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Macquarie Infrastructure (MIC)

Filed: 1 Aug 18, 5:26pm

 

 

 

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



 

FORM 10-Q



 

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

For the Quarterly Period Ended June 30, 2018

OR

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

For the Transition Period from              to           

Commission File Number: 001-32384



 

MACQUARIE INFRASTRUCTURE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)



 

 
Delaware 43-2052503
(State or Other Jurisdiction of
Incorporation or Organization)
 (IRS Employer
Identification No.)

125 West 55th Street
New York, New York 10019

(Address of Principal Executive Offices) (Zip Code)

(212) 231-1000

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report):N/A



 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesx Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesx Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

  
Large Accelerated Filerx Accelerated Filero
Non-accelerated Filero Smaller Reporting Companyo Emerging Growth Companyo

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox

There were 85,370,832 shares of common stock, with $0.001 par value, outstanding at July 31, 2018.

 

 


 
 

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MACQUARIE INFRASTRUCTURE CORPORATION
 
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Macquarie Infrastructure Corporation is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Infrastructure Corporation.

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Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this quarterly report on Form 10-Q (Quarterly Report) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements may appear throughout this Quarterly Report, including without limitation, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. We use words such as “believe”, “intend”, “expect”, “anticipate”, “plan”, “may”, “will”, “should”, “estimate”, “potential”, “project” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the risks identified in our Annual Report on the Form 10-K for the year ended December 31, 2017, and in other reports we file from time to time with the Securities and Exchange Commission (SEC).

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

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PART I
 
FINANCIAL INFORMATION

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

The following discussion of the financial condition and results of operations of Macquarie Infrastructure Corporation (MIC) should be read in conjunction with the consolidated condensed financial statements and the notes to those statements included elsewhere herein.

MIC is a Delaware corporation formed on May 21, 2015. MIC’s predecessor, Macquarie Infrastructure Company LLC, was formed on April 13, 2004. Except as otherwise specified, all references in this Form 10-Q to “MIC”, “we”, “us”, and “our” refer to Macquarie Infrastructure Corporation and its subsidiaries.

MIC is externally managed by Macquarie Infrastructure Management (USA) Inc. (our Manager), pursuant to the terms of a Management Services Agreement, that is subject to the oversight and supervision of our Board of Directors. The majority of the members of our Board of Directors, and each member of all Board Committees, is independent and has no affiliation with Macquarie. Our Manager is a member of the Macquarie Group of companies comprising the Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Securities Exchange.

We currently own and operate a diversified portfolio of businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses we own and operate are organized into four segments:

International-Matex Tank Terminals (IMTT):  a business providing bulk liquid terminalling to third parties at 17 terminals in the U.S. and two in Canada;
Atlantic Aviation:  a provider of fuel, terminal, aircraft hangaring and other services primarily to owners and operators of general aviation (GA) jet aircraft at 70 airports throughout the U.S.;
Contracted Power:  comprising electricity generating assets including a gas-fired facility and controlling interests in wind and solar facilities in the U.S.; and
MIC Hawaii:  comprising an energy company that processes and distributes gas and provides related services (Hawaii Gas) and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii.

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

Overview

Use of Non-GAAP measures

In addition to our results under U.S. GAAP, we use certain non-GAAP measures to assess the performance and prospects of our businesses. In particular, we use EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics reflect our proportionate interest in our wind and solar facilities.

We measure EBITDA excluding non-cash items as it reflects our businesses’ ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses.

In analyzing the financial performance of our businesses, we focus primarily on cash generation and Free Cash Flow in particular. We believe investors use Free Cash Flow as a measure of our ability to sustain and potentially increase our quarterly cash dividend and to fund a portion of our growth.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Consolidated — Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

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excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics” for further information on our calculation of EBITDA excluding non-cash items, Free Cash Flow and our proportionately combined metrics and for reconciliations of non-GAAP measures to the most comparable GAAP measures.

At IMTT, we focus on providing bulk liquid storage, handling and other services to customers who place a premium on ease of access and operational flexibility. The substantial majority of IMTT’s revenue is generated pursuant to “take-or-pay” contracts providing access to storage tank capacity and ancillary services. Contract lengths vary from 30 days to more than ten years.

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

The businesses that comprise our Contracted Power segment generate revenue by producing and selling electric power pursuant primarily to long-dated power purchase agreements (PPAs) or tolling agreements all with creditworthy off-takers.

MIC Hawaii comprises Hawaii Gas and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. The businesses of MIC Hawaii generate revenue primarily from the provision of gas services to commercial, residential and governmental customers, the generation of power and the design and construction of building mechanical systems.

Dividends

Since January 1, 2017, MIC has paid or declared the following dividends:

    
Declared Period Covered $ per Share Record Date Payable Date
July 31, 2018 Second quarter 2018 $1.00 August 13, 2018 August 16, 2018
May 1, 2018 First quarter 2018  1.00 May 14, 2018 May 17, 2018
February 19, 2018 Fourth quarter 2017  1.44 March 5, 2018 March 8, 2018
October 30, 2017 Third quarter 2017  1.42 November 13, 2017 November 16, 2017
August 1, 2017 Second quarter 2017  1.38 August 14, 2017 August 17, 2017
May 2, 2017 First quarter 2017  1.32 May 15, 2017 May 18, 2017
February 17, 2017 Fourth quarter 2016  1.31 March 3, 2017 March 8, 2017

We currently intend to maintain, and where possible, increase our quarterly cash dividend to our shareholders. The MIC Board has authorized a quarterly cash dividend of $1.00 per share for the quarter ended June 30, 2018. MIC has been structured to provide investors with an opportunity to generate an attractive “total return” and we intend to distribute the majority of the cash generated from operations by our businesses as a quarterly dividend.

Our board of directors regularly reviews our dividend policy and payout ratio. In determining whether to adjust the amount of our quarterly dividend, our board will take into account such matters as the state of the capital markets and general business and economic conditions, the Company’s financial condition, results of operations, indebtedness levels, capital requirements, capital opportunities and any contractual, legal and regulatory restrictions on the payment of dividends by the Company to its stockholders or by its subsidiaries to the Company, and any other factors that it deems relevant, subject to maintaining a prudent level of reserves and without creating undue volatility in the amount of such dividends where possible. Moreover, the Company’s senior secured credit facility and the debt commitments at our businesses contain restrictions that may limit the Company’s ability to pay dividends. Although historically we have declared cash dividends on our shares, any or all of these or other factors could result in the modification of our dividend policy, or the reduction, modification or elimination of our dividend in the future.

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Recent Developments

On July 27, 2018, our subsidiary within Contracted Power segment entered into an agreement to sell 100% of Bayonne Energy Center (BEC) to NHIP II Bayonne Holdings LLC for $656.5 million in cash and the assumption of $243.5 million in debt, subject to adjustment based on working capital and debt balances at the effective date. We will guarantee our subsidiary’s payment and certain post-closing indemnity obligations under the purchase agreement. The transaction is expected to close in the fourth quarter of 2018, subject to receipt of required approvals including, among others, from the New York Public Service Commission and the Federal Energy Regulatory Commission. As a consequence, BEC’s assets and liabilities are classified as held for sale on our consolidated condensed balance sheet at June 30, 2018.

We anticipate using part of the net proceeds of approximately $650.0 million, after transaction fees and expenses, to reduce debt including $150.0 million outstanding on the revolving credit facility at IMTT. We expect the use of proceeds from the BEC sale to reduce our ratio of net debt to EBITDA (leverage ratio) at December 31, 2018 to less than 4.5 times.

Proceeds not used to reduce debt will be available to fund a portion of our planned growth capital deployments. Our Board will consider options for returning any excess capital to shareholders.

We expect taxable gain from the sale of BEC to utilize the majority of our federal prior year Net Operating Loss (NOL) carry-forwards. However, we expect to be able to offset future federal taxable income with the tax benefits associated with capital deployments.

We are also undertaking a review of strategic options available to us with respect to certain other, smaller businesses in our portfolio. We may, as a result of this review, undertake to sell, or otherwise divest of these other businesses, although we cannot assure you whether, or on what terms, any such transaction(s) will occur.

In 2017, we completed the development of our shared service center to consolidate common back office functions across our businesses. We use an efforts model to allocate costs incurred by our shared services center to each of our operating and Corporate and Other segments. These costs are reflected in Selling, general and administrative expenses.

To date, we have realized approximately $12.0 million of savings from our shared services center, of which approximately 65% is related to procurement and 35% is related to headcount reductions. These headcount reductions have been partially offset by increases inSelling, general and administrative expenses associated with acquisitions completed in 2017 and 2018 as well as additional functionality that we have added to our shared services center. Savings from our procurement initiative will be reflected in a reduction in costs of services,cost of products sold, selling, general and administrative expenses and capital expenditures and will not be evenly allocated to any individual operating segment.

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Results of Operations

Consolidated

Our consolidated results reflect a decrease in the contribution from IMTT primarily as a result of the deferred revenue recognized in 2017 in connection with the termination of a construction project and the decreased contribution from the previously disclosed non-renewal of certain contracts for bulk liquid storage and handling services in late 2017 and early 2018. These factors were partially offset by contributions from an acquisition completed by IMTT in 2017.

Our consolidated results also reflect increases in the contributions from our Atlantic Aviation and Contracted Power businesses. Atlantic Aviation benefitted from increases in GA flight activity, contributions from acquisitions of additional FBOs and the operational leverage inherent in the business. Results for Contracted Power were better than anticipated driven by, (i) the favorable weather conditions in New York City and an increase in generation capacity from the BEC expansion; and (ii) improved operations of certain of our renewable power generation assets from better wind and solar resources and the internalization of the oversight of day-to-day operations of these assets.

MIC Hawaii’s results were below expectations primarily as a result of cost increases at Hawaii Gas and underperformance versus expectations on the part of our design-build mechanical contractor. The favorable outcome of the rate case is expected to generate incremental revenue and EBITDA by the regulated portion of Hawaii Gas in the third quarter of 2018 and thereafter.

Results for the second quarter of 2018 also reflect the absence of implementation costs related to shared services and the associated benefit of reductions in procurement costs. The absence of these expenses was partially offset by the cost of advisory services in connection with addressing shareholder matters.

Capital deployed in 2017 into acquisitions by each of IMTT and Atlantic Aviation, as well as growth investments generally, contributed an expected level of revenue and EBITDA to our overall results in the quarter and six months ended June 30, 2018. The 2017 acquisitions performed in line with their respective investment cases and the development of additional power generation capacity at BEC contributed modestly to our consolidated results in the second quarter.

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Results of Operations: Consolidated – (continued)

Our consolidated results of operations are as follows:

        
 Quarter Ended
June 30,
 Change
Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 $ % 2018 2017 $ %
   ($ In Thousands, Except Share and Per Share Data) (Unaudited)
Revenue
                                        
Service revenue $375,997  $345,045   30,952   9.0  $778,606  $708,849   69,757   9.8 
Product revenue  102,083   93,945   8,138   8.7   201,030   181,598   19,432   10.7 
Total revenue  478,080   438,990   39,090   8.9   979,636   890,447   89,189   10.0 
Costs and expenses
                                        
Cost of services  179,725   147,114   (32,611  (22.2  367,195   301,820   (65,375  (21.7
Cost of product sales  47,164   40,249   (6,915  (17.2  100,549   87,474   (13,075  (14.9
Selling, general and administrative  88,927   82,967   (5,960  (7.2  175,884   159,919   (15,965  (10.0
Fees to Manager-related party  10,852   18,433   7,581   41.1   23,780   36,656   12,876   35.1 
Depreciation  61,086   57,063   (4,023  (7.1  122,444   114,744   (7,700  (6.7
Amortization of intangibles  18,224   15,898   (2,326  (14.6  35,440   33,591   (1,849  (5.5
Total operating expenses  405,978   361,724   (44,254  (12.2  825,292   734,204   (91,088  (12.4
Operating income  72,102   77,266   (5,164  (6.7  154,344   156,243   (1,899  (1.2
Other income (expense)
                                        
Interest income  111   41   70   170.7   191   75   116   154.7 
Interest expense(1)  (30,287  (35,356  5,069   14.3   (49,077  (60,838  11,761   19.3 
Other income, net  6,248   1,738   4,510   NM   6,290   2,920   3,370   115.4 
Net income before income taxes  48,174   43,689   4,485   10.3   111,748   98,400   13,348   13.6 
Provision for income taxes  (11,895  (17,664  5,769   32.7   (28,674  (39,737  11,063   27.8 
Net income $36,279  $26,025   10,254   39.4  $83,074  $58,663   24,411   41.6 
Less: net (loss) income attributable to noncontrolling interests  (2,087  5   2,092   NM   (32,126  (3,372  28,754   NM 
Net income attributable to MIC $38,366  $26,020   12,346   47.4  $115,200  $62,035   53,165   85.7 
Basic income per share attributable to MIC $0.45  $0.32   0.13   40.6  $1.36  $0.75   0.61   81.3 
Weighted average number of shares outstanding: basic  85,082,209   82,430,324   2,651,885   3.2   84,952,551   82,285,053   2,667,498   3.2 

NM — Not meaningful

(1)Interest expense includes gains on derivative instruments of $5.9 million and $21.0 million for the quarter and six months ended June 30, 2018, respectively. For the quarter and six months ended June 30, 2017, interest expense includes losses on derivative instruments of $7.7 million and $6.8 million, respectively.

Revenue

Consolidated revenues increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily as a result of, (i) an increase in the wholesale cost of jet fuel sold at Atlantic Aviation; (ii) an increase in the volume and wholesale cost of gas sold at Hawaii Gas and an increase in revenue from the design-build mechanical contractor at MIC Hawaii; (iii) improved operations and power production by our Contracted Power businesses; and, (iv) contributions from acquisitions. The increase in revenue for the quarter and six months ended June 30, 2018 was partially offset by deferred revenue recognized in 2017 in connection with the termination of a construction project at IMTT.

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Results of Operations: Consolidated – (continued)

Cost of Services and Product Sales

Consolidated cost of services and product sales increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to, (i) an increase in the wholesale cost of jet fuel at Atlantic Aviation; (ii) an increase in the wholesale cost of gas and lower margins at MIC Hawaii; and, (iii) incremental costs associated with acquired operations. The changes in consolidated cost of services and product sales were also attributable to unrealized gains and losses on commodity hedges at Hawaii Gas (see “Results of Operations — MIC Hawaii” below).

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to, (i) incremental costs associated with acquired businesses; (ii) approximately $2.0 million of costs incurred for advisory services in connection with addressing shareholder matters; and (iii) costs incurred in connection with the evaluation of various investment and acquisition/disposition opportunities. The increases were partially offset by the absence of costs incurred during 2017 in connection with the implementation of our shared services center.

Fees to Manager

Our Manager is entitled to a monthly base management fee based primarily on our market capitalization and potentially a quarterly performance fee based on total stockholder returns relative to a U.S. utilities index. For the quarter and six months ended June 30, 2018, we incurred base management fees of $10.9 million and $23.8 million, respectively, compared with $18.4 million and $36.7 million for the quarter and six months ended June 30, 2017, respectively. No performance fees were incurred in any of the above periods. The unpaid portion of base management fees and performance fees, if any, at the end of each reporting period is included in the line item Due to Manager-related partyin our consolidated condensed balance sheets.

In all of the periods shown below, our Manager elected to reinvest any fees to which it was entitled in additional shares. In accordance with the Third Amended and Restated Management Services Agreement, our Manager has currently elected to reinvest future base management fees and performance fees, if any, in new primary shares.

   
Period Base
Management
Fee Amount
($ in Thousands)
 Performance
Fee Amount
($ in Thousands)
 Shares
Issued
2018 Activities:
               
Second quarter 2018 $10,852  $      —   277,053(1) 
First quarter 2018  12,928      265,002 
2017 Activities:
               
Fourth quarter 2017 $16,778  $      —   248,162 
Third quarter 2017  17,954      240,674 
Second quarter 2017  18,433      233,394 
First quarter 2017  18,223      232,398 

(1)Our Manager elected to reinvest all of the monthly base management fees for the second quarter of 2018 in shares. The Company issued 277,053 shares for the quarter ended June 30, 2018, including 93,242 shares and 91,205 shares that were issued in July 2018 for the May and June 2018 monthly base management fee, respectively.

Depreciation

Depreciation expense increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to contributions from acquisitions and assets placed in service.

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Results of Operations: Consolidated – (continued)

Amortization of Intangibles

Amortization of intangibles increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to contributions from acquisitions and a reassessment of the useful life of customer relationships at the design-build mechanical contractor in MIC Hawaii.

Interest Expense and Gains (Losses) on Derivative Instruments

Interest expense includes gains on derivative instruments of $5.9 million and $21.0 million for the quarter and six months ended June 30, 2018, respectively, compared with losses on derivative instruments of $7.7 million and $6.8 million for the quarter and six months ended June 30, 2017, respectively. Gains and losses on derivatives recorded in interest expense are attributable to the change in fair value of interest rate hedging instruments. Excluding the derivative adjustments, cash interest expense was $31.8 million and $61.6 million for the quarter and six months ended June 30, 2018, respectively, compared with $26.4 million and $52.3 million for the quarter and six months ended June 30, 2017, respectively. The increase reflects primarily higher average debt balances and an increase in the weighted average interest rate. See discussions of interest expense for each of our operating businesses below.

Other Income, net

Other income, net, increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 reflecting fees paid to us under a loan agreement with a developer of renewable power projects.

Income Taxes

We file a consolidated federal income tax return that includes the financial results of IMTT, Atlantic Aviation, BEC, MIC Hawaii and our allocable share of the taxable income (loss) from our wind and solar facilities. The wind and solar facilities in which we have less than 100% equity interests are held by limited liability companies treated as partnerships for tax purposes. Pursuant to a tax sharing agreement, the businesses included in our consolidated federal income tax return, pay MIC an amount equal to the federal income tax each would have paid on a standalone basis as if they were not part of the consolidated federal income tax return. In addition, our businesses also file income tax returns in the state and local jurisdictions in which they operate.

For the year ending December 31, 2018, we expect any consolidated federal income tax liability our businesses may generate to be fully offset by NOL carryforwards. Our federal NOL balance at December 31, 2017 was $347.3 million, which we believe we will be able to fully utilize. If the aforementioned sale of BEC does not close, we do not expect to make material federal income tax payments, with our current portfolio of businesses, any earlier than 2020 due to the availability of our federal prior year NOLs. If the sale of BEC closes, we expect to utilize a substantial amount of our federal prior year NOLs and may be required to make material federal income tax payments as early as 2019. Some or all of any current federal income tax liabilities otherwise arising in 2019 could be offset by capital deployed into assets that qualify for bonus depreciation.

For the year ending December 31, 2018, we expect current year federal taxable income to be approximately $80.0 million, excluding any gain from the sale of BEC. In addition, we expect our businesses collectively to pay state/provincial income taxes of approximately $14.0 million for the year ending December 31, 2018. In calculating our consolidated state income tax provision, we have provided a valuation allowance for certain state income tax NOLs, the use of which is uncertain.

The Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act signed into law on December 22, 2017 includes provisions that will have an impact on our federal taxable income. The most significant of these are 100% bonus depreciation on qualifying assets (which is scheduled to decrease ratably to 0% between 2023 and 2027) and a reduction in the federal corporate tax rate from 35% to 21%.

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Results of Operations: Consolidated – (continued)

The Tax Cuts and Jobs Act also limits the deductibility of net interest expense to 30% of “adjusted taxable income”. We do not expect this limitation to have a material impact our financial results.

Noncontrolling Interest

The increase in loss attributable to noncontrolling interest for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 was driven primarily by the change in tax rates imposed on certain entities within the Contracted Power segment by the Tax Cuts and Jobs Act.

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

In addition to our results under U.S. GAAP, we use certain non-GAAP measures to assess the performance and prospects of our businesses. In particular, we use EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics reflect our proportionate interest in our wind and solar facilities.

We measure EBITDA excluding non-cash items as it reflects our businesses’ ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses. We believe investors use EBITDA excluding non-cash items primarily as a measure of the operating performance of MIC’s businesses and to make comparisons with the operating performance of other businesses whose depreciation and amortization expense may vary widely from ours, particularly where acquisitions and other non-operating factors are involved. We define EBITDA excluding non-cash items as net income (loss) or earnings — the most comparable GAAP measure — before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations. EBITDA excluding non-cash items also excludes base management fees and performance fees, if any, whether paid in cash or stock.

Given our varied ownership levels in our Contracted Power and MIC Hawaii segments, together with our obligations to report the results of these businesses on a consolidated basis, GAAP measures such as net income (loss) do not fully reflect all of the items we consider in assessing the amount of cash generated based on our proportionate interest in our wind and solar facilities. We note that the proportionately combined metrics used may be calculated in a different manner by other companies and may limit their usefulness as a comparative measure. Therefore, proportionately combined metrics should be used as a supplemental measure and not in lieu of our financial results reported under GAAP.

Our businesses are characteristically owners of high-value, long-lived assets capable of generating substantial Free Cash Flow. We define Free Cash Flow as cash from operating activities — the most comparable GAAP measure — which includes cash interest, tax payments and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures, and excluding changes in working capital.

We use Free Cash Flow as a measure of our ability to provide investors with an attractive risk-adjusted total return by sustaining and potentially increasing our quarterly cash dividend and funding a portion of our growth. GAAP metrics such as net income (loss) do not provide us with the same level of visibility into the performance and prospects of the business as a result of: (i) the capital intensive nature of our businesses and the generation of non-cash depreciation and amortization; (ii) shares issued to our external Manager under the Management Services Agreement; (iii) our ability to defer all or a portion of current federal income taxes; (iv) non-cash unrealized gains or losses on derivative instruments; (v) amortization of tolling liabilities; (vi) gains (losses) on disposal of assets; and (vii) pension expenses. Pension expenses primarily consist of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are reflected as a reduction to Free Cash Flow and are not included in pension expense. We believe that external consumers of our financial statements, including investors and research analysts, use Free Cash Flow both to assess MIC’s performance and as an indicator of its success in generating an attractive risk-adjusted total return.

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Results of Operations: Consolidated – (continued)

In this Quarterly Report on Form 10-Q, we have disclosed Free Cash Flow on a consolidated basis and for each of our operating segments and MIC Corporate. We believe that both EBITDA excluding non-cash items and Free Cash Flow support a more complete and accurate understanding of the financial and operating performance of our businesses than would otherwise be achieved using GAAP results alone.

Free Cash Flow does not take into consideration required payments on indebtedness and other fixed obligations or other cash items that are excluded from our definition of Free Cash Flow. We note that Free Cash Flow may be calculated differently by other companies thereby limiting its usefulness as a comparative measure. Free Cash Flow should be used as a supplemental measure and not in lieu of our financial results reported under GAAP.

Classification of Maintenance Capital Expenditures and Growth Capital Expenditures

We categorize capital expenditures as either maintenance capital expenditures or growth capital expenditures. As neither maintenance capital expenditure nor growth capital expenditure is a GAAP term, we have adopted a framework to categorize specific capital expenditures. In broad terms, maintenance capital expenditures primarily maintain our businesses at current levels of operations, capability, profitability or cash flow, while growth capital expenditures primarily provide new or enhanced levels of operations, capability, profitability or cash flows. We consider a number of factors in determining whether a specific capital expenditure will be classified as maintenance or growth.

We do not bifurcate specific capital expenditures into maintenance and growth components. Each discrete capital expenditure is considered within the above framework and the entire capital expenditure is classified as either maintenance or growth.

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Results of Operations: Consolidated – (continued)

A reconciliation of net income to EBITDA excluding non-cash items and a reconciliation from cash provided by operating activities to Free Cash Flow, on a consolidated basis, is provided below. Similar reconciliations for each of our operating businesses and MIC Corporate follow.

        
 Quarter Ended
June 30,
 Change
Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 $ % 2018 2017 $ %
   ($ In Thousands) (Unaudited)
Net income $36,279  $26,025            $83,074  $58,663           
Interest expense, net(1)  30,176   35,315             48,886   60,763           
Provision for income taxes  11,895   17,664             28,674   39,737           
Depreciation  61,086   57,063             122,444   114,744           
Amortization of intangibles  18,224   15,898             35,440   33,591           
Fees to Manager-related party  10,852   18,433             23,780   36,656           
Pension expense(2)  1,937   1,627             4,190   4,321           
Other non-cash (income) expense, net(3)  (1,514  (1,101          3,366   2,764         
EBITDA excluding non-cash items $168,935  $170,924   (1,989  (1.2 $349,854  $351,239   (1,385  (0.4
EBITDA excluding non-cash items $168,935  $170,924            $349,854  $351,239           
Interest expense, net(1)  (30,176  (35,315            (48,886  (60,763          
Adjustments to derivative instruments recorded in interest expense(1)  (4,706  5,930             (19,755  2,683           
Amortization of debt financing costs(1)  2,190   2,099             5,239   4,301           
Amortization of debt discount(1)  903   876             1,800   1,495           
Provision for current income taxes  (3,712  (2,618            (7,583  (6,339          
Changes in working capital(4)  (11,534  (20,853        (14,667  (43,979      
Cash provided by operating activities  121,900   121,043             266,002   248,637           
Changes in working capital(4)  11,534   20,853             14,667   43,979           
Maintenance capital expenditures  (9,490  (6,480          (19,352  (10,956        
Free cash flow $123,944  $135,416   (11,472  (8.5 $261,317  $281,660   (20,343  (7.2

(1)Interest expense, net, includes adjustments to derivative instruments, non-cash amortization of deferred financing fees and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023.
(2)Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.
(3)Other non-cash (income) expense, net, primarily includes non-cash amortization of tolling liabilities, unrealized gains (losses) on commodity hedges and non-cash gains (losses) related to disposal of assets. See“Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics” above for further discussion.
(4)Conformed to current period presentation for the adoption of ASU No. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. See Note 2, “Basis of Presentation”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards.

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

See “Results of Operations — Consolidated” above for a reconciliation of Free Cash Flow —  Consolidated basis to cash provided by operating activities, the most comparable GAAP measure. The following table is a reconciliation from Free Cash Flow on a consolidated basis to Free Cash Flow on a proportionately combined basis (our proportionate interest in our wind and solar facilities). See “Results of Operations” below for a reconciliation of Free Cash Flow for each of our segments to cash provided by (used in) operating activities for such segment.

        
 Quarter Ended
June 30,
 Change
Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 $ % 2018 2017 $ %
   ($ In Thousands) (Unaudited)
Free Cash Flow – Consolidated basis $123,944  $135,416   (11,472  (8.5 $261,317  $281,660   (20,343  (7.2
100% of Contracted Power Free Cash Flow included in consolidated Free Cash Flow  (25,973  (20,704            (40,500  (30,543          
MIC’s share of Contracted Power Free Cash Flow  24,027   18,462             36,126   26,633           
100% of MIC Hawaii Free Cash Flow included in consolidated Free Cash Flow  (7,226  (9,295            (17,976  (24,231          
MIC’s share of MIC Hawaii Free Cash Flow  7,224   9,293           17,971   24,226         
Free Cash Flow – Proportionately Combined basis $121,996  $133,172   (11,176  (8.4 $256,938  $277,745   (20,807  (7.5

Results of Operations: IMTT

The financial performance of IMTT is in large part a function of the amount of bulk liquid storage capacity under contract and the rates achieved on leases of that capacity. IMTT recorded financial results for the quarter and six months ended June 30, 2018 that reflects the deferred revenue recognized in 2017 in connection with the termination of a construction project, an expected decline in storage capacity utilization levels and slightly lower average storage rates, partially offset by contributions from an acquisition in 2017. Contract non-renewals reduced capacity utilization to an average of 86.1% for the quarter ended June 30, 2018 compared with 94.0% for the quarter ended June 30, 2017 and 88.1% for the quarter ended March 31, 2018. Storage pricing, although generally flat across the business as a whole, remains under pressure with respect to gasoline and distillates in New York Harbor.

IMTT is currently both involved in and evaluating repurposing and repositioning opportunities:

Repurposing: cleaning and repurposing up to approximately 3.0 million barrels of primarily heavy and residual oil capacity on the Lower Mississippi River to increase exposure to growth product segments with potentially better growth prospects.

Approximately 1.3 million barrels of IMTT storage capacity is currently being repurposed. Of that, 500,000 barrels were contracted in the second quarter and an additional 370,000 barrels were contracted in the third quarter. IMTT expects to invest approximately $15.0 million in the repurposing of storage capacity in 2018 and had deployed approximately $2.8 million through June 2018.

Repositioning: leveraging IMTT’s existing geographic footprint to selectively increase capacity to meet customer demand and further diversify product mix (i.e. chemical and tropical oil).

Repositioning also includes enhancing connectivity by investing in truck, pipeline, marine and rail infrastructure that will enhance supply chain efficiencies for its customers and provide better integration with IMTT’s facilities.

The successful implementation of these initiatives is, over time, expected to, (i) improve utilization and pricing, (ii) increase exposure to growth markets, (iii) generate a larger proportion of IMTT’s revenue from longer-dated contracts, and (iv) reduce IMTT’s exposure to heavy and residual oil storage demand.

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Results of Operations:IMTT – (continued)

In April 2018, IMTT sold its environmental response subsidiary (OMI Environmental Solutions).

        
 Quarter Ended
June 30,
 Change
Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 2018 2017
   $ $ $ % $ $ $ %
    ($ In Thousands) (Unaudited) 
Revenue  129,363   137,144   (7,781  (5.7  268,752   275,961   (7,209  (2.6
Cost of services  49,716   49,224   (492  (1.0  104,141   99,070   (5,071  (5.1
Selling, general and administrative expenses  7,814   7,485   (329  (4.4  17,120   16,523   (597  (3.6
Depreciation and amortization  32,770   30,795   (1,975  (6.4  66,019   62,315   (3,704  (5.9
Operating income  39,063   49,640   (10,577  (21.3  81,472   98,053   (16,581  (16.9
Interest expense, net(1)  (10,933  (11,763  830   7.1   (18,672  (20,520  1,848   9.0 
Other income, net  154   452   (298  (65.9  450   1,160   (710  (61.2
Provision for income taxes  (8,087  (15,716  7,629   48.5   (17,773  (32,264  14,491   44.9 
Net income  20,197   22,613   (2,416  (10.7  45,477   46,429   (952  (2.1
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
                                        
Net income  20,197   22,613             45,477   46,429           
Interest expense, net(1)  10,933   11,763             18,672   20,520           
Provision for income taxes  8,087   15,716             17,773   32,264           
Depreciation and amortization  32,770   30,795             66,019   62,315           
Pension expense(2)  1,743   1,350             3,823   3,766           
Other non-cash expense, net  310   69           404   137         
EBITDA excluding non-cash items  74,040   82,306   (8,266  (10.0  152,168   165,431   (13,263  (8.0
EBITDA excluding non-cash items  74,040   82,306             152,168   165,431           
Interest expense, net(1)  (10,933  (11,763            (18,672  (20,520          
Adjustments to derivative instruments recorded in interest expense(1)  (1,351  1,587             (5,393  267           
Amortization of debt financing costs(1)  412   412             823   823           
Provision for current income taxes  (4,376  (1,155            (8,652  (3,413          
Changes in working capital  5,545   (16,881        10,634   (16,145      
Cash provided by operating activities  63,337   54,506             130,908   126,443           
Changes in working capital  (5,545  16,881             (10,634  16,145           
Maintenance capital expenditures  (5,483  (2,987          (12,472  (5,447        
Free cash flow  52,309   68,400   (16,091  (23.5  107,802   137,141   (29,339  (21.4

(1)Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.
(2)Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.

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Results of Operations:IMTT – (continued)

Revenue

IMTT generates the majority of its revenue from contracts comprising a fixed monthly charge (that typically escalates annually with inflation) for access to or use of a specified amount of capacity and/or its infrastructure and land. Contract lengths vary from 30 days to more than ten years. We refer to revenue generated from such contracts or fixed charges as firm commitments. Firm commitments are generally of medium term duration and at June 30, 2018, had a revenue weighted average remaining life of 2.3 years. However, some customers storing certain petroleum products are renewing contracts for shorter durations that will increase the frequency with which contracts are renewed. Revenue from firm commitments comprised 80.5% and 79.8% of total revenue for the quarter and trailing twelve months ended June 30, 2018, respectively.

For the quarter and six months ended June 30, 2018, total revenue decreased by $7.8 million and $7.2 million, respectively, compared with the quarter and six months ended June 30, 2017 primarily due to the deferred revenue recognized in 2017 in connection with the termination of a construction project, the decline in utilization and slightly lower average storage rates. The decrease in revenue was partially offset by contributions from an acquisition.

Costs of Services and Selling, General and Administrative Expenses

Cost of services and selling, general and administrative expenses combined increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to incremental costs related to an acquisition and increased repair and maintenance expenses. The cost increases were partially offset by lower costs related to spill response activity primarily as a result of the sale of OMI Environmental Solutions in April 2018.

Depreciation and Amortization

Depreciation and amortization expense increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to an acquisition.

Interest Expense, Net

Interest expense includes gains on derivative instruments of $1.6 million and $5.6 million for the quarter and six months ended June 30, 2018, respectively, compared with losses on derivative instruments of $2.2 million and $1.7 million for the quarter and six months ended June 30, 2017, respectively. Excluding the derivative adjustments, cash interest expense was $11.8 million and $23.2 million for the quarter and six months ended June 30, 2018, respectively, compared with $9.7 million and $19.4 million for the quarter and six months ended June 30, 2017, respectively. The increases reflect primarily higher average debt balances and a higher weighted average interest rate.

The interest rate on IMTT’s tax-exempt Gulf Opportunity Zone Bonds (GO Zone Bonds) increased by 0.6% in 2018 as a result of the reduction in the corporate tax rate from 35% to 21% under the Tax Cuts and Jobs Act.

Income Taxes

The taxable income generated by IMTT is reported on our consolidated federal income tax return. The business files state/provincial income tax returns in the jurisdictions in which it operates. For the year ending December 31, 2018, the business expects to pay state/provincial income taxes of approximately $5.0 million. The Provision for current income taxes of $8.7 million for the six months ended June 30, 2018 in the above table includes $4.7 million of federal income tax expense and $4.0 million of state/provincial income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.

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Results of Operations:IMTT – (continued)

The majority of the difference between IMTT’s book and federal taxable income relates to depreciation of terminal fixed assets. For book purposes, these fixed assets are depreciated primarily over 5 to 30 years using the straight-line method of depreciation. For federal income tax purposes, these fixed assets are depreciated primarily over 5 to 15 years using accelerated methods. In addition, most terminal fixed assets qualify for the federal bonus tax depreciation. A significant portion of terminal fixed assets in Louisiana that were constructed in the period after Hurricane Katrina were financed with GO Zone Bonds. GO Zone Bond financed assets are depreciated, for tax purposes, primarily over 9 to 20 years using the straight-line method. Most of the states in which the business operates do not allow the use of bonus tax depreciation. However, Louisiana allows the use of bonus depreciation except for assets financed with GO Zone Bonds.

Maintenance Capital Expenditures

During the six months ended June 30, 2018, IMTT incurred maintenance capital expenditures of $12.5 million and $12.9 million on an accrual basis and cash basis, respectively, compared with $5.4 million and $8.3 million on an accrual basis and cash basis, respectively, for the six months ended June 30, 2017. The increase for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 was primarily a result of the timing of tank and dock inspections and repairs. Maintenance capital expenditure for the six months ended June 30, 2018 also includes approximately $1.8 million of capital expenditure associated with repurposing existing tanks. For the full year, IMTT anticipates spending up to $15.0 million on repurposing existing tanks with approximately $10.0 million of that being characterized as maintenance capital expenditures. The repurposing expenditures would be in addition to a forecast $20.0 million to $25.0 million of recurring maintenance capital expenditures.

Results of Operations: Atlantic Aviation

A fundamental driver of the performance of Atlantic Aviation is the number of GA flight movements (take-offs and landings) in a given period. Industry-wide, domestic GA flight movements increased by 1.7% and 2.2% for the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017 according to data reported by the FAA. GA flight movements at airports on which Atlantic Aviation operates increased by 0.1% and 0.4% during the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017. The modest increase in flight movements at airports on which Atlantic Aviation operates reflects primarily decreased traffic at Santa Monica Municipal Airport in Santa Monica, CA as a result of the shortening of the runway. Flight movements at the remainder of the airports on which Atlantic Aviation operates increased by 1.3% and 1.6% during the quarter and six months ended June 30, 2018.

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Results of Operations: Atlantic Aviation – (continued)

Atlantic Aviation seeks to extend FBO leases prior to their maturity in order to maintain visibility into the cash generating capacity of these assets over the long-term. Atlantic Aviation calculates a weighted average remaining lease life based on EBITDA excluding non-cash items in the prior calendar year adjusted for the impact of acquisitions/dispositions. The weighted average remaining lease life was 20.1 years at June 30, 2018 compared with 19.8 years at June 30, 2017. Notwithstanding the passage of one year, the length of the remaining lease life increased as a result of acquisitions and successful extensions of certain leaseholds.

        
 Quarter Ended
June 30,
 Change Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 2018 2017
   $ $ $ % $ $ $ %
    ($ In Thousands) (Unaudited) 
Revenue  232,931   196,939   35,992   18.3   480,133   409,692   70,441   17.2 
Cost of services (exclusive of depreciation and amortization shown separately below)  115,994   86,957   (29,037  (33.4  232,687   180,879   (51,808  (28.6
Gross margin  116,937   109,982   6,955   6.3   247,446   228,813   18,633   8.1 
Selling, general and administrative expenses  56,717   52,596   (4,121  (7.8  116,656   106,486   (10,170  (9.6
Depreciation and amortization  26,959   23,575   (3,384  (14.4  52,438   48,608   (3,830  (7.9
Operating income  33,261   33,811   (550  (1.6  78,352   73,719   4,633   6.3 
Interest expense, net(1)  (4,242  (5,907  1,665   28.2   (4,311  (9,353  5,042   53.9 
Other expense, net  (555  (19  (536  NM   (499  (105  (394  NM 
Provision for income taxes  (7,600  (11,077  3,477   31.4   (19,711  (25,627  5,916   23.1 
Net income  20,864   16,808   4,056   24.1   53,831   38,634   15,197   39.3 
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
                                        
Net income  20,864   16,808             53,831   38,634           
Interest expense, net(1)  4,242   5,907             4,311   9,353           
Provision for income taxes  7,600   11,077             19,711   25,627           
Depreciation and amortization  26,959   23,575             52,438   48,608           
Pension expense(2)  6   5             11   10           
Other non-cash expense (income), net  597   (22          909   40         
EBITDA excluding non-cash items  60,268   57,350   2,918   5.1   131,211   122,272   8,939   7.3 
EBITDA excluding non-cash items  60,268   57,350             131,211   122,272           
Interest expense, net(1)  (4,242  (5,907            (4,311  (9,353          
Convertible senior notes interest(3)  (2,013  (2,013            (4,025  (3,757          
Adjustments to derivative instruments recorded in interest expense(1)  (1,077  2,553             (5,444  2,686           
Amortization of debt financing costs(1)  283   221             562   535           
Provision for current income taxes  (7,207  (1,730            (13,740  (4,602          
Changes in working capital  4,572   784         10,591   (5,332      
Cash provided by operating activities  50,584   51,258             114,844   102,449           
Changes in working capital  (4,572  (784            (10,591  5,332           
Maintenance capital expenditures  (1,807  (1,981          (3,109  (2,906        
  Free cash flow  44,205   48,493   (4,288  (8.8  101,144   104,875   (3,731  (3.6

NM — Not meaningful

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Results of Operations: Atlantic Aviation – (continued)

(1)Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.
(2)Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.
(3)Represents the cash interest expense reclassified from MIC Corporate related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviation’s credit facility in October 2016.

Atlantic Aviation generates a significant portion of its revenue from sales of jet fuel. Increases and decreases in the cost of jet fuel are generally passed through to consumers. Accordingly, revenue will fluctuate based on the cost of jet fuel to Atlantic Aviation and reported revenue may not reflect the business’ ability to effectively manage volume and gross margin. For example, an increase in revenue may be attributable to an increase in the cost of the jet fuel and not an increase in the volume sold or margin per gallon to the customer. Conversely, a decline in revenue may be attributable to a decrease in the cost of jet fuel and not a reduction in the volume sold or margin per gallon.

Gross margin, which we define as revenue less cost of services, excluding depreciation and amortization, is the effective “top line” for Atlantic Aviation as it is reflective of the business’ ability to drive growth in the volume of products and services sold and the margins earned on those sales over time. We believe that our investors view gross margin as reflective of our ability to manage volume and price throughout the commodity cycle. Gross margin can be reconciled to operating income — the most comparable GAAP measure — by subtracting selling, general and administrative expenses and depreciation and amortization in the table above.

Revenue and Gross Margin

The majority of the revenue and gross margin earned by Atlantic Aviation is generated through fueling GA aircraft at facilities located on the 70 U.S. airports at which the business operates. Atlantic Aviation seeks to maintain and, where appropriate, increase dollar-based margins on fuel sales.

Revenue and gross margin are driven, in part, by the volume of fuel sold and the dollar-based margin/fee per gallon on those sales. Revenue increased by 18.3% and 17.2% for the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017 as a result of increases in the wholesale cost of fuel and contributions from acquisitions. The increased wholesale cost of fuel was largely offset by a corresponding increase in cost of services, resulting in an increase in gross margin of 6.3% and 8.1% for the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017.

Our discussion of same store results in the current and prior comparable periods reflects contributions from FBOs that have been in operation for the same full months in each period, and excludes the costs of acquiring, integrating or disposing of FBOs. On a same store basis, gross margin increased by 2.9% and 4.1% in the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017 driven in part by an increase in hangar rentals and ancillary services.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily as a result of incremental costs associated with acquisitions, higher salaries and benefit costs and rent increases.

Depreciation and Amortization

Depreciation and amortization expense increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily as a result of contributions from acquisitions and assets placed in service.

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Results of Operations: Atlantic Aviation – (continued)

Operating Income

Operating income decreased for the quarter ended June 30, 2018 compared with the quarter ended June 30, 2017 due to the increase in selling, general and administrative expenses and the increase in depreciation and amortization expense, partially offset by the increase in gross margin. Operating income increased for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 due to the increase in gross margin, partially offset by the increase in selling, general and administrative expenses and the increase in depreciation and amortization expense.

Interest Expense, Net

Interest expense includes gains on derivative instruments of $2.0 million and $7.0 million for the quarter and six months ended June 30, 2018, respectively, compared with losses on derivative instruments of $2.5 million and $2.7 million for the quarter and six months ended June 30, 2017, respectively. Excluding the derivative adjustments, cash interest expense was $7.0 million and $13.2 million for the quarter and six months ended June 30, 2018, respectively, compared with $5.2 million and $9.9 million for the quarter and six months ended June 30, 2017, respectively. The increases reflect primarily higher average debt balances and a higher weighted average interest rate.

Cash interest expense for the quarter and six months ended June 30, 2018 and 2017 includes the cash interest expense on the $402.5 million of the MIC Corporate 2.00% Convertible Senior Notes due October 2023, proceeds of which were used in part to reduce the drawn balance of Atlantic Aviation’s revolving credit facility in October 2016.

Income Taxes

The taxable income generated by Atlantic Aviation is included in our consolidated federal income tax return. The business files state income tax returns in the majority of the states in which it operates. The tax expense in the table above includes both state taxes and the portion of the consolidated federal tax liability attributable to the business.

For the year ending December 31, 2018, the business expects to pay state income taxes of approximately $8.0 million. The Provision for current income taxes of $13.7 million for the six months ended June 30, 2018 in the above table includes $9.5 million of federal income tax expense and $4.2 million of state income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.

Maintenance Capital Expenditures

For the six months ended June 30, 2018, Atlantic Aviation incurred maintenance capital expenditures of $3.1 million and $3.4 million on an accrual basis and cash basis, respectively, compared with $2.9 million both on an accrual basis and cash basis for the six months ended June 30, 2017.

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Results of Operations: Contracted Power

The performance of our Contracted Power segment is a function, broadly, of the availability of wind and solar resources and the demand for peaking power in New York City. Segment results for the quarter and six months ended June 30, 2018 exceeded expectations primarily as a result of improved renewable resources versus the prior comparable periods and weather conditions in and around New York City that resulted in an increase in power demand. In addition, we received fees pursuant to a loan agreement with a developer of renewable power projects during the second quarter. Results for the period also reflect a contribution from the recently completed BEC expansion project and increased tariff-based ancillary services revenue.

        
 Quarter Ended
June 30,
 Change
Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 2018 2017
   $ $ $ % $ $ $ %
    ($ In Thousands) (Unaudited) 
Product revenue  41,403   40,166   1,237   3.1   76,690   68,236   8,454   12.4 
Cost of product sales  5,862   5,498   (364  (6.6  11,699   10,357   (1,342  (13.0
Selling, general and administrative expenses  7,510   6,244   (1,266  (20.3  15,022   11,409   (3,613  (31.7
Depreciation and amortization  14,519   14,861   342   2.3   30,046   30,201   155   0.5 
Operating income  13,512   13,563   (51  (0.4  19,923   16,269   3,654   22.5 
Interest expense, net(1)  (4,832  (8,767  3,935   44.9   (5,717  (14,150  8,433   59.6 
Other income, net  6,721   1,341   5,380   NM   7,726   2,106   5,620   NM 
Provision for income taxes  (3,654  (1,845  (1,809  (98.0  (4,604  (1,872  (2,732  (145.9
Net income  11,747   4,292   7,455   173.7   17,328   2,353   14,975   NM 
Less: net (loss) income attributable to noncontrolling interest  (2,003  16   2,019   NM   (32,059  (3,333  28,726   NM 
Net income attributable to MIC  13,750   4,276   9,474   NM   49,387   5,686   43,701   NM 
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
                                        
Net income  11,747   4,292             17,328   2,353           
Interest expense, net(1)  4,832   8,767             5,717   14,150           
Provision for income taxes  3,654   1,845             4,604   1,872           
Depreciation and amortization  14,519   14,861             30,046   30,201           
Other non-cash income, net(2)  (1,690  (2,232          (3,578  (4,256        
EBITDA excluding non-cash items  33,062   27,533   5,529   20.1   54,117   44,320   9,797   22.1 
EBITDA excluding non-cash items  33,062   27,533             54,117   44,320           
Interest expense, net(1)  (4,832  (8,767            (5,717  (14,150          
Adjustments to derivative instruments recorded in interest expense(1)  (2,178  1,474             (8,148  (360          
Amortization of debt financing costs(1)  379   379             758   758           
(Provision) benefit for current income taxes  (54  85             (70  (3          
Changes in working capital(3)  (12,694  (7,621        (11,775  (8,206      
Cash provided by operating activities  13,683   13,083             29,165   22,359           
Changes in working capital(3)  12,694   7,621             11,775   8,206           
Maintenance capital expenditures  (404             (440  (22        
  Free cash flow  25,973   20,704   5,269   25.4   40,500   30,543   9,957   32.6 

NM — Not meaningful

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TABLE OF CONTENTS

Results of Operations:Contracted Power – (continued)

(1)Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.
(2)Other non-cash income, net, primarily includes amortization of tolling liabilities. See“Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics” above for further discussion.
(3)Conformed to current period presentation for the adoption of ASU No. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. See Note 2, “Basis of Presentation”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards.

Revenue

Revenue increased by $1.2 million and $8.5 million for the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017. Revenue from BEC increased due to, (i) higher ancillary services and transmission congestion revenue; (ii) an increase in generation capacity; and, (iii) higher capacity prices that positively impacts the merchant portion of BEC. Revenue from our renewable facilities increased primarily due to strong wind resources for the six months ended June 30, 2018.

Cost of Product Sales

Cost of product sales increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 due to the BEC expansion completed in May 2018. For the six months ended June 30, 2018, the increase in cost of product sales also reflects higher generation levels at BEC resulting in an increase in gas consumed and higher variable operations and maintenance expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to the expansion of BEC and development-related expenses. These increases were partially offset by lower insurance costs at BEC.

Other Income, Net

Other income, net, increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 reflecting fees paid to Contracted Power pursuant to a loan agreement with a developer of renewable power projects.

Interest Expense, Net

Interest expense includes gains on derivative instruments of $2.0 million and $7.4 million for the quarter and six months ended June 30, 2018, respectively, compared with losses on derivative instruments of $2.7 million and $2.3 million for the quarter and six months ended June 30, 2017, respectively. Excluding the derivative adjustments, cash interest expense was $6.6 million and $13.1 million for the quarter and six months ended June 30, 2018, respectively, compared with $7.0 million and $13.8 million for the quarter and six months ended June 30, 2017, respectively. The decreases reflect primarily lower average debt balances on all facilities.

Income Taxes

Our wind and solar facilities are held in limited liability companies that are treated as pass through entities for tax purposes. As such, these entities do not pay federal or state income taxes on a standalone basis, but each owner pays federal and state income taxes on its allocable share of taxable income. For the year ending December 31, 2018, MIC expects its share of the federal taxable income from these facilities to be a loss of approximately $1.2 million. For 2017, MIC’s share of the federal taxable income from these facilities was a loss of approximately $10.7 million.

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Results of Operations:Contracted Power – (continued)

The taxable income generated by BEC’s operations is included in our consolidated federal income tax return and is subject to New York state income tax as part of a combined return. For the year ending December 31, 2018, if the aforementioned sale of BEC does not close, the business does not expect to have a federal or a state income tax liability. Future current federal taxable income attributable to BEC may be offset in consolidation with the application of NOLs at the MIC holding company level.

If the aforementioned sale of BEC does close, the business expects to have a state income tax liability in New Jersey and New York.

Noncontrolling Interest

The increase in loss attributable to noncontrolling interest for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 was driven primarily by the change in tax rates imposed on certain entities by the Tax Cuts and Jobs Act.

Results of Operations: MIC Hawaii

MIC Hawaii generated results for the quarter and six months ended June 30, 2018 that were below both our expectations and results in the prior year. The underperformance was driven primarily by higher operating costs at Hawaii Gas and at the design-build mechanical contractor.

In August 2017, Hawaii Gas filed a general rate case with the Hawaii Public Utilities Commission (HPUC). On June 27, 2018, the HPUC issued an Interim Decision and Order providing the regulated utility operations of Hawaii Gas with interim rate relief. New rates reflecting the decision went into effect on July 1, 2018. The Interim Decision and Order approves an increase in regulated revenue over present rates of $8.9 million, or 8.4%, annually and infers a post-tax return on the equity invested in the utility of 9.75%. The HPUC is expected to issue a Final Decision and Order subject to, among other things, the completion by Hawaii Gas of the Honouliuli Waste Water Treatment Plant Biogas Project, which is currently estimated to be completed in the fourth quarter of 2018.

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TABLE OF CONTENTS

Results of Operations: MIC Hawaii – (continued)

        
 Quarter Ended
June 30,
 Change
Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 2018 2017
   $ $ $ % $ $ $ %
    ($ In Thousands) (Unaudited) 
Product revenue  60,680   53,779   6,901   12.8   124,340   113,362   10,978   9.7 
Service revenue  14,935   12,193   2,742   22.5   32,184   25,650   6,534   25.5 
Total revenue  75,615   65,972   9,643   14.6   156,524   139,012   17,512   12.6 
Cost of product sales (exclusive of depreciation and amortization shown separately below)  41,302   34,751   (6,551  (18.9  88,850   77,117   (11,733  (15.2
Cost of services (exclusive of depreciation and amortization shown separately below)  14,015   10,944   (3,071  (28.1  30,367   21,884   (8,483  (38.8
Cost of revenue – total  55,317   45,695   (9,622  (21.1  119,217   99,001   (20,216  (20.4
Gross margin  20,298   20,277   21   0.1   37,307   40,011   (2,704  (6.8
Selling, general and administrative expenses  7,974   6,770   (1,204  (17.8  15,203   12,855   (2,348  (18.3
Depreciation and amortization  4,896   3,730   (1,166  (31.3  9,051   7,211   (1,840  (25.5
Operating income  7,428   9,777   (2,349  (24.0  13,053   19,945   (6,892  (34.6
Interest expense, net(1)  (1,887  (2,207  320   14.5   (3,177  (3,918  741   18.9 
Other income (expense), net  6   (36  42   116.7   (1,313  (241  (1,072  NM 
Provision for income taxes  (2,144  (2,563  419   16.3   (2,949  (5,942  2,993   50.4 
Net income  3,403   4,971   (1,568  (31.5  5,614   9,844   (4,230  (43.0
Less: net loss attributable to noncontrolling interests  (84  (11  73   NM   (67  (39  28   71.8 
Net income attributable to MIC  3,487   4,982   (1,495  (30.0  5,681   9,883   (4,202  (42.5
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
                                        
Net income  3,403   4,971             5,614   9,844           
Interest expense, net(1)  1,887   2,207             3,177   3,918           
Provision for income taxes  2,144   2,563             2,949   5,942           
Depreciation and amortization  4,896   3,730             9,051   7,211           
Pension expense(2)  128   272             255   545           
Other non-cash (income) expense, net(3)  (954  897           5,245   6,468         
EBITDA excluding non-cash items  11,504   14,640   (3,136  (21.4  26,291   33,928   (7,637  (22.5
EBITDA excluding non-cash items  11,504   14,640             26,291   33,928           
Interest expense, net(1)  (1,887  (2,207            (3,177  (3,918          
Adjustments to derivative instruments recorded in interest expense(1)  (100  316             (770  90           
Amortization of debt financing costs(1)  95   99             192   204           
Provision for current income taxes  (590  (2,041            (1,229  (3,492          
Changes in working capital(4)  (11  (1,812        (6,150  (10,539      
Cash provided by operating activities  9,011   8,995             15,157   16,273           
Changes in working capital(4)  11   1,812             6,150   10,539           
Maintenance capital expenditures  (1,796  (1,512          (3,331  (2,581        
  Free cash flow  7,226   9,295   (2,069  (22.3  17,976   24,231   (6,255  (25.8

NM — Not meaningful

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TABLE OF CONTENTS

Results of Operations: MIC Hawaii – (continued)

(1)Interest expense, net, includes adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees.
(2)Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.
(3)Other non-cash (income) expense, net, primarily includes non-cash adjustments related to unrealized gains (losses) on commodity hedges and non-cash gains (losses) related to disposal of assets. See “Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics” above for further discussion.
(4)Conformed to current period presentation for the adoption of ASU No. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. See Note 2, “Basis of Presentation”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards.

MIC Hawaii comprises Hawaii Gas and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. The businesses of MIC Hawaii generate revenue primarily from the provision of gas services to commercial, residential and governmental customers, the generation of power and the design and construction of building mechanical systems.

Hawaii Gas generates a significant portion of its revenue from the sale of gas. Accordingly, revenue can fluctuate based on the wholesale cost of gas to Hawaii Gas and may not reflect the business’ ability to effectively manage volume and gross margin. For example, an increase in revenue may be attributable to an increase in the wholesale cost of gas and not an increase in the volume sold or margin per therm. Conversely, a decline in revenue may be attributable to a decrease in the wholesale cost of gas and not a reduction in volume sold or margin per therm.

Gross margin, which we define as revenue less cost of product sales and services, excluding depreciation and amortization, is the effective “top line” for Hawaii Gas as it is reflective of the business’ ability to drive growth in the volume of products and services and the margins earned on those sales over time. We believe that investors utilize gross margin as it is reflective of our performance in managing volume and price throughout the commodity cycle. Gross margin is reconciled to operating income — the most comparable GAAP measure — by subtracting selling, general and administrative expenses and depreciation and amortization in the table above.

Revenue and Gross Margin

Revenue increased by $9.6 million and $17.5 million for the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017. The increase was primarily attributable to increases in the volume of utility and nonutility gas sold and a higher average price per therm of utility gas sold by Hawaii Gas, as well as higher revenue at the design-build mechanical contractor. These were partially offset by lower average revenue per therm of non-utility gas sold by Hawaii Gas. On an underlying basis, adjusting for changes in customer inventory, the volume of gas sold increased by 7.1% and 6.3% in the quarter and six months ended June 30, 2018, respectively, compared with the quarter and six months ended June 30, 2017.

Gross margin was flat for the quarter ended June 30, 2018 compared with the quarter ended June 30, 2017 and decreased by $2.7 million for the six months ended June 30, 2018 compared with the six months ended June 30, 2017. The performance was attributable primarily to lower margins at Hawaii Gas and the design-build mechanical contractor, partially offset by favorable movements on commodity hedges.

Gross margins were lower at Hawaii Gas due to increases in production and transmission and distribution costs. Unrealized changes in commodity hedges included a gain of $985,000 and a loss of $3.3 million for the quarter and six months ended June 30, 2018, respectively, compared with unrealized losses of $481,000 and $5.7 million for the quarter and six months ended June 30, 2017, respectively. Lower margins on the design-build mechanical contractor projects resulted from increased costs on fixed revenue contracts attributable to higher labor costs, project delays and general construction cost escalation in Hawaii.

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Results of Operations: MIC Hawaii – (continued)

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily driven by higher costs at the design-build mechanical contractor and higher salaries and benefit costs.

Depreciation and Amortization

Depreciation and amortization expense increased for the quarter and six months ended June 30, 2018 compared with the quarter and six months ended June 30, 2017 primarily due to a reassessment of the useful life of customer relationships at the design-build mechanical contractor and additional assets placed in service during 2017.

Operating Income

Operating income decreased for the quarter ended June 30, 2018 compared with the quarter ended June 30, 2017 due to the increase in selling, general and administrative expenses and the increase in depreciation and amortization expenses, partially offset by the marginal increase in gross margin.

Operating income decreased for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 due to the decrease in gross margin, increase in selling, general and administrative expenses and the increase in depreciation and amortization expenses.

Interest Expense, Net

Interest expense includes gains on derivative instruments of $309,000 and $1.1 million for the quarter and six months ended June 30, 2018, respectively, compared with losses on derivative instruments of $329,000 and $173,000 for the quarter and six months ended June 30, 2017, respectively. Excluding the derivative adjustments, cash interest expense was $1.9 million and $3.8 million for the quarter and six months ended June 30, 2018, respectively, compared with $1.8 million and $3.6 million for the quarter and six months ended June 30, 2017, respectively. The increases reflect primarily higher average debt balances outstanding.

Income Taxes

The taxable income generated by the MIC Hawaii businesses is reported on our consolidated federal income tax return and is subject to Hawaii state income tax on a stand-alone basis. The tax expense in the table above includes both state tax and the portion of the consolidated federal tax liability attributable to the businesses. For the year ending December 31, 2018, the business expects to pay state income taxes of approximately $800,000. The Provision for current income taxes of $1.2 million for the six months ended June 30, 2018 in the above table includes $1.9 million of federal income tax expense offset by $708,000 of state income tax benefits. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.

Maintenance Capital Expenditures

For the six months ended June 30, 2018, MIC Hawaii incurred maintenance capital expenditures of $3.3 million and $3.2 million on an accrual basis and cash basis, respectively, compared with $2.6 million and $3.0 million on an accrual basis and cash basis, respectively, for the six months ended June 30, 2017.

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TABLE OF CONTENTS

Results of Operations: Corporate and Other

Corporate and Other includes expenses paid by the holding company, including base management fees and performance fees, if any, professional fees and costs associated with being a public company.

        
 Quarter Ended
June 30,
 Change
Favorable/
(Unfavorable)
 Six Months Ended June 30, Change
Favorable/
(Unfavorable)
   2018 2017 2018 2017
   $ $ $ % $ $ $ %
    ($ In Thousands) (Unaudited) 
Fees to Manager-related party  10,852   18,433   7,581   41.1   23,780   36,656   12,876   35.1 
Selling, general and administrative expenses(1)  10,144   11,092   948   8.5   14,346   15,087   741   4.9 
Depreciation  166      (166  NM   330      (330  NM 
Operating loss  (21,162  (29,525  8,363   28.3   (38,456  (51,743  13,287   25.7 
Interest expense, net(2)  (8,282  (6,671  (1,611  (24.1  (17,009  (12,822  (4,187  (32.7
Other expense, net  (78     (78  NM   (74     (74  NM 
Benefit for income taxes  9,590   13,537   (3,947  (29.2  16,363   25,968   (9,605  (37.0
Net loss  (19,932  (22,659  2,727   12.0   (39,176  (38,597  (579  (1.5
Reconciliation of net loss to EBITDA excluding non-cash items and a reconciliation of cash used in operating activities to Free Cash Flow:
                                        
Net loss  (19,932  (22,659            (39,176  (38,597          
Interest expense, net(2)  8,282   6,671             17,009   12,822           
Benefit for income taxes  (9,590  (13,537            (16,363  (25,968          
Depreciation  166                330              
Fees to Manager-related party  10,852   18,433             23,780   36,656           
Pension expense(3)  60                101              
Other non-cash expense, net  223   187           386   375         
EBITDA excluding non-cash items  (9,939  (10,905  966   8.9   (13,933  (14,712  779   5.3 
EBITDA excluding non-cash items  (9,939  (10,905            (13,933  (14,712          
Interest expense, net(2)  (8,282  (6,671            (17,009  (12,822          
Convertible senior notes interest(4)  2,013   2,013             4,025   3,757           
Amortization of debt financing costs(2)  1,021   988             2,904   1,981           
Amortization of debt discount(2)  903   876             1,800   1,495           
Benefit for current income taxes  8,515   2,223             16,108   5,171           
Changes in working capital  (8,946  4,677         (17,967  (3,757      
Cash used in operating activities  (14,715  (6,799            (24,072  (18,887          
Changes in working capital  8,946   (4,677          17,967   3,757         
Free cash flow  (5,769  (11,476  5,707   49.7   (6,105  (15,130  9,025   59.6 

NM — Not meaningful

(1)For the quarter and six months ended June 30, 2018, selling, general and administrative expenses included $4.7 million and $5.6 million, respectively, of costs incurred in connection with the evaluation of various investment and acquisition/disposition opportunities, compared with $4.9 million for the quarter and six months ended June 30, 2017. For the quarter and six months ended June 30, 2017, selling, general and administrative expenses also included $3.1 million and $5.4 million, respectively, of costs related to the implementation of a shared service center.
(2)Interest expense, net, included non-cash amortization of deferred financing fees and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023.
(3)Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.
(4)Represents the cash interest expense reclassified to Atlantic Aviation related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviation’s credit facility in October 2016.

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Liquidity and Capital Resources

General

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

At June 30, 2018, including BEC debt classified as held for sale in our consolidated condensed balance sheet, our consolidated debt outstanding totaled $3,679.0 million (excluding adjustments for unamortized debt discounts), our consolidated cash balance totaled $54.0 million and consolidated available capacity under our revolving credit facilities totaled $980.5 million, excluding letters of credit outstanding of $48.1 million. With the proceeds from the BEC sale, we expect to reduce our ratio of net debt to EBITDA (leverage ratio) at December 31, 2018 to less than 4.5 times.

In July 2018, we reclassified our 2.875% Convertible Senior Notes due July 2019 to current portion of long-term debt on our consolidated condensed balance sheet. We expect to refinance this debt prior to its maturity in July 2019.

The following table shows MIC’s proportionate debt obligations at July 31, 2018 ($ in thousands):

    
Business Debt Weighted Average Remaining Life (in years) Balance Outstanding(1) Weighted Average Rate(2)
MIC Corporate  Revolving Facility   3.4  $141,500   3.83% 
    Convertible Senior Notes
   3.2   752,445   2.41% 
IMTT  Senior Notes   7.7   600,000   3.97% 
    Tax-Exempt Bonds(3)   3.8   508,975   3.34% 
    Revolving Facility   1.8   217,000   3.58% 
Atlantic Aviation  Term Loan   3.2   380,000   2.75% 
    Revolving Facility   3.2   291,000   3.83% 
Contracted Power  Renewables – Project Finance
   13.9   254,759   4.84% 
    BEC – Term Loan(4)
   4.0   246,000   3.91% 
MIC Hawaii(5)  Term Loan   5.1   96,051   2.85% 
    Senior Notes   4.0   100,000   4.22% 
    Revolving Facility   4.5   15,000   3.33% 
Total     4.8  $3,602,730   3.42% 

(1)Proportionate to MIC’s ownership interest.
(2)Reflects annualized interest rate on all facilities including interest rate hedges.
(3)Interest rate reflects the impact of the Tax Cuts and Jobs Act.
(4)The BEC Term Loan balance of $246.0 million was classified asLiabilities held for sale on the Consolidated Condensed Balance Sheets for June 30, 2018.
(5)Excludes $2.3 million of equipment loans at the MIC Hawaii business.

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Liquidity and Capital Resources – (continued)

The following table profiles each revolving credit facility at our businesses and at MIC Corporate as of July 31, 2018 ($ in thousands):

    
Business Debt Weighted
Average
Remaining Life
(in years)
 Undrawn
Amount
 Interest
Rate(1)
MIC Corporate(2)  Revolving Facility   3.4  $458,500   LIBOR + 1.750% 
IMTT  USD Revolving Facility   1.8   333,000   LIBOR + 1.500% 
    CAD Revolving
Facility
   1.8   50,000   Bankers’ Acceptance
Rate + 1.500%
 
Atlantic Aviation  Revolving Facility   3.2   59,000   LIBOR + 1.750% 
Contracted Power – BEC  Revolving Facility   4.0   25,000   LIBOR + 2.125% 
Contracted Power – Renewables  Revolving Facility   1.4   19,980   LIBOR + 2.000% 
MIC Hawaii(3)  Revolving Facility   4.5   45,000   LIBOR + 1.250% 
Total(4)     2.8  $990,480    

(1)Excludes commitment fees.
(2)On January 3, 2018, the Company completed the refinancing and upsizing of its senior secured revolving credit facility and extended its maturity to January 2022.
(3)On February 12, 2018, Hawaii Gas completed the refinancing of its existing $60.0 million revolving credit facility and extended its maturity to February 2023.
(4)Excludes letters of credit outstanding of $50.3 million.

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

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

our businesses overall generate, and are expected to continue to generate, significant operating cash flow;
the ongoing capital expenditures associated with our businesses are readily funded from their respective operating cash flow or available debt facilities; and
we will be able to refinance, extend and/or repay the principal amount of maturing long-term debt on terms that can be supported by our businesses.

We capitalize our businesses in part using floating rate bank debt with medium-term maturities between five and seven years. In general, we hedge the floating rate exposure for the majority of the term of these facilities. We also use longer dated private placement debt and other forms of capital including bond or hybrid debt instruments to capitalize our businesses. In general, the debt facilities at our businesses are non-recourse to the holding company and there are no cross-collateralization or cross-guarantee provisions in these facilities.

Our wind and solar facilities are financed primarily with fully amortizing non-recourse project finance style debt with maturities prior to or coterminous with the expiration of the underlying PPAs.

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Liquidity and Capital Resources – (continued)

Analysis of Consolidated Historical Cash Flows

The following section discusses our sources and uses of cash on a consolidated basis. All intercompany activities such as corporate allocations, capital contributions to our businesses and distributions from our businesses have been excluded from the table as these transactions are eliminated on consolidation.

    
 Six Months Ended June 30, Change
Favorable/(Unfavorable)
   2018 2017(1)
($ In Thousands) $ $ $ %
Cash provided by operating activities  266,002   248,637   17,365   7.0 
Cash used in investing activities  (82,294  (209,890  127,596   60.8 
Cash used in financing activities  (171,520  (47,951  (123,569  NM 

NM — Not meaningful

(1)Conformed to current period presentation for the adoption of ASU No. 2016-18,Statement of Cash Flows (Topic 230): Restricted Cash. See Note 2, “Basis of Presentation”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards.

Operating Activities

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

The increase in consolidated cash provided by operating activities for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 was primarily due to:

the improvement in collection of accounts receivable on higher balances from the increase in the cost of jet fuel at Atlantic Aviation and the increase in the cost of gas at MIC Hawaii;
timing of payment of insurance premiums; and
collection of interest receivable from a renewables developer on a revolving credit facility provided by our Contracted Power business; partially offset by
an increase in interest expense; and
an increase in current state taxes.

Investing Activities

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

In general, maintenance capital expenditures are funded by cash from operating activities and growth capital expenditures are funded by drawing on our available credit facilities or with equity capital. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operation” for maintenance capital expenditures for each of our businesses.

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Liquidity and Capital Resources – (continued)

The decrease in consolidated cash used in investing activities for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 was primarily due to:

a larger amount of acquisition and investment activities completed in 2017;
proceeds from the sale of businesses during 2018;
a decrease in capital expenditures generally; and
a decrease in net borrowings by a renewables developer on a revolving credit facility provided by our Contracted Power business.

Capital Deployment

Capital deployment includes growth capital expenditures and “bolt-on” acquisitions, the majority of which are expected to generate incremental earnings. For the six months ended June 30, 2018 and 2017, we deployed $102.3 million and $182.5 million, respectively, of growth capital in our existing businesses including an on-field consolidation (acquisition) of an FBO for $11.4 million during the first quarter of 2018.

We continuously evaluate opportunities to prudently deploy capital in acquisitions and growth projects, whether in our existing businesses or new lines of business. We expect to undertake a number of capital projects related to the repurposing and repositioning of certain assets at IMTT and the improvement in capacity and capabilities of the businesses in our other segments. As noted in our discussion of our financial results for the first quarter of 2018, we expect to deploy, or commit to deploy, approximately $300.0 million of capital into growth projects and “bolt-on” acquisitions during the year.

Financing Activities

Cash provided by financing activities primarily includes new equity issuance and debt issuance related to acquisitions and capital expenditures. Cash used in financing activities primarily includes dividends to our stockholders and the repayment of debt principal balances on maturing debt.

The increase in consolidated cash used in financing activities for the six months ended June 30, 2018 compared with the six months ended June 30, 2017 was primarily due to:

decreased net borrowings used partially to fund capital deployment and general corporate purposes; partially offset by
a decrease in dividends paid to stockholders in 2018.

IMTT

During the six months ended June 30, 2018, IMTT borrowed $17.0 million and repaid $10.0 million on its revolving credit facility primarily for general corporate purposes. At June 30, 2018, IMTT had $1.3 billion of total debt outstanding consisting of $600.0 million of senior notes, $509.0 million of tax-exempt bonds and $217.0 million drawn on its revolving credit facility. IMTT has access to $600.0 million of revolving credit facilities, of which $383.0 million remained undrawn at June 30, 2018.

Cash interest expense was $23.2 million and $19.4 million for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, IMTT was in compliance with its financial covenants.

Atlantic Aviation

During the six months ended June 30, 2018, Atlantic Aviation borrowed $33.0 million on its revolving credit facility primarily to fund an on-field consolidation of an FBO and for general corporate purposes. At June 30, 2018, Atlantic Aviation had total debt outstanding of $671.0 million comprised of a $380.0 million senior secured, first lien term loan facility and a $291.0 million balance outstanding on its senior secured, first lien revolving credit facility. Atlantic Aviation has access to a $350.0 million revolving credit facility, of which $59.0 million remained undrawn at June 30, 2018.

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Liquidity and Capital Resources – (continued)

Cash interest expense was $13.2 million and $9.9 million for the six months ended June 30, 2018 and 2017, respectively. Cash interest expense for the six months ended June 30, 2018 and 2017 includes the cash interest expense on the $402.5 million of the MIC Corporate 2.00% Convertible Senior Notes due October 2023, proceeds of which were used in part to reduce the drawn balance of Atlantic Aviation’s revolving credit facility in October 2016. At June 30, 2018, Atlantic Aviation was in compliance with its financial covenants.

Contracted Power

At June 30, 2018, the businesses within our Contracted Power segment had $564.6 million in term loans outstanding, of which $246.0 million related to BEC and was classified as held for sale in the consolidated condensed balance sheet. Cash interest expense paid by these businesses was $13.1 million and $13.8 million for the six months ended June 30, 2018 and 2017, respectively.

At June 30, 2018, BEC had $246.0 million outstanding on an amortizing term loan facility and access to a revolving credit facility of $25.0 million that was undrawn. Cash interest expense was $5.1 million and $5.3 million for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, BEC was in compliance with its financial covenants.

At June 30, 2018, our wind and solar facilities had an aggregate $318.6 million in term loan debt outstanding. Cash interest expense totaled $8.0 million and $8.5 million for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, all of the wind and solar facilities were in compliance with their respective financial covenants.

MIC Hawaii

At June 30, 2018, the businesses of MIC Hawaii had total debt outstanding of $213.5 million comprising $198.5 million in term loans and $15.0 million outstanding on revolving credit facilities. Cash interest expense totaled $3.8 million and $3.6 million for the six months ended June 30, 2018 and 2017, respectively.

In February 2018, Hawaii Gas exercised the second of two one-year extensions related to its $80.0 million secured term loan facility and its $60.0 million revolving credit facility extending their respective maturities to February 2023.

At June 30, 2018, Hawaii Gas had total debt outstanding of $180.0 million in term loan and senior secured note borrowings and $15.0 million outstanding on its revolving credit facility. During the six months ended June 30, 2018, Hawaii Gas borrowed $20.0 million for general corporate purposes and repaid $5.0 million. Cash interest expense was $3.4 million and $3.3 million for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018, Hawaii Gas was in compliance with its financial covenants.

At June 30, 2018, the other businesses within MIC Hawaii had $18.5 million of debt outstanding, consisting primarily of $16.2 million term loan debt related to our solar facilities. At June 30, 2018, these businesses were in compliance with their financial covenants.

MIC Corporate

At June 30, 2018, MIC had $350.0 million and $402.5 million in convertible senior notes outstanding that bear interest at 2.875% and 2.00%, respectively. At June 30, 2018, the outstanding balance on the senior secured revolving credit facility was $151.5 million resulting in an undrawn balance of $448.5 million. In July 2018, the Company repaid $10.0 million on the outstanding balance on its revolving credit facility.

Cash interest expense was $8.3 million and $5.6 million for the six months ended June 30, 2018 and 2017, respectively. Cash interest expense in both periods excludes the cash interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, proceeds of which were used in part to reduce the drawn balance of Atlantic Aviation’s revolving credit facility in October 2016. See Atlantic Aviation above. At June 30, 2018, MIC Corporate was in compliance with its financial covenants.

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Liquidity and Capital Resources – (continued)

For a description of the material terms and debt covenants of MIC and its businesses, see Note 7, “Long-Term Debt”, in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Commitments and Contingencies

Except as noted above, at June 30, 2018, there were no material changes in our commitments and contingencies compared with those at December 31, 2017. At June 30, 2018, we did not have any material purchase obligations. For a discussion of our other future obligations, due by period, under the various contractual obligations, off-balance sheet arrangements and commitments, please see “Liquidity and Capital Resources — Commitments and Contingencies” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 21, 2018.

At June 30, 2018, we did not have any material reserves for contingencies. We have other contingencies occurring in the normal course of business, including pending legal and administrative proceedings that are not reflected at this time as they are not ascertainable.

Our sources of cash to meet these obligations include:

cash generated from our operations (see “Operating Activities” in “Liquidity and Capital Resources”);
issuance of shares or debt securities (see “Financing Activities” in “Liquidity and Capital Resources”);
refinancing of our current credit facilities at or before maturity (see “Financing Activities” in “Liquidity and Capital Resources”);
undrawn balances on credit facilities (see “Financing Activities” in “Liquidity and Capital Resources”); and
if advantageous, sale of all or part of any of our businesses (see “Investing Activities” in “Liquidity and Capital Resources”).

As described above under “Recent Developments”, on July 27, 2018, our subsidiary within Contracted Power segment entered into an agreement to sell 100% of BEC for $656.5 million in cash and the assumption of $243.5 million in debt, subject to adjustment based on working capital and debt balances at the effective date. The buyer and seller have agreed to indemnify each other for breaches of representations, warranties and covenants in the purchase agreement, subject to certain exceptions and limitations. We will guarantee one subsidiary’s payment and certain post-closing indemnity obligations.

Critical Accounting Policies and Estimates

For critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” in Part II, Item 7 and Note 2 “Summary of Significant Accounting Policies” in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and see Note 2, “Basis of Presentation”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards. Our critical accounting policies and estimates have not changed materially from the description contained in our Annual Report.

Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Our exposure to market risk has not changed materially since February 21, 2018, the filing date for our Annual Report on Form 10-K.

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Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The purpose of disclosure controls is to ensure that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2018.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

  
 June 30,
2018
 December 31,
2017
   (Unaudited)
ASSETS
          
Current assets:
          
Cash and cash equivalents $53,976  $47,121 
Restricted cash  27,509   24,963 
Accounts receivable, less allowance for doubtful accounts of $1,143 and $895, respectively  128,629   158,152 
Inventories  31,495   36,955 
Prepaid expenses  10,073   14,685 
Fair value of derivative instruments  15,893   11,965 
Other current assets  14,261   13,804 
Assets held for sale(1)  951,982    
Total current assets  1,233,818   307,645 
Property, equipment, land and leasehold improvements, net  3,760,023   4,659,614 
Investment in unconsolidated business  9,073   9,526 
Goodwill  2,046,896   2,068,668 
Intangible assets, net  833,325   914,098 
Fair value of derivative instruments  26,652   24,455 
Other noncurrent assets  26,527   24,945 
Total assets $7,936,314  $8,008,951 
LIABILITIES AND STOCKHOLDERS’ EQUITY
          
Current liabilities:
          
Due to Manager-related party $7,435  $5,577 
Accounts payable  42,187   60,585 
Accrued expenses  71,293   89,496 
Current portion of long-term debt  42,676   50,835 
Fair value of derivative instruments  730   1,710 
Other current liabilities  39,709   47,762 
Liabilities held for sale(1)  307,149    
Total current liabilities  511,179   255,965 
Long-term debt, net of current portion  3,342,260   3,530,311 
Deferred income taxes  651,080   632,070 
Fair value of derivative instruments  1,705   4,668 
Tolling agreements – noncurrent     52,595 
Other noncurrent liabilities  186,020   182,639 
Total liabilities  4,692,244   4,658,248 
Commitments and contingencies      

 
 
See accompanying notes to the consolidated condensed financial statements.

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

  
 June 30,
2018
 December 31,
2017
   (Unaudited)
Stockholders’ equity(2):
          
Common stock ($0.001 par value; 500,000,000 authorized; 85,186,385 shares issued and outstanding at June 30, 2018 and 84,733,957 shares issued and outstanding at December 31, 2017) $85  $85 
Additional paid in capital  1,655,367   1,840,033 
Accumulated other comprehensive loss  (33,466  (29,993
Retained earnings  1,458,767   1,343,567 
Total stockholders’ equity  3,080,753   3,153,692 
Noncontrolling interests  163,317   197,011 
Total equity  3,244,070   3,350,703 
Total liabilities and equity $7,936,314  $8,008,951 

(1)See Note 2, “Basis of Presentation”, for further discussion on assets and liabilities held for sale.
(2)The Company is authorized to issue 100,000,000 shares of preferred stock, par value $0.001 per share. At June 30, 2018 and December 31, 2017, no preferred stock were issued or outstanding. The Company had 100 shares of special stock issued and outstanding to its Manager at June 30, 2018 and December 31, 2017.

 
 
See accompanying notes to the consolidated condensed financial statements.

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

    
 Quarter Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
Revenue
                    
Service revenue $375,997  $345,045  $778,606  $708,849 
Product revenue  102,083   93,945   201,030   181,598 
Total revenue  478,080   438,990   979,636   890,447 
Costs and expenses
                    
Cost of services  179,725   147,114   367,195   301,820 
Cost of product sales  47,164   40,249   100,549   87,474 
Selling, general and administrative  88,927   82,967   175,884   159,919 
Fees to Manager-related party  10,852   18,433   23,780   36,656 
Depreciation  61,086   57,063   122,444   114,744 
Amortization of intangibles  18,224   15,898   35,440   33,591 
Total operating expenses  405,978   361,724   825,292   734,204 
Operating income  72,102   77,266   154,344   156,243 
Other income (expense)
                    
Interest income  111   41   191   75 
Interest expense(1)  (30,287  (35,356  (49,077  (60,838
Other income, net  6,248   1,738   6,290   2,920 
Net income before income taxes  48,174   43,689   111,748   98,400 
Provision for income taxes  (11,895  (17,664  (28,674  (39,737
Net income $36,279  $26,025  $83,074  $58,663 
Less: net (loss) income attributable to noncontrolling interests  (2,087  5   (32,126  (3,372
Net income attributable to MIC $38,366  $26,020  $115,200  $62,035 
Basic income per share attributable to MIC $0.45  $0.32  $1.36  $0.75 
Weighted average number of shares outstanding: basic  85,082,209   82,430,324   84,952,551   82,285,053 
Diluted income per share attributable to MIC $0.45  $0.32  $1.34  $0.75 
Weighted average number of shares outstanding: diluted  85,091,945   82,439,840   89,316,951   82,294,608 
Cash dividends declared per share $1.00  $1.38  $2.00  $2.70 

(1)Interest expense includes gains on derivative instruments of $5.9 million and $21.0 million for the quarter and six months ended June 30, 2018, respectively. For the quarter and six months ended June 30, 2017, interest expense includes losses on derivative instruments of $7.7 million and $6.8 million, respectively.

 
 
See accompanying notes to the consolidated condensed financial statements.

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

    
 Quarter Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
Net income $36,279  $26,025  $83,074  $58,663 
Other comprehensive (loss) income, net of taxes:
                    
Translation adjustment(1)  (2,109  1,097   (3,473  1,097 
Other comprehensive (loss) income  (2,109  1,097   (3,473  1,097 
Comprehensive income $34,170  $27,122  $79,601  $59,760 
Less: comprehensive (loss) income attributable to noncontrolling interests  (2,087  5   (32,126  (3,372
Comprehensive income attributable to MIC $36,257  $27,117  $111,727  $63,132 

(1)Translation adjustment is presented net of tax benefit of $794,000 and $1.3 million for the quarter and six months ended June 30, 2018, respectively. For the quarter and six months ended June 30, 2017, translation adjustment is presented net of tax expense of $755,000.

 
 
See accompanying notes to the consolidated condensed financial statements.

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

  
 Six Months Ended
June 30,
   2018 2017(1)
Operating activities
          
Net income $83,074  $58,663 
Adjustments to reconcile net income to net cash provided by operating activities:
          
Depreciation and amortization of property and equipment  122,444   114,744 
Amortization of intangible assets  35,440   33,591 
Amortization of debt financing costs  5,239   4,301 
Amortization of debt discount  1,800   1,495 
Adjustments to derivative instruments  (16,424  8,382 
Fees to Manager-related party  23,780   36,656 
Deferred taxes  21,091   33,398 
Pension expense  4,190   4,321 
Other non-cash expense (income), net  35   (2,935
Changes in other assets and liabilities, net of acquisitions/dispositions:
          
Accounts receivable  9,603   (7,871
Inventories  (1,816  (4,256
Prepaid expenses and other current assets  324   (2,529
Due to Manager-related party  (18  (122
Accounts payable and accrued expenses  (15,637  (15,782
Income taxes payable  517   (1,506
Other, net  (7,640  (11,913
Net cash provided by operating activities  266,002   248,637 
Investing activities
          
Acquisitions of businesses and investments, net of cash acquired  (12,420  (66,321
Purchases of property and equipment  (109,830  (130,351
Loan to project developer  (17,800  (14,675
Loan repayment from project developer  16,561   1,396 
Proceeds from sale of business, net of cash divested  41,038    
Other, net  157   61 
Net cash used in investing activities  (82,294  (209,890

 
 
See accompanying notes to the consolidated condensed financial statements.

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

  
 Six Months Ended
June 30,
   2018 2017(1)
Financing activities
          
Proceeds from long-term debt $208,500  $264,500 
Payment of long-term debt  (168,223  (98,542
Proceeds from the issuance of shares  125   5,321 
Dividends paid to common stockholders  (207,344  (216,508
Contributions received from noncontrolling interests  373    
Distributions paid to noncontrolling interests  (1,943  (2,040
Offering and equity raise costs paid  (80  (182
Debt financing costs paid  (2,874  (447
Payment of capital lease obligations  (54  (53
Net cash used in financing activities  (171,520  (47,951
Effect of exchange rate changes on cash and cash equivalents  (670  188 
Net change in cash, cash equivalents and restricted cash  11,518   (9,016
Cash, cash equivalents and restricted cash, beginning of period  72,084   61,257 
Cash, cash equivalents and restricted cash, end of period $83,602  $52,241 
Supplemental disclosures of cash flow information
          
Non-cash investing and financing activities:
          
Accrued equity offering costs $27  $44 
Accrued purchases of property and equipment $23,489  $41,354 
Issuance of shares to Manager $21,905  $36,927 
Issuance of shares to independent directors $750  $681 
Conversion of convertible senior notes to shares $6  $17 
Distributions payable to noncontrolling interests $21  $ 
Taxes paid, net $7,862  $7,845 
Interest paid $62,541  $54,601 

(1)Conformed to current period presentation. See Note 2, “Basis of Presentation”, for Recently Issued Accounting Standards adopted during the six months ended June 30, 2018.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated condensed balance sheets that sum to the total of the same amounts presented in the consolidated condensed statements of cash flows:

  
 As of June 30,
   2018 2017
Cash and cash equivalents $53,976  $28,873 
Restricted cash – current  27,509   23,368 
Restricted cash held for sale(2)  2,117    
Total of cash, cash equivalents and restricted cash shown in the consolidated condensed statement of cash flows $83,602  $52,241 

(2)Represents restricted cash related to BEC, which were classified as held for sale at June 30, 2018. See Note 2, “Basis of Presentation”, for further discussion.

 
 
See accompanying notes to the consolidated condensed financial statements.

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

1. Organization and Description of Business

Macquarie Infrastructure Corporation (MIC) is a Delaware corporation formed on May 21, 2015. MIC’s predecessor, Macquarie Infrastructure Company LLC, was formed on April 13, 2004. Macquarie Infrastructure Corporation, both on an individual entity basis and together with its consolidated subsidiaries, is referred to in these financial statements as the “Company” or “MIC”.

MIC is externally managed by Macquarie Infrastructure Management (USA) Inc. (the Manager), pursuant to the terms of a Management Services Agreement, that is subject to the oversight and supervision of the board of directors. The majority of the members of the Board of Directors, and each member of all Board Committees, is independent and has no affiliation with Macquarie. The Manager is a member of the Macquarie Group of companies comprising the Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Securities Exchange.

The Company owns its businesses through its direct wholly-owned subsidiary MIC Ohana Corporation, the successor to Macquarie Infrastructure Company Inc. The Company owns and operates a diversified portfolio of businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses it owns and operates are organized into four segments:

International-Matex Tank Terminals (IMTT):  a business providing bulk liquid terminalling to third parties at 17 terminals in the U.S. and two in Canada;
Atlantic Aviation:  a provider of fuel, terminal, aircraft hangaring and other services primarily to owners and operators of general aviation (GA) jet aircraft at 70 airports throughout the U.S.;
Contracted Power:  comprising electricity generating assets including a gas-fired facility and controlling interests in wind and solar facilities in the U.S.; and
MIC Hawaii:  comprising an energy company that processes and distributes gas and provides related services (Hawaii Gas) and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii.

2. Basis of Presentation

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

The consolidated balance sheet at December 31, 2017 has been derived from audited financial statements but does not include all of the information and notes required by GAAP for complete financial statements. Certain reclassifications were made to the financial statements for the prior period to conform to current period presentation.

The interim financial information contained herein should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 21, 2018. Operating results for the quarter and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or for any future interim periods.

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(Unaudited)

2. Basis of Presentation  – (continued)

Use of Estimates

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

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

Financial Instruments

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 competitive interest rates assigned to these financial instruments.

Assets and Liabilities Held for Sale

During the quarter ended March 31, 2018, the Company announced that it was exploring the potential sale of a portion or all of Bayonne Energy Center (BEC), a business within the Contracted Power segment. At June 30, 2018, the Company classified $952.0 million as assets held for sale, of which approximately $850.0 million related to property, equipment, land and leasehold improvements and approximately $50.0 million related to intangible assets, and $307.1 million as liabilities held for sale, of which $246.0 million related to total debt, on the consolidated condensed balance sheet. On July 27, 2018, a wholly owned subsidiary within the Contracted Power segment of the Company entered into an agreement to sell 100% of BEC to NHIP II Bayonne Holdings LLC for $656.5 million in cash and the assumption of $243.5 million in debt, subject to adjustment based on working capital and debt balances at the effective date. The Company will guarantee its subsidiary’s payment and certain post-closing indemnity obligations under the purchase agreement. The transaction is expected to close in the fourth quarter of 2018, subject to receipt of required regulatory approvals and satisfaction of other closing conditions.

The sale of BEC will not qualify for discontinued operation presentation under ASC 205-20,Presentation of Financial Statements — Discontinued Operations.

Recently Issued Accounting Standards

In February 2018, the FASB issued ASU No. 2018-02,Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI). The amendments in ASU 2018-02 allow entities to reclassify from AOCI to retained earnings “stranded” tax effects resulting from passage of the Act. An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the change in federal tax rate for all items accounted for in other comprehensive income (i.e. employee benefits, cumulative translation adjustments). Entities may also elect to reclassify other stranded tax effects that relate to the Act but do not directly relate to the change in the federal tax rate (i.e. state taxes). However, because the amendments only relate to the reclassification of the income tax effects of the Act, the underlying guidance requiring the effect of a change in tax laws or rates to be included in income from operations is not affected. Upon adoption of ASU 2018-02, entities are required to disclose their policy for releasing the income tax effects from AOCI. ASU 2018-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The amendments in 2018-02 may be applied retrospectively to each period in which the effect of

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(Unaudited)

2. Basis of Presentation  – (continued)

the Act is recognized or an entity may elect to apply the amendments in the period of adoption. The Company is currently evaluating the impact of the adoption of this ASU.

On January 26, 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill subsequent to a business combination, and no longer requires an entity to perform a hypothetical purchase price allocation when computing implied fair value to measure goodwill impairment. Instead, impairment will be assessed by quantifying the difference between the fair value of a reporting unit and its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, on condition that the charge doesn’t exceed the total amount of goodwill allocated to that reporting unit. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for public issuers and shall be applied prospectively. Early adoption is permitted. The Company adopted this ASU during the first quarter of 2018. There was no goodwill impairment recorded during the six months ended June 30, 2018 or 2017.

On January 5, 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which provides a restrictive framework for determining whether business transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Determining whether a company acquires a set of assets or a business will impact the initial measurement, the accounting treatment of direct acquisition related costs, contingent considerations and the bargain purchase price. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 for public issuers and shall be applied prospectively. The Company adopted this ASU during the quarter ended March 31, 2018 and will apply this ASU prospectively for asset acquisitions and business combinations.

On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. The guidance will be applied retrospectively and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company adopted this ASU during the quarter ended March 31, 2018 and included the retrospective application of this ASU in the accompanying consolidated condensed statement of cash flows.

On February 25, 2016, FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require all leases with an initial term greater than one year to be recognized on the balance sheet as a right-of-use asset and a lease liability. The Company also serves as a lessor primarily through operating leases. The accounting for lessors is not expected to fundamentally change except for changes to conform and align existing guidance to the lessee guidance under ASU 2016-02, as well as to the new revenue recognition guidance in ASU 2014-09. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is allowed. The standard is to be applied using a modified retrospective approach. The Company has begun evaluating and planning for the adoption and implementation of ASU 2016-02, including assessing the overall impact. ASU 2016-02 will have a material impact on the Company’s consolidated balance sheets; however, the full impact to the overall financial statements has not yet been determined. The Company plans on adopting ASU 2016-02 as of the first quarter of 2019 and is currently evaluating the impact that this standard will have on the Company’s results of operations, the changes to its systems, processes and internal controls to meet the reporting and disclosure requirements.

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(Unaudited)

3. Implementation of ASU 2014-09

The Company recognizes revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The Company has revenue that is derived from long-term contracts and leases that can span several years. The Company accounts for revenue in accordance with ASC Topic 606, Revenue, or ASC Topic 840, Leases, depending upon the terms of the agreements. See Note 11, “Long-Term Contracted Revenue”, for further discussions and disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance sets forth a five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety. It is intended to eliminate numerous industry-specific pieces of revenue recognition guidance and requires more detailed disclosures. This ASU includes identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. To further assist with adoption and implementation of ASU 2014-09, the FASB issued and the Company considered the following ASUs:

ASU 2015-14 (Issued August 2015) — Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date;
ASU 2016-08 (Issued March 2016) — Principal versus Agent Consideration (Reporting Revenue Gross versus Net);
ASU 2016-10 (Issued April 2016) — Identifying Performance Obligations and Licensing;
ASU 2016-12 (Issued May 2016) — Narrow-Scope Improvements and Practical Expedients; and
ASU 2016-20 (Issued December 2016) — Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

The Company adopted ASU 2014-09 during the first quarter of 2018 using the modified retrospective method. There was no adjustment to the beginning balance of retained earnings and the adoption of this ASU did not have a significant impact to the Company’s consolidated financial statements other than the additional required qualitative and quantitative disclosures. As part of the adoption, the Company has not elected to apply any practical expedients available under ASC Topic 606.

IMTT

Revenue from IMTT is generated from the following sources and recorded in service revenue.

Lease.  These are contracts with predominantly non-cancelable terms of 30 days to 10 years for access to and the use of storage capacity at the various terminals owned and operated by the business. These contracts generally require payments in exchange for the provision of storage capacity and product movement (thruput) throughout their term based on a fixed rate per barrel of capacity leased. A majority of the contracts include terms that adjust the fixed rate annually for inflation. These contracts are accounted for as operating leases and the related lease income is recognized in service revenue over the term of the contract based upon the rate specified. Revenue is recognized in accordance with ASC 840, Leases.

Other terminal services.  Revenue from the provision of ancillary services includes activities such as heating, mixing, and blending, and is recognized as the related services are performed based on contract rates. Revenue from other terminal services is recognized at a point in time as services are performed. Other terminal services also include payments received prior to the related services being performed or as a reimbursement for specific fixed asset additions or improvements related to a customer’s contract and are recorded as deferred revenue and ratably recognized as revenues over the contract term.

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3. Implementation of ASU 2014-09  – (continued)

Other.  Other revenue is comprised primarily of environmental response service activities through the date of sale and railroad operations. These revenues are generally recognized at a point in time as services are performed.

Atlantic Aviation

Revenue from Atlantic Aviation is recorded in service revenue. Services provided by Atlantic Aviation include:

Fuel.  Fuel services are recognized when 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 services are recorded net of volume discounts and rebates. Revenue from fuel sales are recognized at a point in time as services are performed.

Hangar.  Hangar rentals includes both month-to-month rentals and rentals from longer term contracts. Hangar rental revenue excludes transient customer overnight hangar usage (see Other FBO services below).

Other FBO services.  Other FBO services consisting principally of de-icing services, landing, concession, transient overnight hangar usage, terminal use and fuel distribution fees that are recognized as sales of services. Revenue from these transactions is recorded based on the service fee earned and does not include the cost of fuel.

Contracted Power

BEC revenue is derived from contracts that are accounted for as operating leases that do not have minimum lease payments. This revenue is recorded within product revenue as electricity is delivered.

With respect to BEC’s contracted capacity, revenue is recognized as energy, capacity and ancillary services are sold to the off-taker under the third-party tolling agreements. The agreements are based on a fixed rate per megawatt (MW) of capacity and not subject to dispatch or utilization. A portion of the revenues under the tolling agreements are subject to annual price increases. Revenue under the tolling agreements is subject to availability of capacity (subject to a historical rolling average forced outage factor). Variable operating and major maintenance revenue under the tolling agreements is a function of net plant output and a negotiated rate, which is adjusted annually based on historical plant experience.

With respect to BEC’s residual capacity, revenue is recognized as energy, capacity and ancillary services are sold into the New York Independent System Operator (NYISO) energy market. Revenue for such services is based on prevailing market rates at the time such services are sold. Volumes of energy and ancillary services sold are subject to BEC’s market based dispatch from NYISO.

Owners of the wind and solar facilities sell substantially all of the electricity generated at a fixed price to primarily electric utility customers pursuant to long-term (typically 20 – 25 years) power purchase agreements (PPAs). Substantially all of the PPAs are accounted for as operating leases and have no minimum lease payments and all of the lease income under these leases is recorded within product revenue when the electricity is delivered.

MIC Hawaii

Revenue from Hawaii Gas is recorded in product revenue. Hawaii Gas recognizes revenue when products are delivered. 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 has been delivered but not billed to customers from the latest meter reading or billed delivery date to the end of an accounting period. The related costs are charged to expense.

The other businesses within MIC Hawaii consist of primarily a design-build mechanical contractor focused on designing and constructing energy efficient building infrastructure and controlling interests in

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3. Implementation of ASU 2014-09  – (continued)

renewable and distributed power facilities including two facilities on Oahu. Revenue generated by the design-build mechanical contractor business is recognized from long-term construction contracts (commonly referred to as the percentage-of-completion method) and is recorded in service revenue. PPAs at the renewable facilities are accounted for as operating leases and the related lease income is recorded in product revenues when the electricity is delivered.

4. Income per Share

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

    
 Quarter Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
Numerator:
                    
Net income attributable to MIC $38,366  $26,020  $115,200  $62,035 
Interest expense attributable to 2.875% Convertible Senior Notes due July 2019, net of taxes        4,719    
Diluted net income attributable to MIC $38,366  $26,020  $119,919  $62,035 
Denominator:
                    
Weighted average number of shares outstanding: basic  85,082,209   82,430,324   84,952,551   82,285,053 
Dilutive effect of restricted stock unit grants  9,736   9,516   9,587   9,555 
Dilutive effect of 2.875% Convertible Senior Notes due July 2019        4,354,813    
Weighted average number of shares outstanding: diluted  85,091,945   82,439,840   89,316,951   82,294,608 
Income per share:
                    
Basic income per share attributable to MIC $0.45  $0.32  $1.36  $0.75 
Diluted income per share attributable to MIC $0.45  $0.32  $1.34  $0.75 

The effect of potentially dilutive shares for the quarter ended June 30, 2018 is calculated assuming that the restricted stock unit grants totaling 19,230 provided to the independent directors on June 7, 2018, which will vest during the second quarter of 2019, and the 9,435 restricted stock unit grants provided to the independent directors on May 17, 2017, which vested during the second quarter of 2018, had been fully converted to shares on those grant dates. The 2.875% Convertible Senior Notes due July 2019 and the 2.00% Convertible Senior Notes due October 2023 were anti-dilutive for the quarter ended June 30, 2018.

The effect of potentially dilutive shares for the six months ended June 30, 2018 is calculated assuming that (i) the restricted stock unit grants totaling 19,230 provided to the independent directors on June 7, 2018, which will vest during the second quarter of 2019, and the 9,435 restricted stock unit grants provided to the independent directors on May 17, 2017, which vested during the second quarter of 2018, had been fully converted to shares on those grant dates; and (ii) the 2.875% Convertible Senior Notes due July 2019 had been fully converted into shares on the date of issuance. The 2.00% Convertible Senior Notes due October 2023 were anti-dilutive for the six months ended June 30, 2018.

The effect of potentially dilutive shares for the quarter and six months ended June 30, 2017 is calculated assuming that the restricted stock unit grants totaling 9,435 provided to the independent directors on May 17, 2017, which vested during the second quarter of 2018, and the 8,604 restricted stock unit grants (net of 2,151 restricted stock unit grants forfeited on September 30, 2016) provided to the independent directors on May 18, 2016 and restricted stock units grants of 991 provided to a new independent director on November 1, 2016,

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4. Income per Share  – (continued)

which all vested during the second quarter of 2017, had been fully converted to shares on those grant dates. The 2.875% Convertible Senior Notes due July 2019 and the 2.00% Convertible Senior Notes due October 2023 were anti-dilutive for the quarter and six months ended June 30, 2017.

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

    
 Quarter Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
2.875% Convertible Senior Notes due July 2019  4,371,233   4,259,535      4,241,059 
2.00% Convertible Senior Notes due October 2023  3,634,173   3,596,901   3,629,489   3,596,901 
Total  8,005,406   7,856,436   3,629,489   7,837,960 

5. Property, Equipment, Land and Leasehold Improvements

Property, equipment, land and leasehold improvements at June 30, 2018 and December 31, 2017 consisted of the following ($ in thousands):

  
 June 30,
2018(1)
 December 31,
2017
Land $319,266  $339,148 
Easements  131   131 
Buildings  41,856   41,776 
Leasehold and land improvements  743,210   834,241 
Machinery and equipment  3,459,970   4,092,624 
Furniture and fixtures  41,612   39,386 
Construction in progress  121,694   246,422 
    4,727,739   5,593,728 
Less: accumulated depreciation  (967,716  (934,114
Property, equipment, land and leasehold improvements, net $3,760,023  $4,659,614 

(1)Property, equipment, land and leasehold improvements excludes assets related to BEC, which were classified as held for sale at June 30, 2018. See Note 2, “Basis of Presentation”, for further discussion.

6. Intangible Assets and Goodwill

Intangible assets at June 30, 2018 and December 31, 2017 consisted of the following ($ in thousands):

  
 June 30,
2018(1)
 December 31,
2017
Contractual arrangements $932,391  $989,228 
Non-compete agreements  14,014   14,014 
Customer relationships  360,978   361,623 
Leasehold rights  350   350 
Trade names  16,091   16,091 
Technology  8,760   8,760 
    1,332,584   1,390,066 
Less: accumulated amortization  (499,259  (475,968
Intangible assets, net $833,325  $914,098 

(1)Intangible assets excludes assets related to BEC, which were classified as held for sale at June 30, 2018. See Note 2, “Basis of Presentation”, for further discussion.

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6. Intangible Assets and Goodwill  – (continued)

The goodwill balance as of June 30, 2018 is comprised of the following ($ in thousands):

 
Goodwill acquired in business combinations, net of disposals, at December 31, 2017 $2,193,478 
Accumulated impairment charges  (123,200
Other  (1,610
Balance at December 31, 2017  2,068,668 
Goodwill related to 2018 acquisition  121 
Other  (265
Reclassification to assets held for sale(1)  (21,628
Balance at June 30, 2018 $2,046,896 

(1)Goodwill classified as held for sale related to BEC. See Note 2, “Basis of Presentation”, for further discussion.

The Company tests for goodwill impairment at the reporting unit level on an annual basis on October 1st of each year and between annual tests if a triggering event indicates impairment. There were no triggering events indicating impairment for the six months ended June 30, 2018 or 2017.

7. Long-Term Debt

At June 30, 2018 and December 31, 2017, the Company’s consolidated long-term debt balance comprised of the following ($ in thousands):

  
 June 30,
2018(1)
 December 31,
2017
IMTT $1,325,975  $1,318,975 
Atlantic Aviation  671,000   648,000 
Contracted Power  318,590   576,558 
MIC Hawaii  213,530   199,282 
MIC Corporate  883,270   873,477 
Total  3,412,365   3,616,292 
Current portion  (42,676  (50,835
Long-term portion  3,369,689   3,565,457 
Unamortized deferred financing costs(2)  (27,429  (35,146
Long-term portion less unamortized debt discount and deferred financing costs $3,342,260  $3,530,311 

(1)Excludes the current and long-term portion of debt related to BEC, which were classified as held for sale at June 30, 2018. See Note 2, “Basis of Presentation”, for further discussion.
(2)The weighted average remaining life of the deferred financing costs at June 30, 2018 was 5.4 years.

At June 30, 2018, the total undrawn capacity on the revolving credit facilities was $955.5 million excluding letters of credit outstanding of $37.5 million.

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7. Long-Term Debt  – (continued)

MIC Corporate

Senior Secured Revolving Credit Facility

On January 3, 2018, the Company completed the refinancing and upsizing of its senior secured revolving credit facility to $600.0 million and extended the maturity through January 3, 2022.

At June 30, 2018 and December 31, 2017, MIC had $151.5 million and $143.5 million, respectively, outstanding on its senior secured revolving credit facility. During the six months ended June 30, 2018, MIC borrowed $138.5 million for general corporate purposes and repaid $130.5 million on its revolving credit facility. At June 30, 2018, the undrawn balance on the senior secured revolving credit facility was $448.5 million. In July 2018, the Company repaid $10.0 million on its revolving credit facility.

2.875% Convertible Senior Notes due July 2019

At June 30, 2018 and December 31, 2017, the Company had $350.0 million aggregate principal outstanding on its five-year, 2.875% convertible senior notes due July 2019. On July 15, 2018, the Company reclassified the 2.875% Convertible Senior Notes due July 2019 to current portion of long-term debt. At June 30, 2018, the fair value of these convertible senior notes was approximately $345.0 million. These convertible senior notes fall within Level 1 of the fair value hierarchy.

On July 15, 2018, the Company increased the conversion rate to 12.5258 shares of common stock per $1,000 principal amount. The adjustment was made, in accordance with the indenture governing the senior notes, on the anniversary of the convertible senior notes issuance and reflects the impact of dividends paid by the Company.

2.00% Convertible Senior Notes due October 2023

At June 30, 2018 and December 31, 2017, the Company had $373.9 million and $371.4 million, respectively, outstanding on its seven year, 2.00% convertible senior notes due October 2023. At June 30, 2018, the fair value of the liability component of these convertible senior notes was approximately $340.0 million. These convertible senior notes fall within Level 1 of the fair value hierarchy.

The 2.00% Convertible Senior Notes due October 2023 consisted of the following ($ in thousands):

  
 June 30,
2018
 December 31,
2017
Liability Component:
          
Principal $402,500  $402,500 
Unamortized debt discount  (20,675  (22,475
Long-term debt, net of unamortized debt discount  381,825   380,025 
Unamortized deferred financing costs  (7,891  (8,643
Net carrying amount $373,934  $371,382 
Equity Component $26,748  $26,748 

For the quarters and six months ended June 30, 2018 and 2017, total interest expense recognized related to the 2.00% Convertible Senior Notes due October 2023 consisted of the following ($ in thousands):

    
 Quarter Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
Contractual interest expense $2,013  $2,013  $4,025  $3,757 
Amortization of debt discount  903   876   1,800   1,495 
Amortization of deferred financing costs  376   376   752   757 
Total interest expense $3,292  $3,265  $6,577  $6,009 

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7. Long-Term Debt  – (continued)

IMTT

At June 30, 2018 and December 31, 2017, IMTT had $217.0 million and $210.0 million outstanding on its revolving credit facilities, respectively. During the six months ended June 30, 2018, IMTT borrowed $17.0 million and repaid $10.0 million on its USD revolving credit facility primarily for general corporate purposes. At June 30, 2018, the undrawn portion on its USD revolving credit facility and CAD revolving credit facility were $333.0 million and $50.0 million, respectively.

At June 30, 2018, IMTT had $600.0 million of fixed rate senior notes outstanding. At June 30, 2018, the fair value of the senior notes was approximately $580.0 million. The senior notes fall within Level 1 of the fair value hierarchy.

Atlantic Aviation

At June 30, 2018 and December 31, 2017, Atlantic Aviation had $291.0 million and $258.0 million outstanding on its revolving credit facility, respectively. During the six months ended June 30, 2018, Atlantic Aviation borrowed $33.0 million on its revolving credit facility primarily to fund an on-field consolidation of an FBO and for general corporate purposes. At June 30, 2018, the undrawn portion on its revolving credit facility was $59.0 million.

Contracted Power

At June 30, 2018, Contracted Power had $183.7 million of fixed rate term loans outstanding. At June 30, 2018, the fair value of the term loans was approximately $180.0 million. The term loans fall within Level 2 of the fair value hierarchy.

MIC Hawaii

In February 2018, Hawaii Gas exercised the second of two one-year extensions related to its $80.0 million secured term loan facility and its $60.0 million revolving credit facility extending their respective maturities to February 2023.

At June 30, 2018, Hawaii Gas had $15.0 million outstanding on its revolving credit facility. At December 31, 2017, Hawaii Gas’ revolving credit facility was undrawn. During the six months ended June 30, 2018, Hawaii Gas borrowed $20.0 million for general corporate purposes and repaid $5.0 million on its revolving credit facility. At June 30, 2018, the undrawn portion on its revolving credit facility was $45.0 million.

At June 30, 2018, Hawaii Gas had $100.0 million of fixed rate senior notes outstanding. At June 30, 2018, the fair value of the senior notes was approximately $100.0 million. The senior notes fall within Level 1 of the fair value hierarchy.

8. Derivative Instruments and Hedging Activities

Interest Rate Contracts

The Company and certain of its businesses have in place variable-rate debt. Management believes that it is prudent to limit the variability of a portion of the business’ interest payments. To meet this objective, the Company enters into interest rate agreements, primarily using interest rate swaps and from time to time using interest rate caps, to manage fluctuations in cash flows resulting from interest rate risk on a portion of its debt with a variable-rate component. Interest rate swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the portion of the debt that is swapped.

At June 30, 2018, the Company had $3.4 billion of current and long-term debt, of which $1.1 billion was economically hedged with interest rate contracts, $1.6 billion was fixed rate debt and $739.1 million was

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8. Derivative Instruments and Hedging Activities  – (continued)

unhedged. The Company does not use hedge accounting. All movements in the fair value of the interest rate derivatives are recorded directly through earnings.

Commodity Price Hedges

The risks associated with fluctuations in the prices that Hawaii Gas, a business within the MIC Hawaii reportable segment, pays for propane is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. Hawaii Gas’ gross margin (revenue less cost of product sales excluding depreciation and amortization) is sensitive to changes in propane supply costs and Hawaii Gas may not always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly. In order to reduce the volatility of the business’ propane market price risk, Hawaii Gas has used and expects to continue to use over-the-counter commodity derivative instruments including price swaps. Hawaii Gas does not use commodity derivative instruments for speculative or trading purposes. Over-the-counter derivative commodity instruments used by Hawaii Gas to hedge forecasted purchases of propane are generally settled at expiration of the contract.

Financial Statement Location Disclosure for Derivative Instruments

The Company measures derivative instruments at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations use primarily 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 assets and liabilities within the consolidated condensed balance sheets at June 30, 2018 and December 31, 2017 were ($ in thousands):

  
 Assets (Liabilities) at Fair Value
Balance Sheet Location June 30,
2018(1)
 December 31,
2017
Fair value of derivative instruments – current assets $15,893  $11,965 
Fair value of derivative instruments – noncurrent assets  26,652   24,455 
Total derivative contracts – assets $42,545  $36,420 
Fair value of derivative instruments – current liabilities $(730 $(1,710
Fair value of derivative instruments – noncurrent liabilities  (1,705  (4,668
Total derivative contracts – liabilities $(2,435 $(6,378

(1)Fair value of derivative instruments excludes assets related to BEC, which were classified as held for sale at June 30, 2018. See Note 2, “Basis of Presentation”, for further discussion.

The Company’s hedging activities for the quarters and six months ended June 30, 2018 and 2017 and the related location within the consolidated condensed statements of operations were ($ in thousands):

    
 Amount of Gain (Loss) Recognized in
Consolidated Condensed Statements of Operations
   Quarter ended June 30, Six Months Ended June 30,
Financial Statement Account 2018 2017 2018 2017
Interest expense – interest rate caps $2,018  $(2,536 $7,001  $(2,669
Interest expense – interest rate swaps  3,877   (5,195  14,034   (4,108
Cost of product sales – commodity swaps  2,845   369   802   (3,615
Total $8,740  $(7,362 $21,837  $(10,392

All of the Company’s derivative instruments are collateralized by the assets of the respective businesses.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

9. Stockholders’ Equity

2016 Omnibus Employee Incentive Plan

On May 18, 2016, the Company adopted the 2016 Omnibus Employee Incentive Plan (Plan). The Plan provides for the issuance of equity awards covering up to 500,000 shares of common stock to attract, retain, and motivate employees, consultants and others who perform services for the Company and its subsidiaries. Under the Plan, the Compensation Committee determines the persons who will receive awards, the time at which they are granted and the terms of the awards. Type of awards include stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and other stock-based awards. At June 30, 2018, there were no awards outstanding under this Plan.

Accumulated Other Comprehensive Loss

The following represents the changes and balances to the components of accumulated other comprehensive loss for the six months ended June 30, 2018 and 2017 ($ in thousands):

   
 Post-Retirement
Benefit Plans,
net of taxes
 Translation
Adjustment, net
of taxes(1)
 Total
Stockholders’
Accumulated
Other
Comprehensive
Loss,
net of taxes
Balance at December 31, 2016 $(16,805 $(12,155 $(28,960
Translation adjustment     1,097   1,097 
Balance at June 30, 2017 $(16,805 $(11,058 $(27,863
Balance at December 31, 2017 $(20,456 $(9,537 $(29,993
Translation adjustment     (3,473  (3,473
Balance at June 30, 2018 $(20,456 $(13,010 $(33,466

(1)Translation adjustment is presented net of tax benefit of $1.3 million and tax expense of $755,000 for the six months ended June 30, 2018 and 2017, respectively.

10. Reportable Segments

At June 30, 2018, the Company’s businesses consisted of four reportable segments: IMTT, Atlantic Aviation, Contracted Power and MIC Hawaii.

IMTT

IMTT provides bulk liquid storage, handling and other services in North America through seventeen terminals located in the United States, one terminal in Quebec, Canada and one partially owned terminal in Newfoundland, Canada. IMTT derives the majority of its revenue from storage and handling of petroleum products, various chemicals, renewable fuels, and vegetable and tropical oils. Based on storage capacity, IMTT operates one of the largest third-party bulk liquid terminals businesses in the United States. Revenue from IMTT is included in service revenue.

Atlantic Aviation

Atlantic Aviation derives the majority of its revenue from fuel delivery services and from other airport services, including de-icing and aircraft hangar rental. All of the revenue of Atlantic Aviation is generated at airports in the U.S. The business currently operates at 70 airports. Revenue from Atlantic Aviation is included in service revenue.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Reportable Segments  – (continued)

Contracted Power

At June 30, 2018, the Contracted Power business segment has controlling interests in seven utility-scale solar photovoltaic facilities, two wind facilities and 100% ownership of a gas-fired facility that are in operations in the United States. The wind and solar facilities that are operational at June 30, 2018 have an aggregate generating capacity of 345 megawatt (MW) of wholesale electricity to utilities. Revenue from the wind, solar and gas-fired power facilities are included in product revenue.

These projects are held in LLCs, and are treated as partnerships for income tax purposes, with co-investors. The acquisition price on these projects can vary depending on, among other things, factors such as the size of the project, PPA terms, eligibility for tax incentives, debt package, operating cost structure and development stage. A completed project takes out all of the construction risk, testing and costs associated with construction contracts.

The Company has certain rights to make decisions over the management and operations of these wind and solar facilities. The Company has determined that it is appropriate to consolidate these projects, with the co-investors’ interest reflected as Noncontrolling interests in the consolidated condensed financial statements.

The Company owns 100% of BEC, a 644 MW gas-fired facility located in Bayonne, New Jersey, adjacent to IMTT’s Bayonne facility. A 132 MW expansion that increased the nameplate capacity from 512 MW to 644 MW commenced commercial operations in May 2018. Power produced by BEC is delivered to New York City via a dedicated transmission cable under New York Harbor. BEC has tolling agreements with a creditworthy off-taker for approximately 50% of its power generating capacity. The tolling agreements generate revenue whether or not the facility is in use for power production. In addition to revenue from the tolling agreements and capacity payments from the grid operator, BEC generates an energy margin when the facility is dispatched. Revenue produced by BEC is accounted for as an operating lease that does not have minimum lease payments. All of the lease income under the lease is recorded within product revenue when natural gas transportation services are performed.

At June 30, 2018, the assets and liabilities of BEC are classified as held for sale on the consolidated condensed balance sheet. See Note 2, “Basis of Presentation”, for further discussions.

MIC Hawaii

MIC Hawaii comprises: Hawaii Gas, Hawaii’s only government-franchised gas utility and an unregulated liquefied petroleum gas distribution business providing gas and related services to commercial, residential and governmental customers; a design-build mechanical contractor focused on designing and constructing energy efficient and related building infrastructure; and controlling interests in two solar facilities on Oahu. Revenue from Hawaii Gas and the solar facilities are recorded in product revenue (see above in Contracted Power for further discussion on revenue from PPAs). Revenue from the design-build mechanical contractor business is recorded in service revenue.

Revenue from the Hawaii Gas business is generated from the distribution and sales of synthetic natural gas (SNG), liquefied petroleum gas (LPG) and liquefied natural gas (LNG). Revenue is primarily a function of the volume of SNG, LPG and LNG consumed by customers and the price per British Thermal Unit or gallon charged to customers. Revenue levels, without organic growth, will generally track global commodity prices, namely petroleum and natural gas, as its products are derived from these commodities.

All of the MIC business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered. Selected information by segment is presented in the following tables.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Reportable Segments  – (continued)

Revenue from external customers for the Company’s consolidated reportable segments were ($ in thousands):

      
 Quarter Ended June 30, 2018
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Intersegment
Revenue
 Total
Reportable
Segments
Service Revenue
                              
Terminal Services $21,339  $  $  $  $  $21,339 
Lease  101,530            (1,232  100,298 
Fuel     173,890            173,890 
Hangar     21,815            21,815 
Construction           13,964      13,964 
Other(1)  6,494   37,226      971      44,691 
Total Service Revenue $129,363  $232,931  $  $14,935  $(1,232 $375,997 
Product Revenue
                              
Lease $  $  $37,391  $1,019  $  $38,410 
Gas           56,948      56,948 
Other        4,012   2,713      6,725 
Total Product Revenue $  $  $41,403  $60,680  $  $102,083 
Total Revenue $129,363  $232,931  $41,403  $75,615  $(1,232 $478,080 

      
 Quarter Ended June 30, 2017
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Intersegment
Revenue
 Total
Reportable
Segments
Service Revenue
                              
Terminal Services $21,290  $  $  $  $  $21,290 
Lease  109,257            (1,231  108,026 
Fuel     144,380            144,380 
Hangar     18,996            18,996 
Construction           11,855      11,855 
Other(1)  6,597   33,563      338      40,498 
Total Service Revenue $137,144  $196,939  $  $12,193  $(1,231 $345,045 
Product Revenue
                              
Lease $  $  $36,426  $766  $  $37,192 
Gas           50,080      50,080 
Other        3,740   2,933      6,673 
Total Product Revenue $  $  $40,166  $53,779  $  $93,945 
Total Revenue $137,144  $196,939  $40,166  $65,972  $(1,231 $438,990 

(1)See Note 3, “Implementation of ASU 2014-09”, for revenues disclosed in Other.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Reportable Segments  – (continued)

      
 Six Months Ended June 30, 2018
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Intersegment
Revenue
 Total
Reportable
Segments
Service Revenue
                              
Terminal Services $47,334  $  $  $  $  $47,334 
Lease  205,913            (2,463  203,450 
Fuel     351,354            351,354 
Hangar     43,557            43,557 
Construction           30,207      30,207 
Other(1)  15,505   85,222      1,977      102,704 
Total Service Revenue $268,752  $480,133  $  $32,184  $(2,463 $778,606 
Product Revenue
                              
Lease $  $  $69,026  $2,099  $  $71,125 
Gas           116,707      116,707 
Other        7,664   5,534      13,198 
Total Product Revenue $  $  $76,690  $124,340  $  $201,030 
Total Revenue $268,752  $480,133  $76,690  $156,524  $(2,463 $979,636 

      
 Six Months Ended June 30, 2017
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Intersegment
Revenue
 Total
Reportable
Segments
Service Revenue
                              
Terminal Services $43,005  $  $  $  $  $43,005 
Lease  217,051            (2,454  214,597 
Fuel     296,866            296,866 
Hangar     36,852            36,852 
Construction           25,020      25,020 
Other(1)  15,905   75,974      630      92,509 
Total Service Revenue $275,961  $409,692  $  $25,650  $(2,454 $708,849 
Product Revenue
                              
Lease $  $  $61,027  $1,424  $  $62,451 
Gas           106,221      106,221 
Other        7,209   5,717      12,926 
Total Product Revenue $  $  $68,236  $113,362  $  $181,598 
Total Revenue $275,961  $409,692  $68,236  $139,012  $(2,454 $890,447 

(1)See Note 3, “Implementation of ASU 2014-09”, for revenues disclosed in Other.

In accordance with FASB ASC 280,Segment Reporting, the Company has disclosed earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items as a key performance indicator for the businesses. EBITDA excluding non-cash items is reflective of the businesses’ ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of its businesses. The Company defines EBITDA excluding non-cash items as net income (loss) or earnings — the most comparable GAAP measure — before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Reportable Segments  – (continued)

EBITDA excluding non-cash items for the Company’s consolidated reportable segments is shown in the tables below ($ in thousands). Allocations of corporate expenses, intercompany fees and the tax effect have been excluded as they are eliminated in consolidation.

     
 Quarter Ended June 30, 2018
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Total
Reportable
Segments
Net income $20,197  $20,864  $11,747  $3,403  $56,211 
Interest expense, net  10,933   4,242   4,832   1,887   21,894 
Provision for income taxes  8,087   7,600   3,654   2,144   21,485 
Depreciation  28,891   15,113   13,412   3,504   60,920 
Amortization of intangibles  3,879   11,846   1,107   1,392   18,224 
Pension expense  1,743   6      128   1,877 
Other non-cash expense (income)  310   597   (1,690  (954  (1,737
EBITDA excluding non-cash items $74,040  $60,268  $33,062  $11,504  $178,874 

     
 Quarter Ended June 30, 2017
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Total
Reportable
Segments
Net income $22,613  $16,808  $4,292  $4,971  $48,684 
Interest expense, net  11,763   5,907   8,767   2,207   28,644 
Provision for income taxes  15,716   11,077   1,845   2,563   31,201 
Depreciation  28,036   11,925   13,754   3,348   57,063 
Amortization of intangibles  2,759   11,650   1,107   382   15,898 
Pension expense  1,350   5      272   1,627 
Other non-cash expense (income)  69   (22  (2,232  897   (1,288
EBITDA excluding non-cash items $82,306  $57,350  $27,533  $14,640  $181,829 

     
 Six Months Ended June 30, 2018
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Total
Reportable
Segments
Net income $45,477  $53,831  $17,328  $5,614  $122,250 
Interest expense, net  18,672   4,311   5,717   3,177   31,877 
Provision for income taxes  17,773   19,711   4,604   2,949   45,037 
Depreciation  58,262   28,743   27,832   7,277   122,114 
Amortization of intangibles  7,757   23,695   2,214   1,774   35,440 
Pension expense  3,823   11      255   4,089 
Other non-cash expense (income)  404   909   (3,578  5,245   2,980 
EBITDA excluding non-cash items $152,168  $131,211  $54,117  $26,291  $363,787 

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Reportable Segments  – (continued)

     
 Six Months Ended June 30, 2017
   IMTT Atlantic
Aviation
 Contracted
Power
 MIC
Hawaii
 Total
Reportable
Segments
Net income $46,429  $38,634  $2,353  $9,844  $97,260 
Interest expense, net  20,520   9,353   14,150   3,918   47,941 
Provision for income taxes  32,264   25,627   1,872   5,942   65,705 
Depreciation  56,796   23,514   27,987   6,447   114,744 
Amortization of intangibles  5,519   25,094   2,214   764   33,591 
Pension expense  3,766   10      545   4,321 
Other non-cash expense (income)  137   40   (4,256  6,468   2,389 
EBITDA excluding non-cash items $165,431  $122,272  $44,320  $33,928  $365,951 

Reconciliations of total reportable segments’ EBITDA excluding non-cash items to consolidated net income before income taxes were ($ in thousands):

    
 Quarter Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
Total reportable segments EBITDA excluding non-cash items $178,874  $181,829  $363,787  $365,951 
Interest income  111   41   191   75 
Interest expense  (30,287  (35,356  (49,077  (60,838
Depreciation  (61,086  (57,063  (122,444  (114,744
Amortization of intangibles  (18,224  (15,898  (35,440  (33,591
Selling, general and administrative expenses – Corporate and Other  (10,144  (11,092  (14,346  (15,087
Fees to Manager-related party  (10,852  (18,433  (23,780  (36,656
Pension expense  (1,877  (1,627  (4,089  (4,321
Other income (expense), net  1,659   1,288   (3,054  (2,389
Total consolidated net income before income taxes $48,174  $43,689  $111,748  $98,400 

Capital expenditures, on a cash basis, for the Company’s reportable segments were ($ in thousands):

    
 Quarter Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
IMTT $15,155  $16,796  $24,332  $32,059 
Atlantic Aviation  17,740   14,851   36,447   34,096 
Contracted Power  21,593   30,321   34,201   49,500 
MIC Hawaii  4,722   7,335   10,669   13,450 
Total capital expenditures of reportable segments $59,210  $69,303  $105,649  $129,105 
Corporate and other  2,439   1,179   4,181   1,246 
Total consolidated capital expenditure $61,649  $70,482  $109,830  $130,351 

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

10. Reportable Segments  – (continued)

Property, equipment, land and leasehold improvements, net, goodwill and total assets for the Company’s reportable segments and its reconciliation to consolidated total assets were ($ in thousands):

      
 Property, Equipment,
Land and Leasehold
Improvements, net
 Goodwill Total Assets
   June 30,
2018
 December 31,
2017
 June 30,
2018
 December 31,
2017
 June 30,
2018
 December 31,
2017
IMTT $2,262,089  $2,305,440  $1,427,348  $1,427,863  $4,040,543  $4,109,448 
Atlantic Aviation  566,384   559,597   496,140   495,769   1,705,033   1,710,535 
Contracted Power  629,138   1,466,139      21,628   696,137   1,617,658 
MIC Hawaii  298,515   302,220   123,408   123,408   531,934   532,144 
Total assets of reportable segments $3,756,126  $4,633,396  $2,046,896  $2,068,668  $6,973,647  $7,969,785 
Corporate and other  3,897   26,218         10,685   39,166 
Assets held for sale(1)              951,982    
Total consolidated assets $3,760,023  $4,659,614  $2,046,896  $2,068,668  $7,936,314  $8,008,951 

(1)At June 30, 2018, Property, Equipment, Land and Leasehold Improvements, net, and Goodwill excludes balances related to BEC, which were classified as held for sale. See Note 2, “Basis of Presentation”, for further discussion.

11. Long-Term Contracted Revenue

Long-term contracted revenue consists of revenue from future minimum lease revenue accounted in accordance with ASC 840,Leases, and estimated revenue to be recognized in the future related to performance conditions that are unsatisfied or partially unsatisfied accounted in accordance with ASC 606,Revenue. The recognition pattern for contracts that are considered leases is generally consistent with the recognition pattern that would apply if such contracts were not accounted for as leases and were instead accounted for under ASC Topic 606. Accordingly, the Company has combined the required lessor disclosures for future lease income with the disclosures for contracted revenue in the table below. The following long-term contracted revenue were in existence at June 30, 2018 ($ in thousands):

   
 Lease Revenue (ASC 840) Contract Revenue
(ASC 606)
 Total
Long-Term
Revenue
2018 remaining $168,785  $37,095  $205,880 
2019  210,425   42,902   253,327 
2020  120,099   32,664   152,763 
2021  66,232   26,761   92,993 
2022  45,972   22,936   68,908 
2023  28,943   15,720   44,663 
Thereafter  50,842   16,056   66,898 
Total $691,298  $194,134  $885,432 

The above table does not include the future minimum lease revenue from the Company’s Contracted Power and the renewable businesses within the MIC Hawaii reportable segments. The payments from these leases are considered variable as they are based on the output of the underlying assets (i.e. energy generated).

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

11. Long-Term Contracted Revenue  – (continued)

In addition, the above table excludes contract revenue from the design-build mechanical contractor business in the MIC Hawaii reportable segment. Revenue generated by the design-build mechanical contractor business is recognized from long-term construction contracts (commonly referred to the percentage-of-completion method). At June 30, 2018, this business had a backlog of approximately $27.0 million of future contract revenue which primarily is expected to be recognized within one to two years.

12. Related Party Transactions

Management Services

At June 30, 2018 and December 31, 2017, the Manager held 9,631,251 shares and 5,435,442 shares, respectively, of the Company. Pursuant to the terms of the Third Amended and Restated Management Services Agreement (Management Agreement), the Manager may sell these shares at any time. Under the Management Agreement, the Manager, at its option, may reinvest base management fees and performance fees, if any, in shares of the Company. During the quarter ended June 30, 2018, the Manager bought 3,754,806 shares in the open market and increased its holdings to 11.31% at June 30, 2018.

Since January 1, 2017, the Company paid the Manager cash dividends on shares held for the following periods:

     
            Declared Period Covered $ per
Share
 Record Date Payable Date Cash Paid to
Manager
(in thousands)
July 31, 2018  Second quarter 2018  $1.00   August 13, 2018   August 16, 2018   (1)
 
May 1, 2018  First quarter 2018    1.00   May 14, 2018   May 17, 2018  $6,213 
February 19, 2018  Fourth quarter 2017    1.44   March 5, 2018   March 8, 2018   8,067 
October 30, 2017  Third quarter 2017    1.42   November 13, 2017   November 16, 2017   7,484 
August 1, 2017  Second quarter 2017    1.38   August 14, 2017   August 17, 2017   6,941 
May 2, 2017  First quarter 2017    1.32   May 15, 2017   May 18, 2017   6,332 
February 17, 2017  Fourth quarter 2016    1.31   March 3, 2017   March 8, 2017   6,080 

(1)The amount of dividend payable to the Manager for the second quarter of 2018 will be determined on August 13, 2018, the record date.

Under the Management Agreement, subject to the oversight and supervision of the Company’s board of directors, the Manager is responsible for and oversees the management of the Company’s operating businesses. In addition, the Manager has the right to appoint the Chairman of the Board of the Company, subject to minimum equity ownership, and to assign, or second, to the Company, two of its employees to serve as chief executive officer and chief financial officer of the Company and seconds or makes other personnel available as required.

In accordance with the Management Agreement, the Manager is entitled to a monthly base management fee based primarily on the Company’s market capitalization, and potentially a quarterly performance fee based on total shareholder returns relative to a U.S. utilities index. Currently, the Manager has elected to reinvest the future base management fees and performance fees, if any, in new primary shares. For the quarter and six months ended June 30, 2018, the Company incurred base management fees of $10.9 million and $23.8 million, respectively. For the quarter and six months ended June 30, 2017, the Company incurred base management fees of $18.4 million and $36.7 million, respectively. For the quarter and six months ended June 30, 2018 and 2017, the Company did not incur any performance fees.

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

12. Related Party Transactions  – (continued)

The unpaid portion of the base management fees and performance fees, if any, at the end of each reporting period is included inDue to Manager-related party in the consolidated condensed balance sheets.

   
Period Base Management
Fee Amount
($ in Thousands)
 Performance
Fee Amount
($ in Thousands)
 Shares
Issued
2018 Activities:
               
Second quarter 2018 $10,852  $      —   277,053(1) 
First quarter 2018  12,928      265,002 
2017 Activities:
               
Fourth quarter 2017 $16,778  $      —   248,162 
Third quarter 2017  17,954      240,674 
Second quarter 2017  18,433      233,394 
First quarter 2017  18,223      232,398 

(1)The Manager elected to reinvest all of the monthly base management fees for the second quarter of 2018 in shares. The Company issued 277,053 shares for the quarter ended June 30, 2018, including 93,242 shares and 91,205 shares that were issued in July 2018 for the May and June 2018 monthly base management fee, respectively.

The Manager is not entitled to any other compensation and all costs incurred by the Manager, including compensation of seconded staff, are paid by the Manager out of its base management fee. However, the Company is responsible for other direct costs including, but not limited to, expenses incurred in the administration or management of the Company and its subsidiaries, income taxes, audit and legal fees, acquisitions and dispositions and its compliance with applicable laws and regulations. During the quarter and six months ended June 30, 2018, the Manager charged the Company $141,000 and $409,000, respectively, for reimbursement of out-of-pocket expenses compared with $156,000 and $445,000, respectively, for the quarter and six months ended June 30, 2017. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is includedin Due to Manager-related party in the consolidated condensed balance sheets.

Other Services

The Company uses the resources of the Macquarie Group with respect to a range of advisory, procurement, insurance, hedging, lending and other services. Engagements involving members of the Macquarie Group are reviewed and approved by the Audit Committee of the Company’s board of directors. Macquarie Group affiliates are engaged on an arm’s length basis and frequently as a member of a syndicate of providers whose other members establish the terms of the interaction.

Advisory Services

The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited (MBL) and Macquarie Capital (USA) Inc. (MCUSA) have provided various advisory and other services and incurred expenses in connection with the Company’s equity raising activities, acquisitions and debt structuring for the Company and its businesses. Underwriting fees are recorded in stockholders’ equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are expensed as incurred. Debt arranging fees are deferred and amortized over the term of the credit facility.

The Company entered into an equity distribution agreement with sales agents, including MCUSA, providing for the sale of shares of its common stock, par value $0.001 per share, from time to time having an aggregate gross offering price of up to $400.0 million. The equity distribution agreement also provides for

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

12. Related Party Transactions  – (continued)

sales of shares to any sales agent as principal for its own account at a price agreed upon at the time of the sale. For the six months ended June 30, 2018 and 2017, the Company did not engage MCUSA for such activities.

Long-Term Debt

In January 2018, the Company completed the refinancing and upsizing of its senior secured revolving credit facility to $600.0 million from $410.0 million and extended the maturity through January 3, 2022. As part of the refinancing and upsizing, MIHI LLC’s $50.0 million commitment was replaced by a $40.0 million commitment from Macquarie Capital Funding LLC. As part of the closing, the Company paid Macquarie Capital Funding LLC $80,000 in closing fees.

Prior to the refinancing in January 2018, the Company incurred $4,000 in interest expense related to MIHI LLC’s portion of the MIC senior secured revolving credit facility. For the quarter and six months ended June 30, 2017, the Company incurred $35,000 and $69,000, respectively, in interest expense related to MIHI LLC’s portion of the MIC senior secured revolving credit facility. Subsequent to the refinancing in January 2018, the Company incurred $130,000 and $237,000, respectively, in interest expense related to Macquarie Capital Funding LLC’s portion of the MIC senior secured revolving credit facility for the quarter and six months ended June 30, 2018.

Other Transactions

In May 2018, the Company sold its equity interest in projects involving two properties to Macquarie Infrastructure and Real Assets, Inc. (MIRA Inc.), an affiliate of the Manager, for their cost of approximately $27.1 million. The Company retained the right to 20% of any gain on a subsequent sale by MIRA Inc. to a third party of a more than 50% interest in either or both of the projects.

Macquarie Energy North America Trading, Inc. (MENAT), an indirect subsidiary of Macquarie Group Limited, entered into contracts with IMTT to lease barrels of capacity. At March 31, 2017, MENAT leased 200,000 barrels of capacity from IMTT. During the quarter and six months ended June 30, 2017, IMTT recognized $294,000 and $907,000, respectively, in revenues from MENAT. The contracts expired during the quarter ended June 30, 2017.

13. Income Taxes

The Company expects to incur federal consolidated taxable income for the year ending December 31, 2018, which will be fully offset by the Company’s net operating loss (NOL) carryforwards. The Company believes that it will be able to utilize all of its federal prior year NOLs, which will begin to expire after 2029 and completely expire after 2035.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law and includes provisions that may have an impact on the Company’s federal taxable income. The most significant of these are 100% bonus depreciation on qualifying assets (which is scheduled to phase down ratably to 0% between 2023 and 2027) and a reduction in the federal corporate tax rate from 35% to 21%.

In response to the Tax Cuts and Jobs Act, on December 22, 2017 the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), to provide guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act in the period of enactment. The SEC Staff noted in SAB 118 that in these cases a company should continue to apply Topic 740,Income Taxes, based on the provisions of the tax laws that were in effect immediately prior to the Tax Cuts and Jobs Act being enacted. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Cuts and Jobs Act enactment date for companies to complete the accounting under Topic 740. While the Company was able to make reasonable estimates of the impact of the changes to provisions of the Internal Revenue Code related to its foreign entities on its tax provision for the year ended December 31, 2017 and for the six months ended

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Income Taxes  – (continued)

June 30, 2018, the final impact of the Tax Cuts and Jobs Act may differ from these estimates, due to, among other things, changes in the interpretations and assumptions of the Tax Cuts and Jobs Act, and additional guidance that may be issued by the Internal Revenue Service. As a result, the Company will continue to gather additional information to determine the final impact of these changes.

The Tax Cuts and Jobs Act also includes a new limitation on the deductibility of net interest expense that generally limits the deduction to 30% of “adjusted taxable income”. For years before 2022, adjusted taxable income is defined as taxable income computed without regard to certain items, including net business interest expense, the amount of any NOL deduction, tax depreciation and tax amortization. The Company does not expect to incur net interest expense that is greater than 30% of adjusted taxable income prior to 2022.

14. Legal Proceedings and Contingencies

The Company and its subsidiaries are subject to legal proceedings arising in the ordinary course of business. In management’s opinion, the Company has adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions, and does not believe the outcome of any pending legal proceedings will be material to the Company’s financial position or result of operations.

Shareholder Derivative Suits

On April 23, 2018, a complaint captionedCity of Riviera Beach General Employees Retirement System v. Macquarie Infrastructure Corp., et al., Case 1:18-cv-03608 (VSB), was filed in the United States District Court for the Southern District of New York. A substantially identical complaint captioned Daniel Fajardo v. Macquarie Infrastructure Corporation, et al., Case No. 1:18-cv-03744 (VSB) was filed in the same court on April 27, 2018. Both complaints assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder on behalf of a putative class consisting of all purchasers of MIC common stock between February 22, 2016 and February 21, 2018. The named defendants in both cases are the Company and four current or former officers of MIC and one of its subsidiaries, IMTT Holdings LLC. The complaints allege that the Company and the individual defendants knowingly made material misstatements and omitted material facts in its public disclosures concerning the Company’s and IMTT’s business and the sustainability of the Company’s dividend to stockholders. The Company intends to vigorously contest the claims asserted in the City of Riviera Beach and Fajardo complaints, which the Company believes are entirely meritless.

15. Subsequent Events

Dividend

On July 31, 2018, the board of directors declared a dividend of $1.00 per share for the quarter ended June 30, 2018, which is expected to be paid on August 16, 2018 to holders of record on August 13, 2018.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

There have been no changes to legal proceedings set forth under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 21, 2018 and under Part II, Item 1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, except for the following:

In June 2018, BEC entered into an Administrative Consent Order (ACO) with the New Jersey Department of Environmental Protection (NJDEP) to address ammonia emissions levels that exceeded levels outlined in BEC’s air permit, as identified by tests carried out in February 2018. The ACO prescribes a fine of $119,000 plus $3,000 per month from July 2018 until the terms of the ACO are met. This is expected to be achieved no later than December 2018.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 21, 2018, except for the following:

We could be adversely impacted by actions of activist stockholders, and such activism could impact the value of our securities.

We value constructive input from our stockholders and the investment community. However, there is no assurance that the actions taken by our Board of Directors and management in seeking to maintain constructive engagement with our stockholders will be successful. Certain of our shareholders have expressed views with respect to the operation of our business, our business strategy, corporate governance considerations or other matters. Responding to actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. The perceived uncertainties as to our future direction due to activist actions could affect the market price of our securities, result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel, board members and business partners.

Our property taxes could increase due to reassessment or property tax rate changes.

We are required to pay real property taxes in respect of our properties and such taxes may increase as our properties are reassessed by taxing authorities or as property tax rates change. An increase in the assessed value of our properties or our property tax rates may not be passed along to our customers and could adversely impact our results of operations, cash flows and financial condition.

We are currently subject to purported securities class action lawsuits and could become subject to other similar actions in the future, the unfavorable outcome of which could materially adversely impact our business or results of operations.

In April 2018, two purported securities class action lawsuits were filed against us and certain current and former officers of ours and one of our subsidiaries alleging violations of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. These lawsuits allege knowing material misstatements and omissions in our public disclosures concerning our business and the sustainability of our dividend to stockholders. While we intend to vigorously defend against these lawsuits, there is no assurance that we will be successful in the defense or that insurance will be available or adequate to fund any settlement or judgment or the litigation costs of the actions. In addition, we are obligated to indemnify and incur legal expenses on behalf of current and former officers under certain circumstances. These lawsuits, and any similar proceedings or claims that may be brought against us in the future, may divert management resources and cause us to incur substantial costs, and any unfavorable outcome could result in payment of damages and could damage our reputation, any or all of which could materially adversely impact our business and results of operations.

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Changes to trade regulation, quotas, duties or tariffs, caused by the changing U.S. and geopolitical environments or otherwise, may increase our costs, result in fewer growth capital opportunities or projects, limit the amount of raw materials and products that we can import, decrease demand for certain of our services, or otherwise adversely impact our business.

The current U.S. administration has voiced strong concerns about imports from countries that it perceives as engaging in unfair trade practices, has increased tariffs on certain goods imported into the United States from those countries, including China and other countries from which we import components or raw materials, and has raised the possibility of imposing significant, additional tariff increases. The announcement of unilateral tariffs on imported products by the U.S has triggered retaliatory actions from certain foreign governments, including China, and may trigger retaliatory actions by other foreign governments, potentially resulting in a “trade war”. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies could increase our costs, reduce the demand or opportunity to deploy growth capital in our businesses at attractive rates of return, limit the amount of raw materials, components and other products that we can import, restrict our customers’ ability to deploy growth capital or transport products and therefore decrease demand for certain of our services, and/or adversely affect the U.S. economy or certain sectors thereof and, thus, adversely impact our businesses.

Our pending sale of BEC subjects us to various risks and uncertainties.

On July 27, 2018, our subsidiary entered into a definitive agreement to sell 100% of BEC. The pending sale is subject to various risks and uncertainties, including the following: the attention of our management and employees may be diverted due to activities related to the sale; and BEC may be unable to pursue certain business opportunities because the purchase and sale agreement requires that BEC’s business be conducted in the ordinary course of business and requires the buyer’s consent to take certain actions. In addition, if the sale is not consummated, we may have less capital available for growth capital opportunities, dividend payments and other potential capital uses. We have incurred, and will incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the sale, which are generally payable by us regardless of whether the sale is consummated.

The consummation of the sale is subject to the satisfaction or waiver of specified closing conditions, including, among others, receipt of certain regulatory approvals, and there can be no assurance that the sale will be consummated. Although the buyer is required to pay us a termination fee under certain circumstances, there can be no assurance that a remedy will be available to us in the event of a breach of the purchase and sale agreement by the buyer or that we will recover for any damages incurred by us in connection with the sale. A failed transaction may result in negative publicity and a negative impression of BEC and/or us among our business partners or in the business community generally.

Our subsidiary has agreed to indemnify the buyer, subject to the terms and limitations in the purchase and sale agreement, for breaches of representations, warranties and covenants in the purchase and sale agreement, and we will guarantee our subsidiary’s payment and certain post-closing indemnity obligations. In addition, following the sale, our businesses will be less diversified and our exposure to the risks inherent in our remaining businesses will increase.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

An exhibit index has been filed as part of this Report on page E-1 and is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 MACQUARIE INFRASTRUCTURE CORPORATION (Registrant)
  
Dated: August 1, 2018 

By:

/s/ Christopher Frost

Name: Christopher Frost
Title:   Chief Executive Officer
  

Dated: August 1, 2018 

By:

/s/ Liam Stewart

Name: Liam Stewart
Title:   Chief Financial Officer

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EXHIBIT INDEX

 
Number Description
3.1 Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 21, 2015).
3.2 Amended and Restated Bylaws of the Registrant, dated as of February 18, 2016 (incorporated by reference to Exhibit 3.2 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on February 23, 2016).
31.1* Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
 32.1** Section 1350 Certification of Chief Executive Officer
 32.2** Section 1350 Certification of Chief Financial Officer
101.0*   The following materials from the Quarterly Report on Form 10-Q of Macquarie Infrastructure Corporation for the quarter ended June 30, 2018, filed on August 1, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017, (ii) the Consolidated Condensed Statements of Operations for the quarters and six months ended June 30, 2018 and 2017 (Unaudited), (iii) the Consolidated Condensed Statements of Comprehensive Income for the quarters and six months ended June 30, 2018 and 2017 (Unaudited), (iv) the Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (Unaudited) and (v) the Notes to Consolidated Condensed Financial Statements (Unaudited).

*Filed herewith.
**Furnished herewith.

E-1