gross profit | 57,828 | 44,903 | 12,925 | 28.8 | 44,903 | 40,830 | 4,073 | 10.0 | ||||||||||||||||||||||||||||
Selling, general and administrative expenses | 21,802 | 18,374 | (3,428 | ) | (18.7 | ) | 18,374 | 16,350 | (2,024 | ) | (12.4 | ) | ||||||||||||||||||||||||
Depreciation and amortization | 6,829 | 6,739 | (90 | ) | (1.3 | ) | 6,739 | 6,737 | (2 | ) | NM | |||||||||||||||||||||||||
Operating income | 29,197 | 19,790 | 9,407 | 47.5 | 19,790 | 17,743 | 2,047 | 11.5 | ||||||||||||||||||||||||||||
Interest expense, net | (8,941 | ) | (9,390 | ) | 449 | 4.8 | (9,390 | ) | (9,195 | ) | (195 | ) | (2.1 | ) | ||||||||||||||||||||||
Other (expense) income | (165 | ) | 148 | (313 | ) | NM | 148 | (162 | ) | 310 | 191.4 | |||||||||||||||||||||||||
Unrealized losses on derivative instruments | (636 | ) | (221 | ) | (415 | ) | (187.8 | ) | (221 | ) | (431 | ) | 210 | 48.7 | ||||||||||||||||||||||
Provision for income taxes(1) | (7,619 | ) | (4,044 | ) | (3,575 | ) | (88.4 | ) | (4,044 | ) | (3,115 | ) | (929 | ) | (29.8 | ) | ||||||||||||||||||||
Net income(2) | 11,836 | 6,283 | 5,553 | 88.4 | 6,283 | 4,840 | 1,443 | 29.8 | ||||||||||||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||||||
Net income(2) | 11,836 | 6,283 | 6,283 | 4,840 | ||||||||||||||||||||||||||||||||
Interest expense, net | 8,941 | 9,390 | 9,390 | 9,195 | ||||||||||||||||||||||||||||||||
Provision for income taxes(1) | 7,619 | 4,044 | 4,044 | 3,115 | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 6,829 | 6,739 | 6,739 | 6,737 | ||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | 636 | 221 | 221 | 431 | ||||||||||||||||||||||||||||||||
Other non-cash expenses | 1,771 | 1,180 | 1,180 | 1,290 | ||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 37,632 | 27,857 | 9,775 | 35.1 | 27,857 | 25,608 | 2,249 | 8.8 | ||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 37,632 | 27,857 | 27,857 | 25,608 | ||||||||||||||||||||||||||||||||
Interest expense, net | (8,941 | ) | (9,390 | ) | (9,390 | ) | (9,195 | ) | ||||||||||||||||||||||||||||
Amortization of debt financing costs | 478 | 478 | 478 | 478 | ||||||||||||||||||||||||||||||||
Provision for income taxes, net of changes in deferred taxes | (4,936 | ) | — | — | — | |||||||||||||||||||||||||||||||
Changes in working capital | 1,327 | 8,133 | 8,133 | (886 | ) | |||||||||||||||||||||||||||||||
Cash provided by operating activities | 25,560 | 27,078 | 27,078 | 16,005 | ||||||||||||||||||||||||||||||||
Changes in working capital | (1,327 | ) | (8,133 | ) | (8,133 | ) | 886 | |||||||||||||||||||||||||||||
Maintenance capital expenditures | (3,939 | ) | (6,202 | ) | (6,202 | ) | (5,257 | ) | ||||||||||||||||||||||||||||
Free cash flow | 20,294 | 12,743 | 7,551 | 59.3 | 12,743 | 11,634 | 1,109 | 9.5 |
NM — Not meaningful
(1) | Income tax provision for 2007 has been calculated based on 2008 tax rate for comparability. |
(2) | Corporate allocation expense, other intercompany fees and the federal tax effect have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
Although the presentation and analysis of contribution margin is a non-GAAP performance measure, management believes that it is meaningful to understanding the business’ performance under both a utility rate structure and a non-utility competitive pricing structure. Under a utility environment, feedstock costs are automatically passed through to utility customers, while non-utility pricing may be adjusted, subject to the competitive environment, to recover changes in raw material costs.
Contribution margin should not be considered an alternative to revenue, operating income, or net income, determined in accordance with U.S. GAAP. The business calculates contribution margin as revenue less direct costs of revenue other than production and transmission and distribution costs. Other companies may calculate contribution margin differently or may use different metrics and, therefore, the contribution margin presented for The Gas Company is not necessarily comparable with metrics of other companies.
Utility contribution margin was higher, primarily due to implementation of the interim rate increase from June 11, 2009, partially offset by volume declines related almost entirely to commercial customers, who are more exposed to the variability of the economic cycle. Sales volume in 2009 was approximately 3% lower than 2008.
Non-utility contribution margin was higher, primarily due to lower input costs, partially offset by a 0.6% volume decline from 2008. Local suppliers reduced their production of propane. To the extent that local suppliers are unable to supply The Gas Company with a sufficient amount of propane, the business believes it can supplement its supply from foreign sources. Foreign sourced propane is likely to cost more than locally produced propane, although a portion of any increased cost may be offset by improved efficiency in distribution.
Selling, general and administrative costs increased due to an approximate $930,000 increase in pension expense, higher incentive compensation based upon strong 2009 performance, and professional service costs primarily related to the implementation of a profit center structure in 2009.
Income from The Gas Company is included in our consolidated federal income tax return, and its income is subject to Hawaii state income taxes. The tax expense in the table above includes both state taxes and the portion of the consolidated federal tax liability attributable to the business.
The business’ federal taxable income differs from book income primarily as a result of differences in the depreciation of fixed assets. Net book income before taxes includes depreciation based on asset values and lives that differ from those used in determining taxable income. For 2009, the business expects to have a current state income tax liability of approximately $863,000.
Utility contribution margin decreased primarily due to lower volume of gas sold. Sales volume in 2008 was approximately 4% lower than 2007. Prior to the third quarter of 2008, a portion of utility customer fuel cost adjustments was offset by withdrawals from an acquisition funded escrow account that was fully exhausted in the second quarter of 2008. For 2008 and 2007, withdrawals of $1.6 million and $1.9 million, respectively, were recorded in cash flows from operating activities.
Non-utility contribution margin increased due to customer price increases, partially offset by higher costs of LPG and increases in the cost to transport LPG between islands. The volume of gas products sold in 2008 was approximately 2% lower than 2007.
Production costs increased primarily due to higher electricity, material and personnel costs. Transmission and distribution costs were lower due principally to lower costs related to the completion of the government required pipeline inspection, and lower adjustment to reserves for asset retirement costs, partially offset by higher personnel and rent costs. Selling, general and administrative costs were higher due to an increase in bad debt expense reserves, higher personnel costs, including overtime and fewer vacancies, higher employee benefit costs, including pension expense, and higher professional services costs.
Interest expense increased due to higher outstanding borrowings for utility capital expenditures during 2008.
The financial results discussed below reflect 100% of District Energy’s full year performance.
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2009 | 2008 | Change Favorable/(Unfavorable) | 2008 | 2007 | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||||||
Cooling capacity revenue | 20,430 | 19,350 | 1,080 | 5.6 | 19,350 | 18,854 | 496 | 2.6 | ||||||||||||||||||||||||
Cooling consumption revenue | 20,236 | 20,894 | (658 | ) | (3.1 | ) | 20,894 | 22,876 | (1,982 | ) | (8.7 | ) | ||||||||||||||||||||
Other revenue | 3,137 | 3,115 | 22 | 0.7 | 3,115 | 2,864 | 251 | 8.8 | ||||||||||||||||||||||||
Finance lease revenue | 4,758 | 4,686 | 72 | 1.5 | 4,686 | 4,912 | (226 | ) | (4.6 | ) | ||||||||||||||||||||||
Total revenue | 48,561 | 48,045 | 516 | 1.1 | 48,045 | 49,506 | (1,461 | ) | (3.0 | ) | ||||||||||||||||||||||
Direct expenses – electricity | 13,356 | 13,842 | 486 | 3.5 | 13,842 | 15,424 | 1,582 | 10.3 | ||||||||||||||||||||||||
Direct expenses – other(1) | 18,647 | 17,809 | (838 | ) | (4.7 | ) | 17,809 | 17,696 | (113 | ) | (0.6 | ) | ||||||||||||||||||||
Direct expenses – total | 32,003 | 31,651 | (352 | ) | (1.1 | ) | 31,651 | 33,120 | 1,469 | 4.4 | ||||||||||||||||||||||
Gross profit | 16,558 | 16,394 | 164 | 1.0 | 16,394 | 16,386 | 8 | NM | ||||||||||||||||||||||||
Selling, general and administrative expenses | 3,407 | 3,390 | (17 | ) | (0.5 | ) | 3,390 | 3,208 | (182 | ) | (5.7 | ) | ||||||||||||||||||||
Amortization of intangibles | 1,368 | 1,372 | 4 | 0.3 | 1,372 | 1,368 | (4 | ) | (0.3 | ) | ||||||||||||||||||||||
Operating income | 11,783 | 11,632 | 151 | 1.3 | 11,632 | 11,810 | (178 | ) | (1.5 | ) | ||||||||||||||||||||||
Interest expense, net | (10,153 | ) | (10,341 | ) | 188 | 1.8 | (10,341 | ) | (9,009 | ) | (1,332 | ) | (14.8 | ) | ||||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | — | (17,708 | ) | 17,708 | NM | |||||||||||||||||||||||
Other income | 1,235 | 201 | 1,034 | NM | 201 | 740 | (539 | ) | (72.8 | ) | ||||||||||||||||||||||
Unrealized (losses) gains on derivative instruments | (220 | ) | 26 | (246 | ) | NM | 26 | (28 | ) | 54 | 192.9 | |||||||||||||||||||||
(Provision) benefit for income taxes | (773 | ) | (242 | ) | (531 | ) | NM | (242 | ) | 5,490 | (5,732 | ) | (104.4 | ) | ||||||||||||||||||
Noncontrolling interest | (690 | ) | (585 | ) | (105 | ) | (17.9 | ) | (585 | ) | (554 | ) | (31 | ) | (5.6 | ) | ||||||||||||||||
Net income (loss)(2) | 1,182 | 691 | 491 | 71.1 | 691 | (9,259 | ) | 9,950 | 107.5 | |||||||||||||||||||||||
Reconciliation of net income (loss) to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||
Net income (loss)(2) | 1,182 | 691 | 691 | (9,259 | ) | |||||||||||||||||||||||||||
Interest expense, net | 10,153 | 10,341 | 10,341 | 9,009 | ||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 773 | 242 | 242 | (5,490 | ) | |||||||||||||||||||||||||||
Depreciation(1) | 6,086 | 5,813 | 5,813 | 5,792 | ||||||||||||||||||||||||||||
Amortization of intangibles | 1,368 | 1,372 | 1,372 | 1,368 | ||||||||||||||||||||||||||||
Unrealized losses (gains) on derivative instruments | 220 | (26 | ) | (26 | ) | 28 | ||||||||||||||||||||||||||
Non-cash loss on extinguishment of debt | — | — | — | 3,013 | ||||||||||||||||||||||||||||
Other non-cash expenses | 1,009 | 2,654 | 2,654 | 1,086 | ||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 20,791 | 21,087 | (296 | ) | (1.4 | ) | 21,087 | 5,547 | 15,540 | NM | ||||||||||||||||||||||
EBITDA excluding non-cash items | 20,791 | 21,087 | 21,087 | 5,547 | ||||||||||||||||||||||||||||
Interest expense, net | (10,153 | ) | (10,341 | ) | (10,341 | ) | (9,009 | ) | ||||||||||||||||||||||||
Make-whole payment on debt financing | — | — | — | 14,695 | ||||||||||||||||||||||||||||
Amortization of debt financing costs | 681 | 682 | 682 | 309 | ||||||||||||||||||||||||||||
Equipment lease receivable, net | 2,610 | 2,372 | 2,372 | 2,531 | ||||||||||||||||||||||||||||
Changes in working capital | 519 | 3,966 | 3,966 | 12 | ||||||||||||||||||||||||||||
Cash provided by operating activities | 14,448 | 17,766 | 17,766 | 14,085 | ||||||||||||||||||||||||||||
Changes in working capital | (519 | ) | (3,966 | ) | (3,966 | ) | (12 | ) | ||||||||||||||||||||||||
Maintenance capital expenditures | (1,001 | ) | (989 | ) | (989 | ) | (949 | ) | ||||||||||||||||||||||||
Free cash flow | 12,928 | 12,811 | 117 | 0.9 | 12,811 | 13,124 | (313 | ) | (2.4 | ) |
NM — Not meaningful
(1) | Includes depreciation expense of $6.1 million, $5.8 million and $5.8 million for the years ended December 31, 2009, 2008 and 2007, respectively. |
(2) | Corporate allocation expense and the federal tax effect have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
Gross profit increased primarily due to a net increase in contract capacity as six new customers began service and annual inflation-related increases of contract capacity rates in accordance with customer contract terms. This was partially offset by reduced cooling consumption revenue related to lower ton-hour sales resulting from cooler average temperatures through the summer of 2009 compared with 2008, and an adjustment for electricity costs passed through in 2008. A cooler summer in the Chicago area, compared with 2008, contributed to a significant decrease in chilled water demand.
Other income increased due to payments received under agreements to review and manage the business’ energy demand during periods of peak demand in 2008 and 2009 and a one-time termination payment received from a customer.
For the period preceding the sale of a 49.99% non-controlling interest in the business, the income from District Energy is included in our airport servicesconsolidated federal income tax return, and district energy businesses (comprisedits income is subject to Illinois state income taxes. The tax expense in the table above includes both state taxes and the portion of the consolidated federal tax liability attributable to the business.
Subsequent to the sale of the 49.99% non-controlling interest, District Energy is expected to file a separate consolidated federal income tax return, and continue to file a combined Illinois state income tax return. The business is expected to have approximately $26.0 million in federal and state NOL carryforwards available to offset positive taxable income. The business does not expect to have positive taxable income in 2010 or 2011.
Due to differences in determining book and tax deductible depreciation and amortization, the business’ state taxable income is expected to exceed book income in 2009. However, as of December 31, 2009 the business had more than $20.0 million of state income tax net operating loss carryforwards that are expected to offset any state tax liability through 2011.
Gross profit was relatively flat primarily due to annual inflation-related increases of contract capacity rates in accordance with customer contract terms offset by lower cooling consumption revenue and overall electricity costs due to lower ton-hour sales resulting from cooler than average temperatures in 2008 compared with 2007. Other revenue increased due to the business’ pass-through to customers of the higher cost of natural gas consumables, which is offset in other direct expenses.
Selling, general and administrative expenses increased primarily due to the timing of audit fees in 2008 and the collection in 2007 of amounts which were previously written-off in relation to a customer bankruptcy filed in 2004.
Interest expense increased as a result of higher debt levels associated with the 2007 refinancing and higher non-cash amortization of deferred financing costs.
Loss on extinguishment of debt comprised a $14.7 million make-whole payment and $12.8a $3.0 million non-cash write-off of previously deferred financing costs);
The rapidly changing conditions affecting this business warrants a discussion of current and comparable prior period performance as well as a quarter on derivative instrumentsquarter sequential analysis in order to facilitate an understanding of $2.6the stabilization of the general aviation market in recent months and its effect on the business’ financial results.
The soft economic conditions caused a lower utilization of business jets by both corporations and individuals. This lower utilization was exacerbated by the negative publicity of the general aviation sector. According to flight data reported by the FAA, the level of U.S. business jet flight activity (as measured by take-offs and landings) declined 17.3% in 2009. Quarterly activity level has increased sequentially since the second quarter of 2009. In the fourth quarter of 2009, business jet take-offs and landings were flat year-on-year but increased sequentially versus the third quarter of 2009 despite the typical seasonal business jet traffic slowdown in the fourth quarter versus the third quarter.
The leverage covenant for Atlantic Aviation steps down on March 31, 2010 from 8.25x to 8.00x trailing twelve month EBIDTA, as defined by the terms of the debt facility. Given the performance of the business of the last three quarters of 2009, the business needs to achieve an EBITDA of approximately $24.0 million to remain covenant compliant in 2008the first quarter of 2010. In the first quarter of 2009, EBITDA was $25.0 million. Since that time, take-offs and non-cash derivative losseslandings have sequentially improved by 14.4% and we have reduced our costs by 9.4%. The fourth quarter EBITDA was $26.6 million. Accordingly, we remain confident of $1.2 millionbeing covenant compliant when the covenant steps down on March 31, 2010 unless there is some external shock to the industry or sudden decline in 2007;general aviation activity.
After March 31, 2010, the covenant then steps down every subsequent March until and including March 2014. Volatility in the general aviation sector in the last 18 months makes it difficult to project future take-off and landings with any degree of confidence. However, given the recent business jet traffic trajectory, and assuming no external shock to the industry, we believe that cash generation from the business will be sufficient to meet debt service obligations and the business will remain in compliance with financial covenants through the maturity of the business’ debt without any further equity contribution from MIC. Additionally, we anticipate further cost reductions which will be accelerated in an event of a decline in business activity.
Year Ended December 31, | ||||||||||||||||
2009 | 2008 | Change Favorable/(Unfavorable) | ||||||||||||||
$ | $ | $ | % | |||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||
Revenue | ||||||||||||||||
Fuel revenue | 314,603 | 494,810 | (180,207 | ) | (36.4 | ) | ||||||||||
Non-fuel revenue | 171,546 | 221,492 | (49,946 | ) | (22.5 | ) | ||||||||||
Total revenue | 486,149 | 716,302 | (230,153 | ) | (32.1 | ) | ||||||||||
Cost of revenue | ||||||||||||||||
Cost of revenue – fuel | 184,853 | 342,102 | 157,249 | 46.0 | ||||||||||||
Cost of revenue – non-fuel | 14,314 | 32,198 | 17,884 | 55.5 | ||||||||||||
Total cost of revenue | 199,167 | 374,300 | 175,133 | 46.8 | ||||||||||||
Fuel gross profit | 129,750 | 152,708 | (22,958 | ) | (15.0 | ) | ||||||||||
Non-fuel gross profit | 157,232 | 189,294 | (32,062 | ) | (16.9 | ) | ||||||||||
Gross profit | 286,982 | 342,002 | (55,020 | ) | (16.1 | ) | ||||||||||
Selling, general and administrative expenses(1) | 179,949 | 205,304 | 25,355 | 12.3 | ||||||||||||
Goodwill impairment | 71,200 | 52,000 | (19,200 | ) | (36.9 | ) | ||||||||||
Depreciation and amortization | 89,508 | 93,903 | 4,395 | 4.7 | ||||||||||||
Operating loss | (53,675 | ) | (9,205 | ) | (44,470 | ) | NM | |||||||||
Interest expense, net | (67,983 | ) | (62,967 | ) | (5,016 | ) | (8.0 | ) | ||||||||
Other expense | (1,451 | ) | (241 | ) | (1,210 | ) | NM | |||||||||
Unrealized losses on derivative instruments | (28,277 | ) | (1,871 | ) | (26,406 | ) | NM | |||||||||
Benefit for income taxes | 61,009 | 29,936 | 31,073 | 103.8 | ||||||||||||
Net loss(2) | (90,377 | ) | (44,348 | ) | (46,029 | ) | (103.8 | ) | ||||||||
Reconciliation of net loss to EBITDA excluding non-cash items: | ||||||||||||||||
Net loss(2) | (90,377 | ) | (44,348 | ) | ||||||||||||
Interest expense, net | 67,983 | 62,967 | ||||||||||||||
Benefit for income taxes | (61,009 | ) | (29,936 | ) | ||||||||||||
Depreciation and amortization | 89,508 | 93,903 | ||||||||||||||
Goodwill impairment | 71,200 | 52,000 | ||||||||||||||
Unrealized losses on derivative instruments | 28,277 | 1,871 | ||||||||||||||
Other non-cash expenses | 903 | 624 | ||||||||||||||
EBITDA excluding non-cash items | 106,485 | 137,081 | (30,596 | ) | (22.3 | ) | ||||||||||
EBITDA excluding non-cash items | 106,485 | 137,081 | ||||||||||||||
Interest expense, net | (67,983 | ) | (62,967 | ) | ||||||||||||
Amortization of debt financing costs | 3,144 | 2,613 | ||||||||||||||
Benefit for income taxes, net of changes in deferred taxes | (190 | ) | (7,950 | ) | ||||||||||||
Changes in working capital | 9,474 | 4,351 | ||||||||||||||
Cash provided by operating activities | 50,930 | 73,128 | ||||||||||||||
Changes in working capital | (9,474 | ) | (4,351 | ) | ||||||||||||
Maintenance capital expenditures | (4,513 | ) | (7,655 | ) | ||||||||||||
Free cash flow | 36,943 | 61,122 | (24,179 | ) | (39.6 | ) |
NM — Not meaningful
(1) | Includes $2.4 million increase in the bad debt reserve in the first quarter of 2009 due to the deterioration of accounts receivable aging. |
(2) | Corporate allocation expense and the federal tax effect have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
Results for 2008 include SevenBar FBOs from March 4, 2008 (acquisition date) to December 31, 2008. Results for 2009 include SevenBar FBOs for the year ended December 31, 2009. Results for the two months ended February 28, 2009 have not been presented separately as they are not significant.
The majority of the revenue and gross profit in earningsAtlantic Aviation is generated through fueling general aviation aircraft at the business’ 72 FBOs around the United States. This revenue is categorized according to who owns the fuel used to service these aircraft. If our business owns the fuel, they record the cost to purchase that fuel as cost of revenue-fuel. The business’ corresponding fuel revenue is its cost to purchase that fuel plus a margin. The business generally pursues a strategy of maintaining, and where appropriate increasing, dollar-based margins, thereby passing any increase in fuel prices to the customer. The business also has into-plane arrangements whereby it fuels aircraft with fuel owned by another party. The business collects a fee for this service that is recorded as non-fuel revenue. Other non-fuel revenue includes various services such as hangar rentals, de-icing and airport services. The business’ revenue and gross profit are driven by fuel volume and dollar-based margin per gallon. This applies to both fuel and into-plane revenue. Customers will occasionally move from our 50% interestone category to the other. Therefore, we believe discussing fuel and non-fuel revenue and gross profit and the related key metrics on a combined basis provides a more meaningful analysis of Atlantic Aviation.
Gross profit for 2009 declined compared to 2008 mainly due to lower volume of general aviation fuel sold. Fuel volumes declined 15.6% as compared with 2008. Weighted average margins, including into-plane sales, were essentially flat. Excluding the results from the Charter operations and Management Contracts business, which were sold in IMTTthe second half of 2008, gross profit from other services (including hangar rentals, de-icing and miscellaneous services) decreased by 7.0% for the year, primarily due to lower hangar rent resulting from lower transient traffic.
Gross profit for the quarter ended December 31, 2009 decreased by 6.5% compared to the fourth quarter of 2008 as a result of improved performance,lower fuel volume, decreased weighted average fuel margin and weaker de-icing activities. Gross profit for the fourth quarter of 2009 is sequentially flat compared to the third quarter of 2009 as de-icing revenue, higher fuel volume and miscellaneous FBO services were offset by $46.3lower weighted average fuel margins resulting from customer mix. General aviation fuel volume increased 5.4% as compared to third quarter of 2009 as business jet traffic at Atlantic Aviation’s locations improved.
The decrease in selling, general and administrative expenses is due primarily to integration synergies and the implementation of cost reduction initiatives. These cost savings were offset by a $2.4 million non-cash losses on derivatives recorded by IMTTincrease in the bad debt reserve in the first quarter of 2009 due to the deterioration of the accounts receivables aging. Account receivables aging improved significantly since the first quarter of 2009.
Selling, general and administrative expenses for 2008the quarter ended December 31, 2009 declined 6.5% compared with non-cash losses on derivativesto the fourth quarter of $21.0 million in 2007 and a $12.3 million loss on extinguishment of debt2008 as a result of cost reduction initiatives. Operating cost sequentially increased by 4.2% reflecting typical seasonality of the associated make-whole payment. We record 50%business driven by increase utilities expense, repairs and maintenance expense and overtime expense related to snow removal.
In addition to its annual impairment test in the fourth quarter, the business performed an impairment test at the reporting unit level during the first six months of these non-cash losses2009. Goodwill is considered impaired when the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, as determined under a two step approach. Based on the testing performed, the business recognized goodwill impairment charges of $71.2 million in our equitythe first six months of 2009 and $52.0 million in earnings (losses)the fourth quarter of 2008, respectively.
The decrease in depreciation and amortization expense was due to non-cash impairment charges of investee$30.8 million incurred in the first half of 2009 as compared to a non-cash cash impairment charge of $35.5 million in the fourth quarter of 2008.
Interest expense increased despite a reduction of $81.6 million of debt due to the payment of $8.8 million of swap termination fees paid during 2009.
Income generated by Atlantic Aviation is included in our consolidated results.
Excludingfederal income tax return. The business files separate state income returns in more than 30 states in which it operates. The tax expense in the table above non-cash items, EBITDA for 2008 would have increased byincludes both state taxes and the portion of the consolidated federal tax liability attributable to the business.
For purposes of determining book and taxable income, depreciation of fixed assets and amortization of intangibles are calculated differently, with additional differences between federal and state taxable income.
While the business as a whole expects to generate a current year federal income tax loss, certain entities within the business will generate state taxable income. The current state income tax expense in 2009 was approximately 22.1%.$574,000.
The business has approximately $45.0 million of state NOL carryforwards. State NOL carryforwards are specific to the state in which the NOL was generated and various states impose limitations on the utilization of NOL carryforwards. Therefore, the business may incur state income tax liabilities in the near future, even if consolidated state taxable income is less than $45.0 million.
The overall decline in economic activity in the U.S. has resulted in a decrease in the use of general aviation jet aircraft by some corporations and individuals. Activity at airports at which our airport services business operates was down by 9% in 2008 compared with 2007, as measured by the number of flight movements. This compares favorably with estimates of an industry-wide decrease in general aviation jet flight operations of 12%. The relatively better performance at the airports in our portfolio reflects the popularity of the destinations at which our business operates.
The industry-wide decline in flight activity accelerated in the last quarter of 2008 and was down 25.5% in November 2008 compared with November of 2007. The decrease in flight activity was not as severe in December 2008 with a decline of 19% versus the prior comparable period. Flight activity at the airports at which we operate were down 17% in December 2008 versus December 2007. We believe industry-wide flight activity in January 2009 was consistent with the level reported in December 2008.
64
Flight movements and the volume of fuel sold are not directly correlated as other factors, such as the size of the aircraft in use, can significantly affect jet fuel consumption. For example, in 2008 the reduction in flight movements has been driven by a curtailment of activity by smaller jets that use less fuel and, therefore, the impact on fuel volume consumed has been less than the reduction in total activity.
The 9% decline in general aviation jet flight activity at airports in our network resulted in a 8.7% decline in the volume of general aviation fuel sold in 2008 compared to 2007. In addition to the decline in the volume of fuel sold, the business has also experienced some compression of average margins on fuel sales. Margin compression has resulted in part from an increased percentage of purchases by base tenants compared to transient customers, as base tenants tend to pay lower average margins. The increase in purchases made by base tenants relative to transient customers reversed trends we experienced in 2007. Some of our competitors are pursuing more aggressive pricing strategies, which have led to increased margin pressure at some of our locations. Margin compression has also resulted from management decisions to convert some customers from retail sales to into-plane (contract) sales where credit card fees on the retail sale would have reduced profitability by more than the lower average margin on the into-plane sale.
Management of the airport services business has successfully reduced expenses and partially offset the decline in volume and margins on fuel sales. As of September 2008, we have reduced run-rate costs by approximately $1.8 million per month, primarily through synergies realized in the integration of acquired sites and rationalization of staffing levels.
The decline in our stock price, particularly over the latter part of 2008, has caused our book value to exceed our market capitalization. As a result we have booked a non-cash impairment charge to goodwill of $87.5 million in our airport services business in the fourth quarter of 2008 in accordance with SFAS No. 142.
The following section summarizes the historical consolidated financial performance of our airport services businessAtlantic Aviation for the years ended December 31, 2008 and 2007.
The acquisition column and the total 2008 results in the table below include the operating results for:
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Year Ended December 31, 2008 Compared to Year Ended December 31, 2007 | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Existing Locations(2) | Total | Existing Locations(2) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | Change Favorable/(Unfavorable) | Acquisitions(3) | 2008 | 2007 | Change Favorable/(Unfavorable) | 2008 | 2007 | Change Favorable/ (Unfavorable) | Acquisitions(3) | 2008 | 2007 | Change Favorable/ (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | $ | % | $ | $ | $ | % | $ | $ | $ | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) (unaudited) | ($ In Thousands) (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fuel revenue | 365,262 | 371,250 | (5,988 | ) | (1.6 | ) | 129,548 | 494,810 | 371,250 | 123,560 | 33.3 | 365,262 | 371,250 | (5,988 | ) | (1.6 | ) | 129,548 | 494,810 | 371,250 | 123,560 | 33.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-fuel revenue | 157,923 | 163,086 | (5,163 | ) | (3.2 | ) | 63,569 | 221,492 | 163,086 | 58,406 | 35.8 | 157,923 | 163,086 | (5,163 | ) | (3.2 | ) | 63,569 | 221,492 | 163,086 | 58,406 | 35.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total revenue | 523,185 | 534,336 | (11,151 | ) | (2.1 | ) | 193,117 | 716,302 | 534,336 | 181,966 | 34.1 | 523,185 | 534,336 | (11,151 | ) | (2.1 | ) | 193,117 | 716,302 | 534,336 | 181,966 | 34.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue-fuel | 251,084 | 237,112 | (13,972 | ) | (5.9 | ) | 91,018 | 342,102 | 237,112 | (104,990 | ) | (44.3 | ) | 251,084 | 237,112 | (13,972 | ) | (5.9 | ) | 91,018 | 342,102 | 237,112 | (104,990 | ) | (44.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of revenue-non-fuel | 16,420 | 20,568 | 4,148 | 20.2 | 15,778 | 32,198 | 20,568 | (11,630 | ) | (56.5 | ) | 16,420 | 20,568 | 4,148 | 20.2 | 15,778 | 32,198 | 20,568 | (11,630 | ) | (56.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total cost of revenue | 267,504 | 257,680 | (9,824 | ) | (3.8 | ) | 106,796 | 374,300 | 257,680 | (116,620 | ) | (45.3 | ) | 267,504 | 257,680 | (9,824 | ) | (3.8 | ) | 106,796 | 374,300 | 257,680 | (116,620 | ) | (45.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fuel gross profit | 114,178 | 134,138 | (19,960 | ) | (14.9 | ) | 38,530 | 152,708 | 134,138 | 18,570 | 13.8 | 114,178 | 134,138 | (19,960 | ) | (14.9 | ) | 38,530 | 152,708 | 134,138 | 18,570 | 13.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-fuel gross profit | 141,503 | 142,518 | (1,015 | ) | (0.7 | ) | 47,791 | 189,294 | 142,518 | 46,776 | 32.8 | 141,503 | 142,518 | (1,015 | ) | (0.7 | ) | �� | 47,791 | 189,294 | 142,518 | 46,776 | 32.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross profit | 255,681 | 276,656 | (20,975 | ) | (7.6 | ) | 86,321 | 342,002 | 276,656 | 65,346 | 23.6 | 255,681 | 276,656 | (20,975 | ) | (7.6 | ) | 86,321 | 342,002 | 276,656 | 65,346 | 23.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 148,546 | 155,474 | 6,928 | 4.5 | 56,758 | 205,304 | 155,474 | (49,830 | ) | (32.1 | ) | 148,546 | 155,474 | 6,928 | 4.5 | 56,758 | 205,304 | 155,474 | (49,830 | ) | (32.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | 51,473 | — | (51,473 | ) | NM | 527 | 52,000 | — | (52,000 | ) | NM | 51,473 | — | (51,473 | ) | NM | 527 | 52,000 | — | (52,000 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 77,271 | 44,753 | (32,518 | ) | (72.7 | ) | 16,632 | 93,903 | 44,753 | (49,150 | ) | (109.8 | ) | 77,271 | 44,753 | (32,518 | ) | (72.7 | ) | 16,632 | 93,903 | 44,753 | (49,150 | ) | (109.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | (21,609 | ) | 76,429 | (98,038 | ) | (128.3 | ) | 12,404 | (9,205 | ) | 76,429 | (85,634 | ) | (112.0 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating (loss) income | (21,609 | ) | 76,429 | (98,038 | ) | (128.3 | ) | 12,404 | (9,205 | ) | 76,429 | (85,634 | ) | (112.0 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | (45,847 | ) | (42,559 | ) | (3,288 | ) | (7.7 | ) | (17,120 | ) | (62,967 | ) | (42,559 | ) | (20,408 | ) | (48.0 | ) | (45,847 | ) | (42,559 | ) | (3,288 | ) | (7.7 | ) | (17,120 | ) | (62,967 | ) | (42,559 | ) | (20,408 | ) | (48.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on extinguishment of debt | — | (9,804 | ) | 9,804 | NM | — | — | (9,804 | ) | 9,804 | NM | - | (9,804 | ) | 9,804 | NM | - | - | (9,804 | ) | 9,804 | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (expense) income | (323 | ) | (775 | ) | 452 | 58.3 | 82 | (241 | ) | (775 | ) | 534 | 68.9 | (323 | ) | (775 | ) | 452 | 58.3 | 82 | (241 | ) | (775 | ) | 534 | 68.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | (1,709 | ) | (1,659 | ) | (50 | ) | (3.0 | ) | (162 | ) | (1,871 | ) | (1,659 | ) | (212 | ) | (12.8 | ) | (1,709 | ) | (1,659 | ) | (50 | ) | (3.0 | ) | (162 | ) | (1,871 | ) | (1,659 | ) | (212 | ) | (12.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit (provision) | 28,003 | (8,575 | ) | 36,578 | NM | 1,933 | 29,936 | (8,575 | ) | 38,511 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit (provision) for income taxes | 28,003 | (8,575 | ) | 36,578 | NM | 1,933 | 29,936 | (8,575 | ) | 38,511 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income(1) | (41,485 | ) | 13,057 | (54,542 | ) | NM | (2,863 | ) | (44,348 | ) | 13,057 | (57,405 | ) | NM | (41,485 | ) | 13,057 | (54,542 | ) | NM | (2,863 | ) | (44,348 | ) | 13,057 | (57,405 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of net (loss) income to EBITDA: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of net (loss) income to EBITDA excluding non-cash items: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net (loss) income(1) | (41,485 | ) | 13,057 | (2,863 | ) | (44,348 | ) | 13,057 | (41,485 | ) | 13,057 | (2,863 | ) | (44,348 | ) | 13,057 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | 45,847 | 42,559 | 17,120 | 62,967 | 42,559 | 45,847 | 42,559 | 17,120 | 62,967 | 42,559 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax (benefit) provision | (28,003 | ) | 8,575 | (1,933 | ) | (29,936 | ) | 8,575 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Benefit) provision for income taxes | (28,003 | ) | 8,575 | (1,933 | ) | (29,936 | ) | 8,575 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 77,271 | 44,753 | 16,632 | 93,903 | 44,753 | 77,271 | 44,753 | 16,632 | 93,903 | 44,753 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA | 53,630 | 108,944 | (55,314 | ) | (50.8 | ) | 28,956 | 82,586 | 108,944 | (26,358 | ) | (24.2 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill impairment | 51,473 | — | 527 | 52,000 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-cash loss on extinguishment of debt | — | 9,804 | — | — | 9,804 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized losses on derivative instruments | 1,709 | 1,659 | 162 | 1,871 | 1,659 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-cash expenses (income) | 722 | (556 | ) | (98 | ) | 624 | (556 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 107,534 | 119,851 | (12,317 | ) | (10.3 | ) | 29,547 | 137,081 | 119,851 | 17,230 | 14.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EBITDA excluding non-cash items | 107,534 | 119,851 | 29,547 | 137,081 | 119,851 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net | (45,847 | ) | (42,559 | ) | (17,120 | ) | (62,967 | ) | (42,559 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of debt financing costs | 2,444 | 2,554 | 169 | 2,613 | 2,554 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit/provision for income taxes, net of changes in deferred taxes | (7,437 | ) | (8,435 | ) | (513 | ) | (7,950 | ) | (8,435 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | 4,070 | 13,912 | 281 | 4,351 | 13,912 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | 60,764 | 85,323 | 12,364 | 73,128 | 85,323 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in working capital | (4,070 | ) | (13,912 | ) | (281 | ) | (4,351 | ) | (13,912 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Maintenance capital expenditures | (7,161 | ) | (8,628 | ) | (494 | ) | (7,655 | ) | (8,628 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Free cash flow | 49,533 | 62,783 | (13,250 | ) | (21.1 | ) | 11,589 | 61,122 | 62,783 | (1,661 | ) | (2.6 | ) |
NM — Not meaningful
(1) | Corporate allocation expense and the federal tax effect have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
(2) | Results for the existing locations columns include Supermarine FBOs from May 30, 2007 (following our acquisition) to December 31, 2007 and June 1, 2008 to December 31, 2008; Mercury FBOs from August 9, 2007 (following our acquisition) to December 31, 2007 and August 9, 2008 to December 31, 2008; San Jose FBOs from August 17, 2007 (following our acquisition) to December 31, 2007 and August 17, 2008 to December 31, 2008; and Rifle FBO from November 30, 2007 (following our acquisition) to December 31, 2007 and December 1, 2008 to December 31, 2008. Also included are all locations owned since January 1, 2007 for the full year. |
(3) | Acquisitions include the results of Supermarine FBOs (acquired May 30, 2007) for the period January 1, 2008 to May 31, 2008; Mercury FBOs (acquired August 9, 2007) for the period January 1, 2008 to August 8, 2008; San Jose FBOs (acquired August 17, 2007) for the period January 1, 2008 to August 16, 2008; Rifle FBOs (acquired November 30, 2007) for the period January 1, 2008 to November 30, 2008 and |
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The majority of the revenue and gross profit in our airport services business is generated through fuelling general aviation aircraft at our 72 fixed base operations around the United States. This revenue is categorized according to who owns the fuel we use to service these aircraft. If we own the fuel, we record our cost to purchase that fuel as cost of revenue-fuel. Our corresponding fuel revenue is our cost to purchase that fuel plus a margin. We generally pursue a strategy of maintaining, and where appropriate increasing, dollar-based margins, thereby passing any increase or decrease in fuel prices through to the customer. We also have into-plane arrangements whereby we fuel aircraft with fuel owned by another party. We collect a fee for this service that is recorded as non-fuel revenue. Other non-fuel revenue includes various services such as hangar rentals, ramp fees and de-icing. Cost of revenue–non-fuel includes our cost, if any, to provide these services.
The key factors behind changes in revenue and gross profit are fuel volume and our dollar-based margin per gallon. This applies to both fuel and into-plane revenue. Our customers will occasionally move from one category to the other. Therefore, we believe discussing our fuel and non-fuel revenue and gross profit and the related metrics on a combined basis provides a more meaningful analysis of our airport services business.
The growth in gross profit at all sites was primarily due to the inclusion of the results of sites acquired in 2007 and 2008. Gross profit at existing locations decreased mainly due to lower fuel volume resulting from lower general aviation activity (declines of 17.8% and 8.7% for the quarter and the year, respectively) and lower average general aviation fuel margins. Gross profit from other services at existing locations increased by 2.8% in 2008 as a result of higher de-icing revenue and hangar rentals in the first half of the year. For the quarter ended December 31, 2008, gross profit from other services declined as a result of lower general aviation traffic.
We attribute the volume decline primarily to a decrease in general aviation transient traffic. We believe the decline in transient traffic is due primarily to overall soft economic conditions. The slowing economy has contributed to a general decrease in corporate activity and reduction in business-related general aviation activity. The continuation or worsening of the current economic conditions could exacerbate this effect on our business.
While we seekthe business seeks to maintain or increase a dollar-based margin per gallon backed by a premium services offering, increased fuel prices that peaked in mid-2008 led to an increased focus on cost by some of our customers. These customers negotiated more aggressively on fuel purchases and contributed to a decrease in our average margins through the third quarter. Declining fuel price in the fourth quarter had a favorable impact on average fuel margins. In addition, some of our competitors are pursuing more aggressive pricing strategies that have also contributed to increased margin pressure.
The decrease in selling, general and administrative expenses at existing locations for the year ended December 31, 2008 is due primarily to cost efficiencies resulting from integration of recently acquired businesses and management’s actions to streamline our cost structure in response to the decline in gross profit resulting from the overall slowing of the economy. For the quarter ended December 31, 2008, selling, general and administrative expenseexpenses decreased at our existing locations by $6.8 million or, 12.7%, primarily as a result of the cost reduction initiatives. Declining fuel prices contributed approximately $842,000 to the decrease in operating costs in the fourth quarter due to a reduction in credit card fees. The majority of the ongoing savings were fully realized during the third quarter and therefore are not completely reflected in the full year results.
In accordance with SFAS No. 142, weAtlantic Aviation performed ouran annual impairment test at the reporting unit level during the fourth quarter of 2008. Goodwill is considered impaired when the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, as determined under a two-step approach. Based on the testing performed, wethe business recognized a goodwill impairment charge of $52.0 million during 2008.
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The increase in depreciation and amortization expense was due to a non-cash impairment charge of $35.5 million, consistingcharges of $21.7 million related to contractual arrangements and $13.8 million related to property, equipment, land and leasehold improvements at our airport services business,recorded during the fourth quarter of 2008. Amortization expense ofin 2007 included a $1.3 million non-cash impairment charge relating to airport management contracts at our airport services business. These management contracts werebusiness, which was subsequently sold in 2008.
The increase in interest expense in 2008 is due to the increased debt levels used to finance a portion of our 2007 acquisitions and growth capital expenditures, as well as the refinancing of the business’ debt facilities in October 2007. The refinancing consolidated all borrowings outstanding at the time.
Excluding the non-cash losses stemming from changes in the fair value of derivative instruments in 2008 and 2007, goodwill impairment in 2008 and the loss on debt extinguishment in 2007, EBITDA at existing locations would have decreased by 11.3% and 22.7% for the year and the quarter, respectively. EBITDA at all locations would have increased 13.3% for the year and decreased 21.6% the fourth quarter. The EBITDA decline is driven by a decrease in gross profit partially offset by cost savings.
The following section summarizes the historical consolidated financial performance of our airport services business for the year ended December 31, 2006 and 2007. The acquisition column and the total 2007 (with the remainder of the year and the corresponding period in 2006 included in existing locations) results in the table below include the operating results for:
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Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 | ||||||||||||||||||||||||||||||||||||
Existing Locations(2) | Total | |||||||||||||||||||||||||||||||||||
2007 | 2006 | Change Favorable/(Unfavorable) | Acquisitions(3) | 2007 | 2006 | Change Favorable/(Unfavorable) | ||||||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||
($ in thousands) (unaudited) | ||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
Fuel revenue | 237,853 | 225,570 | 12,283 | 5.4 | 133,397 | 371,250 | 225,570 | 145,680 | 64.6 | |||||||||||||||||||||||||||
Non-fuel revenue | 101,656 | 87,306 | 14,350 | 16.4 | 61,430 | 163,086 | 87,306 | 75,780 | 86.8 | |||||||||||||||||||||||||||
Total revenue | 339,509 | 312,876 | 26,633 | 8.5 | 194,827 | 534,336 | 312,876 | 221,460 | 70.8 | |||||||||||||||||||||||||||
Cost of revenue | ||||||||||||||||||||||||||||||||||||
Cost of revenue-fuel | 145,470 | 137,884 | (7,586 | ) | (5.5 | ) | 91,642 | 237,112 | 137,884 | (99,228 | ) | (72.0 | ) | |||||||||||||||||||||||
Cost of revenue-non-fuel | 9,633 | 8,499 | (1,134 | ) | (13.3 | ) | 10,935 | 20,568 | 8,499 | (12,069 | ) | (142.0 | ) | |||||||||||||||||||||||
Total cost of revenue | 155,103 | 146,383 | (8,720 | ) | (6.0 | ) | 102,577 | 257,680 | 146,383 | (111,297 | ) | (76.0 | ) | |||||||||||||||||||||||
Fuel gross profit | 92,383 | 87,686 | 4,697 | 5.4 | 41,755 | 134,138 | 87,686 | 46,452 | 53.0 | |||||||||||||||||||||||||||
Non-fuel gross profit | 92,023 | 78,807 | 13,216 | 16.8 | 50,495 | 142,518 | 78,807 | 63,711 | 80.8 | |||||||||||||||||||||||||||
Gross profit | 184,406 | 166,493 | 17,913 | 10.8 | 92,250 | 276,656 | 166,493 | 110,163 | 66.2 | |||||||||||||||||||||||||||
Selling, general and administrative expenses | 100,466 | 93,293 | (7,173 | ) | (7.7 | ) | 55,008 | 155,474 | 93,293 | (62,181 | ) | (66.7 | ) | |||||||||||||||||||||||
Depreciation and amortization | 26,338 | 25,282 | (1,056 | ) | (4.2 | ) | 18,415 | 44,753 | 25,282 | (19,471 | ) | (77.0 | ) | |||||||||||||||||||||||
Operating income | 57,602 | 47,918 | 9,684 | 20.2 | 18,827 | 76,429 | 47,918 | 28,511 | 59.5 | |||||||||||||||||||||||||||
Interest expense, net | (28,296 | ) | (25,662 | ) | (2,634 | ) | (10.3 | ) | (14,263 | ) | (42,559 | ) | (25,662 | ) | (16,897 | ) | (65.8 | ) | ||||||||||||||||||
Loss on extinguishment of debt | (6,951 | ) | — | (6,951 | ) | NM | (2,853 | ) | (9,804 | ) | — | (9,804 | ) | NM | ||||||||||||||||||||||
Other (expense) income | (822 | ) | (10 | ) | (812 | ) | NM | 47 | (775 | ) | (10 | ) | (765 | ) | NM | |||||||||||||||||||||
Unrealized (losses) gains on derivative instruments | (1,907 | ) | (2,417 | ) | 510 | 21.1 | 248 | (1,659 | ) | (2,417 | ) | 758 | 31.4 | |||||||||||||||||||||||
Income tax provision | (7,780 | ) | (6,302 | ) | (1,478 | ) | (23.5 | ) | (795 | ) | (8,575 | ) | (6,302 | ) | (2,273 | ) | (36.1 | ) | ||||||||||||||||||
Net income(1) | 11,846 | 13,527 | (1,681 | ) | (12.4 | ) | 1,211 | 13,057 | 13,527 | (470 | ) | (3.5 | ) | |||||||||||||||||||||||
Reconciliation of net income to EBITDA: | ||||||||||||||||||||||||||||||||||||
Net income(1) | 11,846 | 13,527 | 1,211 | 13,057 | 13,527 | |||||||||||||||||||||||||||||||
Interest expense, net | 28,296 | 25,662 | 14,263 | 42,559 | 25,662 | |||||||||||||||||||||||||||||||
Income tax provision | 7,780 | 6,302 | 795 | 8,575 | 6,302 | |||||||||||||||||||||||||||||||
Depreciation and amortization | 26,338 | 25,282 | 18,415 | 44,753 | 25,282 | |||||||||||||||||||||||||||||||
EBITDA | 74,260 | 70,773 | 3,487 | 4.9 | 34,684 | 108,944 | 70,773 | 38,171 | 53.9 |
NM — Not meaningful
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Most of the revenue and gross profit in our airport services business is generated through fuelling general aviation aircraft at our 69 FBOs around the United States. This revenue is categorized according to who owns the fuel we use to service these aircraft. If we own the fuel, we record our cost to purchase that fuel as cost of revenue-fuel. Our corresponding fuel revenue is our cost to purchase that fuel plus a margin. We generally pursue a strategy of maintaining, and where appropriate increasing, dollar margins, thereby passing any increase in fuel prices to the customer. We also have into-plane arrangements whereby we fuel aircraft with fuel owned by another party. We collect a fee for this service that is recorded as non-fuel revenue. Other non-fuel revenue includes various services such as hangar rentals, de-icing and airport services. Cost of revenue–non-fuel includes our cost, if any, to provide these services.
The key factors for our revenue and gross profit are fuel volume and dollar margin per gallon. This applies to both fuel and into-plane revenue. Our customers will occasionally move from one category to the other. Therefore, we believe discussing our fuel and non-fuel revenue and gross profit and the related key metrics on a combined basis provides a more meaningful analysis of our airport services business.
Our total gross profit growth was due to several factors:
The increase in selling, general and administrative expenses was primarily due to the addition of expense associated with the integration and rebranding of the acquired locations. The increase at our existing locations was a result of increased compensation expense, including non-cash benefits, in addition to higher credit card fees and increased maintenance and repair costs.
The increase in total interest expense was due to the increased debt level associated with acquisitions in 2007, including borrowings of $32.5 million to partially finance our acquisition of Supermarine, borrowings of $192.0 million to partially finance our acquisition of Mercury and borrowings of $80.0 million to partially finance our acquisition of San Jose. In October 2007, we refinanced all existing debt into a new term debt facility for $900.0 million, a $50.0 million capital expenditure facility and a $20.0 million working capital revolving facility.
Loss on extinguishment of debt comprised a non-cash $9.8 million write-off of deferred finance costs, associated with the refinancing in the fourth quarter of 2007.
Excluding the non-cash loss from derivative instruments and non-cash loss on extinguishment of debt, EBITDA at existing locations and total EBITDA would have increased by approximately 13.6% and 64.5%, respectively. EBITDA growth was driven by:
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We account for our 50% interest in this business under the equity method. We recognized income of $1.3 million in our consolidated results for the year ended December 31, 2008. This included our 50% share of IMTT’s net income for the year, which was $6.1 million, offset by $4.7 million of additional depreciationLiquidity and amortization expense (net of taxes). For the year ended December 31, 2007, we recognized a loss of $32,000 in our consolidated results. This included our 50% share of IMTT’s net income of $4.8 million, offset by additional depreciation and amortization expense (net of taxes).
We have received $7.0 million in cash distributions from IMTT each quarter since completing our investment in May 2006. These distributions, to the degree classified as taxable dividends and not a return of capital for income tax purposes, qualify for the federal dividends received deduction; therefore, 80% of this amount is excluded in calculating our consolidated federal taxable income. Any distributions classified as a return of capital for income tax purposes will reduce our tax basis in IMTT. IMTT declared a dividend of $14.0 million in December 2008 with $7.0 million payable to us that we have recorded as a receivable at December 31, 2008, which we received in January 2009.
To enable meaningful analysis of IMTT's performance across periods, IMTT's performance for the 3 years ended December 31, 2008 is discussed below, including the period prior to our ownership.
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NM — Not meaningful.
72
The increase in terminal revenue reflects growth in all major service segments. Storage revenue grew as the average rental rates charged to customers increased by 14.8% during 2008. The increase in storage revenue also reflected a 5.3% increase in storage capacity rented to customers for 2008, as the business completed certain expansion projects and reported contributions from a facility acquired in November 2007. In addition, the commencement of storage and related logistics services for our principal customer at the new Geismar, LA terminal contributed $12.2 million to terminal revenue in 2008.
Storage capacity utilization, defined as storage capacity rented divided by total capacity available, remained relatively constant at 94% during 2008 and 2007.
Increases in terminal revenue were offset by higher operating costs relating to the commencement of operations at Geismar, LA, the increase in storage capacity and throughput associated with the expansion of existing facilities, the acquisition of a new facility at Joliet in November 2007 and IMTT’s extensive tank inspection and repair program being undertaken in LA. Also operating costs in 2008 were increased by a $2.0 million excise tax settlement related to IMTT’s handling of alcohol during 2005 and a $1.0 million accrual for a potential air emission fee at Bayonne. Please see “Legal Proceedings” in Part I, Item 3 for discussion on the air emission fee.
Revenue and gross profit from environmental response services increased substantially during 2008 due to the central role played by Oil Mop in the response activities following the July 2008 fuel oil spill on the Mississippi River near New Orleans. Oil Mop generated $27.3 million in revenue from spill response work and ancillary services in 2008.
Increased general and administrative costs during 2008 resulted from an exchange rate loss recorded for the Quebec facility consolidation, bad debt reserve for customers under bankruptcy protection and increased overhead costs due to the significant increase in environmental response activity.
Depreciation and amortization expense increased by $8.6 million as IMTT completed several major expansion projects.
Interest costs increased during 2008 primarily due to higher borrowings incurred to fund growth capital expenditures.
Loss on extinguishment of debt in 2007 comprised a $12.3 million make-whole payment associated with the repayment of the two tranches of senior notes in conjunction with the establishment of a new $625.0 million revolving credit facility.
Other income for 2008 declined primarily due to gains from insurance settlements in 2007 which did not reoccur in 2008.
On October 1, 2008, IMTT adopted hedge accounting and designated its 90-day LIBOR-based interest rate swaps as cash flow hedges of forecasted interest payments indexed to 90-day LIBOR under its revolving credit facility. IMTT also designated its 30-day LIBOR-based interest rate swaps as cash flow hedges of forecasted interest payments indexed to 30-day LIBOR under its term loan facility. Finally, IMTT designated its interest rate swaps indexed to 67% of 30-day LIBOR as cash flow hedges of forecasted interest payments indexed to the Bond Market Association Municipal Swap Index (“BMA”) under its GO Zone and New Jersey bonds. As discussed below, the resulting quarterly non-cash derivative loss of $41.8 million is primarily due to hedge accounting treatment of IMTT’s revolving credit facility and GO Zone bonds hedge relationships.
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During the fourth quarter of 2008, IMTT elected to pay interest indexed to the 30-day LIBOR rate on its revolving credit facility, rather than the 90-day LIBOR rate, which resulted in the loss of hedge accounting on this interest rate swap between October 1 and November 30, 2008. During this period, the entire fair value movement of $19.0 million on this derivative instrument was recognized as a loss. On December 1, 2008, a new hedge relationship was created to hedge all forecasted interest payments on this facility and thereby qualifying it for hedge accounting. This resulted in the hedge relationship being highly effective between December 1 and December 31, 2008, with $4.6 million of the fair value movement during this period recognized as other comprehensive income and the remaining $0.7 million of the fair value movement recognized as a loss.
For the quarter ended December 31, 2008, the hedge relationship on the GO Zone bonds was ineffective for hedge accounting purposes. As a result, the entire derivative fair value movement of $21.7 million during the fourth quarter of 2008 was recorded as a loss.
Excluding unrealized losses on derivative instruments, EBITDA for 2008 would have increased by 54.4%. EBITDA for 2007 includes the $12.3 million make-whole payment from the refinancing, which did not recur in 2008 EBITDA. Excluding both these factors, the equity in earnings to MIC would have increased by 46.0%.
IMTT reported financial results for the Quebec site using equity accounting during 2006 but incorporated 2007 results into its financials on a consolidated basis. The following table provides IMTT results in which Quebec 2007 results are consolidated compared to where the impact of Quebec has been removed.
Year Ended December 31, | ||||||||||||||||||||
2007 | 2007 | 2006 | Change Favorable/(Unfavorable) | |||||||||||||||||
IMTT | IMTT Excl. Quebec | IMTT Excl. Quebec | ||||||||||||||||||
$ | $ | $ | $ | % | ||||||||||||||||
($ in thousands) (unaudited) | ||||||||||||||||||||
Total revenue | 275,197 | 265,000 | 225,465 | 39,535 | 17.5 | |||||||||||||||
Total operating costs | 155,065 | 147,354 | 124,034 | (23,320 | ) | (18.8 | ) | |||||||||||||
Total gross profit | 120,132 | 117,646 | 101,431 | 16,215 | 16.0 | |||||||||||||||
Operating income | 59,672 | 60,106 | 48,025 | 12,081 | 25.2 | |||||||||||||||
EBITDA | 67,076 | 66,196 | 83,988 | (17,792 | ) | (21.2 | ) |
To provide a more meaningful comparison of current and previous year results, the following discussion and analysis of financial results will compare the “IMTT Excluding Quebec” 2007 results to the actual 2006 results.
Terminal revenue increased 16.3%, reflecting an increase of $17.5 million in storage revenue as well as growth in every other major service segment. In contracts signed during 2007, IMTT often achieved substantial rate increases. As a result, the average rental rates charged to customers increased by 9.1% over the previous year. Storage capacity rented increased by 2.3% while utilization during 2007 reached 95% compared to 96% during the previous year. In addition to increased storage revenue, terminal revenue growth also benefited from increases of $4.7 million in throughput and $1.8 million in heating charges. Other services and fees increased $9.1 million due to increased packaging activities at Lemont, charges for dock usage at Geismar, and customer reimbursements for capital projects completed at Bayonne, which are recognized ratably as revenue over the contract term. Gross profit from terminal services increased 18.4%, reflecting the increase in terminal revenue partially offset by increased operating costs. Direct labor costs rose as staffing
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increased to accommodate expansion projects at St. Rose and the pending start-up of the Geismar site. Repair and maintenance expenses increased due to higher cleaning costs associated with tank inspections. Increased packaging activities at Lemont also increased expenses related to packaging consumables. The increase in costs along with revenue resulted in a limited increase in gross margin. Going forward, we anticipate that costs will increase at a slower rate than revenue and gross margin will increase as a result.
Revenue from environmental response services increased by $5.9 million, reflecting increases in materials sales and other services partially offset by decreased revenue from spill response. This shift in revenue mix accounted for the $1.5 million decrease in gross profit from environmental response services.
Depreciation and amortization expense increased by $3.7 million as IMTT completed several capacity expansion projects and other major capital expenditures.
Interest expense decreased due to the repayment of higher rate private placement debt with lower rate debt from the new revolving credit facility in June 2007. Subsequently, the issuance of low interest GO Zone bonds in July 2007 allowed IMTT to repay debt obtained through the new revolving credit facility.
During the second quarter 2007, IMTT repaid two tranches of senior notes in conjunction with the establishment of a new $625.0 million revolving credit facility. As a result, IMTT incurred a $12.3 million loss on extinguishment of debt as a result of the associated make-whole payment.
During 2007, other income increased by $1.6 million over the previous year due to gains of $2.1 million on insurance settlements received for claims related to Hurricane Katrina and a reduction in losses from the nursery operations partially offset by favorable legal settlements and the write-off of payables during 2006.
As part of financing activities during 2007, IMTT entered into additional interest rate swap arrangements to fix the effective interest rate on the new debt facilities. IMTT did not apply hedge accounting. As a result, movements in the fair value of interest rate derivatives held by IMTT were taken through earnings and reported in the unrealized (losses) gains on derivative instruments line in the IMTT financial statements.
Excluding non-cash (losses) gains on derivative instruments and the 2007 loss on extinguishment of debt, EBITDA would have increased by approximately 21.3%, primarily due to the increase in gross profit discussed above.
We completed our acquisition of TGC on June 7, 2006 and TGC contributed to our 2006 consolidated operating results from that date.
Because TGC's results of operations are only included in our consolidated financial results for less than seven months of 2006, the following analysis compares the historical results of operations for TGC under its current and prior owner. We believe that this is the most appropriate approach to analyzing the historical financial performance and trends of TGC.
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Management analyzes contribution margin for TGC because it believes that contribution margin, although a non-GAAP measure, is useful and meaningful to understanding the performance of TGC utility operations under its regulated rate structure and of its non-utility operations under a competitive pricing structure. Both structures provide the business with an ability to change rates when underlying feedstock costs change. Contribution margin should not be considered an alternative to operating income, or net income, which are determined in accordance with U.S. GAAP. We calculate contribution margin as revenue less direct costs of revenue other than production and transmission and distribution costs. Other companies may calculate contribution margin differently or may use different metrics and, therefore, the contribution margin presented for TGC is not necessarily comparable with metrics of other companies.
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2008 | 2007 | Change Favorable/(Unfavorable) | 2007 | 2006 | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ in thousands) (unaudited) | ||||||||||||||||||||||||||||||||
Contribution margin | ||||||||||||||||||||||||||||||||
Revenue – utility | 121,770 | 95,770 | 26,000 | 27.1 | 95,770 | 93,602 | 2,168 | 2.3 | ||||||||||||||||||||||||
Cost of revenue – utility | 91,978 | 64,371 | (27,607 | ) | (42.9 | ) | 64,371 | 63,222 | (1,149 | ) | (1.8 | ) | ||||||||||||||||||||
Contribution margin – utility | 29,792 | 31,399 | (1,607 | ) | (5.1 | ) | 31,399 | 30,380 | 1,019 | 3.4 | ||||||||||||||||||||||
Revenue – non-utility | 91,244 | 74,602 | 16,642 | 22.3 | 74,602 | 67,260 | 7,342 | 10.9 | ||||||||||||||||||||||||
Cost of revenue - non-utility | 55,504 | 44,908 | (10,596 | ) | (23.6 | ) | 44,908 | 40,028 | (4,880 | ) | (12.2 | ) | ||||||||||||||||||||
Contribution margin – non-utility | 35,740 | 29,694 | 6,046 | 20.4 | 29,694 | 27,232 | 2,462 | 9.0 | ||||||||||||||||||||||||
Total contribution margin | 65,532 | 61,093 | 4,439 | 7.3 | 61,093 | 57,612 | 3,481 | 6.0 | ||||||||||||||||||||||||
Production | 5,717 | 4,913 | (804 | ) | (16.4 | ) | 4,913 | 4,718 | (195 | ) | (4.1 | ) | ||||||||||||||||||||
Transmission and distribution | 14,912 | 15,350 | 438 | 2.9 | 15,350 | 14,110 | (1,240 | ) | (8.8 | ) | ||||||||||||||||||||||
Selling, general and administrative expenses | 18,374 | 16,350 | (2,024 | ) | (12.4 | ) | 16,350 | 16,116 | (234 | ) | (1.5 | ) | ||||||||||||||||||||
Depreciation and amortization | 6,739 | 6,737 | (2 | ) | NM | 6,737 | 6,089 | (648 | ) | (10.6 | ) | |||||||||||||||||||||
Operating income | 19,790 | 17,743 | 2,047 | 11.5 | 17,743 | 16,579 | 1,164 | 7.0 | ||||||||||||||||||||||||
Interest expense, net | (9,390 | ) | (9,195 | ) | (195 | ) | (2.1 | ) | (9,195 | ) | (8,666 | ) | (529 | ) | (6.1 | ) | ||||||||||||||||
Other income (expense) | 148 | (162 | ) | 310 | 191.4 | (162 | ) | (1,605 | ) | 1,443 | 89.9 | |||||||||||||||||||||
Unrealized losses on derivative instruments | (221 | ) | (431 | ) | 210 | 48.7 | (431 | ) | (3,717 | ) | 3,286 | 88.4 | ||||||||||||||||||||
Income tax provision(1) | (4,044 | ) | (3,115 | ) | (929 | ) | (29.8 | ) | (3,115 | ) | (1,015 | ) | (2,100 | ) | NM | |||||||||||||||||
Net income(2) | 6,283 | 4,840 | 1,443 | 29.8 | 4,840 | 1,576 | 3,264 | NM | ||||||||||||||||||||||||
Reconciliation of net income to EBITDA: | ||||||||||||||||||||||||||||||||
Net income(2) | 6,283 | 4,840 | 4,840 | 1,576 | ||||||||||||||||||||||||||||
Interest expense, net | 9,390 | 9,195 | 9,195 | 8,666 | ||||||||||||||||||||||||||||
Income tax provision(1) | 4,044 | 3,115 | 3,115 | 1,015 | ||||||||||||||||||||||||||||
Depreciation and amortization | 6,739 | 6,737 | 6,737 | 6,089 | ||||||||||||||||||||||||||||
EBITDA | 26,456 | 23,887 | 2,569 | 10.8 | 23,887 | 17,346 | 6,541 | 37.7 |
NM — Not meaningful
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Utility contribution margin decreased primarily due to lower volume of gas sold. Sales volume in 2008 was approximately 4% lower than 2007. Prior to the third quarter of 2008, a portion of utility customer fuel cost adjustments was offset by withdrawals from an acquisition funded escrow account that was fully exhausted in the second quarter of 2008. For 2008 and 2007, withdrawals of $1.6 million and $1.9 million, respectively, were recorded in cash flows from operating activities.
Non-utility contribution margin increased due to customer price increases, partially offset by higher costs of LPG and increases in the cost to transport LPG between islands. The volume of gas products sold in 2008 was approximately 2% lower than 2007.
We believe a number of factors such as rising energy prices over the last several years and a decline in tourism have contributed to a softening in the Hawaii economy. While recent energy prices have declined, we have yet to see a return to consumption at previous levels and our volumes could continue to trend downward. This is reflected in lower usage of gas for cooking, laundry services and water heating in tourism-related businesses. Additionally, SNG and LPG are impacted by world oil prices. We pass through these costs in our utility business. For our non-utility business, the pass through of these costs depends on competitive pressures. The softening of Hawaii’s economy is reflected in a growing trend of business layoffs, closures and bankruptcies, some of which are customers of TGC. As a result of these conditions, we believe that 2009 will present challenges to maintaining the operating results achieved during 2008.
Production costs increased primarily due to higher electricity, material and personnel costs. Transmission and distribution costs were lower due principally to lower costs related to the completion of the government required pipeline inspection, and lower adjustment to reserves for asset retirement costs, partially offset by higher personnel and rent costs. Selling, general and administrative costs were higher due to an increase in bad debt expenses due to bankruptcies and business closures, higher personnel costs, including overtime and fewer vacancies, higher employee benefit costs, including pension expense, and higher professional services costs.
Interest expense increased due to higher outstanding borrowings for utility capital expenditures during 2008.
EBITDA was higher in 2008 compared with 2007 primarily due to non-utility operating results partially offset by higher selling, general and administration costs and lower utility operating results.
The utility contribution margin increased primarily due to the non-recurrence of $4.1 million of customer rebates that were made in 2006 as required by Hawaii state regulators as a condition of our purchase of TGC, partially offset by:
The cash effect of the fuel cost adjustments was offset by withdrawals from an escrow account that was established and funded at acquisition by the seller. TGC believes that these escrowed funds will be fully utilized by mid-2008 and thereafter escrowed funds would not be available. The cash reimbursements of the customer rebate and any fuel cost adjustment amounts are not reflected in revenue, but rather are reflected as releases of restricted cash and other assets.
Therm sales for the utility operations were slightly higher than in 2006, however, this was primarily from lower margin customers. The non-utility contribution margin increased due to customer price increases and
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slightly higher therm sales, partially offset by higher costs of LPG and increases in the cost to transport LPG between islands. Production costs were higher due primarily to higher rent and personnel costs, partially offset by lower electricity and materials costs. Transmission and distribution costs were higher due principally to higher personnel costs, adjustments to reserves for asset retirement costs and government required pipeline inspection costs. Selling, general and administrative costs were higher due to higher personnel, employee benefits and professional service costs. The costs in 2006 included overhead charges by the prior parent company during the period of their ownership in 2006.
Depreciation and amortization increased due to the higher asset basis that resulted from our purchase of TGC and for capital additions.
Interest expense increased due to our acquisition funding. Interest expense in 2006 included the prior owner’s write-off of deferred financing costs for the retirement of their debt in connection with their sale of the business.
Other expense for 2006 included $2.3 million of transaction costs incurred prior to our ownership.
EBITDA was higher in 2007 compared with 2006. Excluding the effects of the 2006 customer rebates and non-cash derivative losses, EBITDA would have decreased by approximately 3.3%.
Customers of our district energy business pay two charges to receive chilled water services: a fixed charge, or capacity charge, and a variable charge, or consumption charge.
Cooling capacity revenue is based on the maximum amount of chilled water that we have contracted to make available to a customer at any point in time and is generated irrespective of the volume of chilled water used by a customer. Capacity charges are typically adjusted annually at a fixed rate or are indexed to the Consumer Price Index (CPI).
Cooling consumption revenue is a variable charge based on the volume of chilled water actually used during a billing period. Cooling consumption revenue and the related direct costs vary within a relatively predictable range. Per ton consumption charges are generally linked to changes in a number of economic factors. The terms of our customer contracts provide for the pass through of increases or decreases in our electricity costs, the largest component of our direct expenses.
We believe that our district energy business will continue to generate stable cash flows and revenue due to both the nature of these two charges and the long-term contractual relationship with our customers.
We are not subject to specific government regulation, but our downtown Chicago operations are operated subject to the terms of a Use Agreement with the City of Chicago. The Use Agreement establishes the rights and obligations of our district energy business and the City of Chicago for the utilization of certain public ways of the City of Chicago for the operation of our district cooling system. Under the Use Agreement, we have a non-exclusive right to construct, install, repair, operate and maintain the plants, facilities and piping essential in providing district cooling chilled water service to customers. During the third quarter of 2008, the Chicago City Council approved Amendment 25 to our Use Agreement which extends the term of the agreement for an additional 20 years until December 31, 2040.
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Year Ended December 31, | ||||||||||||||||||||||||||||||||
2008 | 2007 | Change Favorable/(Unfavorable) | 2007 | 2006 | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ in thousands) (unaudited) | ||||||||||||||||||||||||||||||||
Cooling capacity revenue | 19,350 | 18,854 | 496 | 2.6 | 18,854 | 17,407 | 1,447 | 8.3 | ||||||||||||||||||||||||
Cooling consumption revenue | 20,894 | 22,876 | (1,982 | ) | (8.7 | ) | 22,876 | 17,897 | 4,979 | 27.8 | ||||||||||||||||||||||
Other revenue | 3,115 | 2,864 | 251 | 8.8 | 2,864 | 3,163 | (299 | ) | (9.5 | ) | ||||||||||||||||||||||
Finance lease revenue | 4,686 | 4,912 | (226 | ) | (4.6 | ) | 4,912 | 5,118 | (206 | ) | (4.0 | ) | ||||||||||||||||||||
Total revenue | 48,045 | 49,506 | (1,461 | ) | (3.0 | ) | 49,506 | 43,585 | 5,921 | 13.6 | ||||||||||||||||||||||
Direct expenses – electricity | 13,842 | 15,424 | 1,582 | 10.3 | 15,424 | 12,245 | (3,179 | ) | (26.0 | ) | ||||||||||||||||||||||
Direct expenses – other(1) | 17,809 | 17,696 | (113 | ) | (0.6 | ) | 17,696 | 17,161 | (535 | ) | (3.1 | ) | ||||||||||||||||||||
Direct expenses – total | 31,651 | 33,120 | 1,469 | 4.4 | 33,120 | 29,406 | (3,714 | ) | (12.6 | ) | ||||||||||||||||||||||
Gross profit | 16,394 | 16,386 | 8 | NM | 16,386 | 14,179 | 2,207 | 15.6 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 3,390 | 3,208 | (182 | ) | (5.7 | ) | 3,208 | 3,811 | 603 | 15.8 | ||||||||||||||||||||||
Amortization of intangibles | 1,372 | 1,368 | (4 | ) | (0.3 | ) | 1,368 | 1,368 | — | — | ||||||||||||||||||||||
Operating income | 11,632 | 11,810 | (178 | ) | (1.5 | ) | 11,810 | 9,000 | 2,810 | 31.2 | ||||||||||||||||||||||
Interest expense, net | (10,341 | ) | (9,009 | ) | (1,332 | ) | (14.8 | ) | (9,009 | ) | (8,331 | ) | (678 | ) | (8.1 | ) | ||||||||||||||||
Loss on extinguishment of debt | — | (17,708 | ) | 17,708 | NM | (17,708 | ) | — | (17,708 | ) | NM | |||||||||||||||||||||
Other income (expense) | 201 | 740 | (539 | ) | (72.8 | ) | 740 | (139 | ) | 879 | NM | |||||||||||||||||||||
Unrealized gains (losses) on derivative instruments | 26 | (28 | ) | 54 | 192.9 | (28 | ) | — | (28 | ) | NM | |||||||||||||||||||||
Income tax (provision) benefit | (242 | ) | 5,490 | (5,732 | ) | (104.4 | ) | 5,490 | 1,102 | 4,388 | NM | |||||||||||||||||||||
Minority interest | (585 | ) | (554 | ) | (31 | ) | (5.6 | ) | (554 | ) | (528 | ) | (26 | ) | (4.9 | ) | ||||||||||||||||
Net income (loss)(2) | 691 | (9,259 | ) | 9,950 | 107.5 | (9,259 | ) | 1,104 | (10,363 | ) | NM | |||||||||||||||||||||
Reconciliation of net income (loss) to EBITDA: | ||||||||||||||||||||||||||||||||
Net income (loss)(2) | 691 | (9,259 | ) | (9,259 | ) | 1,104 | ||||||||||||||||||||||||||
Interest expense, net | 10,341 | 9,009 | 9,009 | 8,331 | ||||||||||||||||||||||||||||
Income tax provision (benefit) | 242 | (5,490 | ) | (5,490 | ) | (1,102 | ) | |||||||||||||||||||||||||
Depreciation | 5,813 | 5,792 | 5,792 | 5,709 | ||||||||||||||||||||||||||||
Amortization of intangibles | 1,372 | 1,368 | 1,368 | 1,368 | ||||||||||||||||||||||||||||
EBITDA | 18,459 | 1,420 | 17,039 | NM | 1,420 | 15,410 | (13,990 | ) | (90.8 | ) |
NM — Not meaningful
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Gross profit was relatively flat primarily due to annual inflation-related increases of contract capacity rates in accordance with customer contract terms offset by lower cooling consumption revenue and overall electricity costs due to lower ton-hour sales resulting from cooler than average temperatures in 2008 compared with 2007. Other revenue increased due to our pass-through to customers of the higher cost of natural gas consumables, which is offset in other direct expenses.
Selling, general and administrative expenses increased primarily due to the timing of audit fees in 2008 and the collection in 2007 of amounts which were previously written-off in relation to a customer bankruptcy filed in 2004.
Interest expense increased as a result of higher debt levels associated with the 2007 refinancing and higher non-cash amortization of deferred financing costs.
Loss on extinguishment of debt comprised a $14.7 million make-whole payment and a $3.0 million deferred financing costs write-off associated with the refinance of our senior notes in 2007, which did not recur in 2008.
EBITDA for 2007 includes the $17.7 million loss on extinguishment of debt from the refinancing, which did not recur in 2008.
Gross profit increased primarily due to higher capacity revenue related to four interruptible customers converting to continuous service over June through September of 2006, a net increase in contracted capacity and annual inflation-related increases of contract capacity rates in accordance with customer contract terms. Cooling consumption revenue also increased due to higher ton-hour sales from warmer than average temperatures from May to October, a net increase in contracted capacity and the pass-through to our customers of the higher electricity costs related to the January 2007 deregulation of Illinois’ electricity generation market. This pass-through is subject to annual reconciliations and true-ups to actual costs. Other revenue decreased due to our pass-through to customers of the lower cost of natural gas consumables, which is offset in other direct expenses.
Selling, general and administrative expenses decreased due to the collection of amounts which were previously written-off in relation to a customer bankruptcy filed in 2004. Also, 2006 included legal and consulting fees related to strategy work in preparation for the 2007 deregulation of Illinois’ electricity generation market which did not re-occur in 2007.
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Loss on extinguishment of debt comprised a $14.7 million make-whole payment financed with the new debt facility and a non-cash $3.0 million write-off of deferred finance costs, associated with the repayment of our senior notes.
Other income increased due to the collection of a termination payment related to the customer bankruptcy filed in 2004. Also, the first six months of 2006 included pension benefits expense for union trainees employed from 1999 through 2005.
EBITDA decreased due to the $17.7 million loss on extinguishment of debt, offset by higher capacity revenue associated with four interruptible customers converting to continuous service during the previous year, the net increase in contracted capacity and the higher ton-hour sales from warmer weather. Excluding the loss on extinguishment of debt, EBITDA would have increased by approximately 24.1%.
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Year Ended December 31, | ||||||||||||||||||||||||||||||||
2008 | 2007 | Change Favorable/(Unfavorable) | 2007 | 2006 | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
($ in thousands) (unaudited) | ||||||||||||||||||||||||||||||||
Revenue | 74,692 | 77,180 | (2,488 | ) | (3.2 | ) | 77,180 | 76,062 | 1,118 | 1.5 | ||||||||||||||||||||||
Direct expenses(1) | 79,444 | 59,517 | (19,927 | ) | (33.5 | ) | 59,517 | 54,637 | (4,880 | ) | (8.9 | ) | ||||||||||||||||||||
Gross (loss) profit | (4,752 | ) | 17,663 | (22,415 | ) | (126.9 | ) | 17,663 | 21,425 | (3,762 | ) | (17.6 | ) | |||||||||||||||||||
Selling, general and administrative expenses | 11,100 | 8,816 | (2,284 | ) | (25.9 | ) | 8,816 | 5,918 | (2,898 | ) | (49.0 | ) | ||||||||||||||||||||
Goodwill impairment | 138,751 | — | (138,751 | ) | NM | — | — | — | — | |||||||||||||||||||||||
Amortization of intangibles(2) | 10,478 | 2,902 | (7,576 | ) | NM | 2,902 | 25,563 | 22,661 | 88.6 | |||||||||||||||||||||||
Operating (loss) income | (165,081 | ) | 5,945 | (171,026 | ) | NM | 5,945 | (10,056 | ) | 16,001 | 159.1 | |||||||||||||||||||||
Interest expense, net | (15,325 | ) | (16,040 | ) | 715 | 4.5 | (16,040 | ) | (17,045 | ) | 1,005 | 5.9 | ||||||||||||||||||||
Other income | 57 | 274 | (217 | ) | (79.2 | ) | 274 | 502 | (228 | ) | (45.4 | ) | ||||||||||||||||||||
Unrealized gains (losses) on derivative instruments | 246 | 142 | 104 | 73.2 | 142 | (720 | ) | 862 | 119.7 | |||||||||||||||||||||||
Income tax benefit | 76,334 | 3,830 | 72,504 | NM | 3,830 | 12,364 | (8,534 | ) | (69.0 | ) | ||||||||||||||||||||||
Minority interest | 1,753 | 1,035 | 718 | 69.4 | 1,035 | 572 | 463 | 80.9 | ||||||||||||||||||||||||
Net loss(3) | (102,016 | ) | (4,814 | ) | (97,202 | ) | NM | (4,814 | ) | (14,383 | ) | 9,569 | 66.5 | |||||||||||||||||||
Reconciliation of net loss to EBITDA: | ||||||||||||||||||||||||||||||||
Net loss(3) | (102,016 | ) | (4,814 | ) | (4,814 | ) | (14,383 | ) | ||||||||||||||||||||||||
Interest expense, net | 15,325 | 16,040 | 16,040 | 17,045 | ||||||||||||||||||||||||||||
Income tax benefit | (76,334 | ) | (3,830 | ) | (3,830 | ) | (12,364 | ) | ||||||||||||||||||||||||
Depreciation(1) | 24,283 | 5,221 | 5,221 | 3,555 | ||||||||||||||||||||||||||||
Amortization of intangibles(2) | 10,478 | 2,902 | 2,902 | 25,563 | ||||||||||||||||||||||||||||
EBITDA | (128,264 | ) | 15,519 | (143,783 | ) | NM | 15,519 | 19,416 | (3,897 | ) | (20.1 | ) |
NM — Not meaningful
Year Ended December 31, | Change (from 2007 to 2008) | Change (from 2006 to 2007) | ||||||||||||||||||||||||||
Operating Data: | 2008 | 2007 | 2006 | % | % | |||||||||||||||||||||||
Cars Out(1) | 1,898,245 | 2,016,244 | 2,087,082 | (117,999 | ) | (5.9 | ) | (70,838 | ) | (3.4 | ) | |||||||||||||||||
Average Parking Revenue Per Car Out | $ | 36.88 | $ | 37.06 | $ | 35.36 | $ | (0.18 | ) | (0.5 | ) | $ | 1.70 | 4.8 | ||||||||||||||
Average Overnight Occupancy | 20,664 | 21,841 | 22,090 | (1,177 | ) | (5.4 | ) | (249 | ) | (1.1 | ) |
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Our principalprimary cash requirements include normal operating expenses, debt service, maintenance capital expenditures and quarterly distributions to shareholders.debt principal payments. Our primary meanssource of meeting these requirementscash is from cash generated by operating activities, although we could borrow against existing credit facilities, or issue additional LLC interests.interests or sell assets.
In general,At March 31, 2009, we reclassified the outstanding balance drawn on the revolving credit facility at our non-operating holding company from long-term debt to current portion of long-term debt on our consolidated balance sheet due to its scheduled maturity on March 31, 2010. During the year, we were in discussions with our lenders to convert the facility to a term loan and extend the maturity date of the $66.4 million outstanding balance.
By December 2009, we had received unanimous approval from the lenders to extend the term of the facility. However, using the net cash proceeds we received from the sale of the 49.99% non-controlling interest in District Energy, and cash on hand, we paid off the outstanding principal balance on December 28, 2009 and avoided the substantial costs that would have not retained significant cash balances in excessbeen incurred had the terms of what are prudent reserves in eitherthe facility been amended. Shortly thereafter we elected to reduce the amount available on the revolving credit facility from $97.0 million to $20.0 million through to the maturity of the facility at March 31, 2010.
We believe that our operating companies or our holding company. However, the current dislocation in the capital markets has caused us to retain cash that historically we would have distributed to shareholders, and we have therefore suspended our quarterly cash distributions. The additional cash is expected to buffer the company against continued deterioration in the credit markets in particular and, therefore, may be used by us to pay down holding company debt or outstanding debt of existing businesses that we believe have long term value, particularly our airport services business.
As previously discussed, there is substantial doubt about our parking business’ ability to continue as a going concern and we have no intention of contributing any additional capital to this business. Creditors of this business do not have recourse to any assets of the Company or any assets of our other businesses, other than approximately $12.0 million in guarantees.
With the exception of the liquidity needs of our airport parking business, we believe that we will have sufficient liquidity and capital resources to meet our future requirements, including our holding company and subsidiaryservicing long-term debt obligations. We base our assessment of the sufficiency of our liquidity and capital resources on the following assumptions:
Typically, we have capitalized our businesses, in part, using project finance style debt. Project finance style debt is limited-recourse, floating rate, non-amortizing debt with a medium term maturity of the relevant business.
On February 25, 2009, we amended our airport services business’ credit facility to reducebetween five and seven years, although the principal amount due under that facility and provide us additional operating flexibility overbalance on the near and medium term. We used $50.0 million in cash on hand to pay down $44.9 million of the outstanding term loan debt under the facility and $5.1 million of interest rate swap break fees, of which $1.1 million was paid to Macquarie Bank Limited, a related company. Additionally, we have agreed to apply all excess cash flow from the airport services business to make mandatory prepayments of the term loans under facility whenever the debt levelat Atlantic Aviation is equal to or more than 6.0x adjusted EBITDA for the trailing twelve months. We have also agreed to apply halfbeing prepaid using the excess cash flow to make further prepayments whenevergenerated by the business. At December 31, 2009, the average remaining maturity of the debt level is equal to or greater than 5.5x and below 6.0xfacilities across all of our businesses, including our proportional interest in the debt to adjusted EBITDA ratio. Allof IMTT, was approximately 4.4 years. In light of the excess cash flow fromimprovement in the business would be available for distribution to us whenever the debt level is below 5.5x debt to adjusted EBITDA ratio. Additionally, the maximum permitted debt to adjusted EBITDA ratio would be increased by 1.0x over the
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current maximum ratio until December 2013. In order to achieve the required adjusted EBITDA ratio, we have also cut selling, general and administrative costs in this business by approximately $22.0 million on an annual basis. The decrease in selling, general and administrative expenses reductions stem from cost efficiencies resulting from integration of recently acquired businesses and management’s actions to streamline our cost structure in response to the decline in gross profit from the overall slowingfunctioning of the economy.
We have amendedcredit markets generally, and the restricted payment testleverage ratios and interest coverage we expect each of these businesses to produce at the maturity of their respective debt facilities, we believe that we will be able to successfully refinance the long-term debt of these businesses on this facility to substitute the minimum adjusted EBITDA test required to make distributions with a leverage test (debt to adjusted EBITDA). We have also increased the maximum leverage covenant until the final year of the facility, and amended a pre-approved list of capital expenditures for which borrowings remain available under the capital expenditures facility.economically sensible terms.
The section below discusses the sources and uses of cash on a consolidated basis and for each of our businesses and investments. All inter-company activities such as corporate allocation,allocations, capital contributions to our businesses and distributions from our businesses have been excluded from the tables below as these transactions are eliminated onin consolidation. Prior period comparatives have been updated to also remove these inter-company activities.
The following tables summarize our future obligations, due by period, as of December 31, 2008,2009, under our various contractual obligations and commitments. We had no off-balance sheet arrangement at that date or currently. The following information does not include IMTT, which is not consolidated.
Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||||||
Total | Less than One Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | Less than One Year | 1 – 3 Years | 3 – 5 Years | More than 5 Years | |||||||||||||||||||||||||||||||||||
($ in thousands) | ($ In Thousands) | |||||||||||||||||||||||||||||||||||||||||||
Long-term debt(1) | $ | 1,529,144 | $ | 201,344 | $ | 69,000 | $ | 169,000 | $ | 1,089,800 | $ | 1,212,279 | $ | 45,900 | $ | 111,878 | $ | 1,054,501 | $ | — | ||||||||||||||||||||||||
Interest obligations | 408,327 | 96,412 | 162,581 | 118,441 | 30,893 | 296,180 | 68,677 | 138,051 | 89,452 | — | ||||||||||||||||||||||||||||||||||
Capital lease obligations(2) | 1,676 | 905 | 640 | 131 | — | 101 | 59 | 42 | — | — | ||||||||||||||||||||||||||||||||||
Notes payable | 3,322 | 1,819 | 364 | 336 | 803 | 1,632 | 176 | 266 | 226 | 964 | ||||||||||||||||||||||||||||||||||
Operating lease obligations(3) | 608,907 | 43,467 | 76,168 | 67,852 | 421,420 | 425,301 | 33,238 | 60,362 | 56,828 | 274,873 | ||||||||||||||||||||||||||||||||||
Time charter obligations(4) | 2,339 | 953 | 1,386 | — | — | 1,386 | 973 | 413 | — | — | ||||||||||||||||||||||||||||||||||
Pension benefit obligations | 22,902 | 1,866 | 4,124 | 4,537 | 12,375 | 23,063 | 1,980 | 4,359 | 4,666 | 12,058 | ||||||||||||||||||||||||||||||||||
Post-retirement benefit obligations | 1,913 | 185 | 391 | 405 | 932 | 2,054 | 187 | 444 | 405 | 1,018 | ||||||||||||||||||||||||||||||||||
Other | 482 | 482 | — | — | — | 478 | 478 | — | — | — | ||||||||||||||||||||||||||||||||||
Total contractual cash obligations(5) | $ | 2,579,012 | $ | 347,433 | $ | 314,654 | $ | 360,702 | $ | 1,556,223 | $ | 1,962,474 | $ | 151,668 | $ | 315,815 | $ | 1,206,078 | $ | 288,913 |
(1) | The long-term debt represents the consolidated principal |
(2) | Capital lease obligations are for the lease of certain transportation equipment. Such equipment could be subject to repossession upon violation of the terms of the lease agreements. |
(3) | This represents the minimum annual rentals required to be paid under non-cancelable operating leases with terms in excess of one year. |
(4) |
(5) | The above table does not reflect certain long-term obligations, such as deferred taxes, for which we are unable to estimate the period in which the obligation will be incurred. |
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In addition to these commitments and contingencies, we typically incur capital expenditures on a regular basis to:
See “Investing Activities” below for further discussion of capital expenditures.
We also have other contingencies, including pending threatened legal and administrative proceedings that are not reflected above as amounts at this time are not ascertainable. See “Legal Proceedings” in Part I, Item 3.
Our sources of cash to meet these obligations are as follows:
In addition to these obligations, weWe have historically paid regular cash distributions to our shareholders, and expect to resume doing so in the future once the capital markets are functioning in a historically normal manner or once we believe we have acceptable level of insight into when they will be functioning normally.
We also incurincurred performance fees from time to time paid to our Manager. Our Manager has historically elected to reinvest these fees in our LLC interests (previously trust stock). While these fees do not directly affect cash flows when paid in equity, they do increase the cash necessary to maintain and increase our distributions to shareholders, as they result in more outstanding LLC interests. We believe this increased cash requirement is mitigated by a lower cost
Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | Year Ended December 31, | Change (From 2008 to 2009) Favorable/(Unfavorable) | Change (From 2007 to 2008) Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | $ | 93,675 | $ | 96,550 | $ | 46,365 | (2,875 | ) | (3.0 | ) | 50,185 | 108.2 | 82,976 | 95,579 | 93,499 | (12,603 | ) | (13.2 | ) | 2,080 | 2.2 | |||||||||||||||||||||||||||||||||||
Cash used in investing activities | (83,400 | ) | (644,010 | ) | (686,196 | ) | 560,610 | 87.0 | 42,186 | 6.1 | (516 | ) | (56,716 | ) | (638,853 | ) | 56,200 | 99.1 | 582,137 | 91.1 | ||||||||||||||||||||||||||||||||||||
Cash provided by financing activities | 483 | 567,546 | 562,328 | (567,063 | ) | (99.9 | ) | 5,218 | 0.9 | |||||||||||||||||||||||||||||||||||||||||||||||
Cash (used in) provided by financing activities | (117,818 | ) | 1,698 | 570,618 | (119,516 | ) | NM | (568,920 | ) | (99.7 | ) |
NM — Not meaningful
Consolidated cash provided by operating activities mainly comprises the cash from operations of the businesses we own, as described in each of the business discussions below. The cash flow from our consolidated business’ operations is partially offset by expenses paid at the corporate level, such as base management fees paid in cash, professional fees and interest on any amounts drawn on our revolving credit facility.
The decrease in consolidated cash provided by operating activities was due primarily to:
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We believe our operating activities overall provide a source of sustainable and stable cash flows over the long-term with the opportunity for future growth due to:
Consolidated cash provided by operating activities comprises the cash from operations of the businesses we own as described below. The cash flow from our consolidated business’ operations is partially offset by expenses paid at the corporate level, such as base management fees, professional fees and interest on any amounts drawn on our revolving credit facility.TABLE OF CONTENTS
The decrease in theconsolidated cash used in investing activities was primarily due to:
Distributions from IMTT are reflected in our consolidated cash provided by operating activities only up to our 50% share of IMTT’s positive earnings. Amounts in excess of this, and any distributions when IMTT records a net loss, are reflected in our consolidated cash from investing activities. For 2009, $7.0 million in equity distributions were included in cash from operations. In 2008, $1.3 million of the $28.0 million dividends received were included in cash from operating activities and $26.7 million were included in investing activities.
The primary driver of cash used in investing activities in our consolidated cash flows has been acquisitions of businesses in new and existing segments, and the dispositions of our non-U.S. businesses.businesses and the sale of the non-controlling stake in District Energy. The other main driver is capital expenditures. Maintenance capital expenditures are generally funded by cash from operating activities and growth capital expenditures are generally have been funded by drawing on our available credit facilities or by equity capital. We may fund maintenance capital expenditures from credit facilities or equity capital and growth capital expenditures from operating activities from time to time. We expect that our growth capital expenditures will generally be yield accretive once placed in service. Acquisitions of businesses are generally funded on a long-term basis through raising additional equity capital and/or project-financing style credit facilities. We have drawn on our MIC Inc. revolving credit facility to temporarily fund some acquisitions. We anticipate repaying the current outstanding balance from cash provided by operating
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activities. In the past, we have repaid this facility with proceeds from raising additional equity and/or obtaining long-term project-financing style facilities. In December 28, 2009, with the cash proceeds we received from the sale of the 49.99% non-controlling interest in District Energy, and cash on hand, we paid off the outstanding principal balance of the facility.
The decreaseincrease in consolidated cash provided byused in financing activities was primarily due to:
The primary drivers of cash provided by financing activities are equity offerings, debt financing of acquisitions and capital expenditures, the subsequent refinancing of our businesses.businesses and the repayment of the outstanding principal balance on maturing debt. A smaller portion of cash provided by financing activities relates to principal payments on capital leases andleases.
For 2010, we expect to apply all excess cash flows from Atlantic Aviation to prepay the debt principal paymentsunder the amended terms of the credit facility. Actual prepayment amounts through the maturity of the facility will depend on the relatively small amount of our non-amortizing debt. We do not expect significant changes in cash provided by financing activities during 2009 unless conditions in the capital markets improve.
The primary transactions contributing to our consolidated investing and financing cash flows include:
2008:
2007:
2006:
Our businesses are capitalized with a mix of equity and project-financing style long-term debt. We believe we can prudently maintain relatively high levels of leverage due to the generally sustainable and stable
long-term cash flows our businesses have provided in the past and we expect to continue in the future as discussed above. Our long-term debt is primarily non-amortizing and we consider thisexpect to be permanent in nature.able to refinance the outstanding balances at maturity, except at Atlantic Aviation, where all excess cash flow from the business is used to prepay the outstanding principal balance of the term loan, and the last two years before maturity at District Energy. Most of our businesses’ debt is term debt, while some of our businesses also maintain capital expenditure and/or working capital facilities.
We generally determine what we believe to be the optimal capital structure for a business as part of our acquisition process. We implement that structure at acquisition by acquiring an appropriate amount of debt at the subsidiary level and contributing equity from proceeds of an equity offering and/or cash on hand from previous offerings. We maintain a revolving credit facility at the MIC Inc. level to facilitate the acquisition process when we need temporary financing until we complete an equity offering and/or debt financing at the subsidiary level. We continue to actively assess and manage the capital structure of our businesses after acquisition, resulting in refinancing recurring typically every several years or more often.
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On February 13, 2008,Effective April 14, 2009, we renewed our existingelected to reduce the available principal on its revolving credit facility from $300.0 million to $97.0 million and on December 31, 2009, further reduced the available principal to $20.0 million. This revolving credit facility. The renewed facility is provided by the following lenders:with Citicorp North America Inc. (as lender and administrative agent), Wachovia Bank National Association, Credit Suisse, Cayman Islands Branch, WestLB AG, New York Branch, and Macquarie Bank Limited. We have usedThe original maturity of the revolving facility was March 2008; however, in February 2008, we amended and restated the facility, extending the maturity to March 2010. The main use of the facility is to fund acquisitions, capital expenditures and to a limited extent, working capital. The facility terminates on March 31, 2010 and currently bears interest at the rate of LIBOR plus 2.75%. Base rate borrowings would be at the base rate plus 1.75%.
On February 20, 2008, we drew $56.0 million on this facility, part of which wewas used to fund the acquisition of Seven BarSevenBar FBOs which was completed in the first quarter of 2008, and part of which wewas used for other projects. On July 31, 2008, weMIC Inc. drew an additional $13.0 million on this facility to fund the acquisition of SkyPark, which was completed in the third quarter of 2008. Macquarie Bank Limited,On February 25, 2009, we repaid $2.6 million of the outstanding balance on the revolving credit facility.
At March 31, 2009, we reclassified the outstanding balance drawn on the revolving credit facility at the non-operating holding company from long-term debt to current portion of long-term debt on our consolidated balance sheet due to its scheduled maturity on March 31, 2010. During the year, we were in discussions with our lenders to convert the facility to a related party, committed $66.7term loan and extend the maturity date of the $66.4 million outstanding balance.
By December 2009, we had received unanimous approval from our lenders to extend the term of the facility. However, using the net cash proceeds it received from the sale of the 49.99% non-controlling interest in District Energy, and cash on hand, we paid off the outstanding principal balance on December 28, 2009 and avoided the substantial costs that would have been incurred had the terms of the facility been amended. Shortly thereafter we elected to reduce the amount available on the revolving credit facility from $97.0 million to $20.0 million through to the $300.0 million facility, of which $12.4 million was drawn on February 20, 2008 as partmaturity of the $56.0 million total drawdown and $2.9 million was drawn on Julyfacility at March 31, 2008 as part of2010. We expect to retain excess cash generated by the $13.0 million drawdown. The balance outstanding at December 31, 2008 was $69.0 million.consolidated businesses over the near term.
The borrower under the facility is MIC Inc., a direct subsidiary of the Company, and the obligations under the facility are guaranteed by the Company and secured by a pledge of the equity of all current and future direct subsidiaries of MIC Inc. and the Company. The terms and conditions for the revolving facility include events of default, representations and warranties and covenants that are generally customary for a facility of this type. In addition, the revolving facility includes a restriction on cross guarantees and an event of default should the Manager or another member of the Macquarie Group cease to manage our business and operations.
The following is a summary of the material terms of the facility:
Facilities | $ | |||
Termination date | March 31, 2010 | |||
Interest and principal repayments | Interest only during the term of the loan | |||
Repayment of principal at termination, upon voluntary prepayment, or upon an event requiring mandatory prepayment | ||||
Eurodollar rate | LIBOR plus 2.75% per annum |
Base rate | Base rate plus 1.75% per annum | |||
Annual commitment fee | 0.50% per annum on the average daily undrawn balance | |||
Financial covenants (calculations include MIC Inc. and the Company) | • Ratio of Debt to Consolidated Adjusted Cash from Operations | |||
• Ratio of Consolidated Adjusted Cash from Operations | ||||
• Minimum EBITDA (as defined in the facility) |
See below for further description of the cash flows related to our businesses.
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Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | ||||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||
Cash provided by operating activities | 73,128 | 85,323 | 37,942 | (12,195 | ) | (14.3 | ) | 47,381 | 124.9 | |||||||||||||||||||
Cash used in investing activities(1) | (68,002 | ) | (704,259 | ) | (353,620 | ) | 636,257 | 90.3 | (350,639 | ) | (99.2 | ) | ||||||||||||||||
Cash provided by financing activities(1) | 27,069 | 411,191 | 168,844 | (384,122 | ) | (93.4 | ) | 242,347 | 143.5 |
In response to the slowing of the overall economy and the recent decline in general aviation activity, we have undertaken to reduce the indebtedness of our airport services and provide for greater cushion with respect to debt covenants. In cooperation with our lenders, we amended the terms of the loan agreement of our airport services business. The amendment was executed on February 25, 2009. The revised terms are outlined under “Financing Activities” below.
Operating cash at our airport services business is generated from sales transactions primarily paid by credit cards. Some customers are extended payment terms and billed accordingly. Cash is used in operating activities mainly for payments to vendors of fuel, aircraft services and professional services, as well as payroll costs and payments to tax jurisdictions. Despite the contribution to our operating results from sites acquired, cash provided by operating activities decreased mainly due to declining performance at existing locations, higher interest expense related to acquisition funding and the timing of fuel payments, including a one-off change to payment terms from suppliers in 2007.
Cash used in investing activities relates primarily to our acquisitions and capital expenditures. Cash paid for our acquisition of Seven Bar FBOs in the first quarter of 2008, net of cash acquired, was $41.5 million. We funded the acquisition with borrowings under our MIC Inc. revolving credit facility that we contributed to the business. This compares to a purchase price of $660.6 million, net of cash acquired, for the acquisitions of Supermarine, Mercury, San Jose and Rifle in 2007, of which we funded $304.5 million in new debt at the business level and the remainder through contributions by us to the business.
Maintenance expenditures are generally funded by cash from operating activities and growth capital expenditures are generally funded with draw downs on capital expenditure facilities or equity contributions from us.
Maintenance capital expenditures encompass repainting, replacing equipment as necessary and any ongoing environmental or required regulatory expenditure, such as installing safety equipment. These expenditures are funded from cash flow from operating activities.
Growth capital expenditures are incurred primarily in connection with lease extensions and only where we expect to receive an appropriate return relative to our cost of capital. Historically these expenditures have
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included development of hangars, terminal buildings and ramp upgrades. We have funded these projects through our growth capital expenditure facilities.
The following table sets forth information about capital expenditures in our airport services business:
Maintenance | Growth | |||||||
2006 | $ | 3.2 million | $ | 3.9 million | ||||
2007 | $ | 8.6 million | $ | 19.0 million | ||||
2008 | $ | 7.7 million | $ | 26.8 million | ||||
2009 projected | $ | 7.7 million | $ | 6.0 million | ||||
Commitments at December 31, 2008 | $ | 61,000 | $ | 641,000 |
The increased growth capital expenditures in 2008 primarily relates to projects associated with the Mercury acquisition, the construction of a new hangar at the San Jose FBO and a ramp repair and extension at our Teterboro location. We expect growth capital expenditures to be $6.0 million in 2009 and $2.9 million in 2010. The expected decrease in growth capital expenditures reflects the completion of all major projects undertaken last year as well as obligations under our various FBO lease agreements.
The increases in maintenance capital expenditures are primarily due to an increased number of locations arising from our acquisitions. We generally expect annual maintenance capital expenditures to average between $100,000 and $200,000 per location to provide necessary upgrades and refurbishment of our facilities as well as additions to and replacement of our ground support equipment fleet.
The decrease in cash provided by financing activities is primarily due to the additional debt associated with the purchase of Supermarine, Mercury and San Jose in 2007 and the refinancing of debt in October 2007.
The financial covenant requirements under the airport services business’ debt and credit facilities, and the calculation of these measures at quarter end, were as follows:
The terms of the loan agreement of our airport services business have been revised in accordance with the amendment completed and effective on February 25, 2009. A comparative summary of key terms is presented below.
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The following analysis represents 100% of the cash flows of IMTT, which we believe is the most appropriate and meaningful approach to discussing the historical cash flow trends of IMTT, rather than just the composition of cash flows that are included in our consolidated cash flows. We account for our 50% ownership of this business using the equity method, so distributions are reflected in our consolidated cash flow from operating activities only up to our 50% share of IMTT’s positive earnings.method. When IMTT records a net loss, or pays distributions in excess of our share of its earnings, distributions we receive in excess of IMTT’s earnings are reflected in the consolidated cash flow fromused in investing activities. We have received a quarterly dividend of $7.0 million since completing our investment in May 2006. For the year ended December 31, 2008, $1.3 million was included in our consolidated cashCash from operating activities and $26.7 million was included in our consolidated cash from investing activities. For the year ended December 31, 2007, $28.0 million was included in consolidated cash from investing activities.
Beginning first quarter offor 2009 the IMTT shareholders’ agreement prescribes that distributionshas been retained to be paid by IMTT will convert from a fixed amount to a variable amount generally based onfund IMTT’s cash flow from operating activities less maintenance and environmental capital expenditures. However, we may agree to reduce the level of distributions actually paid by IMTT during 2009 and beyond below the amount prescribed
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by the shareholders’ agreement after consideration of, among other factors, the outlook for bulk liquid storage market conditions, the level of IMTT’s indebtedness and the availability of external sources of funding for growth capital projects. In particular, as discussed further below, in 2009 IMTT intendsexpenditures and is expected to seekcontribute to raise additional debt financing to fund its growth capital expenditure program and scheduled debt amortizations during 2009 and 2010. In the event that sufficient additional debt financing is not able to be raised, IMTT will need to fund all or part of its existing growth capital expenditure program and scheduled debt amortizations during 2009 and 2010 from cash flow from operating activities resulting in a potentially significant reduction in the level of distributions to be paid by IMTT in 2009 and 2010.
Based on current market conditions and assuming completion during 2009 of some of the expansion projects currently under construction, it is anticipated that IMTT’s future gross profit and EBITDA will increase to ranges of $165.0 million to $177.0 million and $140.0 million to $152.0 million, respectively, in 2009. Increased maintenance and environmental capital expenditure and capitalized dredging expenditure in 2009 is anticipated to reduce IMTT’s cash available for distribution in 2009 to a range of $28.0 million to $36.0 million. IMTT anticipates that gross profit, EBITDA and cash available for distribution will increase from 2009 in 2010 due to the positive impact of a full year contribution from growth projects coming on line part way through 2009 and a contribution from growth projects coming on line in 2010.profit.
Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | Year Ended December 31, | Change (From 2008 to 2009) Favorable/(Unfavorable) | Change (From 2007 to 2008) Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | 94,087 | 91,431 | 66,791 | 2,656 | 2.9 | 24,640 | 36.9 | 133,382 | 94,087 | 91,431 | 39,295 | 41.8 | 2,656 | 2.9 | ||||||||||||||||||||||||||||||||||||||||||
Cash used in investing activities | (166,640 | ) | (264,457 | ) | (90,540 | ) | 97,817 | 37.0 | (173,917 | ) | (192.1 | ) | (141,216 | ) | (166,640 | ) | (264,457 | ) | 25,424 | 15.3 | 97,817 | 37.0 | ||||||||||||||||||||||||||||||||||
Cash provided by financing activities | 71,815 | 142,228 | 57,526 | (70,413 | ) | (49.5 | ) | 84,702 | 147.2 | 6,262 | 71,815 | 142,228 | (65,553 | ) | (91.3 | ) | (70,413 | ) | (49.5 | ) |
Cash provided by operating activities at IMTT is generated primarily from storage rentals and ancillary services that are billed monthly and paid on various terms. Cash is used in operating activities is mainly for payroll costs, maintenance and repair of fixed assets, utilities and professional services, interest payments and payments to tax jurisdictions. Cash provided by operating activities in 2009 increased primarily due to the collection of accounts receivable outstanding at 2008 and improved operating results, partially offset by an increase in cash interest paid.
The increasesincrease in 2007 and 2008 werewas primarily due to higher gross profit offset by increases in deferred revenue, and working capital and increaseincreases in interest expense in 2008.expense.
Cash used in investing activities relates primarily to capital expenditures as discussed below. The decreaseCapital expenditures decreased from $221.7 million in 2008 to $137.0 million in 2009, reflecting a reduction in growth capital expenditures as projects have been completed. Maintenance capital expenditures also decreased resulting from reduced levels of tank inspections and repairs and remediation work at the Bayonne facility. However, cash used in investing activities in 2008 reflects the investmentwas offset by $55.5 million of GO Zone bond proceeds in escrow during the third quarter 2007 andreceived from the sale of theseGulf Opportunity Zone (“GO Zone”) bond investments, during 2008.which did not recur in 2009. Aggregate capital expenditure increased from $88.8 million in 2006 toexpenditures were $209.1 million in 2007, to $221.7 million in 2008.2008 and $137.0 million in 2009.
IMTT typically incurs maintenance capital expenditures on a regular basis to maintain the existing revenue-producing assets in good working order and prolong the useful lives orand increase the service capacity of those revenue-producing assets (“maintenance capital expenditures”).existing revenue producing assets. Maintenance capital expenditures include the refurbishment of storage tanks, piping, and dock facilities, and environmental capital expenditure,expenditures, principally in relation to improvements in containment measures and remediation.
During 2008,2009, IMTT spent $42.7$40.0 million on maintenance capital expenditures, including $35.4$36.1 million principally in relation to tank refurbishments and repairs to docks and other infrastructure and $7.2$3.9 million on environmental capital expenditures, principally in relation to improvements in containment measures and remediation.
In 2009,2010, IMTT expects to spend approximately $65.0a total of $55.0 million to $67.0$65.0 million on maintenance capital expenditures. The increase in maintenance capital expenditure from 20082009 reflects primarily (i) an increase in
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the number and size of tanks to be inspected and repaired vis-à-vis 2008 pursuant to IMTT’s extensive tank cleaning and inspection program in LA,Louisiana and (ii) the deferral of capital expenditure projects from 2008 to 2009 and (iii) the need to undertake repairs and upgrades to some of the infrastructure at its Louisiana terminals. IMTT anticipates that maintenance capital expenditures will remain at elevated levels through 2012 before moderating somewhat in 2013.
During 2008,2009, IMTT spent $187.6$82.6 million on specific growth projects, including $101.8$43.9 million in relation tofor the construction of the new bulk liquid chemical storage facility at Geismar, LA, $40.7 million principally for theon-going construction of new storage tanks at its other three sites in Louisiana, and $34.6St. Rose facility, $26.1 million for on-going tank construction and refurbishment as well as improved infrastructure at its Bayonne NJ facility.facility and $7.9 million at Geismar. The balance of the expenditure was spent on specific expansion projects related to a number of smaller projects to improve the capabilities of IMTT’s facilities.
Since our investment in IMTT, in May 2006, the business has undertaken or committed to a total of $505.6approximately $534.9 million in expansion projects and acquired the Joliet IL facility for $18.5 million. Capital projects completed across the terminals, including the acquisition of the Joliet, IL facility, throughThrough December 31, 20082009, these projects added and/or refurbished approximately 4.86.1 million barrels of storage capacity and are contributing $39.6$49.6 million to gross profit and EBITDA on an annualized basis.
The largest expansion project completed since 2006 has been the construction of a new bulk liquid chemical storage and logistics facility on the Mississippi River at Geismar, LA. The project became fully operational in late 2008. IMTT ultimately expects to spend $215.1 million on this project. Subject to certain minimum volumes of chemical products being handled by the facility, existing customer contracts are anticipated to generate minimum terminal gross profit and EBITDA of approximately $18.8 million per year. The bulk liquid storage and logistics facility and other storage added at Geismar, which became operational in early 2008, contributed $11.9 million to gross profit and EBITDA in 2008.
In addition, IMTT currently has ongoing growth projects for the construction or refurbishment of 2.12.2 million barrels of new storage capacity and associated infrastructurecomprised primarily of 1.8 million barrels at IMTT’s St. Rose LAfacility, of which are1.1 million barrels were on line at December 31, 2009 with the remainder expected to be putfully placed into service in the first and second quarters of 2010 and the construction/conversion of 1.1 million barrels of new capacity and associated infrastructure at Bayonne, NJ which are expected to be put into service in the second and fourth quarters of 2009.by early 2010. Other smaller growth projects are also being pursued. On a combined basis, the projects under construction are expected to have a total cost of $179.3$129.4 million and are expected towill contribute approximately $24.6$19.2 million to gross profit and EBITDA on an annualized basis. Of the total cost$129.4 million of IMTT’s current growth projects, $121.4$54.8 million remained to be spent as atof December 31, 2008.2009. IMTT expects to fund these committed projects with its existing credit facilities and cash generated from operations. Contracts with a term of between four4 and 1012 years have been signed with customers for substantially all of the tanks being constructed/converted in LALouisiana and NJ.New Jersey.
IMTT continues to review numerous additional attractive growth opportunities. IMTT anticipates funding new growth capital expenditures with a combination of its cash flow from operating activities, existing and additional credit facilities.
It is anticipated that the existing growth capital expenditure commitments will be funded from a combination of IMTT’s existing and new debt facilities.facilities and cash from operations. In 20092010, IMTT is seeking to raise additional debt financing to fund both its growth capital expenditure program and scheduled amortizations in 2009 and 2010 of $26.0 million of the $78.0 million term loan facility discussed below. In the event of insufficient debt financing being available on acceptable terms to meet its existing growth capital expenditure commitments and scheduled amortizations in 2009 and 2010, IMTT will need to utilize cash flow from operations to provide the necessary funding and correspondingly reduce distributions to its shareholders in 2009 and 2010.program.
At December 31, 2009, the outstanding balance on IMTT’s debt facilities consisted of $250.9 million in revolving credit facilities, $251.3 million in bonds and $130.0 million in term loan facilities, including shareholder loans. The weighted average interest rate of the outstanding debt facilities including any interest rate swaps and fees associated with outstanding letters of credit at December 31, 2009 is 4.8%. During 2009, IMTT paid approximately $29.0 million, net of capitalized interest, in interest related to its debt facilities.
Cash flows from financing activities decreased from 2008 to 2009 primarily due to decreases in debt draw downs on the revolving credit facility offset by the Regions term loan used to fund growth capital expenditures, and by lower dividend payments and repayment of shareholder loans in 2009.
The decrease in cash flows from financing activities from 2007 to 2008 was primarily due to the issuance of all of the GO Zone bonds during July 2007 while $55.5 million of the proceeds raised were not utilized until 2008 reducing debt raising requirements. The change from 2006 to 2007 was primarily due to:
The following tables summarize the key terms of IMTT'sIMTT’s senior debt facilities as atof December 31, 2008.2009.
On June 7, 2007, IMTT entered into a Revolving Credit Agreement with Suntrust Bank, Citibank N.A., Regions Bank, Rabobank Nederland, Branch Banking & Trust Co., DNB NOR Bank ASA, Bank of America
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N.A., BNP Paribas, Bank of Montreal, The Royal Bank of Scotland PLC, Mizuho Corporate Bank Ltd. and eight other banks establishing a $600.0 million U.S. dollar denominated revolving credit facility and a $25.0 million equivalent Canadian dollar revolving credit facility. The Agreement also allows for an increase in the U.S. dollar denominated revolving credit facility of up to $300.0 million on the same terms at the election of IMTT. No commitments have been sought from lenders to provide this increase at this time and given market conditions such commitments are considered unlikely in the foreseeable future.time. The facility is guaranteed by IMTT’s key operating subsidiaries.
At signing, IMTT borrowed $168.5 million under the new U.S. dollar denominated revolving credit facility to fully repay and extinguish the then existing two tranches of fixed rate notes issued by IMTT and to replace letters of credit outstanding under the then existing U.S. dollar denominated revolving credit facility which was terminated. IMTT also borrowed $10.1 million equivalent under the Canadian dollar denominated revolving credit facility to fully repay the then existing Canadian dollar denominated revolving credit facility which was terminated. Since establishment, the newThe revolving credit facilities have been used primarily to fund IMTT’s growth capital expenditures in the U.S. and Canada. The terms of the IMTT’s U.S. dollar and Canadian dollar denominated revolving credit facilities are summarized in the table below.
Facility Term | USD Revolving Credit Facility | CAD Revolving Credit Facility | ||
Amount | $ | $ | ||
$ | — | |||
Amount undrawn at December 31, 2009 | $105.0 million | $ | ||
Uncommitted Expansion Amounts | $300.0 million | — | ||
Maturity | June, 2012 | June, 2012 | ||
Amortization | Revolving. Payable at maturity. | Revolving. Payable at maturity | ||
Interest Rate | Floating at LIBOR plus a margin based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows: <2.00 – 0.55% 2.00>2.50 – 0.70% 2.50>3.00 – 0.85% 3.00>3.75 – 1.00% 3.75>4.00 – 1.25% 4.00> – 1.50% | Floating at Canadian LIBOR plus a margin based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows: <2.00 – 0.55% 2.00>2.50 – 0.70% 2.50>3.00 – 0.85% 3.00>3.75 – 1.00% 3.75>4.00 – 1.25% 4.00> – 1.50% |
Facility Term | USD Revolving Credit Facility | CAD Revolving Credit Facility | ||
Commitment Fees | A percentage of undrawn committed amounts based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows: <2.00 – 0.125% 2.00>2.50 – 0.15% 2.50>3.00 – 0.175% 3.00>3.75 – 0.20% 3.75>4.00 – 0.25% 4.00> – 0.25% | A percentage of undrawn committed amounts based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows: <2.00 – 0.125% 2.00>2.50 – 0.15% 2.50>3.00 – 0.175% 3.00>3.75 – 0.20% 3.75>4.00 – 0.25% 4.00> – 0.25% | ||
Security | Unsecured except for pledge of 65% of shares in IMTT’s two Canadian subsidiaries. | Unsecured except for pledge of 65% of shares in IMTT’s two Canadian subsidiaries. | ||
Financial Covenants (applicable to IMTT’s operating subsidiaries on a combined basis) | Debt to EBITDA Ratio: Max 4.75x (at December 31, | Debt to EBITDA Ratio: Max 4.75x (at December 31, | ||
Restrictions on Payments of Dividends | None, provided no default as a result of payment. | None, provided no default as a result of payment. |
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Of the $477.4$495.0 million outstanding balance against the U.S. dollar denominated revolving credit facility, IMTT had drawn $221.0$230.1 million in cash and issued $256.4$264.9 million in letters of credit backing tax-exempt GO Zone bonds and NJEDA bonds on issue by IMTT and commercial activities.
To partially hedge the interest rate risk associated with IMTT'sIMTT’s current floating rate borrowings under the U.S. dollar denominated revolving credit agreement, IMTT has entered into a 10 year fixed to quarterly LIBOR swap, maturing in March 2017, with a notional amount $90.0$115.0 million as of December 31, 20082009 increasing to $200.0 million by December 31, 2012, at a fixed rate of 5.507%.
The key terms of the GO Zone bonds and the NJEDA bonds on issue by IMTT are summarized below.
Facility Term | New Jersey Economic Development Authority Dock Facility Revenue Refund Bonds | New Jersey Economic Development Authority Variable Rate Demand Revenue Refunding Bond | ||
Amount Outstanding as of December 31, | $30.0 million | $6.3 million | ||
Undrawn Amount | — | — | ||
Maturity | December, 2027 | December, 2021 | ||
Amortization | Payable at maturity | Payable at maturity | ||
Interest Rate | Floating at tax exempt bond daily tender rates | Floating at tax exempt bond daily tender rates | ||
Make-whole on Early Repayment | None | None | ||
Debt Service Reserves Required | None | None | ||
Security | Unsecured (required to be supported at all times by bank letter of credit issued under the revolving credit facility) | Unsecured (required to be supported at all times by bank letter of credit issued under the revolving credit facility) |
Facility Term | New Jersey Economic Development Authority Dock Facility Revenue Refund Bonds | New Jersey Economic Development Authority Variable Rate Demand Revenue Refunding Bond | ||
Financial Covenants (applicable to IMTT’s key operating subsidiaries on a combined basis) | None | None | ||
Restrictions on Payments of Dividends | None, provided no default as a result of payment | None, provided no default as a result of payment | ||
Interest Rate Hedging | Hedged from October, 2007 through November, 2012 with $30.0 million 3.41% fixed vs. 67% of LIBOR interest rate swap | Hedged from October, 2007 through November, 2012 with $6.3 million 3.41% fixed vs. 67% of LIBOR interest rate swap |
The key terms of the GO Zone Bonds issued are summarized in the table below.
Facility Term | Gulf Opportunity Zone Bonds | |
Amount Outstanding as of December 31, | $215.0 million | |
Undrawn Amount | — | |
Maturity | July, | |
Amortization | Payable at maturity | |
Interest Rate | Floating at tax exempt bond | |
Make-whole on Early Repayment | None | |
Debt Service Reserves Required | None | |
Security | ||
Financial Covenants (applicable to IMTT’s key operating subsidiaries on a combined basis) | None | |
Restrictions on Payments of Dividends | None, provided no default as a result of payment |
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For federal income tax purposes, interest on the GO Zone Bonds is excluded from gross income and is not an item of tax preference for purposes of federal alternative minimum tax imposed on individuals and corporations that are investors in the Go Zone Bonds; however, for purposes of computing the federal alternative minimum tax imposed on certain corporations, such interest is taken into account in determining adjusted current earnings. As a consequence of this and the credit support provided by the letters of credit issued under the U.S dollar denominated revolving credit facility, the floating interest rate applicable to similar bonds has historically averaged approximately 67% of LIBOR. Interest on the GO Zone Bonds is deductible to IMTT as incurred except to the extent capitalized and amortized as part of project costs as required, for federal income tax purposes.
To hedge the interest rate risk associated with IMTT'sIMTT’s GO Zone Bond borrowings, IMTT has entered into a 10 year fixed to monthly 67% of LIBOR swap, maturing in June 2017, with a notional amount of $175.0$215.0 million as of December 31, 2008, increasing to $215.0 million on January 1, 2009, at a fixed rate of 3.662%.
On August 28, 2009, IMTT entered into a loan agreement with Regions Bank, as Administrative Agent, to provide unsecured term loan financing of $30.0 million. IMTT drew down $30.0 million on the same day and applied the funds to repay its current U.S. dollar denominated revolving credit facility.
Regions Term Loan Facility | ||
Amount Outstanding as of December 31, 2009 | $30.0 million | |
Undrawn Amount | — | |
Maturity | June, 2012 | |
Amortization | Payable at maturity | |
Interest Rate | Floating at LIBOR plus a margin based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows: <2.00 – 3.00% 2.00>2.50 – 3.50% 2.50>3.00 – 3.75% 3.00>3.75 – 4.00% 3.75>4.00 – 4.25% 4.00> – 5.00% | |
Subordination Rate | 10.00% per annum applied in the event that (i) any other indebtedness is secured by the assets or equity and (ii) Regions term loan is not pari passu with such indebtedness | |
Security | Unsecured | |
Financial Covenants | Debt to EBITDA Ratio: Max 4.75x (at December 31, 2009: 3.82x) EBITDA to Interest Ratio: Min 3.00x (at December 31, 2009: 6.83x) | |
Restrictions on Payments of Dividends | None | |
Interest Rate Hedging | None |
As discussed above, IMTT intends to seek to raise additional U.S dollar denominated debt facilities at the operating company level in 20092010 to fund IMTT’s growth capital expenditure program. Due to current financial market conditions, it is anticipated that the interest rate margins payable on new debt facilities raised will be in excess of the margins payable on the existing U.S dollar denominated revolving credit facility.
In addition to the senior debt facilities discussed above, subsidiaries of IMTT Holdings Inc. that are the parent entities of IMTT'sIMTT’s key operating subsidiaries are the borrowers and guarantors under a debt facility with the following key terms:
Term Loan Facility | ||
Amount Outstanding as of December 31, | $ | |
Undrawn Amount | — | |
Maturity | December, 2012 | |
Amortization | $13.0 million on | |
Interest Rate | Floating at LIBOR plus 1.0% | |
Make-whole on Early Repayment | None. | |
Debt Service Reserves Required | None. | |
Security | Unsecured. | |
Guarantees |
Term Loan Facility | ||
Financial Covenants | None. | |
Restrictions on Payments of Dividends | None. | |
Interest Rate Hedging | Fully hedged with |
In addition to the debt facilities discussed above, IMTT Holdings Inc. received loans from its shareholders other than MIC from 2006 to 2008. The shareholder loans have a fixed interest rate of 5.5% and
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will be repaid over 15 years by IMTT Holdings Inc. with equal quarterly amortization that commenced March 31, 2008. Shareholder loans of $36.5$34.5 million were outstanding as atof December 31, 2008.
Although IMTT adopted hedge accounting on October 1, 2008, it recorded significant non-cash derivative losses from the fair value movements on their interest rate swaps. These movements and losses are discussed under the “Unrealized (Losses) Gains on Derivative Instruments” section of “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” for IMTT.2009.
We completed our acquisition of the gas production and distribution business on June 7, 2006. The following analysis compares the historical cash flows under both the current and prior owners. We believe that this is the most appropriate approach to discussing the historical cash flow trends of this business, rather than discussing the composition of cash flows that is included in our consolidated cash flows, since the date of our acquisition only.
Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | Year Ended December 31, | Change (From 2008 to 2009) Favorable/(Unfavorable) | Change (From 2007 to 2008) Favorable/(Unfavorable | |||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | 27,078 | 16,005 | 16,857 | 11,073 | 69.2 | (852 | ) | (5.1 | ) | 25,560 | 27,078 | 16,005 | (1,518 | ) | (5.6 | ) | 11,073 | 69.2 | ||||||||||||||||||||||||||||||||||||||
Cash used in investing activities | (9,424 | ) | (7,870 | ) | (265,007 | ) | (1,554 | ) | (19.7 | ) | 257,137 | 97.0 | (7,105 | ) | (9,424 | ) | (7,870 | ) | 2,319 | 24.6 | (1,554 | ) | (19.7 | ) | ||||||||||||||||||||||||||||||||
Cash provided by financing activities | 2,000 | 5,000 | 148,763 | (3,000 | ) | (60.0 | ) | (143,763 | ) | (96.6 | ) | 10,000 | 2,000 | 5,000 | 8,000 | NM | (3,000 | ) | (60.0 | ) |
NM — Not meaningful
The main driversdriver for cash provided by operating activities is customer receipts. These are customer receipts and amounts withdrawn from a restricted cash escrow account, offset in part by the timing of payments for fuel, materials, pipeline repairs, vendor services and supplies, payment of payroll and benefit costs, payment of revenue-based taxes and payment of administrative costs. Our customersCustomers are generally billed monthly and make payments on account. Our vendorsVendors and suppliers generally bill usthe business when services are rendered or when products are shipped.
The decrease from 2008 to 2009 was primarily due to higher cash pension payments and the exhaustion in 2008 of the escrow account established at acquisition partially offset by improved operating results. The increase from 2007 to 2008 was primarily due to lower accounts receivable balances due to lower fuel prices and higher operating income driven by higher margins.
Cash used in investing activities primarily comprises capital expenditures. Capital expenditures for the non-utility business are funded by cash from operating activities and capital expenditures for the utility business are funded by drawing on credit facilities as well as cash from operating activities. Cash paid for our acquisition of this business is included in the results for 2006.
Maintenance capital expenditures include costs associated with ongoing operations. This includes replacement of pipeline sections, improvements to ourthe business’ transmission system and SNG plant, improvements to buildings and other property and the purchases of vehicles and equipment.
Growth capital expenditures include the purchases of meters, regulators and propane tanks for new customers, the cost of installing pipelines for new residential and commercial construction and the costs of new commercial energy projects.
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The following table sets forth information about capital expenditures in our gas production and distribution business:The Gas Company:
Maintenance | Growth | |||||||
2006 | $ | 7.7 million | $ | 2.4 million | ||||
2007 | $ | 4.7 million | $ | 4.0 million | ||||
2008 | $ | 5.8 million | $ | 3.9 million | ||||
2009 projected | $ | 4.0 million | $ | 3.3 million | ||||
Commitments at December 31, 2008 | $ | 659,000 | $ | 320,000 |
Maintenance | Growth | |||||||
2007 | $ | 4.7 million | $ | 4.0 million | ||||
2008 | $ | 5.8 million | $ | 3.9 million | ||||
2009 | $ | 3.3 million | $ | 4.1 million | ||||
2010 projected | $ | 5.5 million | $ | 6.5 million | ||||
Commitments at December 31, 2009 | $ | 1.0 million | $ | 439,000 |
We expectThe business expects to fund approximately 80% of ourits total 20092010 capital expenditures with available debt facilities that relate to the utility operations. 2009 capitalprimarily from cash from operating activities. Capital expenditures for 2010 are expected to be lowerhigher than previous years due to required pipeline maintenance and inspection involving the relocation and upgrade of two sections of the transmission pipeline near the SNG plant as part of an integrity management program due by 2012 and due to a pilot project at the SNG plant to create gas from renewable feedstock sources. Capital expenditures in 2009 were lower than previous years primarily due to the deferral of several large projects untilprimarily related to the economic outlook improves.repair and upgrade of the transmission pipeline near the SNG plant. Capital expenditures in 2008 capital expenditures were higher than 2007 primarily due to the completion of improvements made to a backup utility propane system.
The change in capital expenditure from 2008 to 2009 was primarily due to:
The change in capital expenditure from 2007 to 2008 was primarily due to:
The change in capital expenditure from 2006 to 2007 was primarily due to:
Commitments at December 31, 20082009 include completionrenewal work on pipelines, acquisition of improvements to a backup utility propane systemtanks and two large residential developmentother equipment for 2010 projects as well as several smaller commercial projects.a paving project at the Kamakee facility.
At December 31, 2009, the outstanding balance on the business’ debt facilities consisted of $160.0 million in term loan facility borrowings and $19.0 million in capital expenditure facility borrowings. The weighted average interest rate of the outstanding debt facilities including any interest rate swaps at December 31, 2009 is 4.6%. For the year, the business paid approximately $8.5 million in interest expense related to its debt facilities.
The Gas Company has interest rate swaps hedging 100% of the interest rate exposure under the two $80.0 million term loan facilities that effectively fix the interest rate at 4.8375% (excluding the margin).
The Gas Company also has an uncommitted unsecured short-term borrowing facility of $7.5 million that was renewed during the second quarter of 2009. This credit line bears interest at the lending bank’s quoted rate or prime rate. The facility is available for working capital needs. No amounts were outstanding as of December 31, 2009.
The main drivers for cash from financing activities are debt financings for capital expenditures and the repayment of outstanding debtcredit facilities.
The change from 2008 to 2009 was due primarily to the timing of borrowings to fund capital expenditures.
The change from 2007 to 2008 was primarily due to:
The change from 2006 to 2007 was primarily due to:
The terms and conditions for the debt facilities include events of default, covenants and representations and warranties and other covenants that are generally customary for facilities of this type. The facility also requires mandatory repaymentA change of control will occur if wethe Macquarie Group, or anotherany fund or entity managed by the Macquarie Group, fails to either own 75%control majority of the respective borrowers or control the management and policies of the respective borrowers. The HPUC, in approving the purchase by us, requires that consolidated debt to total capital for HGC Holdings not exceed 65%. The ratio was 61.7% at December 31, 2008. Material terms of the credit facilities are summarized below:
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Holding Company Debt | Operating Company Debt | |||||
Borrowers | HGC | The Gas Company, LLC | ||||
Facilities | $80.0 million Term Loan | $80.0 million Term Loan | $20.0 million Revolver ($ | |||
Collateral | First priority security interest on | First priority security interest on | ||||
Maturity | June, 2013 | June, 2013 | June, 2013 | |||
Amortization | Payable at maturity | Payable at maturity | Payable at | |||
LIBOR plus 0.60% | LIBOR plus 0.40% | LIBOR plus 0.40% | ||||
— | — | 0.14% on undrawn portion | ||||
Interest Rate: Years 6 – 7 | LIBOR plus 0.70% | LIBOR plus 0.50% | LIBOR plus 0.50% | |||
Commitment Fees: Years 6 – 7 | — | — | 0.18% on undrawn portion | |||
Distributions Lock-Up Test | — | 12 mo. look-forward and 12 mo. look-backward adjusted EBITDA/interest <3.5x (at December 31, 2009: 7.9x and 7.7x, respectively) | — | |||
Mandatory Prepayments | — | 12 mo. look-forward and 12 mo. look-backward adjusted EBITDA/interest <3.5x for 3 consecutive quarters | — | |||
Events of Default Financial Triggers | — | 12 mo. look-backward adjusted EBITDA/interest <2.5x | 12 mo. look-backward adjusted EBITDA/ interest <2.5x |
The gas production and distribution business has entered into interest rate swaps hedging 100%As part of the interestregulatory approval process of our acquisition of The Gas Company, we agreed to 14 regulatory conditions from the HPUC that address a variety of matters. The more significant conditions include:
During the second quarter of 2008, TGC increased its uncommitted unsecured short-term borrowing facility to $7.5 million. This credit line is being used for working capital needs; no amounts were outstanding as ofAt December 31, 2008.2009, the consolidated debt to total capital ratio was 63.2%.
Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | Year Ended December 31, | Change (From 2008 to 2009) Favorable/(Unfavorable) | Change (From 2007 to 2008) Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash provided by operating activities | 17,766 | 14,085 | 11,172 | 3,681 | 26.1 | 2,913 | 26.1 | 14,448 | 17,766 | 14,085 | (3,318 | ) | (18.7 | ) | 3,681 | 26.1 | ||||||||||||||||||||||||||||||||||||||||
Cash used in investing activities | (5,378 | ) | (9,421 | ) | (1,618 | ) | 4,043 | 42.9 | (7,803 | ) | NM | (12,095 | ) | (5,378 | ) | (9,421 | ) | (6,717 | ) | (124.9 | ) | 4,043 | 42.9 | |||||||||||||||||||||||||||||||||
Cash provided by financing activities | 986 | 11,637 | 1,369 | (10,651 | ) | (91.5 | ) | 10,268 | NM | 17,917 | 986 | 11,637 | 16,931 | NM | (10,651 | ) | (91.5 | ) |
NM — Not meaningful
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Cash provided by operating activities is primarily driven by customer receipts for services provided and for leased equipment (including non-revenue lease principal), the timing of payments for electricity and vendor services or supplies and the payment of payroll and benefit costs. The changedecline in cash provided by operating activities was primarily due to new customer reimbursements in 2008 for costs to connect to the business’ system, the timing of payments to vendors in 2009 compared to 2008 and a one-time capacity paydown from a customer in 2008. These items are also primarily responsible for the increase in cash provided by operating activities from 2007 to 20082008. Excluding these payments, the cash contribution from ongoing operations was primarily duerelatively flat period over period.
As provided in the agreement between MIC and John Hancock, the owners of the non-controlling interest of District Energy (collectively, the “members”), all “available cash” will be distributed pro rata to the members on a quarterly basis. “Available cash” is calculated as cash from operating activities plus cash from investing activities (excluding debt funded capital expenditures, and acquisitions net of cash) plus net debt proceeds minus distributions paid to minority shareholders of the Nevada district energy business. The distribution of available cash may be reduced to comply with any contractual or legal limitations, including restrictions on distributions contained in the business’ credit facility, and to provide for reserves for working capital improvements related to higher collection of customer reimbursements of connection costs and the timing of vendor payments for services or supplies.
The change from 2006 to 2007 was primarily due to higher contracted capacity and consumption in 2007 and an increase in working capital items, primarily accrued expenses relating to construction costs, offset by an increase in accounts receivable in 2007.requirements.
Cash used in investing activities mainly comprises capital expenditures, which are generally funded by drawing on available credit facilities. Cash used in investing activities in 20072008 and 20082009 funded higher levels of growth capital expenditures for plant expansion and new customer interconnections, with 2007 amounts representing a significantconnections and plant expansion. A similar expansion of aanother downtown Chicago plant.plant resulted in higher cash used in investing activities in 2007, when compared to 2008.
We expectThe business expects to spend up to $1.0 million per year on capital expenditures relating to the replacement of parts, system reliability, customer service improvements and minor system modifications. Maintenance capital expenditures through 2012 will be funded from available debt facilities.facilities and cash from operating activities.
The following table summarizes growth capital expenditures committed by our district energy businessDistrict Energy as well as the gross profit and EBITDA expected to be generated by those expenditures. Of the $28.8$27.7 million total, approximately $13.3$24.1 million, or 46%87%, has been spent as of December 31, 2008.2009.
Capital Expenditure Cost ($ Millions) | Gross Profit/ EBITDA ($ Millions) | Expected Date | Capital Expenditure Cost ($ Millions) | Gross Profit/ EBITDA ($ Millions)(1) | Expected Date for Gross Profit/ EBITDA | |||||||||||||||||||
Chicago Plant and Distribution System Expansion | 7.7 | 7.7 | ||||||||||||||||||||||
New Chicago Customer Connections and Minor System Modifications | 7.4 | 6.6 | ||||||||||||||||||||||
15.1 | 5.3 | 2007 – 2011 | 14.3 | 4.9 | 2007 – 2012 | |||||||||||||||||||
Chicago Plant Renovation and Expansion | 11.0 | 1.3 | 2010 – 2011 | 10.7 | 1.3 | 2009 – 2011 | ||||||||||||||||||
Las Vegas System Expansion | 2.7 | 0.3 | 2010 | 2.7 | 0.3 | 2010 | ||||||||||||||||||
Total | 28.8 | 6.9 | 27.7 | 6.5 |
(1) | Represents projected increases in annualized EBITDA in the first year following completion of the project. |
New customers will typically reimburse usthe business for a substantial portion of expenditures related to connecting them to ourthe business’ system, thereby reducing the impact of this element of capital expenditure. In addition, new customers generally have up to two years after their initial service date to increase capacity up to their final contracted tons which may defer a small portion of the expected gross profit and EBITDA. We anticipateThe business anticipates that the expanded capacity sold to new or existing customers will be under contract or subject to letters of intent prior to usthe business committing to the capital expenditure. As of February 12, 2009, we haveJanuary 26, 2010, the business has signed contracts with twelveeleven new customers representing approximately 84%80% of expected additional gross profit and EBITDA relating to the Chicago projects in the table above.
Our agreement with customers of our Las Vegas operations requires us to provide services to additional buildings being constructed on the property as long as the service requirements do not cause the plant to exceed its capabilities.
We expectThe business expects to fund the capital expenditures for system expansion and interconnection primarily by drawing on available debt facilities.
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The following table sets forth information about capital expenditures in our district energy business:District Energy:
Maintenance | Growth | |||||||
2007 | $ | 906,000 | $ | 8.5 million | ||||
2008 | $ | 987,000 | $ | 4.4 million | ||||
2009 | $ | 875,000 | $ | 11.2 million | ||||
2010 projected | $ | 1.0 million | $ | 4.1 million | ||||
Commitments at December 31, 2009 | $ | 257,000 | $ | 2.9 million |
CashAt December 31, 2009, the outstanding balance on the business’ debt facilities consisted of $170.0 million in long-term loan facilities. The weighted average interest rate of the outstanding debt facilities including any interest rate swaps and fees associated with outstanding letters of credit at December 31, 2009 is 5.3%. For the year ended December 31, 2009, the business paid approximately $9.5 million in interest expense related to its debt facilities.
The increase in cash provided by financing activities is primarily driven by drawsdue to $18.5 million of borrowings on revolvingthe business’ credit facilities and refinancings. facility in 2009 to finance growth capital expenditures.
The change from 2007 to 2008 was primarily due to the 2007 refinancing in which $150.0 million of new long-term borrowing was used to repay outstanding senior notes of $120.0 million and an $11.6 million revolver facility ($9.0 million of which was drawn in 2007), partially offset by a make-whole payment of $14.7 million.
Material terms of the facility are presented below:
Borrower | Macquarie District Energy | |||||
Facilities | • $150.0 million | |||||
• $20.0 million | ||||||
• $18.5 million | ||||||
Amortization | Payable at maturity | |||||
Interest type | Floating | |||||
Interest rate and fees | • Interest rate: | |||||
• LIBOR plus 1.175% or | ||||||
• Base Rate (for capital expenditure loan and revolving | ||||||
• Commitment fee: 0.35% on the undrawn portion. | ||||||
Maturity | September, 2014; September, 2012 for the | |||||
Mandatory prepayment | • With net proceeds that exceed $1.0 million from the sale of assets not used for replacement assets; | |||||
• With insurance proceeds that exceed $1.0 million not used to repair, restore or replace assets; | ||||||
• In the event of a change of control; | ||||||
• In years 6 and 7, with 100% of excess cash flow applied to repay the term loan and capital expenditure loan facilities; |
• With net proceeds from equity and certain debt issuances; and | ||||||
• With net proceeds that exceed $1.0 million in a fiscal year from contract terminations that are not reinvested. | ||||||
Distribution covenant | Distributions permitted if the following conditions are met: | |||||
• Backward interest coverage ratio greater than 1.5x (at December 31, | ||||||
• Leverage ratio (funds from operations to net debt) for the previous 12 months equal to or greater than |
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• No termination, non-renewal or reduction in payment terms under the service agreement with the Planet Hollywood (formerly Aladdin) hotel, casino and the shopping mall, unless MDE meets certain financial conditions on a projected basis, including through prepayment; and | ||||||
• No default or event of default. | ||||||
Collateral | First lien on the following (with limited exceptions): | |||||
• Project revenues; | ||||||
• Equity of the Borrower and its subsidiaries; | ||||||
• Substantially all assets of the business; and | ||||||
• Insurance policies and claims or proceeds. |
The facility includes events of default, representations and warranties and other covenants that are customary for facilities of this type. A change of control will occur if the Macquarie Group, or any fund or entity managed by the Macquarie Group, fails to control a majority of MDE.
To hedge the interest commitments under the new term loan, the district energy businessDistrict Energy entered into interest rate swaps fixing 100% of the term loan at 5.074% (excluding the margin).
Year Ended December 31, | Change (from 2007 to 2008) Favorable/(Unfavorable) | Change (from 2006 to 2007) Favorable/(Unfavorable) | ||||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||
Cash (used in) provided by operating activities | (1,904 | ) | 3,051 | 7,386 | (4,955 | ) | (162.4 | ) | (4,335 | ) | (58.7 | ) | ||||||||||||||||
Cash used in investing activities(1) | (26,684 | ) | (5,157 | ) | (4,202 | ) | (21,527 | ) | NM | (955 | ) | (22.7 | ) | |||||||||||||||
Cash (used in) provided by financing activities(1) | (1,215 | ) | (3,072 | ) | 6,069 | 1,857 | 60.4 | (9,141 | ) | (150.6 | ) |
Year Ended December 31, | Change (From 2008 to 2009) Favorable/(Unfavorable) | Change (From 2007 to 2008) Favorable/(Unfavorable) | ||||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | $ | % | $ | % | |||||||||||||||||||||
Cash provided by operating activities | 50,930 | 73,128 | 85,323 | (22,198 | ) | (30.4 | ) | (12,195 | ) | (14.3 | ) | |||||||||||||||||
Cash used in investing activities | (10,817 | ) | (68,002 | ) | (704,259 | ) | 57,185 | 84.1 | 636,257 | 90.3 | ||||||||||||||||||
Cash (used in) provided by financing activities (1) | (76,736 | ) | 27,069 | 411,191 | (103,805 | ) | NM | (384,122 | ) | (93.4 | ) |
NM —- Not meaningful
(1) |
In response to the slowing of the overall economy and the recent decline in general aviation activity, we continue to reduce the indebtedness of Atlantic Aviation. In cooperation with the business’ lenders, the terms of the loan agreement were amended by Atlantic Aviation. The amendment was executed on February 25, 2009. The revised terms are outlined under “Financing Activities” below.
Operating cash at Atlantic Aviation is generated from sales transactions primarily paid by credit cards. Some customers are extended payment terms and billed accordingly. Cash is used in operating activities is primarily driven by customer receipts, timingmainly for payments to vendors of payments for rent, repairsfuel, aircraft services and maintenance, fuel for shuttle buses, and payroll and benefits. As discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above, our airport parking business has experienced declining operating performance in the second, third and fourth quarters of 2008. Prior to 2008, we had financed the liquidity needs of our airport parking business with its cash from operating activitiesprofessional services, as well as existing cash balances. However,payroll costs and payments to tax jurisdictions. Cash provided by operating activities decreased mainly due to:
Cash used in investing activities relates primarily to acquisitions and capital expenditures. The decrease in cash used in investing activity is primarily driven bydue to the SevenBar acquisition in March 2008 and lower capital expenditures by the business.
Maintenance expenditures are generally funded by cash from operating activities and payments for acquisitions. In the first quarter of 2008, we contributed $13.3 million cash to the business to facilitate thegrowth capital expenditures are generally funded with drawdowns on capital expenditure facilities.
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acquisition of property in Oakland. The property was previously leased by us and the purchase eliminated approximately $1.2 million of annual cash rent expense. In the third quarter of 2008, we contributed $11.4 million of cash to facilitate the acquisition of the self-park facility in Newark, NJ to strengthen our position in a historically robust market with additional lower priced self-park capacity. We expect the Newark facility to have a positive contribution to operations going forward.
Both purchases were funded through borrowings under the MIC Inc. revolving credit facility.
Maintenance capital projects include site improvementsexpenditures encompass repainting, replacing equipment as necessary and ITany ongoing environmental or required regulatory expenditure, such as installing safety equipment. Management has focused on improving the customer experience with upgrades to shuttle services, facilities and technology. We reduced our 2008 full yearThese expenditures are generally funded from cash flow from operating activities.
Growth capital expenditures are incurred primarily in connection with lease extensions and expectonly where the business expects to reduce our 2009 projectedreceive an appropriate return relative to its cost of capital. Historically these expenditures have included development of hangars, terminal buildings and ramp upgrades. The business has generally funded these projects through its growth capital expenditures further by increasingly deferring non-essential items in light of declining operating results and our negative outlook for commercial enplanements. A higher level of expenditures consistent with historical amounts would likely need to be incurred beginning in 2010 and beyond to maintain the long term performance of the business.expenditure facilities.
The following table sets forth information about capital expenditures in our airport parking business:Atlantic Aviation:
Maintenance | Growth | |||||||
2006 | $ | 4.2 million | — | |||||
2007 | $ | 4.2 million | $ | 0.9 million | ||||
2008(1) | $ | 2.2 million | — | |||||
2009 projected | $ | 622,000 | — | |||||
Commitments at December 31, 2008 | $ | 83,000 | — |
Maintenance | Growth | |||||||
2007 | $ | 8.6 million | $ | 19.0 million | ||||
2008 | $ | 7.7 million | $ | 26.8 million | ||||
2009 | $ | 4.5 million | $ | 6.3 million | ||||
2010 projected | $ | 7.6 million | $ | 1.8 million | ||||
Commitments at December 31, 2009 | $ | 24,000 | $ | 203,000 |
Growth capital expenditures declined in 2009 since various major projects were completed in 2008, these include the construction of a new hangar at the San Jose FBO and a ramp repair and extension at the Teterboro location that were completed in 2008. The business expects growth capital expenditures to be $1.8 million in 2010 and $4.5 million in 2011. This expected decrease in growth capital expenditures reflects the completion of all major projects undertaken last year as well as obligations under our various FBO lease agreements.
The decreases in maintenance capital expenditures were primarily due to the deferral of maintenance capital expenditures in response to the overall soft economy.
Cash usedAt December 31, 2009, the outstanding balance on the business’ debt facilities consisted of $818.4 million in financing activities comprised $1.5term loan facility borrowings, which is 100% hedged with interest rate swaps, and $44.9 million in capital expenditure facility borrowings. The weighted average interest rate of the outstanding debt facilities including any interest rate swaps at December 31, 2009 is 6.37%. In 2009, the business paid approximately $57.3 million in interest expense, excluding interest rate swap breakage fees, related to its debt facilities.
In addition, for the year ended December 31, 2009, cash interest expense included $8.8 million in interest rate swap breakage fees. The business expects to pay further interest rate swap breakage fees to its swap counterparties as it continues to pay down its term loan debt and reduce its corresponding interest rate swaps.
During the first quarter of 2009, the Company provided the business with a capital contribution of $50.0 million. The business paid down $44.6 million of debt and used the remainder of the capital lease payments, partially offset by a releasecontribution to pay interest rate swap breakage and debt amendment fees. In addition, during 2009 the business used $40.6 million of restricted cash. Cash used in 2007 comprised $1.7its excess cash flow to prepay $37.0 million payments of capital leases and an increase in the restricted cashoutstanding principal balance of $1.1 million.the term loan and $3.6 million in interest rate swap breakage fees.
MaterialIn February, 2010, Atlantic Aviation used $17.1 million of cash generated by Atlantic Aviation to repay $15.5 million of the outstanding principal balance of the term loan debt and $1.6 million of interest rate swap breakage fees. As a result of this prepayment, the leverage ratio would decrease to 7.82x based upon the trailing twelve months December 2009 EBITDA, as calculated under the facility. We expect to apply all excess cash flow from the business to prepay additional debt principal for the foreseeable future.
The decrease in cash provided by financing activities is primarily due to the debt prepayment made in 2009.
The financial covenant requirements under Atlantic Aviation’s credit facility, and the calculation of these measures at December 31, 2009, were as follows:
• | Debt Service Coverage Ratio >1.2x (default threshold). The ratio at December 31, 2009 was 1.85x. |
The terms of the credit facility areloan agreement of Atlantic Aviation have been revised in accordance with the amendment completed and effective on February 25, 2009. A comparative summary of key terms is presented below:below.
$ | ||
Amortization | Payable at maturity | |
Years 1 100% excess cash flow when Leverage Ratio is 6.0x or above 50% excess cash flow when Leverage Ratio is between 6.0x and 5.5x 100% of excess cash flow in years 6 and 7 (unchanged) | ||
Interest type | Floating | |
Interest rate and fees | Years 1 – | |
Base Rate (for revolving credit facility only): 0.725% above the greater of: (i) the prime rate or (ii) the federal funds rate plus 0.5% | ||
Maturity | October, 2014 | |
Mandatory prepayment | With net proceeds that exceed $1.0 million from the sale of assets not used for replacement assets; | |
With net proceeds of any debt other than permitted debt; | ||
With net insurance proceeds that exceed $1.0 million not used to repair, restore or replace assets; | ||
In the event of a change of control; | ||
Additional mandatory prepayment based on leverage grid (see distribution covenant below) | ||
With any FBO lease termination payments received; | ||
With excess cash flows in years 6 and 7. | ||
Financial covenants | Debt service coverage ratio >1.2x (at December 31, | |
2010: 8.00x 2013: 6.00x 2011: 7.50x 2014: 5.00x (unchanged) |
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Distribution covenant |
| |
| ||
No default; | ||
All mandatory prepayments have been made; | ||
Replaced by a test based on the Leverage Ratio: 100% of 50% of excess cash No distribution permitted when leverage ratio is 6.0x or above | ||
No revolving loans outstanding. | ||
Collateral | First lien on the following (with limited exceptions): | |
Project revenues; | ||
Equity of | ||
Insurance policies and claims or proceeds. | ||
Adjusted EBITDA definition | Excludes (i) all extraordinary or non-recurring non-cash income or losses during relevant the period (including losses resulting from write-off of goodwill or other assets); and (ii) any non-cash income or losses due to change in market value of the hedging agreements |
The agreement includes a provision restricting transfers that would result in a change of control, which may prohibit a transfer to a person who is not affiliated with the Macquarie Group.
The airport parking business has entered into an interest rate swap agreement for $195.0 million through the maturity of the loan on September 9, 2009. The airport parking business’ obligations under the interest rate swap have been guaranteed by MIC Inc.
On January 1, 2009, we had $4.3 million of outstanding debt that was scheduled to mature. We have requested an extension on this debt, are in discussion with the lender and anticipate that we will secure it. An additional $2.1 million of outstanding debt is also scheduled to mature on May 1, 2009. The $195.0 million credit facility matures on September 9, 2009 and we believe it is unlikely, absent a significant improvement in credit markets and improvement in the business’ operations or substantial concessions from lenders, that we will be able to refinance or repay this indebtedness prior to its maturity and we have classified all of this debt as current, due to uncertainty regarding the business’ ability to extend or refinance the facilities. In addition, the business is currently in default under the liquidity covenant in this facility and, based on the preliminary results for the first quarter of 2009, it is unlikely that the business will be in compliance with its other financial covenants as of March 31, 2009. In the event we are unable to obtain waivers, or are unable to restructure this indebtedness, the lenders may pursue certain remedies, including seeking to foreclose on collateral. In such event, we may be required to seek bankruptcy protection for the business or liquidate the business. We are in discussions with our lenders as discussed above but these discussions may not result in an acceptable solution.
The preparation of our financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. Our critical accounting estimates and policies are discussed below. These estimates and policies are consistent with the estimates and accounting policies followed by the businesses we own.
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 the airport services business, gas productionThe Gas Company, District Energy and distribution business, district energy business and airport parking businessAtlantic Aviation include contract rights, customer relationships, non-compete agreements, trademarks, domain names, property and equipment and goodwill.
Trademarks and domain names are generally considered to be indefinite life intangibles. Trademarks, domain names and goodwill are not amortized in most circumstances. It may be appropriate to amortize some
105
trademarks and domain names. However, for unamortized intangible assets, we are required to perform annual impairment reviews and more frequently in certain circumstances.
The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the
fair value of each reporting unit based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with the carrying values, which included the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit'sunit’s “implied fair value” of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. The airport services business, gas productionGas Company, District Energy and distribution business, district energy business and airport parking businessAtlantic Aviation are separate reporting units for purposes of this analysis. The impairment test for trademarks and domain names, which are not amortized, requires the determination of the fair value of such assets. If the fair value of the trademarks and domain names is less than their carrying value, an impairment loss is recognized in an amount equal to the difference. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and/or intangible assets. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or material negative change in relationship with significant customers.
Property and equipment is initially stated at cost. Depreciation on property and equipment is computed using the straight-line method over the estimated useful lives of the property and equipment after consideration of historical results and anticipated results based on our current plans. Our estimated useful lives represent the period the asset remains in service assuming normal routine maintenance. We review the estimated useful lives assigned to property and equipment when our business experience suggests that they do not properly reflect the consumption of economic benefits embodied in the property and equipment nor result in the appropriate matching of cost against revenue. Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses on asset disposals and consideration of market trends such as technological obsolescence or change in market demand.
Significant intangibles, including contract rights, customer relationships, non-compete agreements and technology are amortized using the straight-line method over the estimated useful lives of the intangible asset after consideration of historical results and anticipated results based on our current plans. With respect to contract rights in our airport services business,Atlantic Aviation, we take into consideration the history of contract right renewals in determining our assessment of useful life and the corresponding amortization period.
We perform impairment reviews of property and equipment and intangibles subject to amortization, when events or circumstances indicate that assets are less than their carrying amount and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In this circumstance, the impairment charge is determined based upon the amount of 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 when there is an indicator of impairment. Impairments of goodwill, property, equipment, land and leasehold improvements and intangible assets during 2009, 2008 and 2007 relating to our airport services business and airport parking business, respectively,Atlantic Aviation, are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in Part II, Item 7.
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Fuel revenue from our airport services business is recorded when fuel is provided or when services are rendered. Our airport services business also records hangar rental fees, which are recognized during the month for which service is provided.
Our gas production and distribution businessThe Gas Company recognizes revenue when the services are provided. Sales of gas to customers are billed on a monthly cycle basis. Most revenue is based upon consumption; however, certain revenue is based upon a flat rate.
Our district energy businessDistrict Energy recognizes revenue from cooling capacity and consumption at the time of performance of service. Cash received from customers for services to be provided in the future are recorded as unearned revenue and recognized over the expected services period on a straight-line basis.
Our airport parking business records parking lotTABLE OF CONTENTS
Fuel revenue asfrom Atlantic Aviation is recorded when fuel is provided or when services are performed, net of allowances and local taxes. Revenuerendered. Atlantic Aviation also records hangar rental fees, which are recognized during the month for services performed, but not collected aswhich service is provided.
We have in place variable-rate debt. Management believes that it is prudent to limit the variability of a reporting date,portion of its interest payments. To meet this objective, the Company enters into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk on a majority of its debt with a variable-rate component.
As of February 25, 2009 for Atlantic Aviation and effective April 1, 2009 for our other businesses, we elected to discontinue hedge accounting. From the dates that hedge accounting was discontinued, all movements in the fair value of the interest rate swaps are recorded based upondirectly through earnings. As a result of the estimated valuediscontinuance of uncollected parking revenue for customer vehicles at each location. Our airport parking business also offers various membership programs for which customers pay an annual membership fee. Such revenue is recognized ratablyhedge accounting, we will reclassify into earnings net derivative losses included in accumulated other comprehensive loss over the one-yearremaining life of the membership. Revenue from prepaid parking vouchers that can be redeemedexisting interest rate swaps.
Our derivative instruments are recorded on the balance sheet at fair value with changes in the future is recognized when such vouchers are redeemed.
With respect to our debt facilities, and the expected cash flows from our previously held non-U.S. investments, we entered into a seriesfair value of interest rate and foreign exchange derivativesswaps recorded directly through earnings. We measure derivative instruments at fair value using the income approach, which discounts the future net cash settlements expected under the derivative contracts to provide an economic hedge of our interest rate and foreign exchange exposure. We originally classified each hedge as a cash flow hedge at inception for accounting purposes. As discussed inpresent value. See Note 10, Derivative13, “Derivative Instruments and Hedging Activities,Activities” in our consolidated financial statements in 2006 we determined that none of our derivative instruments qualifiedPart II, Item 8, for hedge accounting. SFAS No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities”, as amended, requires that all derivative instruments be recorded on the balance sheet at their respective fair values and, for derivatives that do not qualify for hedge accounting, that changes in the fair value of the derivative be recognized in earnings. The determination of fair value of these instruments involves estimates and assumptions and actual value may differ from the fair value reflected in the financial statements. We commenced hedge accounting in January 2007 and have classified each interest rate derivative instrument as a cash flow hedge from this time. Changes in the value of the hedges, to the extent effective, will be recorded in other comprehensive income (loss). Changes in the value that represent the ineffective portion of the hedge will be recorded in earnings as a gain or loss. We did not have any foreign exchange derivatives at December 31, 2008.further discussion.
We account for income taxes using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
See Note 2, to Consolidated Financial Statements“Summary of Significant Accounting Policies” in our consolidated financial statements for a summary of the Company’s significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.
The discussion that follows describes our exposure to market risks and the use of derivatives to address those risks. See “Critical Accounting Estimates — Hedging” for a discussion of the related accounting.
We are exposed to interest rate risk in relation to the borrowings of our businesses. Our current policy is to enter into derivative financial instruments to fix variable rate interest payments covering at least half of the
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interest rate risk associated with the borrowings of our businesses, subject to the requirements of our lenders. As of December 31, 2008,2009, we have totalhad $1.2 billion of current and long-term debt outstanding atfor our consolidated businesses of $1.5continuing operations, $1.1 billion most of which incurs interest at floating rates, with only $6.3 million incurring a fixed rate of interest. Of the amount incurring interest at floating rates, $1.4 billion iswas economically hedged with interest rate swaps and $117.8$83.9 million isof which was unhedged.
As ofAt December 31, 2008, the outstanding balance on the MIC Inc. revolving credit facility was $69.0 million. A 1% increase in the interest rate on the MIC Inc. revolving credit facility would result in a $690,000 increase in the interest cost per year. A corresponding 1% decrease would result in a $690,000 decrease in interest cost per year.
As of December 31, 2008, the outstanding balance of the floating rate senior debt for our airport services business is $939.8 million. The senior debt of our airport service business is non-amortizing through October 2012. A 1% increase in the interest rate on the airport services business debt would result in a $9.4 million increase in the interest cost per year. A corresponding 1% decrease would result in a $9.4 million decrease in interest cost per year.
The exposure of the $900.0 million term loan portion of the senior debt to interest rate changes has been 100% hedged until October 2012 through the use of interest rate swaps. These hedging arrangements will offset any additional interest rate expense incurred as a result of increases in interest rates during that period. However, if interest rates decrease, the value of our hedge instruments will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the hedge instruments of $6.5 million. A corresponding 10% relative increase would result in a $6.5 million increase in the fair market value.
2009, IMTT at December 31, 2008, had two issues of New Jersey Economic Development Authority tax exempt revenue bonds outstanding with a total balance of $36.3 million where the interest rate is reset daily by tender. A 1% increase in interest rates on this tax exempt debt would result in a $363,000 increase in interest cost per year and a corresponding 1% decrease would result in a $363,000 decrease in interest cost per year. IMTT’s exposure to interest rate changes through this tax exempt debt has been hedged from October 2007 through November 2012 through the use of a $36.3 million face value 67% of LIBOR swap. As this interest rate swap is fixed against 67% of 30-day LIBOR and not the daily tax exempt tender rate, it does not result in a perfect hedge for short-term rates on tax exempt debt although it will largely offset any additional interest rate expense incurred as a result of increases in interest rates. If interest rates decrease, the fair market value of this interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $168,000$137,000 and a corresponding 10% relative increase would result in a $169,000$136,000 increase in the fair market value.
IMTT, atAt December 31, 2008,2009, IMTT had a $78.0$65.0 million floating rate term loan outstanding. A 1% increase in interest rates on the term loan would result in a $780,000$650,000 increase in interest cost per year. A corresponding 1% decrease would result in a $780,000$650,000 decrease in interest cost per year. IMTT’s exposure to interest rate changes through the term loan has been fully hedged through the use of an amortizing interest rate swap. These hedging arrangements will fully offset any additional interest rate expense incurred as a result of increases in interest rates. However, if interest rates decrease, the fair market value of the interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $441,000.$333,000. A corresponding 10% relative increase in interest rates would result in a $439,000$331,000 increase in the fair market value of the interest rate swap.
IMTT, atAt December 31, 20082009, IMTT had issued $215.0 million in Gulf Opportunity Zone Bonds (GO Zone Bonds) to fund qualified project costs at its St. Rose and Geismar storage facilities. The interest rate on the GO Zone Bonds is reset daily or weekly at IMTT’s option by tender. A 1% increase in interest rates on the outstanding GO Zone Bonds would result in a $2.2 million increase in interest cost per year and a corresponding 1% decrease would result in a $2.2 million decrease in interest cost per year. IMTT’s exposure
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to interest rate changes through the GO Zone Bonds has been largely hedged until June 2017 through the use of an interest rate swap which has a notional value that increases toof $215.0 million on January 1, 2009.million. As the interest rate swap is fixed against 67% of the 30-day LIBOR rate and not the tax exempt tender rate, it does not result in a perfect hedge for short-term rates on tax exempt debt although it will largely offset any additional interest rate expense incurred as a result of increases in interest rates. If interest rates decrease, the fair market value of the interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $420,000$171,000 and a corresponding 10% relative increase would result in a $425,000$170,000 increase in the fair market value.
On December 31, 2008,2009, IMTT had a total$230.1 million outstanding balance of $221.0 million under its U.S. revolving credit facility. A 1% increase in interest rates on this debt would result in a $2.2$2.3 million increase in interest cost per year and a corresponding 1% decrease would result in a $2.2$2.3 million decrease in interest cost per year. IMTT’s exposure to interest rate changes on its U.S. revolving credit facility has been partially hedged against 90-day LIBOR from October 2007 through March 2017 through the use of an interest rate swap which has a notional value of $90.0$115.0 million as atof December 31, 20082009 which increases to $200.0 million through December 31, 2012. If
interest rates decrease, the fair market value of the interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $3.4$3.7 million and a corresponding 10% relative increase would result in a $3.3$3.6 million increase in the fair market value.
On December 31, 2008,2009, IMTT had a total$20.8 million outstanding balance of $20.2 million under its Canadian revolving credit facility. A 1% increase in interest rates on this debt would result in a $202,000$208,000 increase in interest cost per year and a corresponding 1% decrease would result in a $202,000$208,000 decrease in interest cost per year.
On December 31, 2009, IMTT had $30.0 million outstanding under its Regions term loan facility. A 1% increase in interest rates on this debt would result in a $300,000 increase in interest cost per year and a corresponding 1% decrease would result in a $300,000 decrease in interest cost per year.
The senior term-debt for TGCThe Gas Company and HGC comprise two non-amortizing term facilities totaling $160.0 million and a senior secured revolving credit facility totaling $20.0 million. At December 31, 2008,2009, the entire $160.0 million in term debt and $9.0$19.0 million of the revolving credit line had been drawn. These variable rate facilities mature on June 7, 2013.
A 1% increase in the interest rate on TGCThe Gas Company and HGC'sHGC’s term debt would result in a $1.6 million increase in interest cost per year. A corresponding 1% decrease would result in a $1.6 million decrease in annual interest cost. TGCThe Gas Company and HGC'sHGC’s exposure to interest rate changes for the term facilities has, however, been fully hedged from September 1, 2006 until maturity through interest rate swaps. These derivative hedging arrangements will offset any interest rate increases or decreases during the term of the notes, resulting in stable interest rates of 5.24% for TGCThe Gas Company (rising to 5.34% in years 6 and 7 of the facility) and 5.44% for HGC (rising to 5.54% in years 6 and 7 of the facility). TGC's and HGC's swaps were entered into on August 17 and 18, 2005, but became effective on August 31, 2006. A 10% relative decrease in market interest rates from December 31, 20082009 levels would decrease the fair market value of the hedge instruments by $1.5$1.3 million. A corresponding 10% relative increase would increase their fair market value by $1.5$1.3 million.
The Gas Company also has a $20.0 million revolver of which $19.0 million was drawn at December 31, 2009. A 1% increase in the interest rate on The Gas Company’s revolver would result in a $190,000 increase in interest cost per year. A corresponding 1% decrease would result in a $190,000 decrease in annual interest cost.
The senior debt for our district energy business comprisesDistrict Energy has a $150.0 million floating rate term loan facility maturing in 2014. A 1% increase in the interest rate on the $150.0 million district energy businessDistrict Energy debt would result in a $1.5 million increase in the interest cost per year. A corresponding 1% decrease would result in a $1.5 million decrease in interest cost per year.
Our district energy business’District Energy’s exposure to interest rate changes through the senior debtterm loan facility has been fully hedged to maturity through the use of interest rate swaps. The $150.0 million facility is fully hedged until maturity. These hedging arrangements will offset any additional interest rate expense incurred as a result of increases in interest rates. However, if interest rates decrease, the value of District Energy’s hedge instruments will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the hedge instruments of $2.0 million. A corresponding 10% relative increase would result in a $2.0 million increase in the fair market value.
District Energy also has a $20.0 million capital expenditure loan facility which was fully drawn at December 31, 2009. A 1% increase in the interest rate on District Energy’s capital expenditure loan facility would result in a $200,000 increase in interest cost per year. A corresponding 1% decrease would result in a $200,000 decrease in annual interest cost.
As of December 31, 2009, the outstanding balance of the floating rate senior debt for Atlantic Aviation was $863.3 million. A 1% increase in the interest rate on Atlantic Aviation’s debt would result in an $8.6 million increase in the interest cost per year. A corresponding 1% decrease would result in an $8.6 million decrease in interest cost per year.
The exposure of the term loan portion of the senior debt (which at December 31, 2009 was $818.4 million) to interest rate changes has been 100% hedged until October 2012 through the use of interest rate swaps. These hedging arrangements will offset any additional interest rate expense incurred as a result of increases in interest rates during that period. However, if interest rates decrease, the value of our hedge instruments will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the hedge instruments of $1.9$3.8 million. A corresponding 10% relative increase would result in a $1.9$3.8 million increase in the fair market value.
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Our airport parking business has three senior debt facilities: a $195.0 million non-amortizing floating rate facility maturing in 2009 if the options to extend are not exercised, a partially amortizing $4.3 million fixed rate facility which matures in 2009 (management is currently negotiating the extension of this facility) and a partially amortizing $2.1 million fixed rated facility maturing in 2009. A 1% increase in the interest rate on the $195.0 million facility will increase the interest cost by $2.0 million per year. A 1% decrease in interest rates will result in a $2.0 million decrease in interest cost per year. Assuming a 9 month extension of the $4.3 million facility at the current terms, a 10% relative increase in interest rates will increase the fair market value by $15,000. A 10% relative decrease in interest rates will result in a $16,000 decrease in the fair market value. A 10% relative increase in interest rates will increase the fair market value of the $2.1 million facility by $3,000. A 10% relative decrease in interest rates will result in a $4,000 decrease in the fair market value. We have entered into an interest rate swap agreement for the $195.0 million through the maturity of the loan on September 9, 2009. The airport parking business’ obligations under the interest rate swap have been guaranteed by MIC Inc. A 10% relative decrease in market interest rates from December 31, 2008 levels would decrease the fair market value of the hedge instruments by $180,000. A corresponding 10% relative increase would increase their fair market value by $180,000.
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The Board of Directors and Stockholders
Macquarie Infrastructure Company LLC:
We have audited the accompanying consolidated balance sheets of Macquarie Infrastructure Company LLC and subsidiaries as of December 31, 20082009 and 2007,2008, and the related consolidated statements of operations, members'/stockholders'members’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2008.2009. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Macquarie Infrastructure Company LLC and subsidiaries as of December 31, 20082009 and 2007,2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008,2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Macquarie Infrastructure Company LLC'sLLC’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 200925, 2010 expressed an unqualified opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting.
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for noncontrolling interests due to the adoption of ASC 810-10Consolidation (formerly Statement on Financial Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51) in 2009.
/s/KPMG LLP
Dallas, Texas
February 26, 200925, 2010
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December 31, 2008 | December 31, 2007 | December 31, 2009 | December 31, 2008(1) | |||||||||||||
($ in thousands, except share data) | ($ in Thousands, Except Share Data) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 68,231 | $ | 57,473 | $ | 27,455 | $ | 66,054 | ||||||||
Restricted cash | 1,063 | 1,335 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $2,230 and $2,380, respectively | 62,240 | 94,541 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $1,629 and $2,141, respectively | 47,256 | 60,874 | ||||||||||||||
Dividends receivable | 7,000 | 7,000 | — | 7,000 | ||||||||||||
Other receivables | 132 | 445 | ||||||||||||||
Inventories | 15,968 | 18,219 | 14,305 | 15,968 | ||||||||||||
Prepaid expenses | 9,156 | 10,418 | 6,688 | 7,954 | ||||||||||||
Deferred income taxes | 3,774 | 9,330 | 23,323 | 21,960 | ||||||||||||
Land – available for sale | 11,931 | — | ||||||||||||||
Income tax receivable | 489 | — | — | 489 | ||||||||||||
Fair value of derivative instruments | — | 47 | ||||||||||||||
Other | 13,440 | 11,659 | 10,839 | 13,591 | ||||||||||||
Assets of discontinued operations held for sale | 86,695 | 105,725 | ||||||||||||||
Total current assets | 193,424 | 210,467 | 216,561 | 299,615 | ||||||||||||
Property, equipment, land and leasehold improvements, net | 673,981 | 674,952 | 580,087 | 592,435 | ||||||||||||
Restricted cash | 19,939 | 19,363 | 16,016 | 15,982 | ||||||||||||
Equipment lease receivables | 36,127 | 38,834 | 33,266 | 36,127 | ||||||||||||
Investment in unconsolidated business | 184,930 | 211,606 | 207,491 | 184,930 | ||||||||||||
Goodwill | 586,249 | 770,108 | 516,182 | 586,249 | ||||||||||||
Intangible assets, net | 812,184 | 857,345 | 751,081 | 811,973 | ||||||||||||
Deferred costs on acquisitions | — | 278 | ||||||||||||||
Deferred financing costs, net of accumulated amortization | 23,383 | 28,040 | 17,088 | 22,209 | ||||||||||||
Other | 4,033 | 2,036 | 1,449 | 2,916 | ||||||||||||
Total assets | $ | 2,534,250 | $ | 2,813,029 | $ | 2,339,221 | $ | 2,552,436 | ||||||||
LIABILITIES AND MEMBERS’/STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Due to manager – related party | $ | 3,521 | $ | 5,737 | $ | 1,977 | $ | 3,521 | ||||||||
Accounts payable | 47,886 | 59,303 | 44,575 | 45,565 | ||||||||||||
Accrued expenses | 29,448 | 31,184 | 17,432 | 23,189 | ||||||||||||
Current portion of notes payable and capital leases | 2,724 | 5,094 | 235 | 1,914 | ||||||||||||
Current portion of long-term debt | 201,344 | 162 | 45,900 | — | ||||||||||||
Fair value of derivative instruments | 51,441 | 14,224 | 49,573 | 45,464 | ||||||||||||
Customer deposits | 5,457 | 9,481 | 5,617 | 5,457 | ||||||||||||
Other | 10,785 | 8,330 | 9,338 | 10,201 | ||||||||||||
Liabilities of discontinued operations held for sale | 220,549 | 224,888 | ||||||||||||||
Total current liabilities | 352,606 | 133,515 | 395,196 | 360,199 | ||||||||||||
Notes payable and capital leases, net of current portion | 2,274 | 2,964 | 1,498 | 1,622 | ||||||||||||
Long-term debt, net of current portion | 1,327,800 | 1,426,494 | 1,166,379 | 1,327,800 | ||||||||||||
Deferred income taxes | 65,042 | 202,683 | 107,840 | 83,228 | ||||||||||||
Fair value of derivative instruments | 105,970 | 42,832 | 54,794 | 105,970 | ||||||||||||
Other | 46,297 | 30,817 | 38,746 | 39,356 | ||||||||||||
Total liabilities | 1,899,989 | 1,839,305 | 1,764,453 | 1,918,175 | ||||||||||||
Minority interests | 5,423 | 7,172 | ||||||||||||||
Members’/stockholders' equity: | ||||||||||||||||
LLC interests, no par value; 500,000,000 authorized; 44,948,694 LLC interests issued and outstanding at December 31, 2008 and 44,938,380 LLC interests issued and outstanding at December 31, 2007 | 956,956 | 1,052,062 | ||||||||||||||
Commitments and contingencies | — | — | ||||||||||||||
Members’ equity: | ||||||||||||||||
LLC interests, no par value; 500,000,000 authorized; 45,292,913 LLC interests issued and outstanding at December 31, 2009 and 44,948,694 LLC interests issued and outstanding at December 31, 2008 | 959,897 | 956,956 | ||||||||||||||
Additional paid in capital | 21,956 | — | ||||||||||||||
Accumulated other comprehensive loss | (97,190 | ) | (33,055 | ) | (43,232 | ) | (97,190 | ) | ||||||||
Accumulated deficit | (230,928 | ) | (52,455 | ) | (360,095 | ) | (230,928 | ) | ||||||||
Total members’/stockholders’ equity | 628,838 | 966,552 | ||||||||||||||
Total liabilities and members’/stockholders’ equity | $ | 2,534,250 | $ | 2,813,029 | ||||||||||||
Total members’ equity | 578,526 | 628,838 | ||||||||||||||
Noncontrolling interests | (3,758 | ) | 5,423 | |||||||||||||
Total equity | 574,768 | 634,261 | ||||||||||||||
Total liabilities and equity | $ | 2,339,221 | $ | 2,552,436 |
(1) | Reclassified to conform to current period presentation. |
See accompanying notes to the consolidated financial statements.
F-1
Year Ended December 31, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2006 | Year Ended December 31, 2009 | Year Ended December 31, 2008(1) | Year Ended December 31, 2007(1) | |||||||||||||||||||||||
($ in thousands, except share and per share data) | ($ in Thousands, Except Share and Per Share Data) | |||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||
Revenue from product sales | $ | 586,054 | $ | 445,852 | $ | 262,432 | $ | 394,200 | $ | 586,054 | $ | 445,852 | ||||||||||||||||
Revenue from product sales – utility | 121,770 | 95,770 | 50,866 | 95,769 | 121,770 | 95,770 | ||||||||||||||||||||||
Service revenue | 339,543 | 284,860 | 201,835 | 215,349 | 264,851 | 207,680 | ||||||||||||||||||||||
Financing and equipment lease income | 4,686 | 4,912 | 5,118 | 4,758 | 4,686 | 4,912 | ||||||||||||||||||||||
Total revenue | 1,052,053 | 831,394 | 520,251 | 710,076 | 977,361 | 754,214 | ||||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||||
Cost of product sales | 406,997 | 302,283 | 192,399 | 231,139 | 406,997 | 302,283 | ||||||||||||||||||||||
Cost of product sales – utility | 103,216 | 64,371 | 14,403 | 71,252 | 103,216 | 64,371 | ||||||||||||||||||||||
Cost of services | 143,294 | 113,203 | 92,542 | 46,317 | 63,850 | 53,387 | ||||||||||||||||||||||
Selling, general and administrative | 242,373 | 193,887 | 120,252 | 214,865 | 231,273 | 185,370 | ||||||||||||||||||||||
Fees to manager – related party | 12,568 | 65,639 | 18,631 | 4,846 | 12,568 | 65,639 | ||||||||||||||||||||||
Goodwill impairment | 190,751 | — | — | 71,200 | 52,000 | — | ||||||||||||||||||||||
Depreciation | 40,140 | 20,502 | 12,102 | 36,813 | 40,140 | 20,502 | ||||||||||||||||||||||
Amortization of intangibles | 72,352 | 35,258 | 43,846 | 60,892 | 61,874 | 32,356 | ||||||||||||||||||||||
Total operating expenses | 1,211,691 | 795,143 | 494,175 | 737,324 | 971,918 | 723,908 | ||||||||||||||||||||||
Operating (loss) income | (159,638 | ) | 36,251 | 26,076 | (27,248 | ) | 5,443 | 30,306 | ||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||
Dividend income | — | — | 8,395 | |||||||||||||||||||||||||
Interest income | 1,207 | 5,963 | 4,887 | 119 | 1,090 | 5,705 | ||||||||||||||||||||||
Interest expense | (104,095 | ) | (81,653 | ) | (77,746 | ) | (91,154 | ) | (88,652 | ) | (65,356 | ) | ||||||||||||||||
Loss on extinguishment of debt | — | (27,512 | ) | — | — | — | (27,512 | ) | ||||||||||||||||||||
Equity in earnings (losses) and amortization charges of investees | 1,324 | (32 | ) | 12,558 | ||||||||||||||||||||||||
Equity in earnings (losses) and amortization charges of investee | 22,561 | 1,324 | (32 | ) | ||||||||||||||||||||||||
Loss on derivative instruments | (2,597 | ) | (1,220 | ) | (1,373 | ) | (29,540 | ) | (2,843 | ) | (1,362 | ) | ||||||||||||||||
Gain on sale of equity investment | — | — | 3,412 | |||||||||||||||||||||||||
Gain on sale of investment | — | — | 49,933 | |||||||||||||||||||||||||
Gain on sale of marketable securities | — | — | 6,738 | |||||||||||||||||||||||||
Other income (expense), net | 38 | (815 | ) | 594 | 760 | (19 | ) | (1,088 | ) | |||||||||||||||||||
Net (loss) income before income taxes and minority interests | (263,761 | ) | (69,018 | ) | 33,474 | |||||||||||||||||||||||
Net loss from continuing operations before income taxes and noncontrolling interests | (124,502 | ) | (83,657 | ) | (59,339 | ) | ||||||||||||||||||||||
Benefit for income taxes | 84,120 | 16,483 | 16,421 | 15,818 | 14,061 | 16,764 | ||||||||||||||||||||||
Net (loss) income before minority interests | (179,641 | ) | (52,535 | ) | 49,895 | |||||||||||||||||||||||
Minority interests | (1,168 | ) | (481 | ) | (23 | ) | ||||||||||||||||||||||
Net (loss) income | $ | (178,473 | ) | $ | (52,054 | ) | $ | 49,918 | ||||||||||||||||||||
Basic (loss) earnings per share: | $ | (3.97 | ) | $ | (1.27 | ) | $ | 1.73 | ||||||||||||||||||||
Weighted average number of shares outstanding: basic | 44,944,326 | 40,882,067 | 28,895,522 | |||||||||||||||||||||||||
Diluted (loss) earnings per share: | $ | (3.97 | ) | $ | (1.27 | ) | $ | 1.73 | ||||||||||||||||||||
Weighted average number of shares outstanding: diluted | 44,944,326 | 40,882,067 | 28,912,346 | |||||||||||||||||||||||||
Net loss from continuing operations before noncontrolling interests | (108,684 | ) | (69,596 | ) | (42,575 | ) | ||||||||||||||||||||||
Net income attributable to noncontrolling interests | 486 | 585 | 554 | |||||||||||||||||||||||||
Net loss from continuing operations | $ | (109,170 | ) | $ | (70,181 | ) | $ | (43,129 | ) | |||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||||||
Net loss from discontinued operations before income taxes and noncontrolling interests | (23,647 | ) | (180,104 | ) | (9,679 | ) | ||||||||||||||||||||||
Benefit (provision) for income taxes | 1,787 | 70,059 | (281 | ) | ||||||||||||||||||||||||
Net loss from discontinued operations before noncontrolling interests | (21,860 | ) | (110,045 | ) | (9,960 | ) | ||||||||||||||||||||||
Net loss attributable to noncontrolling interests | (1,863 | ) | (1,753 | ) | (1,035 | ) | ||||||||||||||||||||||
Net loss from discontinued operations | $ | (19,997 | ) | $ | (108,292 | ) | $ | (8,925 | ) | |||||||||||||||||||
Net loss | $ | (129,167 | ) | $ | (178,473 | ) | $ | (52,054 | ) | |||||||||||||||||||
Basic and diluted loss per share from continuing operations | $ | (2.43 | ) | $ | (1.56 | ) | $ | (1.05 | ) | |||||||||||||||||||
Basic and diluted loss per share from discontinued operations | (0.44 | ) | (2.41 | ) | (0.22 | ) | ||||||||||||||||||||||
Basic and diluted loss per share | $ | (2.87 | ) | $ | (3.97 | ) | $ | (1.27 | ) | |||||||||||||||||||
Weighted average number of shares outstanding: basic and diluted | 45,020,085 | 44,944,326 | 40,882,067 | |||||||||||||||||||||||||
Cash distributions declared per share | $ | 2.125 | $ | 2.385 | $ | 2.075 | $ | — | $ | 2.125 | $ | 2.385 |
(1) | Reclassified to conform to current period presentation. |
See accompanying notes to the consolidated financial statements.
F-2
Trust Stock and LLC Interests | Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Total Members’/ Stockholders’ Equity | |||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||
($ in thousands, except share and per share data) | ||||||||||||||||||||
Balance at December 31, 2005 | 27,050,745 | $ | 583,023 | $ | (2,392 | ) | $ | (12,966 | ) | $ | 567,665 | |||||||||
Issuance of trust stock, net of offering costs | 10,350,000 | 291,104 | — | — | 291,104 | |||||||||||||||
Issuance of trust stock to manager | 145,547 | 4,134 | — | — | 4,134 | |||||||||||||||
Issuance of trust stock to independent directors | 15,873 | 450 | — | — | 450 | |||||||||||||||
Distributions to trust stockholders (comprising $0.50 per share paid on 27,050,745 and 27,066,618 shares, $0.525 per share paid on 27,212,165 shares and $0.55 per share paid on 37,562,165 shares) | — | (14,478 | ) | (47,526 | ) | — | (62,004 | ) | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Net income for the year ended December 31, 2006 | — | — | 49,918 | — | 49,918 | |||||||||||||||
Translation adjustment | — | — | — | 13,597 | 13,597 | |||||||||||||||
Translation adjustment reversed upon sale of foreign investments | — | — | — | 1,708 | 1,708 | |||||||||||||||
Change in fair value of derivatives, net of taxes of $832 | — | — | — | 1,462 | 1,462 | |||||||||||||||
Change in fair value of derivatives reversed upon sale of foreign investments | — | — | — | (1,927 | ) | (1,927 | ) | |||||||||||||
Unrealized gain on marketable securities | — | — | — | 7,416 | 7,416 | |||||||||||||||
Realized gain on marketable securities | — | — | — | (9,285 | ) | (9,285 | ) | |||||||||||||
Change in post-retirement benefit plans, net of taxes of $118 | — | — | — | 187 | 187 | |||||||||||||||
Total comprehensive income for the year ended December 31, 2006 | 63,076 | |||||||||||||||||||
Balance at December 31, 2006 | 37,562,165 | $ | 864,233 | $ | — | $ | 192 | $ | 864,425 | |||||||||||
Issuance of LLC interests, net of offering costs | 6,165,871 | 241,330 | — | — | 241,330 | |||||||||||||||
Issuance of LLC interests to manager | 1,193,475 | 43,962 | — | — | 43,962 | |||||||||||||||
Issuance of LLC interests to independent directors | 16,869 | 450 | — | — | 450 | |||||||||||||||
Distributions to trust stockholders and holders of LLC interests (comprising $0.57 per share paid on 37,562,165 shares, $0.59 per share paid on 37,562,165 shares, $0.605 per share paid on 43,766,877 shares and $0.62 per share paid on 44,938,380 shares) | — | (97,913 | ) | — | — | (97,913 | ) | |||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Net loss for the year ended December 31, 2007 | — | — | (52,054 | ) | — | (52,054 | ) | |||||||||||||
Retained earnings adjustment relating to income taxes (FIN 48) | — | — | (401 | ) | — | (401 | ) | |||||||||||||
Change in fair value of derivatives, net of taxes of $21,702 | — | — | — | (30,731 | ) | (30,731 | ) | |||||||||||||
Reclassification of realized gains and losses of derivatives into earnings, net of taxes of $1,905 | — | — | — | (2,855 | ) | (2,855 | ) | |||||||||||||
Change in post-retirement benefit plans, net of taxes of $218 | — | — | — | 339 | 339 | |||||||||||||||
Total comprehensive loss for the year ended December 31, 2007 | (85,702) |
Macquarie Infrastructure Company LLC Member’s Equity | ||||||||||||||||||||||||||||||||
Trust stock and LLC interests | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Members’ Equity | Noncontrolling Interests(1) | Total Equity | ||||||||||||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||||||||||||||
($ in Thousands, Except Share and Per Share Data) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2006 | 37,562,165 | $ | 864,233 | $ | — | $ | — | $ | 192 | $ | 864,425 | $ | 8,181 | $ | 872,606 | |||||||||||||||||
Issuance of LLC interests, net of offering costs | 6,165,871 | 241,330 | — | — | — | 241,330 | — | 241,330 | ||||||||||||||||||||||||
Issuance of LLC interests to manager | 1,193,475 | 43,962 | — | — | — | 43,962 | — | 43,962 | ||||||||||||||||||||||||
Issuance of LLC interests to independent directors | 16,869 | 450 | — | — | — | 450 | — | 450 | ||||||||||||||||||||||||
Distributions to holders of LLC interests (comprising $0.57 per share paid on 37,562,165 shares, $0.59 per share paid on 37,562,165 shares, $0.605 per share paid on 43,766,877 shares and $0.62 per share paid on 44,938,380 shares) | — | (97,913 | ) | — | — | — | (97,913 | ) | — | (97,913 | ) | |||||||||||||||||||||
Distributions to noncontrolling interest members | — | — | — | — | — | — | (528 | ) | (528 | ) | ||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||
Net loss for the year ended December 31, 2007 | — | — | — | (52,054 | ) | — | (52,054 | ) | (481 | ) | (52,535 | ) | ||||||||||||||||||||
Retained earnings adjustment relating to income taxes (FIN 48) | — | — | — | (401 | ) | — | (401 | ) | — | (401 | ) | |||||||||||||||||||||
Change in fair value of derivatives, net of taxes of $21,702 | — | — | — | — | (30,731 | ) | (30,731 | ) | — | (30,731 | ) | |||||||||||||||||||||
Reclassification of realized gains of derivatives into earnings, net of taxes of $1,905 | — | — | — | — | (2,855 | ) | (2,855 | ) | — | (2,855 | ) | |||||||||||||||||||||
Change in post-retirement benefit plans, net of taxes of $218 | — | — | — | — | 339 | 339 | — | 339 | ||||||||||||||||||||||||
Total comprehensive loss for the year ended December 31, 2007 | �� | (85,702 | ) | (481 | ) | (86,183 | ) | |||||||||||||||||||||||||
Balance at December 31, 2007 | 44,938,380 | $ | 1,052,062 | $ | — | $ | (52,455 | ) | $ | (33,055 | ) | $ | 966,552 | $ | 7,172 | $ | 973,724 | |||||||||||||||
Offering costs related to prior period issuance of LLC interests | — | (47 | ) | — | — | — | (47 | ) | — | (47 | ) | |||||||||||||||||||||
Issuance of LLC interests to independent directors | 10,314 | 450 | — | — | — | 450 | — | 450 | ||||||||||||||||||||||||
Distributions to holders of LLC interests (comprising $0.635 per share paid on 44,938,380 shares, $0.645 per share paid on 44,948,694 shares, $0.645 per share paid on 44,948,694 shares and $0.20 per share paid on 44,948,694 shares) | — | (95,509 | ) | — | — | — | (95,509 | ) | — | (95,509 | ) | |||||||||||||||||||||
Distributions to noncontrolling interest members | — | — | — | — | — | — | (481 | ) | (481 | ) | ||||||||||||||||||||||
Purchase of subsidiary interest from noncontrolling interest | — | — | — | — | — | — | (100 | ) | (100 | ) | ||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||
Net loss for the year ended December 31, 2008 | — | — | — | (178,473 | ) | — | (178,473 | ) | (1,168 | ) | (179,641 | ) | ||||||||||||||||||||
Translation adjustment | — | — | — | — | (4 | ) | (4 | ) | — | (4 | ) |
See accompanying notes to the consolidated financial statements.
F-3
Trust Stock and LLC Interests | Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Total Members’/ Stockholders’ Equity | |||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||
($ in thousands, except share and per share data) | ||||||||||||||||||||
Balance at December 31, 2007 | 44,938,380 | $ | 1,052,062 | $ | (52,455 | ) | $ | (33,055 | ) | $ | 966,552 | |||||||||
Offering costs related to prior period issuance of LLC interests | — | (47 | ) | — | — | (47 | ) | |||||||||||||
Issuance of LLC interests to independent directors | 10,314 | 450 | — | — | 450 | |||||||||||||||
Distributions to holders of LLC interests (comprising $0.635 per share paid on 44,938,380 shares, $0.645 per share paid on 44,948,694 shares, $0.645 per share paid on 44,948,694 shares and $0.20 per share paid on 44,948,694 shares) | — | (95,509 | ) | — | — | (95,509 | ) | |||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Net loss for the year ended December 31, 2008 | — | — | (178,473 | ) | — | (178,473 | ) | |||||||||||||
Translation adjustment | — | — | — | (4 | ) | (4 | ) | |||||||||||||
Change in fair value of derivatives, net of taxes of $49,188 | — | — | — | (74,267 | ) | (74,267 | ) | |||||||||||||
Reclassification of realized gains and losses of derivatives into earnings, net of taxes of $10,255 | — | — | — | 15,639 | 15,639 | |||||||||||||||
Unrealized loss on marketable securities | — | — | — | (1 | ) | (1 | ) | |||||||||||||
Change in post-retirement benefit plans, net of taxes of $3,539 | — | — | — | (5,502 | ) | (5,502 | ) | |||||||||||||
Total comprehensive loss for the year ended December 31, 2008 | (242,608 | ) | ||||||||||||||||||
Balance at December 31, 2008 | 44,948,694 | $ | 956,956 | $ | (230,928 | ) | $ | (97,190 | ) | $ | 628,838 |
Macquarie Infrastructure Company LLC Member’s Equity | ||||||||||||||||||||||||||||||||
Trust stock and LLC interests | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Members’ Equity | Noncontrolling Interests(1) | Total Equity | ||||||||||||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||||||||||||||
($ in Thousands, Except Share and Per Share Data) | ||||||||||||||||||||||||||||||||
Change in fair value of derivatives, net of taxes of $49,188 | — | — | — | — | (74,267 | ) | (74,267 | ) | — | (74,267 | ) | |||||||||||||||||||||
Reclassification of realized losses of derivatives into earnings, net of taxes of $10,255 | — | — | — | — | 15,639 | 15,639 | — | 15,639 | ||||||||||||||||||||||||
Unrealized loss on marketable securities | — | — | — | — | (1 | ) | (1 | ) | — | (1 | ) | |||||||||||||||||||||
Change in post-retirement benefit plans, net of taxes of $3,539 | — | — | — | — | (5,502 | ) | (5,502 | ) | — | (5,502 | ) | |||||||||||||||||||||
Total comprehensive loss for the year ended December 31, 2008 | (242,608 | ) | (1,168 | ) | (243,776 | ) | ||||||||||||||||||||||||||
Balance at December 31, 2008 | 44,948,694 | $ | 956,956 | $ | — | $ | (230,928 | ) | $ | (97,190 | ) | $ | 628,838 | $ | 5,423 | $ | 634,261 | |||||||||||||||
Issuance of LLC interests to manager | 330,104 | 2,491 | — | — | — | 2,491 | — | 2,491 | ||||||||||||||||||||||||
Issuance of LLC interests to independent directors | 14,115 | 450 | — | — | — | 450 | — | 450 | ||||||||||||||||||||||||
Distributions to noncontrolling interest members | — | — | — | — | — | — | (583 | ) | (583 | ) | ||||||||||||||||||||||
Sale of subsidiary interest to noncontrolling interest | — | — | 21,956 | — | 4,685 | 26,641 | (7,352 | ) | 19,289 | |||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||
Net loss for the year ended December 31, 2009 | — | — | — | (129,167 | ) | — | (129,167 | ) | (1,377 | ) | (130,544 | ) | ||||||||||||||||||||
Change in fair value of derivatives, net of taxes of $1,050 | — | — | — | — | 1,498 | 1,498 | — | 1,498 | ||||||||||||||||||||||||
Reclassification of realized losses of derivatives into earnings, net of taxes of $31,885 | — | — | — | — | 47,857 | 47,857 | 131 | 47,988 | ||||||||||||||||||||||||
Change in post-retirement benefit plans, net of taxes of $53 | — | — | — | — | (82 | ) | (82 | ) | — | (82 | ) | |||||||||||||||||||||
Total comprehensive loss for the year ended December 31, 2009 | (79,894 | ) | (1,246 | ) | (81,140 | ) | ||||||||||||||||||||||||||
Balance at December 31, 2009 | 45,292,913 | $ | 959,897 | $ | 21,956 | $ | (360,095 | ) | $ | (43,232 | ) | $ | 578,526 | $ | (3,758 | ) | $ | 574,768 |
(1) | Reclassified to conform to current period presentation. |
See accompanying notes to the consolidated financial statements.
F-4
Year Ended December 31, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2006 | Year Ended December 31, 2009 | Year Ended December 31, 2008(1) | Year Ended December 31, 2007(1) | |||||||||||||||||||||
($ in thousands) | ($ In Thousands) | |||||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||
Net (loss) income | $ | (178,473 | ) | $ | (52,054 | ) | $ | 49,918 | ||||||||||||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||||||||||||||||
Net loss | $ | (129,167 | ) | $ | (178,473 | ) | $ | (52,054 | ) | |||||||||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||||||||
Net loss from discontinued operations | 19,997 | 108,292 | 8,925 | |||||||||||||||||||||||
Non-cash goodwill impairment | 190,751 | — | — | 71,200 | 52,000 | — | ||||||||||||||||||||
Depreciation and amortization of property and equipment | 70,236 | 31,515 | 21,366 | 42,899 | 45,953 | 26,294 | ||||||||||||||||||||
Amortization of intangible assets | 72,352 | 35,258 | 43,846 | 60,892 | 61,874 | 32,356 | ||||||||||||||||||||
Equity in (earnings) losses and amortization charges of investees | (1,324 | ) | 32 | (12,558 | ) | (22,561 | ) | (1,324 | ) | 32 | ||||||||||||||||
Equity distributions from investees | 1,324 | — | 8,265 | 7,000 | 1,324 | — | ||||||||||||||||||||
Gain on sale of equity investment | — | — | (3,412 | ) | ||||||||||||||||||||||
Gain on sale of investments | — | — | (49,933 | ) | ||||||||||||||||||||||
Gain on sale of marketable securities | — | — | (6,738 | ) | ||||||||||||||||||||||
Amortization of debt financing costs | 6,532 | 6,202 | 6,178 | 5,121 | 4,762 | 4,429 | ||||||||||||||||||||
Non-cash derivative loss (gain), net of non-cash interest expense (income) | 2,843 | (2,563 | ) | 5,879 | 29,540 | 2,843 | (2,693 | ) | ||||||||||||||||||
Performance fees settled in trust stock and LLC interests | — | 43,962 | 4,134 | |||||||||||||||||||||||
Base management and performance fees settled/to be settled in LLC interests | 4,384 | — | 43,962 | |||||||||||||||||||||||
Equipment lease receivable, net | 2,372 | 2,531 | 1,880 | 2,610 | 2,372 | 2,531 | ||||||||||||||||||||
Deferred rent | 2,020 | 2,466 | 2,475 | 183 | 183 | 178 | ||||||||||||||||||||
Deferred taxes | (86,096 | ) | (22,255 | ) | (14,725 | ) | (17,923 | ) | (16,037 | ) | (22,536 | ) | ||||||||||||||
Other non-cash expenses, net | 2,412 | 2,940 | 1,814 | 2,601 | 4,700 | 4,243 | ||||||||||||||||||||
Non-operating losses relating to foreign investments | — | 3,437 | — | — | — | 3,437 | ||||||||||||||||||||
Loss on extinguishment of debt | — | 27,512 | — | — | — | 27,512 | ||||||||||||||||||||
Accrued interest expense on subordinated debt – related party | — | — | 1,087 | |||||||||||||||||||||||
Accrued interest income on subordinated debt – related party | — | — | (430 | ) | ||||||||||||||||||||||
Changes in other assets and liabilities, net of acquisitions: | ||||||||||||||||||||||||||
Restricted cash | 272 | (119 | ) | 4,216 | — | — | 264 | |||||||||||||||||||
Accounts receivable | 16,946 | (12,263 | ) | (5,330 | ) | 13,020 | 16,392 | (12,244 | ) | |||||||||||||||||
Dividend receivable | — | — | 2,356 | |||||||||||||||||||||||
Inventories | 2,698 | (3,291 | ) | 352 | 1,233 | 2,698 | (3,291 | ) | ||||||||||||||||||
Prepaid expenses and other current assets | 6,670 | 675 | (4,601 | ) | 3,086 | 6,928 | 605 | |||||||||||||||||||
Due to manager – related party | (2,216 | ) | 1,453 | 1,647 | (3,438 | ) | (2,216 | ) | 1,453 | |||||||||||||||||
Accounts payable and accrued expenses | (16,197 | ) | 23,814 | (9,954 | ) | (4,670 | ) | (17,132 | ) | 22,923 | ||||||||||||||||
Income taxes payable | (1,135 | ) | 5,006 | (3,213 | ) | 535 | (1,108 | ) | 4,981 | |||||||||||||||||
Other, net | 1,688 | 2,292 | 1,846 | (3,566 | ) | 1,548 | 2,192 | |||||||||||||||||||
Net cash provided by operating activities | 93,675 | 96,550 | 46,365 | |||||||||||||||||||||||
Net cash provided by operating activities from continuing operations | 82,976 | 95,579 | 93,499 | |||||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||
Acquisitions of businesses and investments, net of cash acquired | (53,274 | ) | (704,171 | ) | (845,085 | ) | — | (41,804 | ) | (704,171 | ) | |||||||||||||||
Deferred costs on acquisitions | — | (18 | ) | (279 | ) | |||||||||||||||||||||
Costs of dispositions | — | (322 | ) | — | ||||||||||||||||||||||
Proceeds from sale of equity investment | — | 84,904 | — | — | — | 84,904 | ||||||||||||||||||||
Proceeds from sale of investment | 7,557 | 160 | 89,519 | 29,500 | 7,557 | 160 | ||||||||||||||||||||
Proceeds from sale of marketable securities | — | — | 76,737 | |||||||||||||||||||||||
Settlements of non-hedging derivative instruments | — | (2,530 | ) | — | — | — | (2,530 | ) | ||||||||||||||||||
Purchases of property and equipment | (30,320 | ) | (49,560 | ) | (45,721 | ) | ||||||||||||||||||||
Return of investment in unconsolidated business | — | 26,676 | 28,000 | |||||||||||||||||||||||
Other | 304 | 415 | 505 | |||||||||||||||||||||||
Net cash used in investing activities from continuing operations | (516 | ) | (56,716 | ) | (638,853 | ) |
See accompanying notes to the consolidated financial statements.
F-5
Year Ended December 31, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2006 | ||||||||||
($ in thousands) | ||||||||||||
Purchases of property and equipment | (64,774 | ) | (50,877 | ) | (18,409 | ) | ||||||
Return of investment in unconsolidated business | 26,676 | 28,000 | 10,471 | |||||||||
Proceeds received on subordinated loan – related party | — | — | 850 | |||||||||
Other | 415 | 844 | — | |||||||||
Net cash used in investing activities | (83,400 | ) | (644,010 | ) | (686,196 | ) | ||||||
Financing activities | ||||||||||||
Proceeds from issuance of trust stock and LLC interests | — | 252,739 | 305,325 | |||||||||
Proceeds from long-term debt | 5,000 | 1,356,625 | 537,000 | |||||||||
Proceeds from line-credit facility | 96,150 | 11,560 | 455,957 | |||||||||
Offering and equity raise costs | (65 | ) | (11,392 | ) | (14,220 | ) | ||||||
Distributions paid to trust stockholders and holders of LLC interests | (95,509 | ) | (97,913 | ) | (62,004 | ) | ||||||
Distributions paid to minority shareholders | (481 | ) | (528 | ) | (736 | ) | ||||||
Payment of long-term debt | (162 | ) | (904,654 | ) | (638,356 | ) | ||||||
Debt financing costs | (1,879 | ) | (26,247 | ) | (14,217 | ) | ||||||
Make-whole payment on debt refinancing | — | (14,695 | ) | — | ||||||||
Restricted cash | (576 | ) | 4,303 | (4,228 | ) | |||||||
Payment of notes and capital lease obligations | (1,995 | ) | (2,252 | ) | (2,193 | ) | ||||||
Net cash provided by financing activities | 483 | 567,546 | 562,328 | |||||||||
Effect of exchange rate changes on cash | — | (1 | ) | (272 | ) | |||||||
Net change in cash and cash equivalents | 10,758 | 20,085 | (77,775 | ) | ||||||||
Cash and cash equivalents, beginning of year | 57,473 | 37,388 | 115,163 | |||||||||
Cash and cash equivalents, end of year | $ | 68,231 | $ | 57,473 | $ | 37,388 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Non-cash investing and financing activities: | ||||||||||||
Accrued acquisition and equity offering costs | $ | — | $ | 1,208 | $ | 3 | ||||||
Accrued purchases of property and equipment | $ | 883 | $ | 1,647 | $ | 1,438 | ||||||
Acquisition of equipment through capital leases | $ | 490 | $ | 30 | $ | 2,331 | ||||||
Issuance of trust stock and LLC interests to manager for payment of performance fees | $ | — | $ | 43,962 | $ | 4,134 | ||||||
Issuance of trust stock and LLC interests to independent directors | $ | 450 | $ | 450 | $ | 269 | ||||||
Taxes paid | $ | 3,174 | $ | 3,784 | $ | 1,835 | ||||||
Interest paid | $ | 97,658 | $ | 92,835 | $ | 65,967 |
Year Ended December 31, 2009 | Year Ended December 31, 2008(1) | Year Ended December 31, 2007(1) | ||||||||||||
($ In Thousands) | ||||||||||||||
Financing activities | ||||||||||||||
Proceeds from issuance of LLC interests | — | — | 252,739 | |||||||||||
Proceeds from long-term debt | 10,000 | 5,000 | 1,356,625 | |||||||||||
Net (payments) proceeds on line of credit facilities | (45,400 | ) | 96,150 | 11,560 | ||||||||||
Offering and equity raise costs paid | — | (65 | ) | (11,392 | ) | |||||||||
Distributions paid to holders of LLC interests | — | (95,509 | ) | (97,913 | ) | |||||||||
Distributions paid to noncontrolling interests | (583 | ) | (481 | ) | (395 | ) | ||||||||
Payment of long-term debt | (81,621 | ) | — | (904,500 | ) | |||||||||
Debt financing costs paid | — | (1,879 | ) | (26,234 | ) | |||||||||
Make — whole payment on debt refinancing | — | — | (14,695 | ) | ||||||||||
Change in restricted cash | (33 | ) | (865 | ) | 5,367 | |||||||||
Payment of notes and capital lease obligations | (181 | ) | (653 | ) | (544 | ) | ||||||||
Net cash (used in) provided by financing activities from continuing operations | (117,818 | ) | 1,698 | 570,618 | ||||||||||
Net change in cash and cash equivalents from continuing operations | (35,358 | ) | 40,561 | 25,264 | ||||||||||
Cash flows (used in) provided by discontinued operations: | ||||||||||||||
Net cash (used in) provided by operating activities | (4,732 | ) | (1,904 | ) | 3,051 | |||||||||
Net cash used in investing activities | (445 | ) | (26,684 | ) | (5,157 | ) | ||||||||
Net cash provided by (used in) financing activities | 2,144 | (1,215 | ) | (3,072 | ) | |||||||||
Cash used in discontinued operations(2) | (3,033 | ) | (29,803 | ) | (5,178 | ) | ||||||||
Change in cash of discontinued operations held for sale(2) | (208 | ) | 2,459 | 5,902 | ||||||||||
Effect of exchange rate changes on cash | — | — | (1 | ) | ||||||||||
Net change in cash and cash equivalent | (38,599 | ) | 13,217 | 25,987 | ||||||||||
Cash and cash equivalents, beginning of period | 66,054 | 52,837 | 26,850 | |||||||||||
Cash and cash equivalents, end of period | $ | 27,455 | $ | 66,054 | $ | 52,837 | ||||||||
Supplemental disclosures of cash flow information for continuing operations: | ||||||||||||||
Non-cash investing and financing activities: | ||||||||||||||
Accrued acquisition and equity offering costs | $ | — | $ | — | $ | 1,208 | ||||||||
Accrued purchases of property and equipment | $ | 1,277 | $ | 883 | $ | 1,647 | ||||||||
Acquisition of equipment through capital leases | $ | — | $ | — | $ | 30 | ||||||||
Issuance of LLC interests to manager for base management and performance fees | $ | 2,490 | $ | — | $ | 43,962 | ||||||||
Issuance of LLC interests to independent directors | $ | 450 | $ | 450 | $ | 450 | ||||||||
Taxes paid | $ | 1,231 | $ | 3,048 | $ | 3,632 | ||||||||
Interest paid | $ | 87,308 | $ | 84,235 | $ | 77,914 |
(1) | Reclassified to conform to current period presentation. |
(2) | Cash of discontinued operations held for sale is reported in assets of discontinued operations held for sale in the accompanying consolidated balance sheets. The cash used in discontinued operations is different than the change in cash of discontinued operations held for sale due to intercompany transactions that are eliminated in consolidation. |
See accompanying notes to the consolidated financial statements.
F-6
Macquarie Infrastructure Company LLC, a Delaware limited liability company, was formed on April 13, 2004. Macquarie Infrastructure Company LLC, both on an individual entity basis and together with its consolidated subsidiaries, is referred to in these financial statements as the Company.“the Company”. The Company owns, operates and invests in a diversified group of infrastructure businesses in the United States. Macquarie Infrastructure Management (USA) Inc. is the Company’s manager and is referred to in these financial statements as the Manager. The Manager is a subsidiary of the Macquarie Group of companies, which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange.
Macquarie Infrastructure Company Trust, or the Trust, a Delaware statutory trust, was also formed on April 13, 2004. Prior to December 21, 2004 and the completion of the initial public offering, the Trust was a wholly-owned subsidiary of the Manager. On June 25, 2007, all of the outstanding shares of trust stock issued by the Trust were exchanged for an equal number of limited liability company, or LLC, interests in the Company, and the Trust was dissolved. Prior to this exchange of trust stock for LLC interests and the dissolution of the Trust, all interests in the Company were held by the Trust. The Company continues to be an operating entity with a Board of Directors and other corporate governance responsibilities generally consistent with that of a Delaware corporation.
The Company owns its businesses through its wholly-owned subsidiary Macquarie Infrastructure Company Inc., or MIC Inc. The Company’s businesses operate predominantly in the United States, and compriseconsist of the following:
(i) |
a 50% interest in a bulk liquid storage terminal business |
a gas production and distribution business |
a 50.01% controlling interest in a district energy business |
DuringThe Aviation-Related Business — an airport services business (“Atlantic Aviation”), comprising a network of 72 fixed base operations, or FBOs, providing products and services including fuel and aircraft hangaring/parking to owners and operators of private jets at 68 airports and one heliport in the year ended December 31, 2007,U.S.
On January 28, 2010, the Company completedagreed to sell the following acquisitions:
F-7is no longer a reportable segment.
During the year ended December 31, 2008, the Company completed the following acquisitions:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Except as otherwise specified, we refer to Macquarie Infrastructure Company LLC and its subsidiaries collectively as the “Company”. The Company consolidates investments where it has a controlling financial interest. The usual condition for a controlling financial interest is ownership of a majority of the voting interest and, therefore, as a general rule, ownership, directly or indirectly, of over 50% of the outstanding
voting shares is a condition for consolidation. For investments in variable interest entities, as defined by Financial Accounting Standards Board (FASB) Interpretation No. 46R, “Consolidation of Variable Interest Entities”, the Company consolidates when it is determined to be the primary beneficiary of the variable interest entity. As of December 31, 2008,2009, the Company was not the primary beneficiary of any variable interest entity in which it did not own a majority of the outstanding voting stock.
The Company accounts for 50% or less owned companies over which it has the ability to exercise significant influence using the equity method of accounting, otherwise the cost method is used. The Company’s share of net income or losses of equity investments is included in equity in earnings (loss) and amortization charges of investee in the consolidated statementstatements of operations. Losses are recognized in other income (expense) when a decline in the value of the investment is deemed to be other than temporary. In making this determination, the Company considers Accounting Principles Board (APB) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” and related interpretations, which set forth factors to be evaluated in determining whether a loss in value should be recognized, including the Company’s ability to hold its investment and inability of the investee to sustain an earnings capacity, which would justify the carrying amount of the investment.
The preparation of our consolidated financial statements in conformity with generally accepted accounting principles, or GAAP, requires the Company to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and the estimates are based on experience, current and expected future conditions, third-party evaluations and various other assumptions that the Company believes are reasonable under the circumstances. Significant items subject to such estimates and assumptions include the carrying amount of property, equipment and leasehold improvements, intangibles, asset retirement obligations and goodwill; valuation allowances for receivables, inventories and deferred income tax assets; assets and obligations related to employee benefits;
F-8
environmental liabilities; and valuation of derivative instruments. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from the estimates and assumptions used in the financial statements and related notes.
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Included in cash and cash equivalents at December 31, 2008 and December 31, 2007 was $15.0 million and $10.0 million, respectively, of commercial paper, issued by a counterparty with a Standard & Poor rating of A1+, which matured in January 2009 and 2008, respectively.2009.
The Company classifies all cash pledged as collateral on the outstanding senior debt as restricted cash in the consolidated balance sheets. At December 31, 2008 and December 31, 2007, thesheets relating to Atlantic Aviation. The Company has recorded $19.9$16.0 million and $19.4 million, respectively, of cash pledged as collateral in the consolidated balance sheets. In addition,sheets at December 31, 20082009 and at December 31, 2007,2008. In addition, the Company has classified $1.1 million and $1.3 million, respectively,$52,000 as restricted cash in other current assets relating to the airport services businessat December 31, 2009 and the airport parking business.at December 31, 2008.
The Company uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce billed and unbilled accounts receivable to their net realizable value. The Company estimates the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends. Actual collection experience has not varied significantly from estimates due primarily to credit policies and a lack of concentration of accounts receivable. The Company writes off receivables deemed to be uncollectible to the allowance for doubtful accounts.
Inventory consists principally of fuel purchased from various third-party vendors and materials and supplies at the airport servicesAtlantic Aviation and gas production and distribution businesses.The Gas Company. Fuel inventory is stated at the lower of cost or market. Materials and supplies inventory is valued at the lower of average cost or market. Inventory sold is recorded using the first-in-first-out method at the airport services businessAtlantic Aviation and an average cost method at the gas production and distribution business.The Gas Company. Cash flows related to the sale of inventory are classified in net cash provided by operating activities in the consolidated statements of cash flows. The Company’s inventory balance at December 31, 2009 comprised $10.1 million of fuel and $4.2 million of materials and supplies. The Company’s inventory balance at December 31, 2008 comprised $11.7 million of fuel and $4.3 million of materials and supplies. The Company’s inventory balance at December 31, 2007 comprised $14.1 million of fuel and $4.1 million of materials and supplies.
Property, equipment and land are initially recorded at cost. Leasehold improvements are recorded at the initial present value of the minimum lease payments less accumulated amortization. Major renewals and improvements are capitalized while maintenance and repair expenditures are expensed when incurred. Interest expense relating to construction in progress is capitalized as an additional cost of the asset. The Company depreciates property, equipment and leasehold improvements over their estimated useful lives on a straight-line basis. Depreciation expense for the district energy and airport parking businesses areDistrict Energy is included within cost
F-9
of services in the consolidated statements of operations. The estimated economic useful lives range according to the table below:
Buildings | ||||
Leasehold and land improvements | 3 to 40 years | |||
Machinery and equipment | 1 to 62 years | |||
Furniture and Fixtures | 3 to 25 years |
Goodwill consists of costs in excess of the aggregate purchase price over the fair value of tangible and identifiable intangible net assets acquired in the purchase business combinations as described in Note 4, Acquisitions.5, “Acquisitions”. The cost of intangible assets with determinable useful lives are amortized over their estimated useful lives ranging as follows:
Customer relationships | 5 to | |||
Contract rights | 5 to 40 years | |||
Non-compete agreements | 2 to 5 years | |||
Leasehold interests | 3 to | |||
Trade names | Indefinite | |||
Technology | 5 years |
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-livedLong-lived assets, including amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted cash flows or value expected to be realized in a third party sale. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk.
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, or SFAS No. 142, goodwill is tested for impairment at least annually.annually or when there is a triggering event that indicates impairment. Goodwill is considered impaired when the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, as determined under a two-step approach. The first step is to determine the estimated fair value of each reporting unit with goodwill. The reporting units of the Company, for purposes of the impairment test, are those components of operating segments for which discrete financial information is available and segment management regularly reviews the operating results of that component. Components are combined when determining reporting units if they have similar economic characteristics.
The Company estimates the fair value of each reporting unit by estimating the present value of the reporting unit’s future discounted cash flows or value expected to be realized in a third party sale. If the recorded net assets of the reporting unit are less than the reporting unit’s estimated fair value, then no impairment is indicated. Alternatively, if the recorded net assets of the reporting unit exceed its estimated fair value, then goodwill is assumed to be impaired and a second step is performed. In the second step, the implied fair value of goodwill is determined by deducting the estimated fair value of all tangible and
F-10
identifiable intangible net assets of the reporting unit from the estimated fair value of the reporting unit. If the recorded amount of goodwill exceeds this implied fair value, an impairment charge is recorded for the excess.
In accordance with SFAS No. 142, indefinite-livedIndefinite-lived intangibles, primarily trademarks and domain names, are considered impaired when the carrying amount of the asset exceeds its implied fair value.
The Company estimates the fair value of each trademark using the relief-from-royalty method that discounts the estimated net cash flows the Company would have to pay to license the trademark under an arm’s length licensing agreement. The Company estimates the fair value of each domain name using a method that discounts the estimated net cash flows attributable to the domain name.
If the recorded indefinite-lived intangible is less than its estimated fair value, then no impairment is indicated. Alternatively, if the recorded intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
The Company capitalizes all direct costs incurred in connection with the issuance of debt as debt issuance costs. These costs are amortized over the contractual term of the debt instrument, which ranges from 3 to 7 years, using the straight-line method, which approximates the effective interest method as the majority of the debt in the Company’s businesses are non-amortizing.method.
The Company accounts for derivatives and hedging activities in accordance with ASC 815Derivatives and Hedging(formerly SFAS No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities”, as amended, or SFAS No. 133,amended), which requires that all derivative instruments be recorded on the balance sheet at their respective fair values.
Previously, the Company applied hedge accounting to its derivative instruments. On the date a derivative contract iswas entered into, the Company designatesdesignated the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge) or a foreign-currency fair-value or cash-flow hedge (foreign currency hedge). At December 31, 2008, the Company did not have any fair value or foreign-currency hedges in place.
For all hedging relationships theTABLE OF CONTENTS
The Company formally documentsdocumented the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk willwould be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includesincluded linking all derivatives that arewere designated as hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses,assessed, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions arewere highly effective in offsetting changes in fair values or cash flows of hedged items. Changes in the fair value of a derivative that iswere highly effective and that iswere designated and qualifiesqualified as a cash-flow hedge arewere recorded in other comprehensive income to the extent that the derivative iswas effective as a hedge, until earnings arewere affected by the variability in cash flows of the designated hedged item. The ineffective portion of the change in fair value of a derivative instrument that qualifiesqualified as a cash-flow hedge iswas reported in earnings.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item; the derivative expires or is sold, terminated, or exercised; the derivative is no longer designated as a hedging instrument because it is unlikely that a forecasted transaction will occur; a hedged firm commitment no longer meets the definition of a firm commitment; or management determines that designation of the derivative as a hedging instrument is no longer appropriate.
F-11
In all situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the Company recognizes immediately in earnings gains and losses that were accumulated in other comprehensive income.
As of February 25, 2009 for Atlantic Aviation and effective April 1, 2009 for the other businesses, the Company elected to discontinue hedge accounting. From the dates that hedge accounting was discontinued, all movements in the fair value of the interest rate swaps are recorded directly through earnings. As a result of the discontinuance of hedge accounting, the Company will reclassify into earnings net derivative losses included in accumulated other comprehensive loss over the remaining life of the existing interest rate swaps. See Note 13, “Derivative Instruments and Hedging Activities”, for further discussion.
The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and variable rate senior debt, are carried at cost, which approximates their fair value because of either the short-term maturity, or variable or competitive interest rates assigned to these financial instruments.
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with financial institutions and its balances may exceed federally insured limits. The Company’s accounts receivable are mainly derived from fuel and gas sales and services rendered under contract terms with commercial and private customers located primarily in the United States. At December 31, 20082009 and December 31, 2007,2008, there were no outstanding accounts receivable due from a single customer that accounted for more than 10% of the total accounts receivable. Additionally, no single customer accounted for more than 10% of the Company’s revenue during the years ended December 31, 2009, 2008 2007 and 2006.2007.
The Company previously held foreign investments and an investment in an unconsolidated foreign business. These foreign investments and the unconsolidated business were translated into U.S. dollars in accordance with SFAS No. 52, “Foreign Currency Translation”. All assets and liabilities in foreign currencies from these foreign investments, and other foreign currency balances remaining on the Company’s balance sheet, are translated using the exchange rate in effect at the balance sheet dates. Foreign currency denominated income and expense items are translated using the exchange rate on the dateTABLE OF CONTENTS
The Company calculates (loss) earnings per share in accordance with SFAS No. 128, “Earnings per Share”. Accordingly, basic (loss) earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted (loss) earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of shares issuable upon the exercise of stock options (using the treasury stock method) and stock units granted to the Company’s independent directors; common equivalent shares are excluded from the calculation if their effect is anti-dilutive.
The Company follows the requirements of ASC 220Comprehensive Income(formerly SFAS No. 130, “Reporting Comprehensive Income”), or SFAS No. 130, for the reporting and presentation of comprehensive (loss) income and its components. SFAS No. 130This guidance requires unrealized gains or losses on the Company’s available for sale securities, foreign currency translation adjustments, minimum pension liability adjustments and changes in fair value of derivatives, where hedge accounting is applied, to be included in other comprehensive (loss) income.
Advertising costs are expensed as incurred. Costs associated with direct response advertising programs may be prepaid and are expensed once the printed materials are distributed to the public.
F-12
In accordance with Staff Accounting Bulletin 104,Revenue Recognition, theThe Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed and determinable, and collectibilitycollectability is probable.
Revenue on fuel sales is recognized when the fuel has been delivered to the customer, collection of the resulting receivable is probable, persuasive evidence of an arrangement exists and the fee is fixed or determinable. Fuel sales are recorded net of volume discounts and rebates.
Service revenue includes certain fuelling fees. The Company receives a fuelling fee for fuelling certain carriers with fuel owned by such carriers. In accordance with Emerging Issues Task Force, or EITF, Issue 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent, revenue from these transactions is recorded based on the service fee earned and does not include the cost of the carriers’ fuel.
Other FBO revenue consists principally of de-icing services, landing and fuel distribution fees as well as rental income for hangar and terminal use. Other FBO revenue is recognized as the services are rendered to the customer.
The Company also had management contracts to operate regional airports or aviation-related facilities. Management fees are recognized pro rata over the service period based on negotiated contractual terms. All costs incurred under these contracts are reimbursed entirely by the customer and are generally invoiced with the related management fee. As the Company is acting as an agent in these contracts, the amount invoiced is recorded as revenue net of the reimbursable costs. In December 2008, the Company sold its management contracts business.
The Company’s gas production and distribution businessGas Company recognizes revenue when the services are provided. Sales of gas to customers are billed on a monthly-cycle basis. Earned but unbilled revenue is accrued and included in accounts receivable and revenue based on the amount of gas that is delivered but not billed to customers from the latest meter reading or billed delivery date to the end of an accounting period, and the related costs are charged to expense. Most revenue is based upon consumption; however, certain revenue is based upon a flat rate.
Revenue from cooling capacity and consumption are recognized at the time of performance of service. Cash received from customers for services to be provided in the future are recorded as unearned revenue and recognized over the expected service period on a straight-line basis.
Parking lotRevenue on fuel sales is recognized when the fuel has been delivered to the customer, collection of the resulting receivable is probable, persuasive evidence of an arrangement exists and the fee is fixed or determinable. Fuel sales are recorded net of volume discounts and rebates.
Service revenue includes certain fuelling fees. The Company receives a fuelling fee for fuelling certain carriers with fuel owned by such carriers. Revenue from these transactions is recorded based on the service fee earned and does not include the cost of the carriers’ fuel.
Other FBO revenue consists principally of de-icing services, landing and fuel distribution fees as services are performed, net of appropriate allowanceswell as rental income for hangar and local taxes. For customer vehicles remaining at the facilities at year end, revenue for services performed are recorded in accounts receivable based upon the value of unpaid parking revenue for customer vehicles.
The Company offers various membership programs for which customers pay an annual membership fee. The Company accounts for membership fee revenue on a “deferral basis” whereby membership feeterminal use. Other FBO revenue is recognized ratably overas the one-year life ofservices are rendered to the membership. In addition, the Company also sells prepaid parking vouchers which can be redeemed for future parking services. These sales of prepaid vouchers are recorded as deferred revenue and recognized as parking revenue when redeemed. Unearned membership revenue and prepaid vouchers are included in deferred revenue (other current liability) in the consolidated balance sheets.customer.
F-13
Previously, Atlantic Aviation also had management contracts to operate regional airports or aviation-related facilities. Management fees were recognized pro rata over the service period based on negotiated contractual terms. All costs incurred under these contracts were reimbursed entirely by the customer and were generally invoiced with the related management fee. As the business was acting as an agent in these contracts, the amount invoiced was recorded as revenue net of the reimbursable costs. In December 2008, Atlantic Aviation sold its management contracts business.
The regulated utility operations of the gas production and distribution businessThe Gas Company are subject to regulations with respect to rates, service, maintenance of accounting records, and various other matters by the Hawaii Public Utilities Commission, or HPUC. The established accounting policies recognize the financial effects of the rate-making and accounting practices and policies of the HPUC. Regulated utility operations are subject to the provisions of ASC 980,Regulated Operations(formerly SFAS No. 92, “Regulated Enterprise — Accounting For Phase in Plans” — an amendment of SFAS No. 71, “Accounting for the Effects of Certain TypesType of RegulationRegulations”, or SFAS No. 71. SFAS No. 71). This guidance requires regulated entities to disclose in their financial statements the authorized recovery of costs associated with regulatory decisions. Accordingly, certain costs that otherwise would normally be charged to expense may, in certain instances, be recorded as an asset in a regulatory entity’s balance sheet. The gas production and distribution businessGas Company records regulatory assets for costs that have been deferred for which future recovery through customer rates has been approved by the HPUC. Regulatory liabilities represent amounts included in rates and collected from customers for costs expected to be incurred in the future.
SFAS No. 71ASC 980 may, at some future date, be deemed inapplicable because of changes in the regulatory and competitive environments or other factors. If the Company were to discontinue the application of SFAS No. 71,this guidance, the Company would be required to write off its regulatory assets and regulatory liabilities and would be required to adjust the carrying amount of any other assets, including property, plant and equipment, that would be deemed not recoverable related to these affected operations. The Company believes its regulated operations in the gas production and distribution businessThe Gas Company continue to meet the criteria of SFAS No. 71ASC 980 and that the carrying value of its regulated property, plant and equipment is recoverable in accordance with established HPUC rate-making practices.
The Company uses the liability method in accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Commencing in 2007, the Company and its subsidiaries file a consolidated U.S. federal income tax return.
For 2006, MIC LLC filed a partnership return and was not subject to income taxes. The U.S. companies that held our interests in the toll road business, MCG and SEW did not have a liability for U.S. federal income taxes, as each of these entities had elected to be disregarded as an entity separate from the Company for U.S. federalCompany’s consolidated income tax purposes. MIC Inc.,return does not include the holding company of our wholly-owned U.S. businesses, filed a consolidated U.S. federal taxable income return for these years. No taxes were due for those years, asof IMTT and, subsequent to the consolidated group did not havesale of 49.99% of the business, the taxable income.income of District Energy. Those businesses file separate income tax returns.
Certain reclassifications were made to the financial statements for the prior period to conform to current year presentation.
In April 2009, the Financial Accounting Standards Board, or FASB, issued ASC 825-10-65Financial Instruments (formerly FSP SFAS No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”), which is effective for interim reporting periods ending after June 15, 2009. This guidance requires disclosures about the fair value of financial instruments for interim reporting periods in addition to the current requirement to make disclosure in annual financial statements. This guidance also requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments and description
of changes in the method and significant assumptions. The Company adopted this guidance during the second quarter of 2009. Since this guidance requires only additional disclosures, the adoption did not have a material impact on the Company’s financial results of operations and financial condition.
In February 2008, the FASB issued ASC 820Fair Value Measurements and Disclosures (formerly FSP SFAS No. 157-1, “Application of SFAS No. 157 to SFAS No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under SFAS No. 13”, and FSP SFAS No. 157-2, “Effective Date of FASB Statement No. 157”) affecting the implementation of SFAS No. 157. This guidance excludes ASC 840-10 Leases (formerly SFAS No. 13, “Accounting for Leases”), and other accounting pronouncements that address fair value measurements under SFAS No. 13 from the scope of SFAS No. 157. However, the scope of this exception does apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value in accordance with ASC 805-10Business Combinations (formerly SFAS No. 141(R), “Business Combinations”) regardless of whether those assets and liabilities are related to leases. This guidance delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS No. 157 for all nonfinancial assets and liabilities. Major categories of nonfinancial assets and liabilities to which this accounting standard applies include, but are not limited to, the Company’s property, equipment, land and leasehold improvements, intangible assets and goodwill. See Note 10, “Nonfinancial Assets Measured at Fair Value”, for further discussion.
In March 2008, the FASB issued ASC 815-10Derivatives and Hedging (formerly SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities — an amendment of SFAS No. 133”), which requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments; how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. This guidance is effective for periods beginning after November 15, 2008. The Company adopted this guidance on January 1, 2009. Since this guidance requires only additional disclosures concerning derivatives and hedging activities, the adoption did not have a material impact on the Company’s financial results of operations and financial condition. See Note 13, “Derivative Instruments and Hedging Activities”, for further discussion.
In December 2008, the FASB issued FASB Staff PositionASC 715-20Compensation — Retirement Benefits (formerly FSP SFAS No. 132(R)-1, “Employers'Employers’ Disclosures about Postretirement Benefit Plan Assets”, or FSP SFAS No. 132(R)-1. FSP SFAS No. 132(R)-1). This guidance requires additional disclosures surrounding how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies, the fair value of each of the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, and the significant concentration of risks in plan assets. The disclosure requirement under FSP SFAS No. 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Company doesadopted this guidance for the year-ended December 31, 2009 and it did not believe FSP SFAS No. 132(R)-1 will have a significantmaterial impact on its financial statements.
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In November 2008, the FASB ratified Emerging Issues Task Force 08-7, “Accounting for Defensive Intangible Assets”, or EITF 08-7. EITF 08-7 applies to acquired intangible asset that the acquirer does not intend to actively use, but intends to hold to prevent its competitors from obtaining access to the asset. EITF 08-7 clarifies that defensive intangible assets are separately identifiable and requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting, which should be amortized over the period the asset diminishes in value. Defensive intangibles must be recognized at fair value in accordance with Statement of Financial Accounting Standards No. 141 (R), “Business Combinations”, or SFAS No. 141(R), and Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, or SFAS No. 157. EITF 08-7 is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. The Company does not believe EITF 08-7 will have a significant impact on its financial statements.
In November 2008, the FASB ratified Emerging Issues Task Force Issue No.ASC 323Investments — Equity Method and Joint Ventures (formerly EITF 08-6, “Equity Method Investment Accounting Considerations”, or EITF 08-6. EITF 08-6''). This guidance concludes that the cost basis of a new equity-method investment would be determined using a cost-accumulation model, which would continue the practice of including transaction costs in the cost of investment and would exclude the value of contingent consideration unless it is required to be recognized under other literature, such as Statement of Financial Accounting StandardsASC 450-20Contingencies (formerly SFAS No. 5, “Accounting for Contingencies” ”). Equity-method investment should be subject to other-than-temporary impairment analysis. It also requires that a gain or loss to be recognized on the portion of the investor’s ownership sold. EITF 08-6This guidance is effective for fiscal years beginning on or
after December 15, 2008, with early adoption prohibited. The Company doesadopted this guidance on January 1, 2009 and the impact of the adoption did not believe EITF 08-6 will have a significantmaterial impact on itsthe Company’s financial statements.results of operations and financial condition.
In April 2008, the FASB issued FASB Staff PositionASC 350-30Intangibles — Goodwill and Other (formerly FSP SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets”, or FSP SFAS No. 142-3. FSP SFAS No. 142-3). This guidance amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, or SFAS No. 142.assets. Companies estimating the useful life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension as adjusted for SFAS No. 142’s entity-specific factors. FSP SFAS No. 142-3This guidance is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The Company does not believe FSP SFAS No. 142-3 will have a significantadopted this guidance and the impact on its financial statements.
In February 2008, the FASB issued FASB Staff Position 157-1, “Application of SFAS No. 157 to SFAS No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under SFAS No. 13”, or FSP SFAS No. 157-1, and FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157”, or FSP SFAS No. 157-2, affecting the implementation of SFAS No. 157. FSP SFAS No. 157-1 excludes Statement of Financial Accounting Standards No. 13, “Accounting for Leases”, or SFAS No. 13, and other accounting pronouncements that address fair value measurements under SFAS No. 13, from the scope of SFAS No. 157. However, the scope of this exception does apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value in accordance with SFAS No. 141 (R) regardless of whether those assets and liabilities are related to leases. FSP SFAS No. 157-2 delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. In accordance with FSP SFAS No. 157-2, the Company has deferred the adoption of SFAS No. 157 for all non-financial assets and liabilities. Major categories of non-financial assets and liabilities to which this deferral applies include, but isdid not limited to, the Company’s property, plant, equipment, land and leasehold improvements; intangible assets; and goodwill.
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In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133”, or SFAS No. 161, which requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, or SFAS No. 133; and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the Company’s strategies and objectives for using derivative instruments. SFAS No. 161 is effective for periods beginning after November 15, 2008. The Company does not expect the adoption of SFAS No. 161 to have a material impact on the Company’s financial statements.results of operations and financial condition.
In December 2007, the FASB issued Statement of Financial Accounting StandardsASC 810-10Consolidation (formerly SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No.NO. 51”), or SFAS No. 160, which requires noncontrolling interests (previously referred to as minority interests) to be treated as a separate component of equity;equity, not as a liability or other item outside of permanent equity. SFAS No. 160This guidance is effective for periods beginning on or after December 15, 2008 and will be applied prospectively to all noncontrolling interests with comparative period information reclassified. While the Company’s district energyThe Company adopted this guidance on January 1, 2009 and airport parking businesses each have noncontrolling interests, the Company doesadoption did not expect the adoption of SFAS No. 160 to have a material impact on the Company’s financial statements.results of operations and financial condition.
In December 2007, the FASB revised Statement of Financial Accounting Standards No. 141, “ASC 805-10Business Combinations”, or (formerly SFAS No. 141(R)). The revised standard includes various changes to the business combination rules. Some of the changes include immediate expensing of acquisition-related costs rather than capitalization, and 100% of the fair value of assets and liabilities acquired being recorded, even if less than 100% of a controlled business is acquired. SFAS No. 141(R)This guidance is effective for business combinations consummated in periods beginning on or after December 15, 2008. TheFor any business combinations completed after January 1, 2009, the Company expects the revised standard to have the following significantmaterial impacts on its financial statements compared with existingpreviously applicable business combination rules: (1) increased selling, general and administrative costs due to immediate expensing of acquisition costs, resulting in lower net income; (2) lower cash provided by operating activities and lower cash used in investing activities in the statements of cash flows due to the immediate expensing of acquisition costs, which under existingprevious rules arewere included as cash out flows in investing activities as part of the purchase price of the business; and (3) 100% of fair values recorded for assets and liabilities including noncontrolling interests of a controlled business on the balance sheet resulting in larger assets, liability and equity balances compared with existingprevious business combination rules.
In September 2006, On January 1, 2009, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, or SFAS No. 157, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, SFAS No. 157 doesCompany adopted this guidance. Although the Company did not requirecomplete any new fair value measurements. SFAS No. 157 establishes a fair value hierarchy that prioritizesbusiness combinations during 2009, the inputsCompany used the guidance from this pronouncement to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active marketsperform goodwill impairment analysis. See Note 10, “Nonfinancial Assets Measured at Fair Value”, for identical assets or liabilities (level 1 inputs), second priority to other observable information such as quoted prices in markets that are not active or other directly or indirectly observable inputs (level 2 inputs) and the lowest priority to unobservable data (level 3 inputs). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The provisions of SFAS No. 157 were effective as of the beginning of the Company’s 2008 fiscal year. The Company adopted SFAS No. 157 on January 1, 2008 and the requiredfurther discussion.
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disclosures are included in these financial statements. The impact of the adoption did not have a material impact on the Company’s financial results of operations and financial condition.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, or SFAS No. 159. Under SFAS No. 159, the Company may elect to report financial instruments and certain other items at fair value on a contract-by-contract basis with changes in value reported in earnings. This election is irrevocable. SFAS No. 159 provides an opportunity to mitigate volatility in reported earnings that is caused by measuring hedged assets and liabilities that were previously required to use a different accounting method than the related hedging contracts when the complex provisions of SFAS No. 133 hedge accounting are not met. The Company adopted SFAS No. 159 on January 1, 2008. The impact of the adoption did not have a material impact on the Company’s financial results of operations and financial condition.
In July 2006, the FASB issued Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB No. 109”, or FIN 48. FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company adopted the provision of FIN 48 on January 1, 2007 and recorded a $510,000 increase in the liability for unrecognized tax benefits, which is offset by a reduction of the deferred tax liability of $109,000, resulting in a decrease to the January 1, 2007 retained earnings balance of $401,000. Refer to Note 15, Income Taxes, for additional details.
Following is a reconciliation of the basic and diluted number of shares used in computing (loss) earningsloss per share:
Year Ended December 31, | ||||||||||||||||||||||||
Year Ended December 31, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||
Weighted average number of shares outstanding: basic | 44,944,326 | 40,882,067 | 28,895,522 | 45,020,085 | 44,944,326 | 40,882,067 | ||||||||||||||||||
Dilutive effect of restricted stock unit grants | — | — | 16,824 | — | — | — | ||||||||||||||||||
Weighted average number of shares outstanding: diluted | 44,944,326 | 40,882,067 | 28,912,346 | 45,020,085 | 44,944,326 | 40,882,067 |
The effect of potentially dilutive shares for the year ended December 31, 2006 is calculated by assuming that the 16,869 restricted stock unit grants issued to our independent directors on May 25, 2006, which vested in 2007, and the 15,873 restricted stock unit grants issued on May 25, 2005, which vested in 2006, had been fully converted to shares on those dates. The 10,314 restricted stock unit grants provided to the Company’s independent directors on May 24, 2007, and the 14,115 restricted stock unit grants provided to our independent directors on May 27, 2008 and the 128,205 restricted stock unit grants provided to our independent directors on June 4, 2009 were anti-dilutive in both 2007, 2008 and 20082009 due to the Company’s net loss for those years.
PCAA operates 31 facilities comprising over 40,000 parking spaces near 20 major airports across the United States. PCAA provides customers with 24-hour secure parking close to airport terminals, as well as transportation via shuttle bus to and from their vehicles and the terminal. Operations are carried out on either owned or leased land at locations near the airports.
On January 28, 2010, the Company announced that PCAA had entered into an asset purchase agreement with Bainbridge ZKS — Corinthian Holdings, LLC. This agreement, which is subject to approval by the bankruptcy court, will result in the sale of the assets of PCAA for $111.5 million, subject to certain adjustments and will result in the elimination of $201.0 million of current debt from the liabilities of discontinued operations held for sale in the consolidated balance sheet. The cancelled debt in excess of the sale proceeds used to repay such debt would result in cancellation of debt income and the proceeds in excess of the business’ assets as a gain on sale. As a part of the bankruptcy sale process, all cash proceeds would be paid to creditors of the business. PCAA also commenced a voluntary Chapter 11 case with the bankruptcy court. If approved, the Company expects to complete the sale of the business in the first half of 2010.
As part of the bankruptcy filing, the Company has no obligation to and has no intention of committing additional capital to this business. Creditors of this business do not have recourse to any assets of the holding company or any assets of the other Company’s businesses, other than approximately $5.3 million relating to a guarantee of a single parking facility lease.
Results for PCAA are reported separately as discontinued operations for all periods presented. The assets and liabilities of the business being sold are included in assets of discontinued operations held for sale and liabilities of discontinued operations held for sale on the Company’s consolidated balance sheet.
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The Company usedfollowing is a summary of the proceeds from the 2004 initial public offering, or IPO,assets and liabilities of discontinued operations held for sale related to acquire the initial consolidated businessesPCAA as of December 31, 2009 and December 31, 2008:
December 31, 2009 | December 31, 2008 | |||||||
($ in Thousands) | ||||||||
Assets | ||||||||
Total current assets | $ | 7,676 | $ | 5,789 | ||||
Property, equipment, land and leasehold improvements, net | 77,524 | 93,476 | ||||||
Other non-current assets | 1,495 | 6,460 | ||||||
Total assets | $ | 86,695 | $ | 105,725 | ||||
Liabilities | ||||||||
Current portion of long-term debt | $ | 200,999 | $ | 201,344 | ||||
Other current liabilities | 10,761 | 15,951 | ||||||
Total current liabilities | 211,760 | 217,295 | ||||||
Other non-current liabilities | 8,789 | 7,593 | ||||||
Total liabilities | 220,549 | 224,888 | ||||||
Noncontrolling interest | (1,863 | ) | — | |||||
Total liabilities and noncontrolling interest | $ | 218,686 | $ | 224,888 |
Summarized financial information for cash from the Macquarie Group or from infrastructure investment vehicles managed by the Macquarie Group. Acquisitions duringdiscontinued operations related to PCAA for the years ended December 31, 2009, 2008 and 2007 are as follows:
For the Year Ended December 31, 2009 | For the Year Ended December 31, 2008 | For the Year Ended December 31, 2007 | ||||||||||
($ in Thousands, Except Share Data) | ||||||||||||
Service revenue | $ | 68,457 | $ | 74,692 | $ | 77,180 | ||||||
Net loss from discontinued operations before income taxes and noncontrolling interest | $ | (23,647 | ) | $ | (180,104 | ) | $ | (9,679 | ) | |||
Income tax benefit (provision) | 1,787 | 70,059 | (281 | ) | ||||||||
Net loss from discontinued operations before noncontrolling interest | (21,860 | ) | (110,045 | ) | (9,960 | ) | ||||||
Net loss attributable to noncontrolling interests | (1,863 | ) | (1,753 | ) | (1,035 | ) | ||||||
Net loss from discontinued operations | $ | (19,997 | ) | $ | (108,292 | ) | $ | (8,925 | ) | |||
Basic and diluted loss per share from discontinued operations | $ | (0.44 | ) | $ | (2.41 | ) | $ | (0.22 | ) | |||
Weighted average number of shares outstanding at the Company level: basic and diluted | 45,020,085 | 44,944,326 | 40,882,067 |
On March 4, 2008, Atlantic Aviation completed the acquisition of 100% of the interests in Sun Valley Aviation, Inc., SB Aviation Group, Inc. and 2008 were funded by additional debtSevenBar Aviation Inc. (collectively referred to as “SevenBar”). SevenBar owns and drawdowns onoperates three FBOs located in Farmington and Albuquerque, New Mexico and Sun Valley, Idaho.
The cost of the acquisition, including transaction costs, was $41.9 million and the Company has pre-funded integration costs of $300,000. The Company financed the acquisition with borrowings under the MIC Inc. revolving credit facility, atwhich was fully repaid during 2009. See Note 12, “Long-term Debt” for further discussions.
For a description of related party transactions associated with the MIC Inc. level. Drawdowns madeCompany’s acquisition, see Note 17, “Related Party Transactions”. The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of SevenBar are included in 2007 were subsequently repaid with proceeds from equity offerings.the consolidated statements of operations and as a component of Atlantic Aviation’s business segment since March 4, 2008.
The businesses described below have been consolidated since the date of acquisition. The initial purchase price allocation may be adjusted within one year of the purchase date for changes in estimates of the fair value of assets acquired and liabilities assumed.
For a description of certain related party transactions associated with the Company’s acquisitions, see Note 14, Related Party Transactions.
On May 30, 2007, the Company’s airport services business completed the acquisition of 100% of the interests in entities that own and operate two FBOs at Santa Monica Municipal Airport in Santa Monica, California and Stewart International Airport in New Windsor, New York (together referred to as “Supermarine”).
The cost of the acquisition, including transaction costs, was $89.5 million. In addition, the Company incurred debt financing costs of $520,000 and provided for a debt service reserve of $454,000. The Company financed the acquisition with $32.5 million of borrowings under an expansion of the airport services business credit facility at the time, and the remainder with cash. Refer to Note 9, Long-term Debt, for details.
The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of Supermarine are included in the consolidated statement of operations, and as a component of the Company’s airport services business segment, since May 30, 2007.
The allocation of the purchase price, including transaction costs, was as follows ($ in thousands):
Current assets | $ | 3,117 | ||
Property, equipment, land and leasehold improvements | 19,803 | |||
Intangible assets: | ||||
Customer relationships | 1,600 | |||
Contractual arrangements | 37,900 | |||
Non-compete agreements | 1,100 | |||
Goodwill(1) | 29,269 | |||
Other assets | 81 | |||
Total assets acquired | 92,870 | |||
Current liabilities | 1,381 | |||
Deferred income taxes | 1,889 | |||
Other liabilities | 59 | |||
Net assets acquired | $ | 89,541 |
The Company paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be acquired or developed separately. The value of the acquired intangible assets was determined by taking into account risks related to the characteristics and applications of the assets, existing and future markets and analyses of expected future cash flows to be generated by the business.
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The Company allocated $1.6 million of the purchase price to customer relationships in accordance with EITF 02-17, “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination”, or EITF 02-17. The Company is amortizing the amount allocated to customer relationships over a nine-year period.
On August 9, 2007, the Company’s airport services business completed the acquisition of approximately 89% of the equity of Mercury Air Center Inc. In October 2007, the Company exercised a call option on the remaining 11% of the equity in Mercury and acquired the remaining outstanding shares. Mercury owns and operates 24 FBOs in the United States.
The cost of the acquisition, including transaction costs, was $419.1 million plus an additional $28.7 million paid in the fourth quarter of 2007 to exercise the call option discussed above. In addition, the Company incurred debt financing costs of $1.7 million, pre-funding of capital expenditures and integration costs of $5.5 million and provided for a debt service reserve of $3.3 million. The Company financed the acquisition in August 2007 with $192.0 million of borrowings under a new credit facility and the remainder with cash proceeds received from an equity offering of the Company, which was completed in July 2007. Refer to Note 12, Members’/Stockholders’ Equity, for further details of the equity offering. The acquisition of the remaining 11% of equity was initially financed with the MIC Inc. revolving credit facility, which was subsequently repaid with proceeds from the airport services debt refinancing. Refer to Note 9, Long-Term Debt, for details. The Company paid an additional $528,000 for the acquisition in January 2008 as a working capital adjustment.
The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of Mercury are included in the consolidated statements of operations, and as a component of the Company’s airport services business segment, since August 9, 2007.
The allocation of the purchase price, including transaction costs, was as follows ($ in thousands):
Current assets | $ | 19,438 | ||
Fair value of derivative instruments | 27,200 | |||
Property, equipment, land and leasehold improvements | 71,400 | |||
Intangible assets: | ||||
Customer relationships | 14,200 | |||
Contractual arrangements | 198,100 | |||
Non-compete agreements | 1,200 | |||
Goodwill(1) | 209,462 | |||
Total assets acquired | 541,000 | |||
Current liabilities | 16,670 | |||
Deferred income taxes | 75,778 | |||
Other liabilities | 1,030 | |||
Minority interests(2) | 28,400 | |||
Net assets acquired | $ | 419,122 |
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The Company paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be acquired or developed separately. The value of the acquired intangible assets was determined by taking into account risks related to the characteristics and applications of the assets, existing and future markets and analyses of expected future cash flows to be generated by the business.
The Company allocated $14.2 million of the purchase price to customer relationships in accordance with EITF 02-17. The Company is amortizing the amount allocated to customer relationships over a nine-year period.
On August 17, 2007, the Company’s airport services business completed the acquisition of the membership interests of 100% of SJJC Aviation Services, LLC, or San Jose, which owns and operates two FBOs at San Jose Mineta International Airport, located in San Jose, California.
The cost of the acquisition, including transaction costs, was $160.6 million plus $25.5 million for an option. In addition, the Company incurred debt financing costs of $723,000, pre-funding of capital expenditures and integration costs of $2.0 million and provided for a debt service reserve of $1.5 million. The Company financed the acquisition with $80.0 million of borrowings under a new credit facility and $60.0 million from the MIC Inc. revolving credit facility (both of which were repaid in October 2007 with proceeds from the refinancing of the airport services business’ debt) and the remainder with cash proceeds received from the July 2007 equity offering. Refer to Note 9, Long-Term Debt, for further details of the additional term loan facility and to Note 12, Members’/Stockholders’ Equity, for further details of the equity offering.
The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of San Jose are included in the consolidated statements of operations, and as a component of the Company’s airport services business segment, since August 17, 2007.
The allocation of the purchase price, including transaction costs, was as follows ($ in thousands):
Current assets | $ | 14,068 | ||
Property, equipment, land and leasehold improvements | 32,262 | |||
Intangible assets: | ||||
Customer relationships | 2,200 | |||
Contractual arrangements | 102,100 | |||
Non-compete agreements | 2,000 | |||
Goodwill(1)(2) | 43,617 | |||
Deferred income taxes | 259 | |||
Other assets | 74 | |||
Total assets acquired | 196,580 | |||
Current liabilities | 9,771 | |||
Other liabilities | 667 | |||
Net assets acquired | $ | 186,142 |
The Company paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets
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had to be acquired or developed separately. The value of the acquired intangible assets was determined by taking into account risks related to the characteristics and applications of the assets, existing and future markets and analyses of expected future cash flows to be generated by the business.
The Company allocated $2.2 million of the purchase price to customer relationships in accordance with EITF 02-17. The Company is amortizing the amount allocated to customer relationships over a nine-year period.
On November 30, 2007, the Company’s airport services business completed the acquisition of 100% of the membership interests in Rifle Jet Center, LLC and Rifle Jet Center Maintenance, LLC, or Rifle, which own and operate an FBO at Garfield County Regional Airport in Rifle, Colorado.
The cost of the acquisition, including transaction costs, was $15.5 million. The Company financed the acquisition with cash on hand.
The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of Rifle are included in the consolidated statements of operations, and as a component of the Company’s airport services business segment, since November 30, 2007.
The allocation of the purchase price, including transaction costs, was as follows ($ in thousands):
Current assets | $ | 840 | ||
Property, equipment, land and leasehold improvements | 6,214 | |||
Intangible assets: | ||||
Customer relationships | 460 | |||
Contractual arrangements | 7,100 | |||
Non-compete agreements | 130 | |||
Goodwill(1) | 1,939 | |||
Total assets acquired | 16,683 | |||
Current liabilities | 1,140 | |||
Net assets acquired | $ | 15,543 |
The Company paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be acquired or developed separately. The value of the acquired intangible assets was determined by taking into account risks related to the characteristics and applications of the assets, existing and future markets and analyses of expected future cash flows to be generated by the business.
The Company allocated $460,000 of the purchase price to customer relationships in accordance with EITF 02-17. The Company is amortizing the amount allocated to customer relationships over a nine-year period.
On March 4, 2008, the Company’s airport services business completed the acquisition of 100% of the interests in Sun Valley Aviation, Inc., SB Aviation Group, Inc. and Seven Bar Aviation Inc. (collectively referred to as “Seven Bar”). Seven Bar owns and operates three FBOs located in Farmington and Albuquerque, New Mexico and Sun Valley, Idaho.
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The cost of the acquisition, including transaction costs, was $41.8 million and the Company has pre-funded integration costs of $300,000. The Company financed the acquisition with borrowings under the MIC Inc. revolving credit facility.
For a description of related party transactions associated with the Company’s acquisition, see Note 14, Related Party Transactions. The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of Seven Bar are included in the consolidated statements of operations and as a component of the Company’s airport services business segment since March 4, 2008.
The allocation of the purchase price, including transaction costs, was as follows ($ in thousands):
Current assets | $ | 1,147 | $ | 1,203 | ||||
Property, equipment, land and leasehold improvements | 10,353 | 10,353 | ||||||
Intangible assets: | ||||||||
Customer relationships | 750 | 750 | ||||||
Contractual arrangements | 26,050 | 26,050 | ||||||
Non-compete agreements | 50 | 50 | ||||||
Goodwill(1) | 5,156 | 5,125 | ||||||
Total assets acquired | 43,506 | 43,531 | ||||||
Current liabilities | 1,296 | (1,296 | ) | |||||
Other liabilities | 370 | (370 | ) | |||||
Net assets acquired | $ | 41,840 | $ | 41,865 |
(1) | Included in goodwill is approximately $4.9 million that is expected to be deductible for tax purposes. |
The Company paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be acquired or developed separately. The value of the acquired intangible assets was determined by taking into account risks related to the characteristics and applications of the assets, existing and future markets and analysis of expected future cash flows to be generated by the business.
The Company allocated $750,000 of the purchase price to customer relationships in accordance with EITF 02-17.relationships. The Company will amortize the amount allocated to customer relationships over a nine-year period.
District Energy consists of Thermal Chicago, which services customers in Chicago, Illinois and a 75% interest in Northwind Aladdin, which services customers in Las Vegas, Nevada. The remaining 25% equity interest in Northwind Aladdin is owned by Nevada Electric Investment Company, or NEICO, an indirect subsidiary of NV Energy, Inc. On July 31, 2008,December 23, 2009, the Company’s airport parking business completed the acquisitionCompany sold 49.99% of the Newark SkyPark airport parking facility, or SkyPark, an off-airport parking facility at Newark Liberty International Airport in New Jersey.
The costmembership interests of the acquisition, including transaction costs, was $11.4District Energy to John Hancock Life Insurance Company and John Hancock Life Insurance Company (U.S.A.) (collectively “John Hancock”) for $29.5 million. The Company financed the acquisition with borrowings under the MIC Inc. revolving credit facility.
The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of SkyPark are included in the consolidated statements of operations and as a component of the Company’s airport parking business segment since July 31, 2008.
F-22
The allocationAs the Company has retained majority ownership and control in District Energy, the business continues to be reported as part of the purchase price, including transaction costs, was as follows ($ in thousands):
Property, equipment, land and leasehold improvements | $ | 6,150 | ||
Intangible assets: | ||||
Customer relationships | 53 | |||
Trade names | 233 | |||
Goodwill(1) | 4,979 | |||
Total assets acquired | $ | 11,415 |
Company’s consolidated financial statements. The Company paid more than the fair valuenoncontrolling interest portion of the underlying net assets as a resultbusiness’ results are recorded in the consolidated financial statements since the date of sale. The difference between the sale price and the Company’s portion of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be acquired or developed separately. The valueinvestment sold and associated recognition of the acquired intangible assetsnon-controlling interests was determined by taking into account risks related to$22.0 million (net of taxes) which has been recorded in additional paid in capital in the characteristics and applications of the assets, existing and future markets and analysis of expected future cash flows to be generated by the business.
The Company allocated $53,000 of the purchase price to customer relationshipsconsolidated balance sheets in accordance with EITF 02-17. The Company will amortize the amount allocated to customer relationships overASC 810-10.
For a twenty-year period.
The following unaudited pro forma information summarizes the resultsdescription of operations for the years ended December 31, 2008 and 2007 as if the acquisitions of Supermarine, Mercury, San Jose, Rifle, Seven Bar and SkyPark had been completed at the beginning of the prior comparative year commencing on January 1, 2007. The pro forma data combines the Company’s consolidated results with those of the acquired entities (prior to acquisition) for the periods shown. The results are adjusted for amortization, depreciation, interest expense and income taxesrelated party transactions relating to the acquisitions. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been achieved if the acquisitions had occurred as of the beginning of the periods presented or that may be achieved in the future. The pro forma amounts are as follows ($ in thousands, except per share data):transaction, see Note 17, “Related Party Transactions”.
Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||
Pro forma consolidated revenue | $ | 1,056,384 | $ | 1,011,279 | ||||
Pro forma consolidated net loss | $ | (178,844 | ) | $ | (58,878 | ) | ||
Basic and diluted loss per share | $ | (3.98 | ) | $ | (1.44 | ) |
F-23
The Company has entered into energy service agreements containing provisions to lease equipment to customers. Under these agreements, title to the leased equipment will transfer to the customer at the end of the lease terms, which range from 5 to 25 years. The lease agreements are accounted for as direct financing leases. The components of the Company’s consolidated net investments in direct financing leases at December 31, 20082009 and 20072008 are as follows ($ in thousands):
December 31, 2008 | December 31, 2007 | December 31, 2009 | December 31, 2008 | |||||||||||||
Minimum lease payments receivable | $ | 69,493 | $ | 76,514 | $ | 65,116 | $ | 69,493 | ||||||||
Less: unearned financing lease income | (30,249 | ) | (34,897 | ) | (28,481 | ) | (30,249 | ) | ||||||||
Net investment in direct financing leases | $ | 39,244 | $ | 41,617 | $ | 36,635 | $ | 39,244 | ||||||||
Equipment lease: | ||||||||||||||||
Current portion | $ | 3,117 | $ | 2,783 | $ | 3,369 | $ | 3,117 | ||||||||
Long-term portion | 36,127 | 38,834 | 33,266 | 36,127 | ||||||||||||
$ | 39,244 | $ | 41,617 | $ | 36,635 | $ | 39,244 |
Unearned financing lease income is recognized over the terms of the leases. Minimum lease payments to be received by the Company total approximately $69.5$65.1 million as follows ($ in thousands):
2009 | $ | 7,551 | ||||||
2010 | 6,874 | $ | 7,143 | |||||
2011 | 6,874 | 7,141 | ||||||
2012 | 6,874 | 7,141 | ||||||
2013 | 6,874 | 7,141 | ||||||
2014 | 7,141 | |||||||
Thereafter | 34,446 | 29,409 | ||||||
Total | $ | 69,493 | $ | 65,116 |
Property, equipment, land and leasehold improvements at December 31, 2008 and 2007 consist of the following ($ in thousands):
December 31, 2008 | December 31, 2007 | |||||||
Land(1) | $ | 56,039 | $ | 63,275 | ||||
Easements | 5,624 | 5,624 | ||||||
Buildings | 34,128 | 36,202 | ||||||
Leasehold and land improvements | 301,623 | 270,662 | ||||||
Machinery and equipment | 321,240 | 302,408 | ||||||
Furniture and fixtures | 9,952 | 9,006 | ||||||
Construction in progress | 48,520 | 59,292 | ||||||
Property held for future use | 1,540 | 1,503 | ||||||
778,666 | 747,972 | |||||||
Less: accumulated depreciation | (104,685 | ) | (73,020 | ) | ||||
Property, equipment, land and leasehold improvements, net(2) | $ | 673,981 | $ | 674,952 |
F-24
In accordance with SFAS 144, the Company recognized non-cash impairment charge of $32.9 million primarily relating to leasehold andProperty, equipment, land improvements, including land, buildings, machinery and equipment, equipment and furniture and fixtures at the airport services and airport parking business during the fourth quarter of 2008. The Company reported non-cash impairment charges of $13.8 million in depreciation expense for the airport services business and $19.1 million in cost of service for the airport parking business in the consolidated statement of operations.
Included in cost of services for the year ended December 31, 2007 is a $661,000 impairment charge relating to assets at the Hartford location of the airport parking business due to under-performance in that market.
During the year ended December 31, 2005, operations at three of the Company’s FBO sites were impacted by Hurricane Katrina. The Company recognized losses in the value of property, equipment and leasehold improvements but recovered some of these losses in 2006 and 2007 from insurance policies. The write-down in property, equipment and leasehold improvements and the related insurance amounts were not significant.
Intangible assets at December 31, 20082009 and 20072008 consist of the following ($ in thousands):
Weighted Average Life (Years) | December 31, 2008 | December 31, 2007 | ||||||||||
Contractual arrangements | 30.1 | $ | 802,419 | $ | 802,272 | |||||||
Non-compete agreements | 2.5 | 9,515 | 9,465 | |||||||||
Customer relationships | 10.7 | 78,596 | 85,300 | |||||||||
Leasehold rights | 11.1 | 3,542 | 8,359 | |||||||||
Trade names | Indefinite | (1) | 15,401 | 17,497 | ||||||||
Domain names | Indefinite | (2) | — | 2,108 | ||||||||
Technology | 5.0 | 460 | 460 | |||||||||
909,933 | 925,461 | |||||||||||
Less: Accumulated amortization | (97,749 | ) | (68,116 | ) | ||||||||
Intangible assets, net | $ | 812,184 | $ | 857,345 |
December 31, 2009 | December 31, 2008 | |||||||
Land | $ | 4,618 | $ | 4,651 | ||||
Easements | 5,624 | 5,624 | ||||||
Buildings | 24,789 | 24,752 | ||||||
Leasehold and land improvements | 312,881 | 284,207 | ||||||
Machinery and equipment | 330,226 | 307,662 | ||||||
Furniture and fixtures | 9,395 | 8,228 | ||||||
Construction in progress | 16,519 | 48,223 | ||||||
Property held for future use | 1,561 | 1,540 | ||||||
705,613 | 684,887 | |||||||
Less: accumulated depreciation | (125,526 | ) | (92,452 | ) | ||||
Property, equipment, land and leasehold improvements, net(1) | $ | 580,087 | $ | 592,435 |
(1) |
During the first six months of 2009 and the fourth quarter of 2008, the Company recognized non-cash impairment charges of $7.5 million and $13.8 million, respectively, primarily relating to leasehold and land improvements; buildings; machinery and equipment; and furniture and fixtures at Atlantic Aviation. These charges are recorded in depreciation expense in the consolidated statements of operations.
Intangible assets at December 31, 2009 and 2008 consist of the following ($ in thousands):
Weighted Average Life (Years) | December 31, 2009 | December 31, 2008 | ||||||||||
Contractual arrangements | 31.2 | $ | 774,309 | $ | 802,419 | |||||||
Non-compete agreements | 2.5 | 9,515 | 9,515 | |||||||||
Customer relationships | 10.7 | 78,596 | 78,596 | |||||||||
Leasehold rights | 12.5 | 3,331 | 3,331 | |||||||||
Trade names | Indefinite | 15,401 | 15,401 | |||||||||
Technology | 5.0 | 460 | 460 | |||||||||
881,612 | 909,722 | |||||||||||
Less: accumulated amortization | (130,531 | ) | (97,749 | ) | ||||||||
Intangible assets, net | $ | 751,081 | $ | 811,973 |
As a result of declinesa decline in the performance of certain asset groups during fiscalthe first six months of 2009 and the quarter ended December 31, 2008, the Company evaluated such asset groups for impairment under SFAS No. 144 and determined that certainthe asset groups were impaired. The Company estimated the fair value of each of the impaired asset groups using eitherthe discounted cash flows or third party appraisals.flow model. Accordingly, the Company recognized $29.8 million of non-cash impairment charges consisting of $23.3 million and $21.7 million related to contractual arrangements at Atlantic Aviation during the airport services businessfirst six months of 2009 and $8.1 million related to customer relationships, leasehold rights and trademarks atduring the airport parking businessquarter ended December 31, 2008, respectively. These charges are recorded in amortization of intangibles in the consolidated statement of operations during the fourth quarter of 2008.
For the year ended December 31, 2007, a $1.3 million impairment charge relating to the airport management contacts at the airport services business. Terms of the sale agreement entered in January 2008, pertaining to the pending sale of this part of the business, indicated this impairment for the 2007 year. The airport management contracts at the airport services business were subsequently sold in 2008.operations.
F-25
Amortization expense of intangible assets for the years ended December 31, 2009, 2008, and 2007 and 2006 totaled $72.4$60.9 million, $35.3$61.9 million and $43.8$32.4 million, respectively. The estimated future amortization expense for intangible assets to be recognized for the years ending December 31 is as follows: 2009 — $38.3 million; 2010 — $36.2$35.0 million; 2011 — $36.2$35.0 million; 2012 — $36.2$34.9 million; 2013 — $36.1$34.9 million; 2014 — $34.7 million; and thereafter — $613.8$561.2 million.
The change in goodwill from December 31, 20072008 to December 31, 20082009 is as follows:follows ($ in thousands):
Balance at December 31, 2007 | $ | 770,108 | ||
Acquisition of Seven Bar FBOs | 5,156 | |||
Acquisition of SkyPark | 4,979 | |||
Prior period acquisition purchase price adjustments | (3,243 | ) | ||
Impairment of airport services business | (52,000 | ) | ||
Impairment of airport parking business | (138,751 | ) | ||
Balance at December 31, 2008 | $ | 586,249 |
Balance at December 31, 2007 | $ | 636,336 | ||
Acquisition of SevenBar FBOs | 5,156 | |||
Prior period acquisition purchase price adjustments | (3,243 | ) | ||
Impairment of Atlantic Aviation’s goodwill | (52,000 | ) | ||
Balance at December 31, 2008 | 586,249 | |||
Impairment of Atlantic Aviation’s goodwill | (71,200 | ) | ||
Prior period acquisition purchase price adjustments | 31 | |||
Other | 1,102 | |||
Balance at December 31, 2009 | $ | 516,182 |
In accordance with SFAS No. 142, theThe Company performed its annualtests for goodwill impairment test duringat the fourth quarter of 2008. Goodwill is considered impaired when the carrying amount of a reporting unit exceeds its fair valuelevel on an annual basis and the carrying value of the reporting unit’s goodwill exceeds the fair value of the goodwill, as determined underbetween annual tests if a two-step approach. The estimated fair values of each of the four reporting units with goodwill (airport services, airport parking, the gas production and distribution business, and district energy) were estimated based on the present value of each reporting unit’s future discounted cash flows.triggering event indicates impairment. The decline in the Company’s stock price, particularly over the latter part of 2008 and the first half of 2009, has caused the book value of the Company to exceed its market capitalization. The Company performed goodwill impairment tests during the first six months of 2009 and fourth quarter of 2008. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the test. The first step of the process consists of estimating the fair value of each reporting unit based on a discounted cash flow model using cash flow forecasts and comparing those estimated fair values with the carrying values, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. If the corresponding carrying value is higher than the “implied fair value”, goodwill is written down to reflect the impairment. Based on the testing performed, the Company recognizedrecorded goodwill impairment charges totalling $190.8charge of $71.2 million of which $138.8 million was recorded at the airport parking business to write off all of its goodwill and $52.0 million at Atlantic Aviation during the first six months of 2009 and the quarter ended December 31, 2008, respectively. The Company also performed its annual goodwill impairment test in the fourth quarter of 2009, and concluded that no further goodwill impairment was recorded at the airport services business.required.
While management has a plan to return the Company’s business fundamentals to levels that support the book value per common share, there is no assurance that the plan will be successful, or that the market price of the common stock will increase to such levels in the foreseeable future. Discount rates used in recent cash flow analyses have increased and projected cash flows relating to the Company’s reporting units have generally declined in the latter half of 2008 and first half of 2009 primarily as the result of negative macroeconomic factors. There is no assurance that discount rates will not increase or that the earnings, book values or projected earnings and cash flows of the Company’s individual reporting units will not decline. Management will continue to monitor the relationship of the Company’s market capitalization to its book value, the differences for which management attributes to both negative macroeconomic factors and Company specific factors, and management will continue to evaluate the carrying value of goodwill and other intangible assets. Accordingly, an additional impairment charge to goodwill and other intangible assets may be required in the foreseeable future if the Company’s common stock price continues to trade below book value per common share or the book value exceeds theits estimated fair value of an individual reporting unit.
F-26
The following major categories of nonfinancial assets at the impaired asset groups were written down to fair value during the first six months of 2009 for Atlantic Aviation:
Fair Value Measurements Using | Total Losses | |||||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Quarter Ended December 31, 2009 | Year Ended December 31, 2009 | |||||||||||||||
($ in Thousands) | ||||||||||||||||||||
Property, Equipment, Land and Leasehold Improvements, net | $ | — | $ | — | $ | 5,122 | $ | — | $ | (7,521 | ) | |||||||||
Intangible Assets | — | — | 14,430 | — | (23,326 | ) | ||||||||||||||
Goodwill | — | — | 377,343 | — | (71,200 | ) | ||||||||||||||
Total | $ | — | $ | — | $ | 396,895 | $ | — | $ | (102,047 | ) |
The Company estimated the fair value of each of the impaired asset groups using discounted cash flows. Property, equipment, land and leasehold improvements with a carrying amount of $12.6 million were written down to fair value of $5.1 million during 2009. This resulted in a non-cash impairment charge of $7.5 million, which is recorded in depreciation expense for Atlantic Aviation during the first six months of 2009 in the consolidated statement of operations.
Additionally, intangible assets with carrying amounts of $37.7 million were written down to their fair value of $14.4 million during the first six months of 2009 at Atlantic Aviation. This resulted in a non-cash impairment charge of $23.3 million, which is recorded in amortization of intangibles expense in the consolidated statement of operations.
As discussed in Note 9, “Intangible Assets”, the Company performed goodwill impairment analyses during the first six months of 2009. As a result of these analyses, goodwill with a carrying amount of $448.5 million was written down to its implied fair value of $377.3 million resulting in a non-cash impairment charge of $71.2 million at Atlantic Aviation. This non-cash impairment charge was included in goodwill impairment in the consolidated statement of operations.
The significant unobservable inputs used for all fair value measurements in the above table included forecasted cash flows of Atlantic Aviation and its asset groups, the discount rate and, in the case of goodwill, the terminal value. The forecasted cash flows for this business were developed using actual cash flows from 2008 and 2009, forecasted jet fuel volumes from the Federal Aviation Administration, forecasted consumer price indices and forecasted LIBOR rates based on proprietary models using various published sources. The discount rate was developed using a capital asset pricing model.
Model inputs included:
The terminal value was based on observed earnings before interest, taxes, depreciation and amortization, or EBITDA, and multiples historically paid in transactions for comparable businesses.
Accrued expenses at December 31, 20082009 and 20072008 consist of the following ($ in thousands):
December 31, 2008 | December 31, 2007 | December 31, 2009 | December 31, 2008 | |||||||||||||
Payroll and related liabilities | $ | 10,189 | $ | 11,887 | $ | 6,030 | $ | 8,462 | ||||||||
Interest | 1,507 | 1,499 | 609 | 1,218 | ||||||||||||
Insurance | 2,686 | 2,728 | 1,770 | 1,932 | ||||||||||||
Real estate taxes | 2,438 | 2,347 | 887 | 896 | ||||||||||||
Other | 12,628 | 12,723 | 8,136 | 10,681 | ||||||||||||
$ | 29,448 | $ | 31,184 | $ | 17,432 | $ | 23,189 |
The Company capitalizes its operating businesses separately using non-recourse, project finance style debt. In addition, it has a credit facility at its subsidiary, MIC Inc., primarily to finance acquisitions and capital expenditures.expenditures, which matures on March 31, 2010. At December 31, 2008,2009, there was $69.0 millionno balance outstanding on this facility. The Company currently has no indebtedness at the MIC LLC level apart from the guarantee of the MIC Inc.’s revolving credit facility.level.
All of the term debt facilities described below contain customary financial covenants, including maintaining or exceeding certain financial ratios, and limitations on capital expenditures and additional debt.
For a description of certain related party transactions associated with the Company’s long-term debt, see Note 14, Related17, “Related Party Transactions.Transactions”.
At December 31, 20082009 and 2007,2008, the Company’s consolidated long-term debt consists ofcomprised the following ($ in thousands):
December 31, 2008 | December 31, 2007 | |||||||
MIC Inc. revolving credit facility | 69,000 | — | ||||||
Airport services | 939,800 | 911,150 | ||||||
Gas production and distribution | 169,000 | 164,000 | ||||||
District energy | 150,000 | 150,000 | ||||||
Airport parking | 201,344 | 201,506 | ||||||
Total | 1,529,144 | 1,426,656 | ||||||
Less current portion | (201,344 | ) | (162 | ) | ||||
Long-term portion | $ | 1,327,800 | $ | 1,426,494 |
December 31, 2009 | December 31, 2008 | |||||||
MIC Inc. | $ | — | $ | 69,000 | ||||
The Gas Company | 179,000 | 169,000 | ||||||
District Energy | 170,000 | 150,000 | ||||||
Atlantic Aviation | 863,279 | 939,800 | ||||||
Total | 1,212,279 | 1,327,800 | ||||||
Less: current portion | (45,900 | ) | — | |||||
Long-term portion | $ | 1,166,379 | $ | 1,327,800 |
At December 31, 2008,2009, future maturities of long-term debt are as follows ($ in thousands):
2009 | $ | 201,344 | ||||||
2010 | 69,000 | $ | 45,900 | |||||
2011 | — | 55,906 | ||||||
2012 | — | 55,972 | ||||||
2013 | 169,000 | 258,325 | ||||||
Thereafter | 1,089,800 | |||||||
2014 | 796,176 | |||||||
Total | $ | 1,529,144 | $ | 1,212,279 |
F-27
Effective April 14, 2009, MIC Inc. has a $300.0 millionelected to reduce the available principal on its revolving credit facility from $300.0 million to $97.0 million and on December 31, 2009, further reduced the available principal to $20.0 million. This revolving credit facility is with Citicorp North America Inc. (as lender and administrative agent), Wachovia Bank National Association, Credit Suisse, Cayman Islands Branch, WestLB AG, New York Branch, and Macquarie Bank Limited. The original maturity of the facility was March 2008; however, in February 2008, MIC Inc. amended and restated the facility, extending the maturity to March 2010. The main use of the facility is to fund acquisitions, capital expenditures and to a limited extent, working capital. The facility terminates on March 31, 2010 and currently bears interest at the rate of LIBOR plus 2.75%. Base rate borrowings would be at the base rate plus 1.75%.
The balance outstanding at December 31, 2008 was $69.0 million. On February 20, 2008, MIC Inc. drew $56.0 million on this facility, part of which was used to fund the acquisition of Seven BarSevenBar FBOs which was completed in the first quarter of 2008, and part of which was used for other projects. On July 31, 2008, MIC Inc. drew an additional $13.0 million on this facility to fund the acquisition of SkyPark, which was completed in the third quarter of 2008. Macquarie Bank Limited, a related party, committed $66.7On February 25, 2009, MIC Inc. repaid $2.6 million to the $300.0 million facility, of which $12.4 million was drawn on February 20, 2008 as part of the $56.0 million total drawdown and an additional $2.9 million wasoutstanding balance on the revolving credit facility.
At March 31, 2009, the Company reclassified the outstanding balance drawn on July 31, 2008 as part of the $13.0 million total drawdown.
In 2007, MIC Inc. borrowed a total of $89.0 million under the revolving credit facility at the non-operating holding company from long-term debt to current portion of long-term debt on the consolidated balance sheet due to its scheduled maturity on March 31, 2010. During the year, the Company was in 2007 and repaiddiscussions with its lenders to convert the facility in full withto a term loan and extend the maturity date of the $66.4 million outstanding balance.
On December 28, 2009, the Company used the net cash proceeds it received from the airport services business refinancing, as discussed below. There was nosale of the 49.99% non-controlling interest in District Energy, and cash on hand, to pay off the outstanding principal balance outstandingon the revolving credit facility. Shortly thereafter the Company elected to reduce the amount available on the revolving credit facility from $97.0 million to $20.0 million through to the maturity of the facility at DecemberMarch 31, 2007.2010. The Company expects to retain excess cash generated by the consolidated businesses over the near term.
See Note 17, “Related Party Transactions” for a discussion of Macquarie Group’s portion of the commitments available under the facility and the payments made to the Macquarie Group.
The obligations under the facility are guaranteed by the Company and secured by a pledge of the equity of all current and future direct subsidiaries of MIC Inc. and the Company. Among other things, the revolving facility includes an event of default should the Manager or another affiliate within the Macquarie Group cease to act as manager of the Company.
Material terms of the MIC Inc.’s revolving credit facility are presented below:
Borrower | MIC Inc. | |
Facilities | $ | |
Termination date | March 31, 2010 | |
Interest and principal repayments | Interest only during the term of the loan | |
Repayment of principal at termination, upon voluntary prepayment, or upon an event requiring mandatory prepayment | ||
Eurodollar rate | LIBOR plus 2.75% per annum | |
Base rate | Base rate plus 1.75% per annum | |
Annual commitment fee | 0.50% per annum on the average daily undrawn balance |
For a description of certain related party transactions associated with the Company’s acquisitions and MIC Inc.’s revolving credit facility, see Note 14, Related Party Transactions.
At the beginning of 2006, the airport services business had in place a $300.0 million term loan and a $5.0 million revolving credit facility, of which $2.0 million was utilized to issue letters of credit. In July 2006, the airport services business debt facility was expanded (and drawn down) by an additional $180.0 million to finance the acquisition of Trajen. In February 2007, the debt facility was expanded by an additional
F-28
$32.5 million to partially finance the acquisition of Supermarine on May 30, 2007, at which time this additional debt was drawn down.
In August 2007, the airport services business entered a new credit facility to provide for $192.0 million of bridge term loan borrowings to partially finance the acquisition of Mercury and a $12.5 million working capital revolving facility. This term facility was drawn down on August 9, 2007 when the acquisition closed. The floating interest rate on these loans was LIBOR with a 1.7% margin. The interest on this bridge term loan was fully hedged at an average rate of 4.999% (excluding the margin). This bridge term loan required repayment in 2009, but the facility was repaid in October 2007 as part of the refinancing discussed below.
In August 2007, the airport services business entered into another credit facility to provide for $80.0 million of bridge term loan borrowings to partially finance the acquisition of San Jose and a $5.0 million working capital revolving facility. This term facility was drawn down on August 17, 2007 when the acquisition closed. The floating interest rate on these loans was LIBOR with a 1.7% margin. The interest on this bridge term loan was fully hedged at 5.442% (excluding the margin). This bridge term loan required repayment in 2009, but the facility was repaid in October 2007 as part of the refinancing discussed below.
On September 27, 2007, the airport services business entered into a new credit facility to provide an increased term loan facility, a capital expenditure facility and a revolving credit facility. The new credit facility was drawn down on October 16, 2007 and the proceeds were used to repay the existing $512.5 million term loan facility, the $192.0 million Mercury bridge facility, the $80.0 million San Jose bridge facility and $89.0 million borrowed by MIC Inc. under its revolving credit facility. In addition, the proceeds were used to repay outstanding balances under the existing working capital revolving facilities, and to pay for costs and expenses incurred in connection with the new credit facility.
The terms of the loan agreement of the airport services business have been revised in accordance with the amendment completed and effective on February 25, 2009. A comparative summary of key terms is presented below.
F-29
To hedge the interest commitments under the new term loan, the airport services business’s existing interest rate swaps were novated and, in addition, new swaps were entered into, fixing 100% of the term loan for years 1 to 5. Excluding the margin, the weighted average swap rate for the term loan facility over the first five year period of the debt facility is approximately 5.18%. The following table shows the weighted average rates which fix the term facility by period (not including interest margins of 1.6% and 1.725%):
The acquisition of The Gas Company LLC, or TGC, in June 2006 was partially financed with $160.0 million of term loans borrowed under the two amended and restated loan agreements. One of these loan agreements provides for an $80.0 million term loan borrowed by HGC Holdings LLC, or HGC, the parent company of The Gas Company, LLC, or TGC. The other loan agreement provides for an $80.0 million term loan borrowed by TGC and a $20.0 million revolving credit facility, including a $5.0 million letter of credit facility. TGC generally intends to utilize the $20.0 million revolving credit facility to finance its working capital and to finance or refinance its capital expenditures for regulated assets. At December 31, 2009, $19.0 million was outstanding under the revolving credit facility.
F-30
The obligations under the credit agreements are secured by security interests in the assets of TGC as well as the equity interests of TGC and HGC. Material terms of the term and revolving credit facilities are presented below:
Holding Company Debt | Operating Company Debt | |||||
HGC | ||||||
$80.0 million Term Loan (fully drawn at December 31, | $80.0 million Term Loan (fully drawn at December 31, | $20.0 million Revolver ($ | ||||
First priority security interest on | First priority security interest on | |||||
June, 2013 | June, 2013 | June, 2013 | ||||
Payable at maturity | Payable at maturity | Payable at | ||||
Interest: Years 1 | LIBOR plus 0.60% | LIBOR plus 0.40% | LIBOR plus 0.40% | |||
Commitment Fees: Years 1 – 5 | — | — | 0.14% on undrawn portion | |||
Interest: Years 6 | LIBOR plus 0.70% | LIBOR plus 0.50% | LIBOR plus 0.50% | |||
Commitment Fees: Years 6 – 7 | — | — | 0.18% on undrawn portion |
To hedge the interest commitments under the new term loan, the gas production and distribution businessThe Gas Company entered into interest rate swaps fixing 100% of the term loans at 4.8375% (excluding the margin).
In addition to customary terms and conditions for secured term loan and revolving credit agreements, the agreements provide that TGC:
(1) | may not incur more than $7.5 million of new debt; and |
(2) | may not sell or dispose of more than $10.0 million of assets per year. |
The facilities also require mandatory repayment if the Company or another entity managed by the Macquarie Group fails to either own 75% of the respective borrowers or control the management and policies of the respective borrowers.
The Hawaii Public Utilities Commission, in approving the purchase of the business by the Company, required that HGC’sThe Gas Company’s consolidated debt to total capital ratio maydoes not exceed 65%. This ratio was 63.2% at December 31, 2009 and 61.7% at December 31, 2008 and 63.6% at December 31, 2007.2008.
DuringTABLE OF CONTENTS
The Gas Company also has an uncommitted unsecured short-term borrowing facility of $7.5 million that was renewed during the second quarter of 2008, the gas production and distribution business also increased its unsecured short-term borrowing facility to $7.5 million.2009. This credit line bears interest at the lending bank’s quoted rate or prime rate. The facility is usedavailable for working capital needs. At December 31, 2009 and December 31, 2008, no amounts were outstanding.
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At the beginning of 2006, the district energy business hadDistrict Energy has in place two notes payable, comprising a $100.0 million note with fixed interest at 6.82% and a $20.0 million note with fixed interest at 6.40%. These notes were secured by all of the assets of Macquarie District Energy, Inc. (a wholly-owned subsidiary of the district energy business) and its subsidiaries, excluding the assets of Northwind Aladdin. The notes were due in 2023, with principal repayments starting in the quarter ending December 31, 2007. The notes were repaid in full in September 2007 as part of the refinancing discussed below.
In addition, the district energy business had entered into a $20.0 million three-year revolving credit facility with a financial institution that could be used to fund capital expenditures, working capital or to provide letters of credit. The district energy business issued three separate letters of credit totaling $7.1 million against this facility in the favor of the City of Chicago. This credit facility has been replaced with a new facility under the refinancing.
On September 21, 2007, the district energy business entered a new credit facility to provide a term loan facility, a capital expenditure loan facility and a revolving creditloan facility. The new credit facility was drawn down on September 26, 2007 and the proceedsProceeds of $150.0 million, drawn under the term loan facility in 2007, were used to repay the previously existing notes payable and revolver,debt outstanding, pay a $14.7 million make-whole payment, and to pay accrued interest, fees and transaction costs.
Material terms of the facility are presented below:
Macquarie District Energy | ||
• $150.0 million term loan facility (fully drawn at December 31, | ||
• $20.0 million capital expenditure loan facility | ||
• $18.5 million revolving | ||
Payable at maturity | ||
Interest type | Floating | |
Interest rate and fees | • Interest rate: | |
• LIBOR plus 1.175% or | ||
• Base Rate (for capital expenditure loan and revolving loan facilities only): 0.5% above the greater of the prime rate or the federal funds rate | ||
• Commitment fee: 0.35% on the undrawn portion | ||
Maturity | September, 2014; September, 2012 for the revolving loan facility | |
Mandatory prepayment | • With net proceeds that exceed $1.0 million from the sale of assets not used for replacement assets; | |
• With insurance proceeds that exceed $1.0 million not used to repair, restore or replace assets; | ||
• In the event of a change of control; | ||
• In years 6 and 7, with 100% of excess cash flow applied to repay the term loan and capital expenditure loan facilities; | ||
• With net proceeds from equity and certain debt issuances; and | ||
• With net proceeds that exceed $1.0 million in a fiscal year from contract terminations that are not reinvested. | ||
Collateral | First lien on the following (with limited exceptions): | |
• Project revenues; | ||
• Equity of the Borrower and its | ||
• Substantially all | ||
• Insurance policies and claims or proceeds. | ||
To hedge the interest commitments under the new term loan, the district energy business entered into an interest rate swap fixing 100% of the term loan at 5.074% (excluding the margin).
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To hedge the interest commitments under the term loan facility, District Energy entered into an interest rate swap fixing 100% of the term loan facility at 5.074% (excluding the margin).
At the beginning of 2006, the airport parking business hadAtlantic Aviation has in place a term loan facility, a capital expenditure facility and a revolving credit facility. On February 25, 2009, Atlantic Aviation amended its credit facility to provide the following credit facilities:
On September 1, 2006, the airport parking business, through a number of its majority-owned subsidiaries, entered into a loan agreement providing for $195.0excess cash flow to prepay $37.0 million of the outstanding principal balance of the term loan borrowings. On September 1, 2006,and $3.6 million in interest rate swap breakage fees. The Company has classified $45.9 million relating to Atlantic Aviation’s debt in current portion of long-term debt in the airport parking business drew down $195.0consolidated 2009 balance sheet as it expects to repay this amount during 2010.
In February 2010, Atlantic Aviation used $17.1 million and repaid two of its existing term loans totaling $184.0excess cash flow from the fourth quarter of 2010 to prepay $15.5 million paid interest expense of $1.9 million, and paid fees and expenses of $4.9 million. The airport parking business also released approximately $400,000 from reserves in excess of minimum liquidity and reserve requirements. The remaining amount of the drawdown, approximately $4.6 million, was used to fund maintenance and specific capital expendituresoutstanding principal balance of the airport parking business.term loan debt under this facility and incurred $1.6 million in interest rate swap breakage fees.
MaterialThe key terms of the new credit facilityloan agreement of Atlantic Aviation, as revised on February 25, 2009, are presented below:
$ | ||
Payable at maturity |
Years 1 to | 5: 50% excess cash flow when Leverage Ratio is between 6.0x and 5.5x 100% of excess cash flow in years 6 and 7 (unchanged) | |||
Interest | ||||
Interest | Years 1 – 5: LIBOR plus Base Rate (for revolving credit facility only): 0.6% above the greater of: (i) the prime rate or (ii) the federal funds rate plus 0.5% | |||
Years 6 – 7: LIBOR plus 1.725% or Base Rate (for revolving credit facility only): 0.725% above the greater of: (i) the prime rate or (ii) the federal funds rate plus 0.5% |
The airport parking business had an interest rate cap at LIBOR equal to 4.48% in effect through October 15, 2008 with respect to a notional amount of the loan of $58.7 million. The airport parking business
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had an
Maturity | October, 2014 | |
Mandatory prepayment | With net proceeds that exceed $1.0 million from the sale of assets not used for replacement assets; | |
With net proceeds of any debt other than permitted debt; | ||
With net insurance proceeds that exceed $1.0 million not used to repair, restore or replace assets; | ||
In the event of a change of control; | ||
Additional mandatory prepayment based on leverage grid | ||
With any FBO lease termination payments received; | ||
With excess cash flows in years 6 and 7. | ||
Collateral | First lien on the following (with limited exceptions): | |
• Project revenues; | ||
• Equity of the borrower and its subsidiaries; and | ||
• Insurance policies and claims or proceeds. |
To hedge the interest risk associated with commitments under Atlantic Aviation’s term loan, Atlantic Aviation entered into a number of interest rate swaps with various maturity dates to hedge 100% of the term loan through October 16, 2012. As of December 31, 2009, six swaps were remaining, five of which will expire on December 14, 2010. The weighted average hedged rate for these swaps was approximately 5.21%. On December 14, 2010, Atlantic will have only one remaining swap forhedging 100% of the $136.3 millionoutstanding balance of the floatingterm loan, with a hedge rate facility at 5.17% (excluding the margin) through October 16, 2008 and for the full $195.0 million once the interest rate cap expired through the maturity of the loan on September 15, 2009. The obligations of the airport parking business under the interest rate swap have been guaranteed by MIC Inc.
The airport parking business has $201.3 million of total debt, which included $6.3 million of fixed rate debt at December 31, 2008, due on or before September 9, 2009. This debt is secured by assets and collateral of the airport parking business. Creditors of this business do not have recourse to any assets of the Company or any assets of the other businesses, other than approximately $12.0 million in guarantees and interest rate swap liabilities.
The airport parking business is currently in default under the liquidity covenant in their credit facility and, based on preliminary results for the first quarter of 2009, it is unlikely that the business will be in compliance with its other financial covenants as of March 31, 2009. In addition, the airport parking business does not have sufficient liquidity or capital resources to pay its maturing debt obligations and, based on current results and market conditions, the Company does not expect that the airport parking business will be able to refinance its debt as it matures. The Company has no intention of contributing any further capital to this business other than potentially obligations that the Company has guaranteed. As a result, it is likely that this business will default on its existing debt obligations without substantial concessions from lenders and there is doubt regarding the ability of the airport parking business to continue as a going concern. Accordingly, all of the Company’s long term assets have been written down to estimated fair value resulting in impairment of goodwill, property equipment, land and leasehold improvements and intangible assets of $166.0 million. The Company is in discussion with lenders and are pursuing strategic alternatives for this business including asset sales, restructuring plans, filing for protection under bankruptcy laws or liquidating the business.5.19%.
The Company has interest rate-related derivative instruments to manage its interest rate exposure on its debt instruments. The Company does not enter into derivative instruments for any purpose other than economic interest rate hedging. That is, the Company does not speculate using derivative instruments.
By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties.
Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest rates is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Company and its businesses have in place variable-rate debt. The debt obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, managementthe Company enters into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk on a majority of its debt with a variable-rate debt.component. These 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.
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In accordance with SFAS No. 133,At December 31, 2009, the Company has concluded that allhad $1.2 billion of itscurrent and long-term debt, $1.1 billion of which was economically hedged with interest rate swaps qualify as cash flow hedges, and $83.9 million of which was unhedged. At December 31, 2008, the Company applieshad $1.3 billion of debt, $1.2 billion of which was economically hedged with interest rate swaps and $117.8 million of which was unhedged.
For the year ended December 31, 2009, Atlantic Aviation used $90.4 million to prepay $81.6 million of the outstanding principal balance of the term loan debt under the facility and $8.8 million in interest rate swap breakage fees. As a result of the future interest payments that are no longer probable of occurring due to the prepayment of debt, $44.0 million of accumulated other comprehensive loss in the consolidated balance sheet related to Atlantic Aviation’s derivatives was reclassified to loss on derivative instruments in the consolidated statement of operations for the year ended December 31, 2009. Subject to the mandatory debt prepayment conditions, under the amended debt terms, to the extent future cash flows exceed forecast, Atlantic Aviation will repay its debt more quickly than expected, which will result in additional interest rate swap breakage fees and corresponding reclassifications from accumulated other comprehensive loss to loss on derivative instruments. See Note 12 “Long-Term Debt” for further discussion.
In March 2009, Atlantic Aviation, The Gas Company and District Energy entered into interest rate basis swap contracts with their existing counterparties. These contracts effectively changed the interest rate index on the Company’s existing swap contracts through March 2010 from receiving the 90-day LIBOR rate to receiving the 30-day LIBOR rate plus a margin of 19.50 basis points for Atlantic Aviation and 24.75 basis points for The Gas Company and District Energy. This transaction, adjusted for the prepayments of outstanding principal on the term loan debt at Atlantic Aviation, resulted in $1.8 million lower interest expense for these businesses in 2009 and is expected to lower the effective cash interest expense on these businesses’ debt by approximately $581,000 for the first quarter of 2010.
As of February 25, 2009, due to the amendment of the credit facility for Atlantic Aviation discussed above, and effective April 1, 2009 for the Company’s other businesses, the Company elected to discontinue hedge accounting. In prior periods, when the Company applied hedge accounting, for these instruments. Changeschanges in the fair value of interest rate derivatives designated as hedging instruments that effectively offset the variability of cash flows associated with variable-rateon the Company’s debt interest obligations are reportedwere recorded in other comprehensive income or loss. Any ineffective portion onincome. From the changedates that hedge accounting was discontinued, all movements in the valuationfair value of derivatives is taken through earnings, and reported in the gain or loss on derivative instruments line in the consolidated statements of operations. The Company anticipates the hedges to be effective on an ongoing basis. The term over which the Company is currently hedging exposures relating to debt is through September 2014.
At December 31, 2008, the Company had $1.5 billion of debt, $1.4 billion of which was hedged with interest rate swaps $117.8 millionare recorded directly through earnings. As interest payments are made, a portion of which was unhedged and $6.3 million of which incurred interest at fixed rates.
At December 31, 2007, the Company had $1.4 billion of long-term debt, $1.3 billion of which was hedged with interest rate swaps, $58.7 million of which was hedged with interest rate caps, $15.2 million of which was unhedged and $6.5 million of which incurred interest at fixed rates.
For the years ended December 31, 2008 and 2007, the Company recorded the following movements in the value of its derivative instruments ($ in thousands):
December 31, 2008 | December 31, 2007 | |||||||||||||||
Interest Rate Swaps | Interest Rate Swaps | Foreign Exchange Forward Contracts(1) | Total | |||||||||||||
Opening balance (liability)/asset (includes current and non-current portions) | $ | (57,009 | ) | $ | 2,432 | $ | (3,287 | ) | $ | (855 | ) | |||||
Unrealized loss on derivative instruments included in other comprehensive loss for the year ended | (123,454 | ) | (56,783 | ) | — | (56,783 | ) | |||||||||
Ineffective portion of the changes in the valuation of the derivative instruments, representing unrealized gains (losses) included in loss on derivative instruments for the year ended | 51 | (2,386 | ) | — | (2,386 | ) | ||||||||||
Reclassification of realized losses (gains) on derivative instruments into interest expense for the year ended | 23,001 | (272 | ) | — | (272 | ) | ||||||||||
Changes in valuation of foreign exchange forward contracts | — | — | 3,287 | 3,287 | ||||||||||||
Closing balance (liability)/asset (includes current and non-current portions) | $ | (157,411 | ) | $ | (57,009 | ) | $ | — | $ | (57,009 | ) |
For the year ended December 31, 2007, the Company recorded $3.3 million in gains, representing changes in the valuation of foreign exchange forward contracts, partially offset by a $2.5 million realized
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loss on the settlement of those contracts, in loss on derivative instruments. The Company does not have any foreign exchange derivative instruments outstanding at December 31, 2007 and December 31, 2008.
Also included within loss on derivative instruments for the years ended December 31, 2008 and 2007 are $2.6 million loss and a $409,000 gain, respectively, representing a reclassification of realized losses and gains from other comprehensive loss recorded under hedge accounting is also reclassified into earnings. The Company expects that it will reclassify into earnings the $72.3 million of net derivative losses of approximately $53.4 million (pretax) fromincluded in accumulated other comprehensive (loss) income into earningsloss as of December 31, 2009 over the remaining life of the existing interest rate swaps, of which the Company expects approximately $31.7 million will be reclassified over the next twelve months; however, this amount may change depending on movements in interest rates over that period.12 months.
In accordance with SFAS No. 133, theThe Company’s derivative instruments are recorded on the balance sheet at fair value.value with changes in fair value of interest rate swaps recorded directly through earnings since the dates that hedge accounting was discontinued. The Company measures derivative instruments at fair value using the income approach, which converts future amounts (beingdiscounts the future net cash settlements expected under the derivative contracts)contracts to a discounted present value. These valuations primarily utilize observable (“level 2”) inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals.
The Company’s fair value measurements of its derivative instruments and the related location of the liabilities associated with the hedging instruments within the consolidated balance sheets at December 31, 2009 and December 31, 2008 were as follows ($ in thousands):follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description | Total at December 31, 2008 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Derivative Instruments: | ||||||||||||||||
Current liabilities | $ | (51,441 | ) | $ | — | $ | (51,441 | ) | $ | — | ||||||
Non-current liabilities | (105,970 | ) | — | (105,970 | ) | — | ||||||||||
Total | $ | (157,411 | ) | $ | — | $ | (157,411 | ) | $ | — |
Liabilities at Fair Value(1) | ||||||||
Interest Rate Swap Contracts Not Designated as Hedging Instruments(2) | Interest Rate Swap Contracts Designated as Hedging Instruments | |||||||
Balance Sheet Location | December 31, 2009 | December 31, 2008 | ||||||
($ in Thousands) | ||||||||
Fair value of derivative instruments – current liabilities | $ | (49,573 | ) | $ | (45,464 | ) | ||
Fair value of derivative instruments – non-current liabilities | (54,794 | ) | (105,970 | ) | ||||
Total interest rate derivative contracts | $ | (104,367 | ) | $ | (151,434 | ) |
(1) | Fair value measurements at reporting date were made using significant other observable inputs (level 2). |
(2) | As of February 25, 2009 for Atlantic Aviation and April 1, 2009 for the other businesses, the Company elected to discontinue hedge accounting. |
The Company’s hedging activities for the years ended December 31, 2009 and 2008 and the related location within the consolidated financial statements were as follows:
Derivatives Designated as Hedging Instruments(1) | Derivatives Not Designated as Hedging Instruments(1) | |||||||||||||||||||||||||||||||
Amount of Gain/ (Loss) Recognized in OCI on Derivatives (Effective Portion) for the Year Ended December 31, | Amount of Loss Reclassified from OCI into Income (Effective Portion) for the Year Ended December 31, | Amount of Loss Recognized in Loss on Derivative Instruments (Ineffective Portion) for the Year Ended December 31, | Amount of Loss Recognized in Loss on Derivative Instruments for the Year Ended December 31, | |||||||||||||||||||||||||||||
Financial Statement Account | 2009 | 2008 | 2009(2) | 2008 | 2009 | 2008 | 2009(3) | 2008 | ||||||||||||||||||||||||
($ in Thousands) | ||||||||||||||||||||||||||||||||
Interest expense | $ | — | $ | — | $ | (15,691 | ) | $ | (19,798 | ) | $ | — | $ | — | $ | (43,937 | ) | $ | — | |||||||||||||
Loss on derivative instruments | — | — | (25,154 | ) | (2,648 | ) | (84 | ) | (195 | ) | (4,302 | ) | — | |||||||||||||||||||
Accumulated other comprehensive gain (loss) | 2,848 | (118,362 | ) | — | — | — | — | — | — | |||||||||||||||||||||||
Total | $ | 2,848 | $ | (118,362 | ) | $ | (40,845 | ) | $ | (22,446 | ) | $ | (84 | ) | $ | (195 | ) | $ | (48,239 | ) | $ | — |
(1) | Substantially all derivatives are interest rate swap contracts. |
(2) | Includes $22.7 million of accumulated other comprehensive losses reclassified into earnings (loss or derivative instruments) resulting from the $44.6 million pay down of principal debt at Atlantic Aviation in the first quarter of 2009. Interest expense represents cash interest paid on derivative instruments, of which $5.2 million is related to the payment of interest rate swap breakage fees in the first quarter of 2009. |
(3) | For the year ended December 31, 2009, loss on derivative instruments primarily represents the change in fair value of interest rate swaps from the discontinuation of hedge accounting as of February 25, 2009 for Atlantic Aviation and April 1, 2009 for the Company’s other businesses. In addition, loss on derivative |
instruments includes the reclassification of amounts from accumulated other comprehensive loss into earnings, as Atlantic Aviation pays down its debt more quickly than anticipated. |
All of the Company’s derivative instruments are collateralized by all of the assets of the respective businesses.
The Company has existing notes payable with various finance companies for the purchase of equipment. The notes are secured by the equipment and require monthly payments of principal and interest. The Company also leases certain equipment under capital leases. The following is a summary of the maturities of the notes payable and the future minimum lease payments under capital leases, together with the present value of the minimum lease payments, as of December 31, 20082009 ($ in thousands):
Notes Payable | Capital Leases | Notes Payable | Capital Leases | |||||||||||||
2009 | $ | 1,819 | $ | 905 | ||||||||||||
2010 | 149 | 451 | $ | 176 | $ | 59 | ||||||||||
2011 | 215 | 189 | 153 | 42 | ||||||||||||
2012 | 168 | 112 | 113 | — | ||||||||||||
2013 | 168 | 19 | 113 | — | ||||||||||||
2014 | 113 | — | ||||||||||||||
Thereafter | 803 | — | 964 | — | ||||||||||||
Present value of minimum payments | 3,322 | 1,676 | 1,632 | 101 | ||||||||||||
Less current portion | (1,819 | ) | (905 | ) | ||||||||||||
Less: current portion | (176 | ) | (59 | ) | ||||||||||||
Long-term portion | $ | 1,503 | $ | 771 | $ | 1,456 | $ | 42 |
The net book value of equipment under capital leases at December 31, 20082009 and December 31, 20072008 was $3.3 million$291,000 and $4.9 million,$429,000, respectively.
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The Company is authorized to issue 500,000,000 LLC interests. Each outstanding LLC interest of the Company is entitled to one vote on any matter with respect to which holders of LLC interests are entitled to vote.
Prior to June 25, 2007, ourthe Company’s publicly traded entity was the Trust. On June 25, 2007, the Trust was dissolved and all of the outstanding shares of beneficial interest in the Trust were exchanged for an equal number of LLC interests in the Company. Prior to this exchange and the dissolution of the Trust, all interests in the Company were held by the Trust. As a result of the mandatory share exchange, each shareholder of the Trust at the time of the exchange became a shareholder of, and with the same percentage interest in, the Company. The LLC interests were listed on the New York Stock Exchange under the symbol “MIC” at the time of the exchange.
On June 28, 2007, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with the Manager and Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Macquarie Securities (USA) Inc., as representatives of the underwriters named in the Purchase Agreement (the “Underwriters”), whereby the Company and the Manager agreed to sell and the Underwriters agreed to purchase, subject to and upon terms and conditions set forth therein, 5,701,000 LLC interests and 599,000 LLC interests, respectively, of the Company under the Company’s existing shelf registration statement (Registration No. 333-138010-01). Additionally, under the Purchase Agreement, the Company granted the Underwriters an option to purchase up to 945,000 additional LLC interests solely to cover overallotments.
The offering of the LLC interests was priced at $40.99 per LLC interest and was completed in July 2007. In addition, the Underwriters exercised their overallotment option for 464,871 LLC interests. The proceeds from the equity offering was $241.3 million, net of underwriting fees and expenses. The Company used the proceeds of the offering to partially finance the acquisitionacquisitions of Mercury and San Jose discussedadditional FBO sites in Note 4, Acquisitions.
In the fourth quarter of 2006, the Company completed an offering of an aggregate of 10,350,000 shares of trust stock at a price per share of $29.50. The net proceeds of $291.1 million received by the Company, together with the proceeds from the sales of the investments in MCG and SEW, were used to repay outstanding borrowings under the MIC Inc. revolving credit facility, as discussed in Note 9, Long-Term Debt.2007.
The Company has an independent director equity plan, which provides for automatic, non-discretionary awards of director stock units as an additional fee for the independent directors’ services on the Board. The purpose of this plan is to promote the long-term growth and financial success of the Company by attracting, motivating and retaining independent directors of outstanding ability. Only the Company’s independent directors may participate in the plan.
On the date of each annual meeting, each director receives a grant of stock units equal to $150,000 divided by the average closing sale price of the stock during the 10-day period immediately preceding the annual meeting of the Company’s stockholders. The stock units vest, assuming continued service by the director, on the date immediately preceding the next annual meeting of the Company’s stockholders.
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The Company has issued the following stock to the Board of Directors under this plan:
Date of Grant | Stock Units Granted | Price of Stock Units Granted | Date of Vesting | Date of Stock Issuance | Stock Units Granted | Price of Stock Units Granted | Date of Vesting | |||||||||||||||||||||
December 21, 2004 | 7,644 | (1) | $ | 25.00 | May 24, 2005 | May 25, 2005 | 7,644 | (1) | $25.00 | May 24, 2005 | ||||||||||||||||||
May 25, 2005 | 15,873 | $ | 28.35 | May 25, 2006 | June 2, 2006 | 15,873 | $ | 28.35 | May 25, 2006 | |||||||||||||||||||
May 25, 2006 | 16,869 | $ | 26.68 | May 23, 2007 | July 13, 2007 | 16,869 | $ | 26.68 | May 23, 2007 | |||||||||||||||||||
May 24, 2007 | 10,314 | $ | 43.63 | May 26, 2008 | June 4, 2008 | 10,314 | $ | 43.63 | May 26, 2008 | |||||||||||||||||||
May 27, 2008 | 14,115 | $ | 31.88 | (2) | N/A | 14,115 | $ | 31.88 | June 3, 2009 | |||||||||||||||||||
June 4, 2009 | 128,205 | $ | 3.51 | (2) |
(1) | Pro rata basis relating to the period from the closing of the initial public offering through the anticipated date of the |
(2) | Date of vesting will be the day immediately preceding the |
The Company’s operations are broadly classified into four reportable business segments: airport services business, gas production and distribution business, district energy business and airport parking business. The gas production and distribution business is a segment starting in the second quarter of 2006,energy-related businesses and the results includedaviation-related business.
The energy-related businesses consist of two reportable segments: The Gas Company and District Energy. The energy-related businesses also include a 50% investment in IMTT, which is accounted for under the equity method. Financial information for IMTT’s business as a whole is presented below are from the date($ in thousands) (unaudited):
As of, and for the Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Revenue | $ | 346,175 | $ | 352,583 | $ | 275,197 | ||||||
Net income | $ | 54,584 | $ | 12,109 | $ | 9,626 | ||||||
Interest expense, net | 29,510 | 23,540 | 14,349 | |||||||||
Provision for income taxes | 38,842 | 9,452 | 7,076 | |||||||||
Depreciation and amortization | 55,998 | 44,615 | 36,025 | |||||||||
Unrealized (gains) losses on derivative instruments | (30,686 | ) | 46,277 | 21,022 | ||||||||
Other non-cash income (expenses) | (590 | ) | 601 | 860 | ||||||||
EBITDA excluding non-cash items(1) | $ | 147,658 | $ | 136,594 | $ | 88,958 | ||||||
Capital expenditures paid | $ | 137,008 | $ | 221,700 | $ | 209,124 | ||||||
Property, equipment, land and leasehold improvements, net | 987,075 | 912,887 | 724,806 | |||||||||
Total assets balance | 1,064,849 | 1,006,289 | 862,534 |
(1) | EBITDA consists of earnings before interest, taxes, depreciation and amortization. Non-cash items that are excluded consist of impairments, derivative gains and losses, and all other non-cash income and expense items. |
The aviation-related business consists of acquisition on June 7, 2006.Atlantic Aviation. All of the business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered.
The Company also has a 50% investmentIMTT provides bulk liquid storage and handling services in aNorth America through ten terminals located on the East, West and Gulf Coasts, the Great Lakes region of the United States and partially owned terminals in Quebec and Newfoundland, Canada. IMTT derives its revenue from storage and handling of petroleum products, various chemicals, renewable fuels, and vegetable and animal oils. Based on storage capacity, IMTT operates one of the largest third-party bulk liquid storage terminal business, IMTT. The Company completed its acquisition of this investment on May 1, 2006, which is accounted for under the equity method. Financial information for IMTT is presented below, and includes the period prior to the Company’s investment ($ in thousands) (unaudited):
For the Year Ended and as at, December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenue | $ | 352,583 | $ | 275,197 | $ | 225,465 | ||||||
EBITDA(1) | 89,716 | 67,076 | 83,988 | |||||||||
Interest expense, net | 23,540 | 14,349 | 15,759 | |||||||||
Depreciation and amortization expense | 44,615 | 36,025 | 31,056 | |||||||||
Capital expenditures paid | 221,700 | 209,124 | 88,784 | |||||||||
Property, equipment, land and leasehold improvements, net | 912,887 | 724,806 | 527,051 | |||||||||
Total assets balance | 1,006,289 | 862,534 | 630,435 |
The airport services business reportable segment principally derives income from fuel sales and from other airport services. Airport services revenue includes fuel-related services, de-icing, aircraft hangarage, airport management and other aviation services. All of the revenue of the airport services business is generatedbusinesses in the United States. The airport services business operated 72 FBOs as of December 31, 2008. In December 2008, the airport services business completed the sale of its airport management business and during the third quarter of 2008, completed the sale of its charter management business, which it had
F-38
purchased as part of the San Jose acquisition in 2007. Both the sale of its airport management business and the sale of the charter management business’ operations did not have a material impact on the Company’s consolidated results.
The revenue from the gas production and distribution businessThe Gas Company reportable segment is included in revenue from product sales and includes distribution and sales of synthetic natural gas, or SNG, and liquefied petroleum gas, or LPG. Revenue is primarily a function of the volume of SNG and LPG consumed by customers and the price per thermal unit or gallon charged to customers. Because both SNG and LPG are derived from petroleum, revenue levels, without organic operating growth, will generally track global oil prices. The utility revenue of the gas production and distribution businessThe Gas Company includes fuel adjustment charges, or FACs, through which changes in fuel costs are passed through to customers.
The revenue from the district energy businessDistrict Energy reportable segment is included in service revenue and financing and equipment lease income. Included in service revenue is capacity charge revenue, which relates to monthly fixed contract charges, and consumption revenue, which relates to contractual rates applied to actual usage. Financing and equipment lease income relates to direct financing lease transactions and equipment leases to
the business’ various customers. The district energy businessDistrict Energy provides its services to buildings throughout the downtown Chicago area and to a casino and shopping mall located in Las Vegas, Nevada.
The revenue from the airport parking businessAtlantic Aviation reportable segment is included in service revenue and primarily consists of feesprincipally derives income from off-airport parking and ground transportation tofuel sales and from other airport services. Airport services revenue includes fuel-related services, de-icing, aircraft hangarage and other aviation services. All of the parking facilities and the airport terminals. The airport parking business operates 31 off-airport parking facilities locatedrevenue of Atlantic Aviation is generated in 20 major airport markets across the United States. Atlantic Aviation operated 72 FBOs as of December 31, 2009.
Selected information by reportable segment is presented in the following tables. Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a non-GAAP financial measure. The Company uses EBITDA as a key performance metric for each of its operating businesses. The tables do not include financial data for ourthe Company’s equity and cost investments.investment in IMTT.
Revenue from external customers for the Company'sCompany’s consolidated reportable segments was as follows ($ in thousands) (unaudited):
Year Ended December 31, 2009 | ||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2008 | Energy-related Businesses | Aviation-related Business | ||||||||||||||||||||||||||||||||||
Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total | The Gas Company | District Energy | Atlantic Aviation | Total | ||||||||||||||||||||||||||||
Revenue from Product Sales | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 494,810 | $ | 91,244 | $ | — | $ | — | $ | 586,054 | $ | 79,597 | $ | — | $ | 314,603 | $ | 394,200 | ||||||||||||||||||
Product sales – utility | — | 121,770 | — | — | 121,770 | 95,769 | — | — | 95,769 | |||||||||||||||||||||||||||
494,810 | 213,014 | — | — | 707,824 | 175,366 | — | 314,603 | 489,969 | ||||||||||||||||||||||||||||
Service Revenue | ||||||||||||||||||||||||||||||||||||
Other services | 221,492 | — | 3,115 | — | 224,607 | — | 3,137 | 171,546 | 174,683 | |||||||||||||||||||||||||||
Cooling capacity revenue | — | — | 19,350 | — | 19,350 | — | 20,430 | — | 20,430 | |||||||||||||||||||||||||||
Cooling consumption revenue | — | — | 20,894 | — | 20,894 | — | 20,236 | — | 20,236 | |||||||||||||||||||||||||||
Parking services | — | — | — | 74,692 | 74,692 | |||||||||||||||||||||||||||||||
221,492 | — | 43,359 | 74,692 | 339,543 | — | 43,803 | 171,546 | 215,349 | ||||||||||||||||||||||||||||
Financing and Lease Income | ||||||||||||||||||||||||||||||||||||
Financing and equipment lease | — | — | 4,686 | — | 4,686 | — | 4,758 | — | 4,758 | |||||||||||||||||||||||||||
— | — | 4,686 | — | 4,686 | — | 4,758 | — | 4,758 | ||||||||||||||||||||||||||||
Total Revenue | $ | 716,302 | $ | 213,014 | $ | 48,045 | $ | 74,692 | $ | 1,052,053 | $ | 175,366 | $ | 48,561 | $ | 486,149 | $ | 710,076 |
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Year Ended December 31, 2008 | ||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2007 | Energy-related Businesses | Aviation-related Business | ||||||||||||||||||||||||||||||||||
Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total | The Gas Company | District Energy | Atlantic Aviation | Total | ||||||||||||||||||||||||||||
Revenue from Product Sales | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 371,250 | $ | 74,602 | $ | — | $ | — | $ | 445,852 | $ | 91,244 | $ | — | $ | 494,810 | 586,054 | |||||||||||||||||||
Product sales – utility | — | 95,770 | — | — | 95,770 | 121,770 | — | — | 121,770 | |||||||||||||||||||||||||||
371,250 | 170,372 | — | — | 541,622 | 213,014 | — | 494,810 | 707,824 | ||||||||||||||||||||||||||||
Service Revenue | ||||||||||||||||||||||||||||||||||||
Other services | 163,086 | — | 2,864 | — | 165,950 | — | 3,115 | 221,492 | 224,607 | |||||||||||||||||||||||||||
Cooling capacity revenue | — | — | 18,854 | — | 18,854 | — | 19,350 | — | 19,350 | |||||||||||||||||||||||||||
Cooling consumption revenue | — | — | 22,876 | — | 22,876 | — | 20,894 | — | 20,894 | |||||||||||||||||||||||||||
Parking services | — | — | — | 77,180 | 77,180 | |||||||||||||||||||||||||||||||
163,086 | — | 44,594 | 77,180 | 284,860 | — | 43,359 | 221,492 | 264,851 | ||||||||||||||||||||||||||||
Financing and Lease Income | ||||||||||||||||||||||||||||||||||||
Financing and equipment lease | — | — | 4,912 | — | 4,912 | — | 4,686 | — | 4,686 | |||||||||||||||||||||||||||
— | — | 4,912 | — | 4,912 | — | 4,686 | — | 4,686 | ||||||||||||||||||||||||||||
Total Revenue | $ | 534,336 | $ | 170,372 | $ | 49,506 | $ | 77,180 | $ | 831,394 | $ | 213,014 | $ | 48,045 | $ | 716,302 | 977,361 |
Year Ended December 31, 2007 | ||||||||||||||||||||||||||||||||||||
Year Ended December 31, 2006 | Energy-related Businesses | Aviation-related Business | ||||||||||||||||||||||||||||||||||
Airport Services | Gas Production and Distribution(1) | District Energy | Airport Parking | Total | The Gas Company | District Energy | Atlantic Aviation | Total | ||||||||||||||||||||||||||||
Revenue from Product Sales | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 225,570 | $ | 36,862 | $ | — | $ | — | $ | 262,432 | $ | 74,602 | $ | — | $ | 371,250 | $ | 445,852 | ||||||||||||||||||
Product sales – utility | — | 50,866 | — | — | 50,866 | 95,770 | — | — | 95,770 | |||||||||||||||||||||||||||
225,570 | 87,728 | — | — | 313,298 | 170,372 | — | 371,250 | 541,622 | ||||||||||||||||||||||||||||
Service Revenue | ||||||||||||||||||||||||||||||||||||
Other services | 87,306 | — | 3,163 | — | 90,469 | — | 2,864 | 163,086 | 165,950 | |||||||||||||||||||||||||||
Cooling capacity revenue | — | — | 17,407 | — | 17,407 | — | 18,854 | — | 18,854 | |||||||||||||||||||||||||||
Cooling consumption revenue | — | — | 17,897 | — | 17,897 | — | 22,876 | — | 22,876 | |||||||||||||||||||||||||||
Parking services | — | — | — | 76,062 | 76,062 | |||||||||||||||||||||||||||||||
87,306 | — | 38,467 | 76,062 | 201,835 | — | 44,594 | 163,086 | 207,680 | ||||||||||||||||||||||||||||
Financing and Lease Income | ||||||||||||||||||||||||||||||||||||
Financing and equipment lease | — | — | 5,118 | — | 5,118 | — | 4,912 | — | 4,912 | |||||||||||||||||||||||||||
— | — | 5,118 | — | 5,118 | — | 4,912 | — | 4,912 | ||||||||||||||||||||||||||||
Total Revenue | $ | 312,876 | $ | 87,728 | $ | 43,585 | $ | 76,062 | $ | 520,251 | $ | 170,372 | $ | 49,506 | $ | 534,336 | $ | 754,214 |
EBITDAIn accordance with FASB ASC 280Segment Reporting (formerly SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information''), the Company has disclosed earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items. Non-cash items includes impairments, derivative gains and losses and adjustments for the Company’s reportable segments is shownother non-cash items reflected in the below table ($ in thousands) (unaudited). Allocationstatements of corporate allocation expense,operations. The Company believes EBITDA excluding non-cash items provides additional insight into the performance of the operating businesses relative to each other and similar businesses without regard to their capital structure, and their ability to service or reduce debt, fund capital expenditures and/or support distributions to the federal tax effect, have been excluded from the tables as they are eliminated on consolidation.holding company. EBITDA excluding non-cash items is reconciled to net loss.
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In 2008 and 2007, the Company disclosed EBITDA only. The following tables, reflecting results of operations for the consolidated group and for each of the businesses for the years ended December 31, 2008 and 2007, have been conformed to current periods’ presentation reflecting EBITDA excluding non-cash items.
EBITDA excluding non-cash items for the Company’s consolidated reportable segments is shown in the below tables ($ in thousands) (unaudited).
Year Ended December 31, 2008 | ||||||||||||||||||||
Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total Reportable Segments | ||||||||||||||||
Net (loss) income(1) | $ | (44,348 | ) | $ | 6,283 | $ | 691 | $ | (102,016 | ) | $ | (139,390 | ) | |||||||
Interest income | (576 | ) | (48 | ) | (42 | ) | (118 | ) | (784 | ) | ||||||||||
Interest expense | 63,543 | 9,438 | 10,383 | 15,443 | 98,807 | |||||||||||||||
Income tax (benefit) provision | (29,936 | ) | 4,044 | 242 | (76,334 | ) | (101,984 | ) | ||||||||||||
Depreciation | 34,257 | 5,883 | 5,813 | 24,283 | 70,236 | |||||||||||||||
Amortization of intangibles | 59,646 | 856 | 1,372 | 10,478 | 72,352 | |||||||||||||||
EBITDA | $ | 82,586 | $ | 26,456 | $ | 18,459 | $ | (128,264 | ) | $ | (763 | ) |
Year Ended December 31, 2009 | ||||||||||||||||
Energy-related Businesses | Aviation-related Business | |||||||||||||||
The Gas Company | District Energy | Atlantic Aviation(1) | Total Reportable Segments | |||||||||||||
Net income (loss) | $ | 11,836 | $ | 1,182 | $ | (90,377 | ) | $ | (77,359 | ) | ||||||
Interest expense, net | 8,941 | 10,153 | 67,983 | 87,077 | ||||||||||||
Benefit (provision) for income taxes | 7,619 | 773 | (61,009 | ) | (52,617 | ) | ||||||||||
Depreciation | 5,991 | 6,086 | 30,822 | 42,899 | ||||||||||||
Amortization of intangibles | 838 | 1,368 | 58,686 | 60,892 | ||||||||||||
Goodwill impairment | — | — | 71,200 | 71,200 | ||||||||||||
Losses on derivative instruments | 636 | 220 | 28,277 | 29,133 | ||||||||||||
Other non-cash expense | 1,771 | 1,009 | 903 | 3,683 | ||||||||||||
EBITDA excluding non-cash items | $ | 37,632 | $ | 20,791 | $ | 106,485 | $ | 164,908 | ||||||||
(1) | Includes non-cash impairment charges of $102.0 million recorded during the first six months of 2009, consisting of $71.2 million related to goodwill, $23.3 million related to intangible assets (in amortization of intangibles) and $7.5 million related to property, equipment, land and leasehold improvements (in depreciation). |
Year Ended December 31, 2008 | ||||||||||||||||
Energy-related Businesses | Aviation-related Business | |||||||||||||||
The Gas Company | District Energy | Atlantic Aviation(1) | Total Reportable Segments | |||||||||||||
Net income (loss) | $ | 6,283 | $ | 691 | $ | (44,348 | ) | $ | (37,374 | ) | ||||||
Interest expense, net | 9,390 | 10,341 | 62,967 | 82,698 | ||||||||||||
Benefit (provision) for income taxes | 4,044 | 242 | (29,936 | ) | (25,650 | ) | ||||||||||
Depreciation | 5,883 | 5,813 | 34,257 | 45,953 | ||||||||||||
Amortization of intangibles | 856 | 1,372 | 59,646 | 61,874 | ||||||||||||
Goodwill impairment | — | — | 52,000 | 52,000 | ||||||||||||
Losses (gains) on derivative instruments | 221 | (26 | ) | 1,871 | 2,066 | |||||||||||
Other non-cash expense | 1,180 | 2,654 | 624 | 4,458 | ||||||||||||
EBITDA excluding non-cash items | $ | 27,857 | $ | 21,087 | $ | 137,081 | $ | 186,025 |
(1) | Includes non-cash impairment charges of $87.5 million |
Year Ended December 31, 2007 | ||||||||||||||||||||
Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total Reportable Segments | ||||||||||||||||
Net income (loss)(1) | $ | 13,057 | $ | 4,840 | $ | (9,259 | ) | $ | (4,814 | ) | $ | 3,824 | ||||||||
Interest income | (1,431 | ) | (140 | ) | (346 | ) | (258 | ) | (2,175 | ) | ||||||||||
Interest expense | 43,990 | 9,335 | 9,355 | 16,298 | 78,978 | |||||||||||||||
Income tax provision (benefit) | 8,575 | 3,115 | (5,490 | ) | (3,830 | ) | 2,370 | |||||||||||||
Depreciation | 14,621 | 5,881 | 5,792 | 5,221 | 31,515 | |||||||||||||||
Amortization of intangibles | 30,132 | 856 | 1,368 | 2,902 | 35,258 | |||||||||||||||
EBITDA | $ | 108,944 | $ | 23,887 | $ | 1,420 | $ | 15,519 | $ | 149,770 |
Year Ended December 31, 2006 | ||||||||||||||||||||
Airport Services | Gas Production and Distribution(1) | District Energy | Airport Parking | Total Reportable Segments | ||||||||||||||||
Net income (loss) | $ | 13,527 | $ | (1,507 | ) | $ | 1,104 | $ | (14,383 | ) | $ | (1,259 | ) | |||||||
Interest income | (628 | ) | (83 | ) | (352 | ) | (217 | ) | (1,280 | ) | ||||||||||
Interest expense | 26,290 | 5,426 | 8,683 | 17,262 | 57,661 | |||||||||||||||
Income tax provision (benefit) | 6,302 | (1,151 | ) | (1,102 | ) | (12,364 | ) | (8,315 | ) | |||||||||||
Depreciation | 8,852 | 3,250 | 5,709 | 3,555 | 21,366 | |||||||||||||||
Amortization of intangibles | 16,430 | 485 | 1,368 | 25,563 | 43,846 | |||||||||||||||
EBITDA | $ | 70,773 | $ | 6,420 | $ | 15,410 | $ | 19,416 | $ | 112,019 |
F-41
Reconciliation
Year Ended December 31, 2007 | ||||||||||||||||
Energy-related Businesses | Aviation-related Business | |||||||||||||||
The Gas Company | District Energy | Atlantic Aviation(2) | Total Reportable Segments | |||||||||||||
Net income (loss) | $ | 4,840 | $ | (9,259 | ) | $ | 13,057 | $ | 8,638 | |||||||
Interest expense, net | 9,195 | 9,009 | 42,559 | 60,763 | ||||||||||||
Benefit (provision) for income taxes | 3,115 | (5,490 | ) | 8,575 | 6,200 | |||||||||||
Depreciation | 5,881 | 5,792 | 14,621 | 26,294 | ||||||||||||
Amortization of intangibles | 856 | 1,368 | 30,132 | 32,356 | ||||||||||||
Non-cash loss on extinguishment of debt(1) | — | 3,013 | 9,804 | 12,817 | ||||||||||||
Losses on derivative instruments | 431 | 28 | 1,659 | 2,118 | ||||||||||||
Other non-cash expense (income) | 1,290 | 1,086 | (556 | ) | 1,820 | |||||||||||
EBITDA excluding non-cash items | $ | 25,608 | $ | 5,547 | $ | 119,851 | $ | 151,006 |
(1) | Consists of non-cash write-offs of deferred financing costs from debt refinancings. |
(2) | Includes non-cash impairment charges of $1.3 million related to intangible assets (in amortization of intangibles). |
Reconciliations of consolidated reportable segmentssegments’ EBITDA excluding non-cash items to consolidated net (loss) incomeloss from continuing operations before income taxes and minoritynoncontrolling interests were as follows ($ in thousands) (unaudited):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2009 | 2008 | 2007 | |||||||||||||||||||||||
Total reportable segments EBITDA | $ | (763 | ) | $ | 149,770 | $ | 112,019 | |||||||||||||||||||||
Total reportable segments EBITDA excluding non-cash items | $ | 164,908 | $ | 186,025 | $ | 151,006 | ||||||||||||||||||||||
Interest income | 1,207 | 5,963 | 4,887 | 119 | 1,090 | 5,705 | ||||||||||||||||||||||
Interest expense | (104,095 | ) | (81,653 | ) | (77,746 | ) | (91,154 | ) | (88,652 | ) | (65,356 | ) | ||||||||||||||||
Depreciation(1) | (70,236 | ) | (31,515 | ) | (21,366 | ) | (42,899 | ) | (45,953 | ) | (26,294 | ) | ||||||||||||||||
Amortization of intangibles(2) | (72,352 | ) | (35,258 | ) | (43,846 | ) | (60,892 | ) | (61,874 | ) | (32,356 | ) | ||||||||||||||||
Selling, general and administrative – corporate | (4,205 | ) | (10,038 | ) | (8,284 | ) | (9,707 | ) | (4,205 | ) | (10,038 | ) | ||||||||||||||||
Fees to manager | (12,568 | ) | (65,639 | ) | (18,631 | ) | (4,846 | ) | (12,568 | ) | (65,639 | ) | ||||||||||||||||
Equity in earnings (losses) and amortization charges of investees | 1,324 | (32 | ) | 12,558 | 22,561 | 1,324 | (32 | ) | ||||||||||||||||||||
Dividends from investments | — | — | 8,395 | |||||||||||||||||||||||||
Gain on sale of equity investment | — | — | 3,412 | |||||||||||||||||||||||||
Gain on sale of investment | — | — | 49,933 | |||||||||||||||||||||||||
Gain on sale of marketable securities | — | — | 6,738 | |||||||||||||||||||||||||
Other (expense) income, net | (2,073 | ) | (616 | ) | 5,405 | |||||||||||||||||||||||
Total consolidated net (loss) income before taxes and minority interests | $ | (263,761 | ) | $ | (69,018 | ) | $ | 33,474 | ||||||||||||||||||||
Goodwill impairment | (71,200 | ) | (52,000 | ) | — | |||||||||||||||||||||||
Non-cash loss on extinguishment of debt | — | — | (12,817 | ) | ||||||||||||||||||||||||
Losses on derivative instruments | (29,540 | ) | (2,843 | ) | (1,362 | ) | ||||||||||||||||||||||
Other expense, net | (1,852 | ) | (4,001 | ) | (2,156 | ) | ||||||||||||||||||||||
Total consolidated net loss from continuing operations before income taxes and noncontrolling interests | $ | (124,502 | ) | $ | (83,657 | ) | $ | (59,339 | ) |
(1) | Depreciation includes depreciation expense for |
(2) |
Capital expenditures for the Company's reportable segments were as follows ($ in thousands) (unaudited):
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Airport services | $ | 34,462 | $ | 27,585 | $ | 7,101 | ||||||
Gas production and distribution(1) | 9,720 | 8,715 | 5,509 | |||||||||
District energy | 5,378 | 9,421 | 1,618 | |||||||||
Airport parking(2) | 15,214 | 5,156 | 4,181 | |||||||||
Total | $ | 64,774 | $ | 50,877 | $ | 18,409 |
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recorded in the first six months of 2009 and the fourth quarter of 2008, respectively, at Atlantic Aviation and a $1.3 million non-cash impairment charge on the airport management contracts at Atlantic Aviation in 2007. |
Capital expenditures for the Company’s reportable segments were as follows ($ in thousands) (unaudited):
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
The Gas Company | $ | 7,388 | $ | 9,720 | $ | 8,715 | ||||||
District Energy | 12,095 | 5,378 | 9,421 | |||||||||
Atlantic Aviation | 10,837 | 34,462 | 27,585 | |||||||||
Total | $ | 30,320 | $ | 49,560 | $ | 45,721 |
Property, equipment, land and leasehold improvements, goodwill and total assets for the Company'sCompany’s reportable segments as of December 31 waswere as follows ($ in thousands) (unaudited):
Property, Equipment, Land and Leasehold Improvements | Goodwill | Total Assets | ||||||||||||||||||||||
2008(1) | 2007 | 2008(2) | 2007 | 2008 | 2007 | |||||||||||||||||||
Airport services | $ | 303,800 | $ | 293,943 | $ | 448,511 | $ | 498,598 | $ | 1,660,801 | $ | 1,763,740 | ||||||||||||
Gas production and distribution | 143,019 | 137,069 | 120,193 | 120,193 | 330,180 | 313,060 | ||||||||||||||||||
District energy | 145,616 | 146,486 | 18,647 | 18,647 | 227,102 | 232,642 | ||||||||||||||||||
Airport parking | 81,546 | 97,454 | — | 133,772 | 198,988 | 280,384 | ||||||||||||||||||
Total | $ | 673,981 | $ | 674,952 | $ | 587,351 | $ | 771,210 | $ | 2,417,071 | $ | 2,589,826 |
Property, Equipment, Land and Leasehold Improvements | Goodwill | Total Assets | ||||||||||||||||||||||
2009(1) | 2008(2) | 2009(3) | 2008(4) | 2009 | 2008 | |||||||||||||||||||
The Gas Company | $ | 143,783 | $ | 143,019 | $ | 120,193 | $ | 120,193 | $ | 344,876 | $ | 330,180 | ||||||||||||
District Energy | 151,543 | 145,616 | 18,647 | 18,647 | 234,847 | 227,102 | ||||||||||||||||||
Atlantic Aviation | 284,761 | 303,800 | 377,342 | 448,511 | 1,473,228 | 1,660,801 | ||||||||||||||||||
Total | $ | 580,087 | $ | 592,435 | $ | 516,182 | $ | 587,351 | $ | 2,052,951 | $ | 2,218,083 |
(1) | Includes a non-cash impairment charge of |
(2) | Includes a non-cash impairment charge of $13.8 million recorded during the fourth quarter of 2008 at Atlantic Aviation. |
(3) | Includes a non-cash goodwill impairment charge of $71.2 million recorded at Atlantic Aviation during the first six months of 2009. |
(4) | Includes a non-cash goodwill impairment charge of $52.0 million |
Reconciliation of reportable segmentssegments’ total assets to consolidated total assets ($ in thousands) (unaudited):
As of December 31, | As of December 31, | |||||||||||||||
2008 | 2007 | 2009 | 2008 | |||||||||||||
Total assets of reportable segments | $ | 2,417,071 | $ | 2,589,826 | $ | 2,052,951 | $ | 2,218,083 | ||||||||
Investment in IMTT | 184,930 | 211,606 | 207,491 | 184,930 | ||||||||||||
Assets of discontinued operations held for sale | 86,695 | 105,725 | ||||||||||||||
Corporate and other | (67,751 | ) | 11,597 | (7,916 | ) | 43,698 | ||||||||||
Total consolidated assets | $ | 2,534,250 | $ | 2,813,029 | $ | 2,339,221 | $ | 2,552,436 |
Reconciliation of reportable segmentssegments’ goodwill to consolidated goodwill ($ in thousands) (unaudited):
As of December 31, | As of December 31, | |||||||||||||||
2008 | 2007 | 2009 | 2008 | |||||||||||||
Goodwill of reportable segments | $ | 587,351 | $ | 771,210 | $ | 516,182 | $ | 587,351 | ||||||||
Corporate and other | (1,102 | ) | (1,102 | ) | — | (1,102 | ) | |||||||||
Total consolidated goodwill | $ | 586,249 | $ | 770,108 | $ | 516,182 | $ | 586,249 |
The Manager acquired 2,000,000 shares of trust stock concurrently with the closing of the initial public offering in December 2004, with an aggregate purchase price of $50.0 million, at a purchase price per share equal to the initial public offering price of $25,$25.00, which were exchanged for LLC interests on June 25, 2007. Pursuant to the terms of the Management Agreement (discussed below), the Manager may sell these shares (now LLC interests) at any time. The Manager has also received additional shares of trust stock and LLC interests (the LLC interests replacing the trust stock following the dissolution of the Trust in June 2007) by reinvesting some performance fees and base management fees. As part of the equity offering which closed in July 2007, the Manager sold 599,000 of its LLC interests at a price of $40.99 per LLC interest. At December 31, 2008,2009, the Manager held 3,173,1233,503,227 LLC interests of the Company.
The Company entered into a management services agreement, or Management Agreement, with the Manager pursuant to which the Manager manages the Company’s day-to-day operations and oversees the
F-43
management teams of the Company’s operating businesses. In addition, the Manager has the right to appoint the Chairman of the Board of the Company, and an alternate, subject to minimum equity ownership, and to assign, or second, to the Company, on a permanent and wholly-dedicated basis, employees to assume the role of Chief Executive Officer and Chief Financial Officer and second or make other personnel available as required.
In accordance with the Management Agreement, the Manager is entitled to a quarterly base management fee based primarily on the Company’s market capitalization, and a performance fee, based on the performance of the Company’s stock relative to a weighted average of two benchmark indices, a U.S. utilities index and a European utilities index, weighted in proportion to the Company’s equity investments. Currently, the Company has no non-U.S. equity investments.index. Base management and performance fees payable to the Manager, and the Manager’s reinvestment of the base management and performance fees in the Company’s LLC interests, (the LLC interests replacing the trust stock following the dissolution of the Trust in June 2007), for the years ended December 31, 2009, 2008 2007 and 20062007 were as follows ($ in thousands):
2008 | 2007 | 2006 | ||||||||||
Base management fees | $ | 12,568 | $ | 21,677 | $ | 14,497 | ||||||
Performance fees | $ | — | $ | 43,962 | $ | 4,134 | ||||||
Reinvestment of performance fees in trust stock/LLC interests | ||||||||||||
March 2006 quarter fee (trust stock issued June 27, 2006) | — | — | 145,547 shares | |||||||||
March 2007 quarter fee (LLC interests issued July 13, 2007) | — | 21,972 shares | — | |||||||||
June 2007 quarter fee (LLC interests issued October 1, 2007) | — | 1,171,503 shares | — |
Year Ended December 31, | ||||||||||||
2009(1) | 2008 | 2007(2) | ||||||||||
Base management fee | $ | 4,846 | $ | 12,568 | $ | 21,677 | ||||||
Performance fee | — | — | 43,962 |
(1) | During 2009, the Manager elected to reinvest the base management fee for the second and third quarters of 2009 in LLC interests and the Company issued 149,795 LLC interests and 180,309 LLC interests, respectively, to the Manager during the third and fourth quarters of 2009, respectively. The base management fee for the fourth quarter of 2009 will be reinvested in LLC interests during the first quarter of 2010. |
(2) | During 2007, the Manager elected to reinvest the performance fee for the first and second quarters of 2007 in LLC interests and the Company issued 21,972 LLC interests and 1,171,503 LLC interests, respectively, to the Manager during the third and fourth quarters of 2007, respectively. |
The unpaid portion of the fees at the end of each reporting period is included in due to manager-related party in the consolidated balance sheets.
During the third quarter of 2008, the Manager had offered to reinvest its base fee for the third quarter of 2008 in additional LLC interests of the Company. However in the fourth quarter of 2008, the Board of Directors requested that the Manager reverse its decision to reinvest its base management fees in stock under the terms of the management services agreement due to the significant decline in the market price of the LLC interests between the end of the third quarter of 2008 and the time at which the Company would have issued those LLC interests and the resulting potential substantial dilution to existing shareholders. The Manager agreed to this request and subsequently, both the third and fourth quarter 2008 basesbase fees have been paid in cash during the first quarter of 2009.
The Manager is not entitled to any other compensation and all costs incurred by the Manager, including compensation of seconded staff, are paid by the Manager out of its management fee. However, the Company is responsible for other direct costs including, but not limited to, expenses incurred in the administration or management of the Company and its subsidiaries and investments, income taxes, audit and legal fees, acquisitions and dispositions and its compliance with applicable laws and regulations. During the years ended December 31, 2009, 2008 and December 31, 2007, the Manager charged the Company $275,000, $274,000 and $303,000, respectively, for reimbursement of out-of-pocket expenses. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is included in due to manager-related party in the consolidated balance sheet.
F-44
The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited, or MBL, and Macquarie Capital (USA) Inc., or MCUSA (formerly Macquarie Securities (USA) Inc.), have provided various advisory and other services and incurred expenses in connection with the Company’s equity raising activities, acquisitions and debt structuring for the Company and its businesses. Underwriting fees are recorded in members’ equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are capitalizedexpensed as a cost of the related acquisitions.incurred. Debt arranging fees are deferred and amortized over the term of the debtcredit facility. Amounts relating to these transactions comprise the following ($ in thousands):
As of February 25, 2009 | ||||||||
Airport services business debt amendment | — debt arranging services from MCUSA | $ | 970 | |||||
Year Ended December 31, 2008 | ||||||||
Acquisition of Seven Bar FBOs | — advisory services from MCUSA | $ | 819 | |||||
— reimbursement of out-of-pocket | 3 | |||||||
Year Ended December 31, 2007 | ||||||||
Acquisition of Supermarine | — advisory services from MCUSA | $ | 1,329 | |||||
— debt arranging services from MCUSA | 163 | |||||||
Acquisition of Mercury | — advisory services from MCUSA | 5,538 | ||||||
— out-of-pocket expenses to MCUSA | 30 | |||||||
Acquisition of San Jose | — advisory services from MCUSA | 2,004 | ||||||
Acquisition of Rifle | — advisory services from MCUSA | 303 | ||||||
Acquisition of TGC (2006) | — debt arranging services from MCUSA | 119 |
Sale of | — advisory services from MCUSA | $1,294 | ||||||
— reimbursement of out-of-pocket expenses to MCUSA | 15 | |||||||
Strategic review of alternatives available to the Company | — advisory services from MCUSA | 300 | ||||||
— reimbursement of out-of-pocket expenses to MCUSA | 2 | |||||||
Atlantic Aviation’s accounts receivable management consulting services | — consulting services from Macquarie Business Improvement and Strategy, or MBIS | 159 | ||||||
— reimbursement of out-of-pocket expenses to MBIS | 71 | |||||||
PCAA restructuring advice | — advisory services from MCUSA | 200 | ||||||
— reimbursement of out-of-pocket expenses to MCUSA | 3 | |||||||
Atlantic Aviation’s debt amendment | — debt arranging services from MCUSA | 970 | ||||||
Year Ended December 31, 2008 | ||||||||
— advisory services | $ 819 | |||||||
—
| ||||||||
| ||||||||
| 3 |
On February 25, 2009, the Company amended the airport services business’ credit facility to reduce the principal amount due under that facility and provide the additional operating flexibility over the near and medium term. The Company used $50.0 million in cash on hand to pay down $44.9 million of the outstanding term loan debt under the facility and $5.1 million of interest rate swap break fees including a $1.1 million payment to Macquarie Bank Limited. MCUSA acted as the financial advisor in connection with this amendment and earned advisory fees of approximately $970,000 plus reimbursement of expense.
In 2008, the Company received a reimbursement of $1.4 million for due diligence expenses incurred during 2007 and the first half of 2008 from Macquarie Global Opportunities Partners, or MGOP, a private equity fund managed by the Macquarie Group, in relation to an acquisition that the Company did not complete, but which was acquired by the private equity fund.
F-45
In 2007, the Company reimbursed affiliates of MBL for nominal amounts in relation to professional services and rent expense for premises used in Luxembourg by a wholly-owned subsidiary of Macquarie Yorkshire LLC.
MIC Inc. has a $300.0$20.0 million revolving credit facility with various financial institutions, including MBL.entities within the Macquarie Group. There was no outstanding balance on the revolving credit facility at December 31, 2009. Amounts paidrelating to or receivedthe portion of this revolving credit facility from the Macquarie Group that relate to this facility comprise the following ($ in thousands):
2009 | ||||||||
Revolving credit facility commitment provided by Macquarie Group during the period January 1, 2009 through April 13, 2009(1) | $ | 66,667 | ||||||
Revolving credit facility commitment provided by Macquarie Group during the period April 14, 2009 through December 30, 2009(2) | 21,556 | |||||||
Revolving credit facility commitment provided by Macquarie Group on December 31, 2009 | 4,444 | |||||||
Portion of revolving credit facility commitment from Macquarie Group drawn down, as of December 31, 2009(3) | — | |||||||
Macquarie Group portion of the principal payments made to the revolving credit facility during the year ended December 31, 2009(3) | 15,333 | |||||||
Interest expense on Macquarie Group portion of the drawn down commitment, for the year ended December 31, 2009 | 599 | |||||||
Commitment fees to the Macquarie Group, for year ended December 31, 2009 | 100 | |||||||
2008 | ||||||||
Revolving credit facility commitment provided by the Macquarie Group during the period January 1, 2008 through February 11, 2008 | $ | 50,000 | $ | 50,000 | ||||
Revolving credit facility commitment provided by Macquarie Group during the period February 12, 2008 through December 31, 2008 | 66,667 | 66,667 | ||||||
Portion of credit facility commitment from Macquarie Group drawn down, as of December 31, 2008 | 15,333 | 15,333 | ||||||
Interest expense on Macquarie Group portion of the drawn down commitment, 2008 year | 698 | 698 | ||||||
Commitment fees to the Macquarie Group, year ended December 31, 2008 | 252 | 252 | ||||||
Upfront fee to Macquarie Group upon renewal of facility in February 2008 | 333 | 333 | ||||||
2007 | ||||||||
Portion of revolving credit facility outstanding from MBL, as at December 31, 2007 | $ | — | ||||||
Portion of revolving credit facility commitment provided by MBL, as at December 31, 2007 | 50,000 | |||||||
Maximum balance on revolving credit facility outstanding from MBL during 2007 | 10,000 | |||||||
Interest expense on MBL portion of revolving credit facility, 2007 year | 130 |
Prior to the airport services business refinancing in October 2007, MBL had provided a portion of the previous loan facility to the airport services business. Amounts relating to the portion of the loan from MBL comprise the following ($ in thousands):
(1) |
(2) | ||||
(3) | ||||
the MIC Inc. revolving credit facility. See Note 12, “Long-Term Debt”, for further discussion. |
The Company has derivative instruments in place to fix the interest rate on certain outstanding variable-rate term loan facilities. MBL has provided interest rate swaps for the airport services businessAtlantic Aviation and the gas production and distribution business.The Gas Company. At December 31, 2009 and 2008, Atlantic Aviation had $818.4 million and 2007, the airport services business had $900.0 million, respectively, of its variable-rate term loans hedged, of which MBL was providing the interest rate swaps for a notional amount of $307.0 million and $343.3 million.million, respectively. The remainder of the swaps are from an externalunrelated third party. During the yearyears ended December 31, 2009 and 2008, the airport services businessAtlantic Aviation made net payments to MBL of $14.1 million and $5.8 million, respectively, in relation to these swaps. During the year ended December 31, 2007, MBL made net paymentspayment to the airport services businessAtlantic Aviation of
F-46
$732,000 $732,000 in relation to these swaps.
As noted above, on February 25,discussed in Note 12, “Long-Term Debt”, for year ended December 31, 2009, the CompanyAtlantic Aviation paid $5.1$8.8 million ofin interest rate swap breakbreakage fees, of which $1.1$1.8 million was paid to MBL. See
In February 2010, per the revised terms of the term loan agreement as described in Note 20, Subsequent Events, for further discussion.12, “Long-Term Debt”, Atlantic Aviation used $17.1 million of excess cash flow to prepay $15.5 million of the outstanding principal balance of the term loan debt and incurred $1.6 million in interest rate swap breakage fees, of which $215,000 was paid to MBL.
At December 31, 2009 and 2008, and 2007, the gas production and distribution businessThe Gas Company had $160.0 million of its term loans hedged, of which MBL was providing the interest rate swaps for a notional amount of $48.0 million. The remainder of the swaps are from an externalunrelated third party. During the yearyears ended December 31, 2009 and 2008, the gas production and distribution businessThe Gas Company made net payments to MBL of $1.9 million and $685,000, respectively, in relation to these swaps. During the year ended December 31, 2007, MBL made net payments to the gas production and distribution businessThe Gas Company of $328,000 in relation to these swaps.
On March 30, 2009, The Gas Company entered into licensing agreements with Utility Service Partners, Inc. and America’s Water Heater Rentals, LLC, both indirect subsidiaries of Macquarie Group Limited, to enable these entities to offer products and services to The Gas Company’s customer base. No payments were made under these arrangements during the year ended December 31, 2009.
On August 29, 2008, Macquarie Global Opportunities Partners, or MGOP, a private equity fund managed by the Macquarie Group, completed the acquisition of the jet membership, retail charter and fuel management business units previously owned by Sentient Jet Holdings, LLC. The new company is called Sentient Flight Group (referred to hereafter as “Sentient”). Sentient iswas an existing customer of the Company’s airport services business.Atlantic Aviation. For the period August 29, 2008 throughyears ended December 31, 2009 and 2008, the airport services businessAtlantic Aviation recorded $9.6 million and $3.6 million, respectively, in revenue from Sentient. As of December 31, 2009 and 2008, the airport services businessAtlantic Aviation had a$195,000 and $77,000, receivablerespectively, in receivables from Sentient, which is included in accounts receivable in the consolidated condensed balance sheets.
In 2008, the Company received a reimbursement of $1.4 million for due diligence expenses incurred during 2007 and the first half of 2008 from MGOP in relation to an acquisition that the Company did not complete, but which was acquired by the private equity fund.
In addition, the Company and various of its subsidiaries have entered into a licensing agreement with the Macquarie Group related to the use of the Macquarie name and trademark. The Macquarie Group does not charge the Company any fees for this license.
As discussed in Note 12, Members’/Stockholders’ Equity,15, “Members’ Equity”, in June 2007 the Trust was dissolved and all outstanding trust stock was exchanged for LLC interests in the Company. In addition, the Company also received permission from the Internal Revenue Service, or IRS, to elect to be treated as a corporation for U.S. federal tax purposes as of January 1, 2007. Accordingly, the Company and its wholly-owned subsidiaries, are subject to federal and state income taxes. The Company files a consolidated U.S. income tax return.
Unless otherwise noted, amounts shown below for 2006 are for MIC Inc. and its subsidiaries, as MIC LLC and its wholly-owned LLC subsidiaries that previously held the interests in foreign entities were not subject to U.S. income taxes in 2006.
Components of the Company’s income tax benefit related to loss from continuing operations for the years ended December 31 2009, 2008 and 2007 and MIC Inc. for 2006 were as follows ($ in thousands):
Year Ended December 31, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2006 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||||||||||||||
Current taxes: | ||||||||||||||||||||||||
Federal | $ | — | $ | 192 | $ | 176 | $ | 334 | $ | — | $ | 192 | ||||||||||||
State | 2,656 | 2,263 | 1,663 | 1,859 | 2,536 | 2,113 | ||||||||||||||||||
Total current taxes | 2,656 | 2,455 | 1,839 | $ | 2,193 | $ | 2,536 | $ | 2,305 | |||||||||||||||
Deferred tax benefit: | ||||||||||||||||||||||||
Federal | (69,840 | ) | (18,784 | ) | (13,322 | ) | $ | (20,175 | ) | $ | (12,849 | ) | $ | (17,545 | ) | |||||||||
State | (18,196 | ) | (3,012 | ) | (4,771 | ) | (7,333 | ) | (3,748 | ) | (1,524 | ) | ||||||||||||
Total deferred tax benefit | (27,508 | ) | (16,597 | ) | (19,069 | ) | ||||||||||||||||||
Change in valuation allowance | 1,260 | 2,858 | (167 | ) | 9,497 | — | — | |||||||||||||||||
Total tax expense (benefit) | $ | (84,120 | ) | $ | (16,483 | ) | $ | (16,421 | ) | |||||||||||||||
Total tax benefit | $ | (15,818 | ) | $ | (14,061 | ) | $ | (16,764 | ) |
F-47In connection with the 2009 sale of 49.99% of District Energy, the Company converted a holding company within the District Energy group from an entity disregarded for income tax purposes to a taxable corporation. The change in the tax status of this holding company, combined with the sale of the 49.99% interest, resulted in a taxable transaction. The taxable income was offset by the Company’s other consolidated taxable loss and its NOL carryforwards. The consolidated benefit for income taxes of $15.8 million includes a charge for income taxes of $10.2 million related to the tax on the conversion of the District Energy holding company’s tax status attributable to the 50.01% interest in District Energy retained by the Company. The tax on the conversion of the District Energy holding company’s tax status of approximately $10.2 million attributable to the 49.99% interest in District Energy that was sold has been reflected as a reduction in the $32.2 million gain on the sale and recorded in additional paid in capital in the consolidated 2009 balance sheet.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 20082009 and 20072008 are presented below ($ in thousands):
December 31, 2008 | December 31, 2007 | December 31, 2009 | December 31, 2008 | |||||||||||||
Deferred tax assets: | ||||||||||||||||
Net operating loss carryforwards | $ | 63,393 | $ | 52,780 | $ | 58,801 | $ | 63,393 | ||||||||
Lease transaction costs | 1,811 | 1,779 | 1,638 | 1,811 | ||||||||||||
Amortization of intangible assets | — | 2,349 | ||||||||||||||
Deferred revenue | 1,192 | 661 | 1,311 | 1,192 | ||||||||||||
Accrued compensation | 9,192 | 3,866 | 9,136 | 9,192 | ||||||||||||
Accrued expenses | 2,010 | 2,140 | 1,503 | 2,010 | ||||||||||||
Partnership basis differences | 49,184 | — | 50,466 | 49,184 | ||||||||||||
Other | 1,275 | 2,843 | 1,403 | 1,275 | ||||||||||||
Unrealized losses | 62,969 | 22,926 | 41,904 | 62,969 | ||||||||||||
Allowance for doubtful accounts | 859 | 735 | 653 | 859 | ||||||||||||
Total gross deferred tax assets | 191,885 | 90,079 | 166,815 | 191,885 | ||||||||||||
Less: Valuation allowance | (4,159 | ) | (2,898 | ) | ||||||||||||
Less: valuation allowance | (20,571 | ) | (4,159 | ) | ||||||||||||
Net deferred tax assets after valuation allowance | 187,726 | 87,181 | $ | 146,244 | $ | 187,726 | ||||||||||
Deferred tax liabilities: | ||||||||||||||||
Intangible assets | (164,851 | ) | (196,851 | ) | $ | (148,286 | ) | $ | (164,851 | ) | ||||||
Property and equipment | (82,382 | ) | (69,799 | ) | (81,041 | ) | (82,382 | ) | ||||||||
Partnership basis differences | — | (11,805 | ) | |||||||||||||
Prepaid expenses | (1,761 | ) | (2,079 | ) | (1,434 | ) | (1,761 | ) | ||||||||
Total deferred tax liabilities | (248,994 | ) | (280,534 | ) | (230,761 | ) | (248,994 | ) | ||||||||
Net deferred tax liability | (61,268 | ) | (193,353 | ) | (84,517 | ) | (61,268 | ) | ||||||||
Less: current deferred tax asset | 3,774 | 9,330 | (23,323 | ) | (21,960 | ) | ||||||||||
Noncurrent deferred tax liability | $ | (65,042 | ) | $ | (202,683 | ) | $ | (107,840 | ) | $ | (83,228 | ) |
At December 31, 2008,2009, the Company had net operating lossNOL carryforwards for federal income tax purposes of approximately $161.2$116.3 million which are available to offset future taxable income, if any, through 2028.2029. Approximately $35.0 million of these net operating losses willmay be limited, on an annual basis, due to the change of control for tax purposes of the respective subsidiaries in which such losses were incurred. In addition, District Energy has NOL carryforwards of approximately $26.0 million, all of which are subject to limitations on realizations due to a change in control for tax purposes in 2009.
In assessing the realizability of deferred tax assets,need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. DueThe sale of a 49.99% interest in District Energy precludes including that business in the Company’s consolidated federal income tax return from the date of sale. Accordingly, the net deferred tax liabilities of that business, approximately $44.3 million, cannot be considered in evaluating the ultimate realization of the Company’s deferred tax assets.
In 2009, the Company’s management concluded that the reversal of deferred tax liabilities should more likely than not result in the ultimate realization of all but approximately $15.3 million of federal deferred tax assets. Accordingly the Company has provided a valuation allowance for this amount, of which approximately $5.9 million has been recorded in the Company’s discontinued operations. In addition, in 2009, PCAA provided a valuation allowance of approximately $1.1 million against the state NOL deferred tax asset generated in that year, which is also included in discontinued operations.
In 2007, due to statutory limitations on the utilization of certain deferred tax assets, in 2007primarily at PCAA, the Company applied a valuation reserveallowance on a portion of the deferred tax assets. As a result of the utilization and expiration of certain state net operating loss carryforwards, a change in the state deferred income tax effective rate, and a settlement of the IRS examination of a portion of the airport services businessAtlantic Aviation for 2003,
management decreased its valuation allowance for capital loss and operating loss carryforwards, by approximately $5.3 million in 2007. Also in 2007, management determined that it is more likely than not that the deferred tax benefit related to the state income tax net operating loss carryforward of its airport parking businessPCAA will not be realized. Accordingly, a valuation allowance of approximately $2.9 million was recorded.recorded, which is also included in discontinued operations. This additional valuation allowance was net of the related federal income tax benefit at the statutory rate of 35%.
F-48
In 2008,As of December 31, 2009, the management provided a valuation allowance ofCompany had approximately $1.2 million for the deferred tax benefit related to the state net operating loss generated by the airport parking business in 2008. This valuation allowance is net of the related federal tax benefit at the statutory rate of 35%.
The Company has approximately $61.3$84.5 million in net deferred tax liabilities. A significant portion of the Company’s deferred tax liabilities relates to tax basis temporary differences of both intangible assets and property and equipment. The Company records the acquisitions of consolidated businesses under the purchase method of accounting and accordingly recognizes a significant increase to the value of the intangible assets and to property and equipment. For tax purposes, the Company may assume the existing tax basis of the acquired businesses, in which cases the Company records a deferred tax liability to reflect the increase in the purchase accounting basis of the assets acquired over the carryover income tax basis. This liability will reduce in future periods as these temporary differences reverse.
The net deferred tax liabilities include approximately $187.7 million in deferred tax assets. In addition to $59.2 million attributable to net operating losses, after taking into consideration a valuation allowance on those losses, the significant deferred tax asset balance includes approximately $63.0 million attributable to the accrued liability on certain derivative investments. A significant portion of the deferred tax on derivative investments, accounted for in accordance with SFAS No. 133 (see Note 10, Derivative Instruments and Hedging Activities), has been recorded in other comprehensive income (loss) in the Consolidated Statement of Members’/Stockholders’ Equity. Additionally, the deferred tax asset related to a partnership basis difference is primarily the result of the fixed asset and intangibles impairment at the airport parking business incurred during the fourth quarter of 2008.
In 2006, the Company revised its estimate of the effective state tax rate applicable to deferred taxes, primarily resulting from a change in the Texas franchise tax law. This change resulted in a tax benefit of approximately $754,000.
In 2006, the Company recognized a deferred tax benefit of approximately $2.4 million on the excess of the Company’s tax basis in IMTT over its carrying value. In 2007, the Company concluded that the excess basis will no longer reverse in the foreseeable future. Therefore, the current2007 year provision includesincluded a charge to reverse the benefit recorded in 2006.
A reconciliation of the reported income tax expense attributable to continuing operations to the amount that would result by applying the U.S. federal tax rate to the reported net (loss) incomeloss is as follows ($ in thousands):
Year Ended December 31, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2006 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||||||||||||||
Tax expense (benefit) at U.S. statutory rate | $ | (91,907 | ) | $ | (23,988 | ) | $ | 11,724 | ||||||||||||||||
Tax effect on impairment of non-deductible goodwill | 14,107 | — | — | |||||||||||||||||||||
Tax benefit at U.S. statutory rate | $ | (43,746 | ) | $ | (29,484 | ) | $ | (20,962 | ) | |||||||||||||||
Tax effect of impairment of non-deductible intangibles | 18,601 | 13,684 | — | |||||||||||||||||||||
Effect of permanent differences and other | 2,245 | 1,853 | 648 | 1,073 | (49 | ) | 534 | |||||||||||||||||
State income taxes, net of federal benefit | (10,541 | ) | (487 | ) | (2,020 | ) | (3,559 | ) | (788 | ) | 383 | |||||||||||||
Tax effect of flow-through entities | — | — | (23,223 | ) | — | — | — | |||||||||||||||||
Tax effect of IMTT taxable dividend income in excess of book income | 5,425 | 4,456 | (69 | ) | (7,895 | ) | 5,425 | 4,456 | ||||||||||||||||
Tax effect of federal dividends received deduction on IMTT dividend | (4,710 | ) | (3,556 | ) | (933 | ) | — | (4,710 | ) | (3,556 | ) | |||||||||||||
Reversal of tax benefit recorded in 2006 on the excess of the tax basis over the carrying value of IMTT | — | 2,381 | (2,381 | ) | ||||||||||||||||||||
Change in MDEH tax status | 10,211 | — | — | |||||||||||||||||||||
Reversal of tax benefit recorded in 2006 on the excess of the tax basis over carrying value of IMTT | — | — | 2,381 | |||||||||||||||||||||
True-up of deferred tax balances | — | 1,861 | — | |||||||||||||||||||||
Change in valuation allowance | 1,261 | 2,858 | (167 | ) | 9,497 | — | — | |||||||||||||||||
Total tax (benefit) | $ | (84,120 | ) | $ | (16,483 | ) | $ | (16,421 | ) | |||||||||||||||
Total tax benefit | $ | (15,818 | ) | $ | (14,061 | ) | $ | (16,764 | ) |
F-49
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recorded a $510,000 increase in the liability for unrecognized tax benefits, which iswas offset by a reduction of the deferred tax liability of $109,000, resulting in a decrease to the January 1, 2007 retained earnings balance of $401,000. At the adoption date of January 1, 2007, the Company had $1.8 million of unrecognized tax benefits, all of which would affect the effective tax rate if recognized.
It is expected that the amount of unrecognized tax benefits will change in the next 12 months, however, the Company does not expect the change to have a significant impact on the results of operations or the financial position of the Company.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the statements of operations, which is consistent with the recognition of these items in prior reporting periods. On January 1, 2007, the Company recorded a liability of approximately $400,000 for the payment of interest and penalties. The liability for the payment of interest and penalties did not materially change as ofsubsequent to December 31, 2007.
During the quartersquarter and yearsyear ended December 31, 2007 and 2008, the Company determined that the statute of limitations expired on unrecognized benefits of approximately $629,000 and $782,000, respectfully.$782,000. Approximately $554,000 and $690,000 of eachthat amount respectively, werewas an acquired reserves,reserve and accordingly, the recognition of theseits benefit was treated as an adjustment of goodwill. The balance of eachthe reversal, of approximately $75,000 and $92,000, respectively, werewas included in income as a reduction of state income tax expense.
During the quarter ended June 30, 2007, the IRS completed its audit of the 2003 federal income tax return for a subsidiary of the Company’s airport services business.Atlantic Aviation. That audit did not result in a material assessment beyond the related reserve established as of January 1, 2007, upon the adoption of FIN 48. As a result of the audit settlement, the Company no longer has a capital loss carryforward of approximately $11.9 million. The deferred tax benefitsbenefit related to this carryforward loss was approximately $4.8 million, against which the Company applied a full valuation allowance. Both the carryforward loss and valuation allowance have been reversed. In addition, the IRS is conducting an audit of the airport parking business for 2004. The Company does not expect any material adjustments to result from that audit. There are no other ongoing tax examinations of returns filed by the Company or any of its subsidiaries. Federal returns for all tax years ending after 2004,2005, and state returns for all tax years ending in 20032004 and later are subject to examination by federal and state tax authorities. There was no material change in the Company’s reserve for uncertain tax positions during 2009, except as discussed above.
During the quarteryear ended December 31, 2008, except as discussed above.2009, the IRS completed its audit of PCAA for 2004 and 2003. The conclusion of the audit did not result in material assessment.
As of December 31, 2009, there were no ongoing federal or state income tax audits of the Company and its subsidiaries.
The following table sets forth a reconciliation of the Company’s unrecognized tax benefits from January 1, 20072009 to December 31, 2008.2009. The balance as of January 1, 20072009 includes both the unrecognized benefits as of December 31, 2006 and the additional increase in the liability upon the adoption of FIN 48 treated as a reduction in retained earnings. Amounts are in thousands.
Balance as of January 1, 2007 | $ | 1,812 | ||
Decrease attributable to settlements with taxing authorities | (180 | ) | ||
Decreases due to the lapse of applicable statue of limitations | (629 | ) | ||
Balance as of December 31, 2007 | 1,003 | |||
Decreases due to the lapse of applicable statue of limitations | (782 | ) | ||
Current year increases | 92 | |||
Balance as of December 31, 2008 | $ | 313 |
Balance as of January 1, 2009 | $ | 313 | ||
Current year increases | 45 | |||
Decreases due to the lapse of applicable statue of limitations and payments | (22 | ) | ||
Balance as of December 31, 2009 | $ | 336 |
F-50
The Company leases land, buildings, office space and certain office equipment under noncancellable operating lease agreements that expire through April 2057.
Future minimum rental commitments at December 31, 20082009 are as follows ($ in thousands):
2009 | $ | 43,467 | ||||||
2010 | 39,970 | $ | 33,238 | |||||
2011 | 36,198 | 30,740 | ||||||
2012 | 34,667 | 29,622 | ||||||
2013 | 33,185 | 28,820 | ||||||
2014 | 28,008 | |||||||
Thereafter | 421,420 | 274,873 | ||||||
Total | $ | 608,907 | $ | 425,301 |
Rent expense under all operating leases for the years ended December 31, 2009, 2008 and 2007 and 2006 was $47.6$34.9 million, $40.8$34.2 million and $28.8$26.4 million, respectively.
In 2006, MIC Inc. established a defined contribution plan under section 401(k) of the Internal Revenue Code, allowing eligible employees of the consolidated businesses to contribute a percentage of their annual compensation up to an annual amount as set by the IRS. Prior to this, each of the consolidated businesses maintained their own plans. Following the establishment of the MIC Inc. plan, the airport services business, district energy businessAtlantic Aviation, District Energy and airport parking businessPCAA consolidated their plans under the MIC Inc. plan. TGCThe Gas Company also sponsored a 401(k) plan for eligible employees of that business. On January 1, 2008, employees in the TGCThe Gas Company 401(k) plan were added to the MIC Inc. plan. The Company completed the merger of the TGCThe Gas Company plan into the MIC Inc. plan in the first quarter of 2008.
The employer contribution to these plans ranges from 0% to 6% of eligible compensation. For the years ended December 31, 2009, 2008 2007 and 2006,2007, contributions were approximately $1.1$1.3 million, $1.1 million and $688,000,$1.1 million, respectively.
TGCThe Gas Company has a Defined Benefit Pension Plan for Classified Employees of GASCO, Inc. (the DB Plan)“DB Plan”) that accrues benefits pursuant to the terms of a collective bargaining agreement. The DB Plan is non-contributory and covers all bargaining unit employees who have met certain service and age requirements. The benefits are based on a flat rate per year of service through the date of employment termination or retirement. TGCThe Gas Company made contributions to the DB Plan of $2.9 million during 2009 and did not make any contributions to the DB Plan during 2007 or 2008. Future contributions will be made to meet ERISA funding requirements. The DB Plan’s trustee, First Hawaiian Bank, handles the DB Plan’s assets and an investment manager invests them in a diversified portfolio of equity and fixed-income securities. The projected benefit obligation for the DB Plan totaled $35.3 million at December 31, 2009 and $31.2 million at December 31, 2008 and $29.0 million at December 31, 2007.2008. The DB Plan has assets of $16.7$21.9 million and $24.4$16.7 million at December 31, 20082009 and 2007,2008, respectively.
TGCThe Gas Company expects to make contributions in 20092010 and annually for at least five years as we complyit complies with the requirements of the Pension Protection Act of 2006. The annual amount of contributions will be dependent upon a number of factors such as market conditions and changes to regulations. However, for the 2009 plan2010 calendar year, the Company expects to make contributions of approximately $3.0$1.9 million.
In May 2008, TGCThe Gas Company entered into a new five-year collective bargaining agreement which increased the benefits for participants and that immediately froze the plan to new participants. The benefit increases will occur annually for three years after which there will be no further increase to the flat rate. Participants will,
F-51
Participants will, however, continue to accrue years of service toward their final benefit. The financial effects of the new agreement are included in the tables below as Plan amendments.“Plan amendments”.
TGCThe Gas Company has a postretirement plan. The GASCO, Inc. Hourly Postretirement Medical and Life Insurance Plan (PMLI Plan)(the “PMLI Plan”) covers all bargaining unit participants who were employed by TGCThe Gas Company on May 1, 1999 and who retire after the attainment of age 62 with 15 years of service. Prior to the establishment of this plan, the participants were covered under a multiemployer plan administered by the Hawaii Teamsters Health and Welfare Trust; the PMLI Plan was formed when the multiemployer plan was dissolved. Under the provisions of the PMLI Plan, TGCThe Gas Company pays for medical premiums of the retirees and spouses up until age 65. After age 65, TGCthe Gas Company pays for medical premiums up to a maximum of $150 per month. The retirees are also provided $1,000 of life insurance benefits.
Additional information about the fair value of the benefit plan assets, the components of net periodic cost, and the projected benefit obligation as of December 31, 20082009 and 2007,2008, and for the year ended December 31, 20082009 and 20072008 is as follows ($ in thousands):
DB Plan Benefits | PMLI Benefits | DB Plan Benefits | PMLI Benefits | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||
Change in benefit obligation: | ||||||||||||||||||||||||||||||||
Benefit obligation — beginning of period | $ | 29,022 | $ | 29,023 | $ | 1,641 | $ | 1,552 | ||||||||||||||||||||||||
Benefit obligation – beginning of period | $ | 31,167 | $ | 29,022 | $ | 1,744 | $ | 1,641 | ||||||||||||||||||||||||
Service cost | 631 | 624 | 39 | 35 | 629 | 631 | 42 | 39 | ||||||||||||||||||||||||
Interest cost | 1,832 | 1,700 | 103 | 94 | 1,888 | 1,832 | 113 | 103 | ||||||||||||||||||||||||
Plan amendments | 775 | — | — | — | — | 775 | — | — | ||||||||||||||||||||||||
Participant contributions | — | — | 41 | 24 | — | — | 60 | 41 | ||||||||||||||||||||||||
Actuarial losses (gains) | 488 | (749 | ) | 32 | 26 | |||||||||||||||||||||||||||
Actuarial losses | 3,251 | 488 | 252 | 32 | ||||||||||||||||||||||||||||
Benefits paid | (1,581 | ) | (1,576 | ) | (112 | ) | (90 | ) | (1,685 | ) | (1,581 | ) | (116 | ) | (112 | ) | ||||||||||||||||
Benefit obligation — end of year | $ | 31,167 | $ | 29,022 | $ | 1,744 | $ | 1,641 | ||||||||||||||||||||||||
Benefit obligation – end of year | $ | 35,250 | $ | 31,167 | $ | 2,095 | $ | 1,744 | ||||||||||||||||||||||||
Change in plan assets: | ||||||||||||||||||||||||||||||||
Fair value of plan assets — beginning of period | $ | 24,358 | $ | 24,313 | $ | — | $ | — | ||||||||||||||||||||||||
Actual return on plan assets | (6,044 | ) | 1,714 | — | — | |||||||||||||||||||||||||||
Fair value of plan assets – beginning of period | $ | 16,652 | $ | 24,358 | $ | — | $ | — | ||||||||||||||||||||||||
Actual return (loss) on plan assets | 4,170 | (6,044 | ) | — | — | |||||||||||||||||||||||||||
Employer/participant contributions | — | — | 112 | 90 | 2,901 | — | 116 | 112 | ||||||||||||||||||||||||
Expenses paid | (81 | ) | (93 | ) | — | — | (127 | ) | (81 | ) | — | — | ||||||||||||||||||||
Benefits paid | (1,581 | ) | (1,576 | ) | (112 | ) | (90 | ) | (1,685 | ) | (1,581 | ) | (116 | ) | (112 | ) | ||||||||||||||||
Fair value of plan assets — end of year | $ | 16,652 | $ | 24,358 | $ | — | $ | — | ||||||||||||||||||||||||
Fair value of plan assets – end of year | $ | 21,911 | $ | 16,652 | $ | — | $ | — |
F-52
The funded status of the Company’s balance sheet at December 31, 20082009 and 2007,2008, are presented in the following table ($ in thousands):
DB Plan Benefits | PMLI Benefits | DB Plan Benefits | PMLI Benefits | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||
Funded status | ||||||||||||||||||||||||||||||||
Funded status at end of year | $ | (14,515 | ) | $ | (4,664 | ) | $ | (1,744 | ) | $ | (1,641 | ) | $ | (13,339 | ) | $ | (14,515 | ) | $ | (2,095 | ) | $ | (1,744 | ) | ||||||||
Net amount recognized in balance sheet | $ | (14,515 | ) | $ | (4,664 | ) | $ | (1,744 | ) | $ | (1,641 | ) | $ | (13,339 | ) | $ | (14,515 | ) | $ | (2,095 | ) | $ | (1,744 | ) | ||||||||
Amounts recognized in balance sheet consists of: | ||||||||||||||||||||||||||||||||
Current liabilities | $ | — | $ | — | $ | (107 | ) | $ | (119 | ) | $ | — | $ | — | $ | (120 | ) | $ | (107 | ) | ||||||||||||
Noncurrent liabilities | (14,515 | ) | (4,664 | ) | (1,637 | ) | (1,522 | ) | (13,339 | ) | (14,515 | ) | (1,975 | ) | (1,637 | ) | ||||||||||||||||
Net amount recognized in balance sheet | $ | (14,515 | ) | $ | (4,664 | ) | $ | (1,744 | ) | $ | (1,641 | ) | $ | (13,339 | ) | $ | (14,515 | ) | $ | (2,095 | ) | $ | (1,744 | ) | ||||||||
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income: | ||||||||||||||||||||||||||||||||
Prior service credit (cost) | $ | (620 | ) | $ | — | $ | — | $ | — | |||||||||||||||||||||||
Accumulated gain (loss) | (7,362 | ) | 1,071 | (72 | ) | (40 | ) | |||||||||||||||||||||||||
Accumulated other comprehensive income | (7,982 | ) | 1,071 | (72 | ) | (40 | ) | |||||||||||||||||||||||||
Cumulative employer contributions in excess of net periodic benefit cost | (6,533 | ) | (5,735 | ) | (1,672 | ) | (1,601 | ) | ||||||||||||||||||||||||
Prior service cost | $ | (465 | ) | $ | (620 | ) | $ | — | $ | — | ||||||||||||||||||||||
Accumulated loss | (7,379 | ) | (7,362 | ) | (325 | ) | (72 | ) | ||||||||||||||||||||||||
Accumulated other comprehensive loss | (7,844 | ) | (7,982 | ) | (325 | ) | (72 | ) | ||||||||||||||||||||||||
Net periodic benefit cost in excess of cumulative employer contributions | (5,495 | ) | (6,533 | ) | (1,770 | ) | (1,672 | ) | ||||||||||||||||||||||||
Net amount recognized in balance sheet | $ | (14,515 | ) | $ | (4,664 | ) | $ | (1,744 | ) | $ | (1,641 | ) | $ | (13,339 | ) | $ | (14,515 | ) | $ | (2,095 | ) | $ | (1,744 | ) |
The components of net periodic benefit cost and other changes in other comprehensive income for the plans are shown below ($ in thousands):
DB Plan Benefits | PMLI Benefits | DB Plan Benefits | PML Benefits | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||
Components of net periodic benefit cost: | ||||||||||||||||||||||||||||||||
Service cost | $ | 631 | $ | 624 | $ | 39 | $ | 35 | $ | 629 | $ | 631 | $ | 42 | $ | 39 | ||||||||||||||||
Interest cost | 1,832 | 1,700 | 103 | 94 | 1,888 | 1,832 | 113 | 103 | ||||||||||||||||||||||||
Expected return on plan assets | (1,820 | ) | (1,818 | ) | — | — | (1,221 | ) | (1,820 | ) | — | — | ||||||||||||||||||||
Recognized actuarial loss | 413 | — | — | — | ||||||||||||||||||||||||||||
Amortization of prior service cost | 155 | — | — | — | 155 | 155 | — | — | ||||||||||||||||||||||||
Net periodic benefit cost | $ | 798 | $ | 506 | $ | 142 | $ | 129 | $ | 1,864 | $ | 798 | $ | 155 | $ | 142 | ||||||||||||||||
Other changes recognized in other comprehensive income: | ||||||||||||||||||||||||||||||||
Net (gain) loss arising during period | $ | 8,433 | $ | (552 | ) | $ | 32 | $ | 26 | |||||||||||||||||||||||
Prior service cost arising during period | $ | — | $ | 775 | $ | — | $ | — | ||||||||||||||||||||||||
Net loss arising during period | 429 | 8,433 | 253 | 32 | ||||||||||||||||||||||||||||
Amortization of prior service cost | (155 | ) | (155 | ) | — | — | ||||||||||||||||||||||||||
Amortization of loss | (412 | ) | — | — | — | |||||||||||||||||||||||||||
Total recognized in other comprehensive income | $ | 8,433 | $ | (552 | ) | $ | 32 | $ | 26 | $ | (138 | ) | $ | 9,053 | $ | 253 | $ | 32 |
F-53
DB Plan Benefits | PMLI Benefits | DB Plan Benefits | PMLI Benefits | |||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||
Estimated amounts that will be amortized from accumulated other comprehensive income over the next year: | ||||||||||||||||||||||||||||||||
Amortization of prior service cost (credit) | $ | 155 | $ | 113 | $ | — | $ | — | ||||||||||||||||||||||||
Amortization of net (gain) loss | 389 | — | — | — | ||||||||||||||||||||||||||||
Amortization of prior service cost | $ | 155 | $ | 155 | $ | — | $ | — | ||||||||||||||||||||||||
Amortization of net loss | 395 | 389 | 17 | — | ||||||||||||||||||||||||||||
Weighted average assumptions to determine benefit obligations: | ||||||||||||||||||||||||||||||||
Discount rate | 6.20 | % | 6.30 | % | 6.30 | % | 6.20 | % | 5.70 | % | 6.20 | % | 5.60 | % | 6.30 | % | ||||||||||||||||
Rate of compensation increase | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Measurement date | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | ||||||||||||||||||||||||
Weighted average assumptions to determine net cost: | ||||||||||||||||||||||||||||||||
Discount rate | 6.30 | % | 6.00 | % | 6.20 | % | 6.00 | % | 6.20 | % | 6.30 | % | 6.30 | % | 6.20 | % | ||||||||||||||||
Expected long-term rate of return on plan assets during fiscal year | 7.75 | % | 7.75 | % | N/A | N/A | 7.25 | % | 7.75 | % | N/A | N/A | ||||||||||||||||||||
Rate of compensation increase | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Assumed healthcare cost trend rates: | ||||||||||||||||||||||||||||||||
Initial health care cost trend rate | 9.50 | % | 9.50 | % | 9.00 | % | 9.50 | % | ||||||||||||||||||||||||
Ultimate rate | 5.00 | % | 5.00 | % | 4.50 | % | 5.00 | % | ||||||||||||||||||||||||
Year ultimate rate is reached | 2018 | 2017 | 2028 | 2018 |
TGCThe Gas Company’s overall investment strategy is to achieve a mix of approximately 65% of investments in equities for long-term growth and 35% in fixed income securities for asset allocation purposes as well as near-term needs. The Gas Company has instructed the trusteeinvestment manager to maintain the allocation of the DB Plan’s assets between equity mutual fund securities and fixed income (debt)mutual fund securities within the pre-approved parameters set by the management of TGC (65% equity securities and 35% fixed income securities).The Gas Company. The DB Plan weighted average asset allocation at December 31, 20082009 and 20072008 was:
2008 | 2007 | 2009 | 2008 | |||||||||||||
Equity instruments | 57 | % | 64 | % | 65 | % | 57 | % | ||||||||
Fixed income securities | 41 | % | 35 | % | 34 | % | 41 | % | ||||||||
Cash | 2 | % | 1 | % | 1 | % | 2 | % | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
The expected return on plan assets of 7.75%7.25% was estimated based on the allocation of assets and management’s expectations regarding future performance of the investments held in the investment portfolio. The asset allocations of The Gas Company’s pension benefits as of December 31, 2009 measurement dates were as follows ($ in thousands):
Fair Value Measurements at December 31, 2009 | ||||||||||||||||
Pension Benefits – Plan Assets | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Asset category: | ||||||||||||||||
Cash and money market | $ | 315 | $ | 26 | $ | 289 | $ | — | ||||||||
Equity securities: | ||||||||||||||||
U.S. large-cap growth(a) | 1,980 | 1,980 | — | — | ||||||||||||
U.S. large-cap blend(b) | 5,663 | 5,663 | — | — | ||||||||||||
U.S. large-cap value(c) | 1,983 | 1,983 | — | — | ||||||||||||
U.S. mid-cap blend(d) | 846 | 846 | — | — | ||||||||||||
U.S. small-cap growth(e) | 849 | 849 | — | — | ||||||||||||
International large-cap blend(f) | 2,801 | 2,801 | — | — | ||||||||||||
Fixed income securities: | ||||||||||||||||
Intermediate term corporate bonds(g) | 5,969 | 5,969 | — | — | ||||||||||||
Short term corporate bonds(h) | 1,505 | 1,505 | — | — | ||||||||||||
Total | $ | 21,911 | $ | 21,622 | $ | 289 | $ | — |
(a) | This fund seeks to track the performance of the MSCI U.S. Prime Market Growth Index, a broadly diversified index of growth stocks of large U.S. companies. |
(b) | This fund seeks to track the performance of the MSCI U.S. Broad Market Index, which consists of all the U.S. common stocks traded regularly on the New York Stock Exchange and the Nasdaq over-the-counter market. |
(c) | This fund seeks long-term capital appreciation and income. The fund invests mainly in mid- and large- capitalization companies whose stocks are considered by an advisor to be undervalued. |
(d) | This fund seeks long-term capital appreciation. The fund normally invests in small- and mid- capitalization domestic stocks based on an advisor’s assessment of the relative return potential of the securities. |
(e) | This fund seeks to provide long-term capital appreciation. The fund invests mainly in the stocks of small companies. |
(f) | This fund seeks to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in Europe, the Pacific region, and emerging markets countries. |
(g) | These funds seek to provide a moderate and sustainable level of current income by investing in bonds with an average weighted maturity of between five and ten years. |
(h) | This fund seeks to provide current income. It invests at least 80% of assets in short and intermediate term corporate bonds and other corporate fixed income obligations. It typically maintains an average weighted maturity of between one and four years. |
The discount rates of 6.20%5.70% and 6.30%5.60% for the DB Plan and PMLI Plan, respectively, were based on high quality corporate bond rates that approximate the expected settlement of obligations. The estimated future benefit payments for the next ten years are as follows ($ in thousands):
DB Plans Benefits | PMLI Benefits | DB Plans Benefits | PMLI Benefits | |||||||||||||
2009 | 1,866 | 107 | ||||||||||||||
2010 | 1,991 | 112 | $ | 1,980 | $ | 120 | ||||||||||
2011 | 2,133 | 154 | 2,133 | 176 | ||||||||||||
2012 | 2,227 | 161 | 2,227 | 177 | ||||||||||||
2013 | 2,310 | 175 | 2,298 | 187 | ||||||||||||
2014 – 2018 | 12,375 | 795 | ||||||||||||||
2014 | 2,368 | 161 | ||||||||||||||
Thereafter | 12,058 | 882 |
F-54
The subsidiaries of MIC Inc. are subject to legal proceedings arising in the ordinary course of business. In management’s opinion, the Company has adequate legal defensesdefences 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 Company’s financial position or results of operations.
There are no material legal proceedings pending other than ordinary routine litigation incidental to the Company’s businesses.
The Company’s Board of Directors declared the following dividends during 2006, 2007 and 2008:
Date Declared | Quarter Ended | Holders of Record Date | Payment Date | Dividend per LLC | ||||||||||||
Interest | ||||||||||||||||
February 27, 2007 | December 31, 2006 | April 4, 2007 | April 9, 2007 | 0.57 | ||||||||||||
May 3, 2007 | March 31, 2007 | June 5, 2007 | June 8, 2007 | 0.59 | ||||||||||||
August 7, 2007 | June 30, 2007 | September 6, 2007 | September 11, 2007 | 0.605 | ||||||||||||
November 6, 2007 | September 30, 2007 | December 5, 2007 | December 10, 2007 | 0.62 | ||||||||||||
February 25, 2008 | December 31, 2007 | March 5, 2008 | March 10, 2008 | 0.635 | ||||||||||||
May 5, 2008 | March 31, 2008 | June 4, 2008 | June 10, 2008 | 0.645 | ||||||||||||
August 4, 2008 | June 30, 2008 | September 4, 2008 | September 11, 2008 | 0.645 | ||||||||||||
November 4, 2008 | September 30, 2008 | December 3, 2008 | December 10, 2008 | 0.20 |
The distributions declared have been recorded as a reduction to stock in the members’/stockholders’ equity section,LLC interests or accumulated (deficit) gain in the members’ equity section of the consolidated balance sheets.
DueThe declaration and payment of any future distribution will be subject to current conditions ina decision of the U.S. economy andCompany’s Board of Directors, which includes a majority of independent directors. The Company’s Board of Directors will take into account such matters as the state of the capital markets and general business conditions, the Company’s financial condition, results of operations, capital requirements and any contractual, legal and regulatory restrictions on the payment of distributions by the Company has modifiedto its shareholders or by its subsidiaries to the long-term distribution policy. OurCompany, and any other factors that the Board of Directors has decided to suspend paymentdeems relevant. In particular, each of quarterly cashthe Company’s businesses and investments have substantial debt commitments and restrictive covenants, which must be satisfied before any of them can pay dividends or make distributions to shareholders in order to reducethe Company. Any or all of these factors could affect both holding company debtthe timing and operating company debt at businesses where the underlying fundamentals are strong. The suspension is likely to remain in effect until such time as the credit markets and customer spending patterns regain a levelamount, if any, of stability and predictability that enables us to confidently estimate long term cash flows and refinancing capability.
The Company intends to finance its internal growth strategy primarily with selective operating cash flow and using existing debt and other resources at the Company level. The Company intends to finance its acquisition strategy primarily through a combination of issuing new equity and incurring debt and not through operating cash flow.
On February 25, 2009, the Company amended the airport services business’ credit facility to reduce the principal amount due under that facility and provide the Company additional operating flexibility over the near and medium term. The Company used $50.0 million in cash on hand to pay down $44.9 million of the outstanding term loan debt under the facility and $5.1 million of interest swap break fees, of which $1.1 million was paid to Macquarie Bank Limited, a related party (see Note 14, Related Party Transactions). Additionally, the Company have agreed to apply all excess cash flow from the airport services business to make mandatory prepayments of the term loans under facility whenever the debt level is equal to or more than 6.0x adjusted EBITDA for the trailing twelve months. The Company has also agreed to apply half thefuture distributions.
F-55
The Company evaluated and disclosed the following events through February 25, 2010:
In February 2010, per the revised terms of the term loan agreement, as described in Note 12, “Long-Term Debt”, Atlantic Aviation used $17.1 million of excess cash flow to make further prepayments whenever the debt level is equal to or greater than 5.5x and below 6.0x debt to adjusted EBITDA ratio. Allprepay $15.5 million of the excess cash flowoutstanding principal balance of its term loan debt and incurred $1.6 million in interest rate swap breakage fees.
On January 28, 2010, the Company announced that PCAA had entered into an asset purchase agreement with Bainbridge ZKS — Corinthian Holdings, LLC. This agreement, which is subject to approval by the bankruptcy court, will result in the sale of the assets of PCAA for $111.5 million, subject to certain adjustments and will result in the elimination of $201.0 million of current debt from the businessliabilities of discontinued operations held for sale in the consolidated balance sheet. The cancelled debt in excess of the sale proceeds used to repay such debt would result in cancellation of debt income and the proceeds in excess of the business’ assets as a gain on sale. As a part of the bankruptcy sale process, all cash proceeds would be available for distributionpaid to creditors of the business. PCAA also commenced a voluntary Chapter 11 case with the bankruptcy court. If approved, the Company wheneverexpects to complete the debt level is below 5.5x debt to adjusted EBITDA ratio. Additionally, the maximum permitted debt to adjusted EBITDA ratio would be increased by 1.0x over the current maximum ratio until December 2013. See Note 9, Long-Term Debt for details of amended debt terms.
During the third quarter of 2008, the Manager had offered to reinvest its base fee for the third quarter of 2008 in additional LLC interestssale of the Company. Howeverbusiness in the fourth quarterfirst half of 2008, the Board of Directors requested that the Manager reverse its decision to reinvest its base management fees in stock under the terms2010.
As part of the management services agreement duebankruptcy filing, the Company has no obligation to the significant decline in the market priceand has no intention of committing additional capital to this business. Creditors of this business do not have recourse to any assets of the LLC interests between the endholding company or any assets of the third quarterother Company’s businesses, other than approximately $5.3 million relating to a guarantee of 2008a single parking facility lease.
Results for PCAA are reported separately as discontinued operations for all periods presented. The assets and liabilities of the time at whichbusiness being sold are included in assets of discontinued operations held for sale and liabilities of discontinued operations held for sale on the Company would have issued those LLC interests and the resulting potential substantial dilution to existing shareholders. The Manager agreed to this request and subsequently, both the third and fourth quarter 2008 bases fees have been paid in cash during the first quarter of 2009. See Note 14, Related Party Transactions for further discussions.Company’s consolidated balance sheet.
The data shown below relates to the Company’s continuing operations and includes all adjustments which the Company considers necessary for a fair presentation of such amounts.
Operating Revenue | Operating Income (Loss) | Net Income (Loss) | Operating Revenue | Operating (Loss) Income | Net (Loss) Income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008(1) | 2007 | 2006 | 2008(1) | 2007 | 2006 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) | ($ in Thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarter ended: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31 | $ | 278,703 | $ | 168,982 | $ | 86,194 | $ | 26,650 | $ | 19,798 | $ | 4,309 | $ | (1,990 | ) | $ | 7,877 | $ | 7,561 | $ | 167,496 | $ | 259,808 | $ | 150,171 | $ | (26,792 | ) | $ | 26,842 | $ | 17,677 | $ | (46,601 | ) | $ | 698 | $ | 9,624 | |||||||||||||||||||||||||||||||||
June 30 | 286,543 | 177,205 | 105,933 | 24,701 | (22,933 | ) | 13,578 | 8,338 | (25,047 | ) | 9,437 | 163,408 | 267,123 | 157,137 | (39,489 | ) | 24,264 | (24,894 | ) | (27,013 | ) | 10,184 | (24,207 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
September 30 | 276,998 | 221,526 | 163,260 | 25,139 | 23,908 | 13,808 | 498 | (17,992 | ) | (10,018 | ) | 185,562 | 258,312 | 202,116 | 22,046 | 24,569 | 21,926 | (16,890 | ) | 2,368 | (17,013 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
December 31 | 209,809 | 263,681 | 164,644 | (236,128 | ) | 15,478 | (5,619 | ) | (185,319 | ) | (16,892 | ) | 42,938 | 193,610 | 192,118 | 244,790 | 16,987 | (70,232 | ) | 15,597 | (18,666 | ) | (83,431 | ) | (11,533 | ) |
Balance at Beginning of Year | Charged to Costs and Expenses | Other | Deductions | Balance at End of Year | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||||||
For the Year Ended December 31, 2006 | $ | 839 | $ | 635 | $ | 64 | $ | (103 | ) | $ | 1,435 | |||||||||
For the Year Ended December 31, 2007 | $ | 1,435 | $ | 1,018 | $ | — | $ | (73 | ) | $ | 2,380 | |||||||||
For the Year Ended December 31, 2008 | $ | 2,380 | $ | 1,604 | $ | — | $ | (1,754 | ) | $ | 2,230 |
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Balance at Beginning of Year | Charged to Costs and Expenses | Deductions | Balance at End of Year | |||||||||||||||||
($ in Thousands) | ||||||||||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||||||
For the Year Ended December 31, 2007 | $ | 1,319 | $ | 593 | $ | (13 | ) | $ | 1,899 | |||||||||||
For the Year Ended December 31, 2008 | $ | 1,899 | $ | 1,543 | $ | (1,301 | ) | $ | 2,141 | |||||||||||
For the Year Ended December 31, 2009 | $ | 2,141 | $ | 3,401 | $ | (3,913 | ) | $ | 1,629 |
None.
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 13(a)-15(e) of the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2008.2009.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2008.2009. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management used the framework set forth in the report entitled “Internal Control-Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission (referred to as “COSO”) to evaluate the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. As permitted under the guidance of the SEC released October 16, 2004, in Question 3 of its “Frequently Asked Questions” regarding Securities Exchange Act Release No. 34-47986, Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports , the scope of management’s evaluation excluded the business acquired through the purchase of Sun Valley Aviation, Inc., SB Aviation Group, Inc. and Seven Bar Aviation Inc. (Seven Bar), acquisition date March 4, 2008 and the Newark SkyPark facility (Skypark), acquisition date July 31, 2008. Accordingly, management’s assessment of the Company’s internal control over financial reporting does not include internal control over financial reporting of Seven Bar and SkyPark. The assets of Seven Bar represent 1.7% of the Company’s total assets at December 31, 2008 and generated 1.2% of the Company’s total revenue during the year ended December 31, 2008. The assets of SkyPark represent 0.2% of the Company’s total assets at December 31, 2008 and generated 0.1% of the Company’s total revenue during the year ended December 31, 2008.2009.
As a result of its evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2008.2009.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20082009 has been audited by KPMG LLP, the Company’s independent registered public accounting firm, as stated in their report appearing on page 114154, which expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008.2009.
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The Board of Directors and Stockholders
Macquarie Infrastructure Company LLC:
We have audited Macquarie Infrastructure Company LLC'sLLC’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Macquarie Infrastructure Company LLC'sLLC’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company'scompany’s internal control over financial reporting is a process designed 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. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Macquarie Infrastructure Company LLC maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008,2009, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Macquarie Infrastructure Company LLC acquired Sun Valley Aviation, Inc., SB Aviation Group, Inc. and Seven Bar Aviation Inc. (collectively Seven Bar), on March 4, 2008, and Newark Sky Park (SkyPark) on July 31, 2008. Management excluded from its assessment of the effectiveness of Macquarie Infrastructure Company LLC's internal control over financial reporting as of December 31, 2008, Seven Bar's and SkyPark's internal control over financial reporting associated with total assets of Seven Bar representing 1.7% of the Company's total assets at December 31, 2008 and total revenues of 1.2% of the Company's total revenues during the year ended December 31, 2008, and the assets of SkyPark representing 0.2% of the Company's total assets at December 31, 2008 and 0.1% of the Company's total revenues during the year ended December 31, 2008. Our audit of internal control over financial reporting of Macquarie Infrastructure Company LLC also excluded an evaluation of internal control over financial reporting of Seven Bar and SkyPark.
114
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Macquarie Infrastructure Company LLC and subsidiaries as of December 31, 20082009 and 2007,2008, and the related consolidated statements of operations, members'/stockholders'members’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2008,2009, and our report dated February 26, 200925, 2010 expressed an unqualified opinion on those consolidated financial statements.
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for noncontrolling interests due to the adoption of ASC 810-10Consolidation(formerly Statement on Financial Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51)in 2009.
/s/KPMG LLP
Dallas, Texas
February 26, 200925, 2010
115
No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) was identified in connection with the evaluation described in (b) above during the fiscal quarter ended December 31, 20082009 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
On February 25, 2009, we entered into an amendment of the credit facility for our airport services agreement. The terms of this facility, as amended, are set forth under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Airport Services Business”.None.
The Company will furnish to the Securities and Exchange Commission a definitive proxy statement not later than 120 days after the end of the fiscal year ended December 31, 2008.2009. The information required by this item is incorporated herein by reference to the proxy statement.
The information required by this item is incorporated herein by reference to the proxy statement.
The information required by this item is incorporated herein by reference to the proxy statement.
The information required by this item is incorporated herein by reference to the proxy statement.
The information required by this item is incorporated herein by reference to the proxy statement.
The consolidated financial statements in Part II, Item 8, and schedule listed in the accompanying exhibit index are filed as part of this report.
The exhibits listed on the accompanying exhibit index are filed as a part of this report.
116
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Macquarie Infrastructure Company LLC has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 27, 2009.25, 2010.
MACQUARIE INFRASTRUCTURE COMPANY LLC(Registrant)
MACQUARIE INFRASTRUCTURE COMPANY LLC (Registrant) | ||
By: /s/ |
We, the undersigned directors and executive officers of Macquarie Infrastructure Company LLC, hereby severally constitute Peter StokesJames Hooke and Todd Weintraub, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names in the capacities indicated below, any and all amendments to the Annual Report on Form 10-K filed with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to any and all amendments to said Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Macquarie Infrastructure Company LLC and in the capacities indicated on the 2725th day of February 2009.2010.
Signature | Title | |
/s/ | Chief Executive Officer (Principal Executive Officer) | |
/s/ Todd Weintraub Todd Weintraub | Chief Financial Officer (Principal Financial Officer) | |
/s/ John Roberts John Roberts | Chairman of the Board of Directors | |
/s/ Norman H. Brown, Jr. Norman H. Brown, Jr. | Director | |
/s/ George W. Carmany III George W. Carmany III | Director | |
/s/ William H. Webb William H. Webb | Director |
117
2.2* | Purchase Agreement by and among Macquarie Infrastructure Company Inc., John Hancock Life Insurance Company, and John Hancock Life Insurance Company (U.S.A.), dated as of November 20, 2009 (the “Thermal Chicago Agreement”) | |
2.3* | Amendment to Purchase Agreement, dated as of December 21, 2009, regarding the Thermal Chicago Agreement | |
3.1 | Third Amended and Restated Operating Agreement of Macquarie Infrastructure Company LLC (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 22, 2007 (the “June 22, 2007 8-K”)) | |
3.2 | Amended and Restated Certificate of Formation of Macquarie Infrastructure Assets LLC (incorporated by reference to Exhibit 3.8 of Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-116244) (“Amendment No. 2”) | |
| Specimen certificate evidencing LLC interests of Macquarie Infrastructure Company LLC | |
10.1 | Amended and Restated Management Services Agreement, dated as of June 22, 2007, among Macquarie Infrastructure Company LLC, Macquarie Infrastructure Company Inc., Macquarie Yorkshire LLC, South East Water LLC, Communications Infrastructure LLC and Macquarie Infrastructure Management (USA) Inc. (incorporated by reference to Exhibit 10.1 of the June 22, 2007 8-K) | |
10.2 | Amendment No. 1 to the Amended and Restated Management Services Agreement, dated as of February 7, 2008, among Macquarie Infrastructure Company LLC, Macquarie Infrastructure Company Inc., Macquarie Yorkshire LLC, South East Water LLC, Communications Infrastructure LLC and Macquarie Infrastructure Management (USA) Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 (the “2007 Annual Report”)) | |
10.3 | Registration Rights Agreement among Macquarie Infrastructure Company Trust, Macquarie Infrastructure Company LLC and Macquarie Infrastructure Management (USA) Inc., dated as of December 21, 2004 (incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K, filed with the SEC on December 27, 2004) | |
10.4 | Macquarie Infrastructure Company LLC | |
10.5 | Second Amended and Restated Credit Agreement, dated as of February 13, 2008, among Macquarie Infrastructure Company Inc., Macquarie Infrastructure Company LLC, the Lenders (as defined therein), the Issuers (as defined therein) and Citicorp North America, Inc., as administrative | |
10.6 | ||
E-1
Loan Agreement, dated as of September 1, 2006 between Parking Company of America Airports, LLC, Parking Company of America Airports Phoenix, LLC, PCAA SP, LLC and PCA Airports, Ltd., as borrowers, and Capmark Finance Inc., as lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 7, 2006) | ||
District Cooling System Use Agreement, dated as of October 1, 1994, between the City of Chicago, Illinois and MDE Thermal Technologies, Inc., as amended on June 1, 1995, July 15, 1995, February 1, 1996, April 1, 1996, October 1, 1996, November 7, 1996, January 15, 1997, May 1, 1997, August 1, 1997, October 1, 1997, March 12, 1998, June 1, 1998, October 8, 1998, April 21, 1999, March 1, 2000, March 15, 2000, June 1, 2000, August 1, 2001, November 1, 2001, June 1, 2002, and June 30, 2004 (incorporated by reference to Exhibit 10.25 of Amendment No. 2) |
10.8 | Twenty-Third Amendment to the District Cooling System Use Agreement, dated as of November 1, 2005, by and between the City of Chicago and Thermal Chicago Corporation (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (the “June 2006 Quarterly Report”)) | |
Twenty-Fourth Amendment to District Cooling System Use Agreement, dated as of November 1, 2006, by and between the City of Chicago, Illinois and MDE Thermal Technologies, Inc. (incorporated by reference to Exhibit 10.3 | ||
Twenty-Fifth Amendment to District Cooling System Use Agreement, dated as of October 1, 2008, by and between the City of Chicago, Illinois and Thermal Chicago Corporation (incorporated by reference to Exhibit 10.16 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 10-K Report”)) | ||
Loan Agreement, dated as of September 21, 2007, among Macquarie District Energy, Inc., the Lenders defined therein, Dresdner Bank AG New York Branch, as administrative agent and LaSalle Bank National Association, as issuing bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 27, 2007). | ||
Amendment Number One to Loan Agreement, dated as of December 21, 2007, among Macquarie District Energy, Inc., the several banks and other financial institutions signatories hereto, LaSalle Bank National Association, as Issuing Bank and Dresdner Bank AG New York Branch, as Administrative Agent (incorporated by reference to Exhibit 10.11 to the Registrant’s 2007 Annual Report) | ||
Amendment Number Two to Loan Agreement, dated as of February 22, 2008, among Macquarie District Energy, Inc., the several banks and other financial institutions signatories thereto; LaSalle Bank National Association, as Issuing Bank and Dresdner Bank |
E-2
Shareholder's Agreement, dated April 14, 2006, between Macquarie Terminal Holdings LLC, IMTT Holdings Inc., the Current Shareholders and the Current Beneficial Owners named therein (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the SEC on April 17, 2006) | ||
Letter Agreement, dated January 23, 2007, between Macquarie Terminal Holdings LLC, IMTT Holdings Inc., the Current Shareholders and the Current Beneficial Owners named therein (incorporated by reference to Exhibit 10.10 to the Registrant’s 2006 Annual Report) | ||
Letter Agreement entered into as of June 20, 2007 among IMTT Holdings Inc. (IMTT Holdings), Macquarie Terminal Holdings LLC and the Current Beneficial Shareholders of IMTT Holdings, amending the Shareholders Agreement dated April 14, 2006 (as amended) between IMTT Holdings and the Shareholders thereof (incorporated by reference to Exhibit 10.5 to the June 2007 Quarterly Report) | ||
Letter Agreement, dated as of July 30, 2007, among IMTT Holdings Inc. (IMTT), Macquarie Terminal Holdings LLC and the other current beneficial shareholders of IMTT amending the Shareholders Agreement dated April 14, 2006 (as amended) between the same parties (incorporated by reference to Exhibit 10.6 to the June 2007 Quarterly Report) | ||
Loan Agreement, dated as of September 27, 2007, among Atlantic Aviation FBO Inc., the Lenders, as defined therein, and Depfa Bank plc, as Administrative Agent, and Amendments No. 1 and No. 2 thereto (incorporated by reference to Exhibit 10.1 of the September 2007 Quarterly Report) | ||
Waiver and Amendment Number Three to Loan Agreement, dated as of November 30, 2007, among Atlantic Aviation FBO Inc., the several banks and other financial institutions signatories thereto and Depfa Bank plc, as Administrative Agent (incorporated by reference to Exhibit 10.19 to the Registrant’s 2007 Annual Report) |
10.20 | Waiver and Amendment Number Four to Loan Agreement, dated as of December 27, 2007, among Atlantic Aviation FBO INC. and the several banks and other financial institutions signatories thereto (incorporated by reference to Exhibit 10.20 to the Registrant’s 2007 Annual Report) | |
Consent and Amendment Number Five to Loan Agreement, dated as of January 31, 2008, among Atlantic Aviation FBO INC., Atlantic Aviation FBO Holdings LLC (formerly known as Macquarie FBO Holdings LLC) and the several banks and other financial institutions signatories thereto (incorporated by reference to Exhibit 10.21 to the Registrant’s 2007 Annual Report). | ||
Amendment Number Six to Loan Agreement, dated as of February 25, 2009, among Atlantic Aviation FBO Inc and the bank or banks and other financial institutions signatories | ||
Amended and Restated Loan Agreement, dated as of June 7, 2006, among HGC Holdings LLC, Macquarie Gas Holdings LLC, the Lenders named herein and Dresdner Bank AG London Branch (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed with the SEC on June 12, 2006) | ||
Amended and Restated Loan Agreement, dated as of June 7, 2006, among The Gas Company LLC, Macquarie Gas Holdings LLC, the Lenders defined therein and Dresdner Bank AG London Branch (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K, filed with the SEC on June 12, 2006) |
E-3
Letter Amendment, dated August 18, 2006, amending the Amended and Restated Loan Agreement dated as of June 7, 2006, among HGC Holdings LLC, Macquarie Gas Holdings LLC, the Lenders named herein and Dresdner Bank AG London Branch and the Amended and Restated Loan Agreement, dated as of June 7, 2006, among The Gas Company LLC, Macquarie Gas Holdings LLC, the Lenders defined therein and Dresdner Bank AG London Branch (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 (the “June 2008 Quarterly Report”)) | ||
Amendment Number Two to Amended and Restated Loan Agreement, dated as of July 16, 2008, among The Gas Company, LLC, Macquarie Gas Holdings LLC, the several banks and other financial institutions signatories hereto and Dresdner Bank | ||
21.1* | Subsidiaries of the Registrant | |
23.1* | Consent of KPMG LLP | |
23.2* | Consent of KPMG LLP (IMTT) | |
24.1* | Powers of Attorney (included in signature pages) | |
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 | |
99.1* | Consolidated Financial Statements for IMTT Holdings Inc., for the Years Ended December 31, |
* | Filed herewith. |
† | Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission. |
E-4