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Macquarie Infrastructure (MIC)

Filed: 31 Oct 19, 7:12am
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_____________________________

FORM 10-Q
_____________________________
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2019
OR
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)
_____________________________
Delaware43-2052503
(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
_____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share MIC New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
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 FilerAccelerated Filer   
Non-accelerated FilerSmaller Reporting CompanyEmerging Growth Company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No
There were 86,462,375 shares of common stock, with $0.001 par value, outstanding at October 29, 2019.
 



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

i


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, 2018, and in other reports we file from time to time with the Securities and Exchange Commission (SEC).
Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. Our forward-looking statements speak only as of the date of this Quarterly Report. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

ii


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, subject to the oversight and supervision of our Board. The majority of the members of our Board, and the members of all Board committees, are independent and have no affiliation with Macquarie. Our Manager is a member of the Macquarie Group of companies comprising 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 portfolio of infrastructure and infrastructure-like businesses that provide services to corporations, government agencies and individual customers primarily in the United States (U.S.). Our businesses 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.;
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; and
Corporate and Other:  comprising MIC Corporate (holding company) and a shared services center.
Effective October 1, 2018, the Bayonne Energy Center (BEC) and substantially all of our portfolio of solar and wind power generation businesses were classified as discontinued operations and our Contracted Power segment was eliminated. All prior comparable periods have been restated to reflect this change. In July 2019, we completed the sales of our wind power generating portfolio and all but one of the assets in our solar power generating portfolio. The sale of the remaining solar facility closed during September 2019. On January 1, 2019, we also classified our majority interest in a renewable power development business as a discontinued operation, the sale of which closed in July 2019. We did not restate the prior period as the disposition was deemed insignificant. A remaining relationship with a third-party developer of renewable power facilities has been reported as a component of Corporate and Other through the expiration of the relationship in July 2019.  For additional information, see Note 3, “Discontinued Operations and Dispositions”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q.
Our businesses generally operate in sectors with barriers to entry including high initial development and construction costs, contracted revenues 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 and Free Cash Flow.
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.

1


See “Results of Operations — Consolidated — Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow” for further information on our calculation of EBITDA excluding non-cash items and Free Cash Flow and for reconciliations of these non-GAAP measures to the most comparable GAAP measures.
At IMTT, we focus on providing bulk liquid storage, handling and other services pursuant to “take-or-pay” contracts to customers who place a premium on ease of access and operational flexibility. The revenue weighted average remaining contract life was 1.9 years at September 30, 2019.
At Atlantic Aviation, our focus is on the sale of fuel and other services to owners and pilots of GA aircraft through our fixed based operations (FBOs) resulting in a gross margin that is positively correlated with the number of GA flight movements (take-offs and landings) in the U.S. and the business’ ability to service a portion of the aircraft involved in those operations.
MIC Hawaii comprises Hawaii Gas and several smaller businesses that generate revenue primarily from the provision of gas services to commercial, residential and governmental customers and the generation of power while engaging in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii.
Dividends
Since January 1, 2018, MIC has paid or declared the following dividends:
Declared Period Covered $ per Share Record Date Payable Date
October 29, 2019 Third quarter 2019 $1.00
 November 11, 2019 November 14, 2019
July 30, 2019 Second quarter 2019 1.00
 August 12, 2019 August 15, 2019
April 29, 2019 First quarter 2019 1.00
 May 13, 2019 May 16, 2019
February 14, 2019 Fourth quarter 2018 1.00
 March 4, 2019 March 7, 2019
October 30, 2018 Third quarter 2018 1.00
 November 12, 2018 November 15, 2018
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
We intend to provide investors with the benefits of access to a portfolio of infrastructure and infrastructure-like businesses that we believe will generate growing amounts of cash flow over time as a result of their positive correlation with inflation and provision of basic services to customers. Consistent with this, we intend to distribute the majority of the cash generated from operations of our businesses as a quarterly cash dividend. Our Board has authorized a quarterly cash dividend of $1.00 per share for the quarter ended September 30, 2019.
Our Board regularly reviews our dividend policy and the proportion of our Free Cash Flow that the distribution represents (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 impact of any acquisitions or dispositions related to our pursuit of strategic alternatives, 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 shareholders or by its subsidiaries to the Company, and any other factors that it deems relevant, subject to maintaining a prudent level of reserves and without creating undue volatility in the amount of such dividends where possible. Moreover, the Company’s senior secured credit facility and the debt commitments at our businesses contain restrictions that may limit the Company’s ability to pay dividends. Although historically we have declared cash dividends on our shares, any or all of these or other factors could result in the modification of our dividend policy, or the reduction, modification or elimination of our dividend in the future.

Recent Developments

Pursuit of Strategic Alternatives

In October 2019, our Board resolved to actively pursue strategic alternatives including a sale of our Company or our operating businesses as a means of unlocking value for shareholders. There is no set timetable for completing any transaction and there can be no assurance that any transactions will occur on favorable terms or at all. See our Current Report on Form 8-K date October 31, 2019 for additional information.


2


Disposition Agreement

To facilitate our pursuit of strategic alternatives, we announced that we have entered into a disposition agreement with Macquarie Infrastructure Management (USA) Inc. (MIMUSA), the external manager of our Company on October 30, 2019. Other than pursuant to this agreement, we do not have the ability to terminate the Management Services Agreement other than in limited circumstances. Pursuant to this agreement, our Management Services Agreement with MIMUSA will terminate as to any businesses, or substantial portions thereof, that are sold and, in connection therewith, we will make a payment to MIMUSA based on the proceeds generated in the event of such sales and certain additional payments under certain circumstances. The disposition agreement will terminate on the earlier to occur of (i) the termination of the Management Services Agreement and (ii) the sixth anniversary, subject to extension under certain circumstances if a transaction is pending. See our Current Report on Form 8-K dated October 31, 2019 for additional information.
Business Divestitures
During the fourth quarter of 2018, we commenced a sale process involving our portfolios of 142 megawatts (MW) (gross) of solar generation assets and 203 MW (gross) of wind generation assets, both of which had been designated as discontinued operations. In July 2019, we completed the sale of our wind power generating portfolio and all but one of the assets in our solar power generating portfolio. The sale of the remaining solar facility closed during September 2019. In July 2019, we also completed the sale of our majority interest in a renewable power development business. We received aggregate gross proceeds from these sales of approximately $275 million, or approximately $210 million net of taxes and transaction related expenses. Upon closing of the transactions involving the portfolios of operating solar and wind assets, we deconsolidated $295 million of long-term debt. For additional information, see Note 3, “Discontinued Operations and Dispositions”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q.
2.875% Convertible Senior Notes due July 2019
On July 15, 2019, we fully repaid the outstanding balance of $350 million on our 2.875% Convertible Senior Notes due July 2019 at maturity using cash on hand.
Results of Operations
Consolidated
Consistent with our strategic objective of divesting of smaller and non-core businesses, in July 2019, we completed the sale of our wind power generating portfolio and all but one of the assets in our solar power generating portfolio. The sale of the remaining solar facility closed during September 2019. In July 2019, we also completed the sale of our majority interest in a renewable power development business and concluded a relationship with a third party developer of renewable power facilities in July 2019.
In July 2019, we fully repaid the outstanding balance of $350 million of 2.875% Convertible Senior Notes at maturity on July 15, 2019 using cash on hand. Following the sales of the renewable businesses and the deconsolidating the related debt, our leverage at September 30, 2019 was 3.6 times net debt/EBITDA, from 4.0 times at the end of the second quarter.
For the quarter and nine months ended September 30, 2019, our consolidated results reflect: (i) increases in hangar rental revenue and the volume of fuel sold at Atlantic Aviation; and (ii) the sale of the mechanical contractor business in November 2018 by our MIC Hawaii segment. Contributions to our results for the quarter and nine months ended September 30, 2019 were partially offset by overall higher professional services fees.
The increase in our consolidated results for the nine months ended September 30, 2019 also reflects: (i) proceeds received in respect of the termination of an agreement with the owner of a refinery at IMTT’s terminal in St. Rose, LA (the refinery termination payment); and (ii) the positive impact of new utility rates implemented in July 2018 at Hawaii Gas. These increases are partially offset by lower fee income from a third party developer of renewable power projects recorded as a component of Corporate and Other and the sale of an environmental services business by our IMTT segment.
Results for discontinued operations increased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of the gain on sale of our wind and solar power generating facilities and the gain on sale of our majority interest in a renewable power development business. The increases in the 2019 periods were partially offset by the absence of a contribution from the BEC business, which was sold in October 2018, and the income tax expense associated with the gain on sale of renewable businesses in 2019.

3

Results of Operations: Consolidated – (continued)

Our consolidated results of operations are as follows:
 
Quarter Ended
September 30,
 
Change
Favorable/(Unfavorable)
 Nine Months Ended September 30, 2019 Change
Favorable/(Unfavorable)
 2019 2018 $ % 2019 2018 $ %
 ($ In Millions, Except Share and Per Share Data) (Unaudited)
Revenue               
Service revenue$347
 $361
 (14) (4) $1,120
 $1,140
 (20) (2)
Product revenue58
 60
 (2) (3) 183
 184
 (1) (1)
Total revenue405
 421
 (16) (4) 1,303
 1,324
 (21) (2)
Costs and expenses               
Cost of services154
 167
 13
 8
 484
 534
 50
 9
Cost of product sales43
 39
 (4) (10) 128
 128
 
 
Selling, general and administrative81
 78
 (3) (4) 245
 240
 (5) (2)
Fees to Manager-related party8
 12
 4
 33
 23
 36
 13
 36
Goodwill impairment
 3
 3
 100
 
 3
 3
 100
Depreciation49
 49
 
 
 145
 143
 (2) (1)
Amortization of intangibles14
 20
 6
 30
 44
 53
 9
 17
Total operating expenses349
 368
 19
 5
 1,069
 1,137
 68
 6
Operating income56
 53
 3
 6
 234
 187
 47
 25
Other income (expense)               
Interest income2
 
 2
 NM
 6
 
 6
 NM
Interest expense(1)
(36) (28) (8) (29) (124) (71) (53) (75)
Other (expense) income, net
 (21) 21
 100
 2
 (15) 17
 113
Net income from continuing operations before income taxes22
 4
 18
 NM
 118
 101
 17
 17
Provision for income taxes(7) (2) (5) NM
 (33) (32) (1) (3)
Net income from continuing operations$15
 $2
 13
 NM
 $85
 $69
 16
 23
Discontinued Operations               
Net income from discontinued operations before income taxes$78
 $26
 52
 200
 $86
 $41
 45
 110
Provision for income taxes(32) (6) (26) NM
 (32) (5) (27) NM
Net income from discontinued operations$46
 $20
 26
 130
 $54
 $36
 18
 50
Net income$61
 $22
 39
 177
 $139
 $105
 34
 32
                
Net income from continuing operations$15
 $2
 13
 NM
 $85
 $69
 16
 23
Net income from continuing operations attributable to MIC$15
 $2
 13
 NM
 $85
 $69
 16
 23
Net income from discontinued operations$46
 $20
 26
 130
 $54
 $36
 18
 50
Less: net loss attributable to noncontrolling interests
 
 
 
 (3) (32) (29) (91)
Net income from discontinued operations attributable to MIC$46
 $20
 26
 130
 $57
 $68
 (11) (16)
Net income attributable to MIC$61
 $22
 39
 177
 $142
 $137
 5
 4
Basic income per share from continuing operations attributable to MIC$0.18
 $0.02
 0.16
 NM
 $0.99
 $0.81
 0.18
 22
Basic income per share from discontinued operations attributable to MIC0.53
 0.23
 0.30
 130
 0.67
 0.80
 (0.13) (16)
Basic income per share attributable to MIC$0.71
 $0.25
 0.46
 184
 $1.66
 $1.61
 0.05
 3
Weighted average number of shares outstanding: basic86,276,237
 85,378,088
 898,149
 1
 86,075,394
 85,095,956
 979,438
 1
___________
NM — Not meaningful.
(1)
Interest expense includes losses on derivative instruments of $2 million and $14 million for the quarter and nine months ended September 30, 2019, respectively. For the quarter and nine months ended September 30, 2018, interest expense includes gains on derivative instruments of $3 million and $17 million, respectively.

4

Results of Operations: Consolidated – (continued)

Revenue
Consolidated revenues decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of, (i) the sale of the mechanical contractor business by our MIC Hawaii segment; (ii) lower wholesale cost of fuel at Atlantic Aviation; and (iii) lower volume of gas sold by Hawaii Gas. These decreases were partially offset by increases in hangar rentals and the volume of fuel sold at Atlantic Aviation.
The decrease in consolidated revenues for the nine months ended September 30, 2019 also reflects the sale of an environmental services business by IMTT, partially offset by the receipt of the refinery termination payment by IMTT and the positive impact of new utility rates implemented at Hawaii Gas.
Cost of Services and Cost of Product Sales
Consolidated cost of services and cost of product sales decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of the absence of costs related to the mechanical contractor business at MIC Hawaii and lower wholesale cost of fuel at Atlantic Aviation. The decrease in our consolidated cost of services and cost of product sales were partially offset by higher labor costs, an increase in property taxes at IMTT and unfavorable changes in unrealized gains (losses) on commodity hedges at Hawaii Gas versus the prior comparable periods. See “Results of Operations — MIC Hawaii” below).
The decrease in consolidated cost of services and cost of product sales for the nine months September 30, 2019 also reflects the sale of the environmental services business at IMTT.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of, (i) higher salaries and benefits, rent and professional fees at Atlantic Aviation; (ii) an increase in expenses incurred in connection with our intention to pursue strategic alternatives; and, (iii) expenses related to a long-term incentive compensation plan for senior management of our operating businesses implemented in 2019. The nine months ended September 30, 2019 also includes consulting expenses incurred in connection with our evaluation of opportunities for improved efficiencies.
The increase in selling, general and administrative expenses were partially offset by the absence of expenses related to businesses that were sold during 2018, lower costs incurred in connection with the evaluation of various investment and acquisition and disposition opportunities and lower professional services fees, primarily in connection with ongoing litigation.
Fees to Manager
Our Manager is entitled to a monthly base management fee based 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 nine months ended September 30, 2019, we incurred base management fees of $8 million and $23 million, respectively, compared with $12 million and $36 million for the quarter and nine months ended September 30, 2018, respectively. Base management fees decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily due to the Manager’s waiver of two elements of the base management fee to which it is entitled and a reduction in the market capitalization of our Company. For the quarter and nine months ended September 30, 2019, base management fees were calculated on the equity market capitalization of our Company less cash on hand at the holding company. No performance fees were incurred in either of the current or prior comparable 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 party in our consolidated condensed balance sheets.
In accordance with the Third Amended and Restated Management Services Agreement, our Manager elected to reinvest any fees to which it was entitled in new primary shares in all of the period shown below and has currently elected to reinvest future base management fees and performance fees, if any, in new primary shares.


5

Results of Operations: Consolidated – (continued)

Period 
Base Management
Fee Amount
($ in millions)
 
Performance
Fee Amount
($ in millions)
 
Shares
Issued
2019 Activities:       
Third quarter 2019 $8
 $
 201,827
(1) 
Second quarter 2019 7
 
 192,103
 
First quarter 2019 8
 
 184,448
 
        
2018 Activities:       
Fourth quarter 2018 $9
 $
 220,208
 
Third quarter 2018 12
 
 269,286
 
Second quarter 2018 11
 
 277,053
 
First quarter 2018 13
 
 265,002
 
___________
(1)Our Manager elected to reinvest all of the monthly base management fees for the third quarter of 2019 in new primary shares. We issued 201,827 shares for the quarter ended September 30, 2019, including 67,659 shares that were issued in October 2019 for the September 2019 monthly base management fee.
Goodwill Impairment
During the quarter ended September 30, 2018, we wrote-off the goodwill balance related to the mechanical contractor business.
Depreciation
The increase in depreciation expense for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 primarily reflects assets placed in service, partially offset by the write-off of fixed assets related to the mechanical contractor business in 2018.
Amortization of Intangibles
Amortization of intangibles decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily due to the write-off of intangible assets related to the mechanical contractor business in 2018.
Interest Expense and (Losses) Gains on Derivative Instruments
Interest expense includes losses on derivative instruments of $2 million and $14 million for the quarter and nine months ended September 30, 2019, respectively, and gains on derivative instruments of $3 million and $17 million for the quarter and nine months ended September 30, 2018, respectively. Gains (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 $27 million and $86 million for the quarter and nine months ended September 30, 2019, respectively, compared with $26 million and $74 million for the quarter and nine months ended September 30, 2018. The increase in cash interest expense reflects primarily an increase in the weighted average interest rate of all debt facilities. See discussions of interest expense for each of our operating businesses below.
Other (Expense) Income, net
The change in other (expense) income, net for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily reflects the write-down of our investment in the mechanical contractor business during the quarter ended September, 30 2018, partially offset by the decrease in fee income in 2019 from a third party developer of renewable power facilities. The relationship with the developer concluded in July 2019.
Income Taxes
We file a consolidated federal income tax return that includes the financial results of IMTT, Atlantic Aviation, MIC Hawaii and our allocable share of the taxable income (loss) from the solar and wind facilities in discontinued operations. The solar and wind facilities in which we owned less than 100% of the equity were held in limited liability companies and 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 file income tax returns and may pay taxes in the state and local jurisdictions in which they operate.

6

Results of Operations: Consolidated – (continued)

We expect our current year federal taxable income from continuing operations for the year ending December 31, 2019 to be approximately $150 million including tax deductions associated with planned capital deployments between $200 million and $220 million. Our federal Net Operating Loss (NOL) carryforwards at December 31, 2018 was $152 million, and we therefore expect no current federal income tax liability on income from continuing operations in 2019. Our current state income tax liability on continuing operations for the year ending December 31, 2019 is expected to be $16 million. In calculating our consolidated state income tax provision, we have provided a valuation allowance for certain state income tax NOL carryforwards, the use of which is uncertain.
During the quarter ended September 30, 2019, we recorded $43 million in current federal income tax liability and $9 million in current income state tax liability primarily related to the taxable gain on our disposition of the renewable businesses recorded in discontinued operations.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow
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 and Free Cash Flow.
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.
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 excludes changes in working capital.
We use Free Cash Flow as a measure of our ability to sustain and potentially increase 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 our performance and prospects 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) gains (losses) on disposal of assets; (vi) non-cash compensation expenses related to a long-term incentive compensation plan for senior management of the operating businesses implemented in 2019; 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.
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 and Other. 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.

7

Results of Operations: Consolidated – (continued)

We do not bifurcate specific capital expenditures into maintenance and growth components. Each discrete capital expenditure is considered within the above framework and the entire capital expenditure is classified as either maintenance or growth.
A reconciliation of net income from continuing operations to EBITDA excluding non-cash items from continuing operations and a reconciliation from cash provided by operating activities from continuing operations to Free Cash Flow from continuing operations, on a consolidated basis, is provided below. Similar reconciliations for each of our operating businesses and Corporate and Other follow.
 Quarter Ended September 30, 
Change
Favorable/(Unfavorable)
 Nine Months Ended September 30, Change
Favorable/(Unfavorable)
 2019 2018 $ % 2019 2018 $ %
                
 ($ In Millions) (Unaudited)
Net income from continuing operations$15
 $2
     $85
 $69
    
Interest expense, net(1)
34
 28
     118
 71
    
Provision for income taxes7
 2
     33
 32
    
Goodwill impairment
 3
     
 3
    
Depreciation49
 49
     145
 143
    
Amortization of intangibles14
 20
     44
 53
    
Fees to Manager-related party8
 12
     23
 36
    
Other non-cash expense, net(2)
6
 7
     19
 18
    
EBITDA excluding non-cash items-continuing operations$133
 $123
 10
 8
 $467
 $425
 42
 10
                
EBITDA excluding non-cash items-continuing operations$133
 $123
     $467
 $425
    
Interest expense, net(1)
(34) (28)     (118) (71)    
Adjustments to derivative instruments recorded in interest expense(1)
4
 (1)     22
 (12)    
Amortization of debt financing costs(1)
2
 2
     7
 6
    
Amortization of debt discount(1)
1
 1
     3
 3
    
Provision for current income taxes(4) (3)     (13) (11)    
Changes in working capital(3)
55
 27
     48
 26
    
Cash provided by operating activities-continuing operations157
 121
     416
 366
    
Changes in working capital(3)
(55) (27)     (48) (26)    
Maintenance capital expenditures(18) (13)     (41) (31)    
Free cash flow-continuing operations84
 81
 3
 4
 327
 309
 18
 6
Free cash flow-discontinued operations(54) 31
 (85) NM
 (40) 64
 (104) (163)
Total Free Cash Flow$30
 $112
 (82) (73) $287
 $373
 (86) (23)
___________
NM — Not meaningful.
(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)
Other non-cash expense, net, primarily includes pension expense of $2 million and $6 million for the quarter and nine months ended September 30, 2019 and 2018, respectively, unrealized gains (losses) on commodity hedges, expenses related to a long-term incentive compensation plan for senior management of the operating businesses implemented in 2019 and non-cash gains (losses) related to the disposal of assets. Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Other non-cash expense, net, also includes the write-down of our investment in the mechanical contractor business for the quarter and nine months ended September 30, 2018. See “Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow” above for further discussion.

8

Results of Operations: Consolidated – (continued)

(3)For the quarter and nine months ended September 30, 2019, the change in working capital includes the current federal income tax liability of $43 million primarily related to the gain on sale of the renewable businesses reported in the results from discontinued operations.
Results of Operations: IMTT
The financial performance of IMTT is in large part a function of the amount of bulk liquid storage capacity the business has under contract and the rates for storage and other services achieved on those contracts. The portion of IMTT’s storage capacity under contract (utilization) averaged 85.2% and 83.6% for the quarter and nine months ended September 30, 2019, respectively, compared with 82.1% and 85.4% for the quarter and nine months ended September 30, 2018, respectively. Utilization averaged 82.9% for the quarter ended June 30, 2019.
IMTT has renewed certain contracts in the New York Harbor at reduced average rates for storage and handling of clean petroleum products in that market. Lower average storage rates will have an adverse impact on IMTT's financial results over the near term. The business believes that it will regain the ability to raise prices when the supply of storage in the market tightens. The impact of lower average rates is expected to be partially offset by an increase in utilization related to demand for storage and logistics for a range of products coinciding with the implementation of the International Maritime Organization’s IMO Marpol Annex VI (IMO 2020) regulations on January 1, 2020. The impact of the implementation of IMO 2020 on demand for storage and related services cannot be determined with certainty, although IMTT is currently experiencing an increase in utilization for storage of heavy and residual products at its St. Rose, LA terminal as a result of IMO 2020.
Repurposing

In early 2018, IMTT announced that it could repurpose up to 3.0 million barrels of storage capacity on the Lower Mississippi River, of which approximately 1.3 million barrels was repurposed in 2018. IMTT continues to evaluate opportunities to repurpose capacity in line with market demand, but at present there is sufficient demand for IMTT's storage capacity on the Lower Mississippi River as configured. As a result, there is no need to actively repurpose any incremental capacity at present.
Repositioning
Repositioning includes projects intended to leverage IMTT’s existing terminal locations by increasing capacity, capability and connectivity designed to meet customer demand and/or further diversify the mix of products handled. To date, IMTT has invested approximately $52 million of the approximately $175 million of previously announced repositioning projects. IMTT has experienced delays in the expenditures associated with certain projects in Louisiana due to construction restrictions by the U.S. Army Corps of Engineers as a result of higher than normal water levels on the Mississippi River. Most of the projects that have been delayed would not have been placed in service until late 2019 or early 2020, thus their impact on IMTT’s 2019 financial results is expected to be minimal.
The successful implementation of the repurposing and repositioning initiatives is, over time, expected to, (i) improve utilization and average storage rates; (ii) increase exposure to those products that we believe have better growth prospects; (iii) generate a larger proportion of IMTT’s revenue from longer-dated contracts; and, (iv) reduce IMTT's exposure to short-term contracts for heavy and residual oil storage.

9

Results of Operations: IMTT – (continued)

 Quarter Ended September 30, 
Change
Favorable/(Unfavorable)
 Nine Months Ended September 30, Change
Favorable/(Unfavorable)
 2019 2018  2019 2018 
 $ $ $ % $ $ $ %
                
 ($ In Millions) (Unaudited)
Revenue118
 118
 
 
 398
 386
 12
 3
Cost of services50
 44
 (6) (14) 149
 148
 (1) (1)
Selling, general and administrative expenses9
 7
 (2) (29) 26
 24
 (2) (8)
Depreciation and amortization32
 33
 1
 3
 98
 99
 1
 1
Operating income27
 34
 (7) (21) 125
 115
 10
 9
Interest expense, net(1)
(10) (12) 2
 17
 (38) (31) (7) (23)
Provision for income taxes(5) (6) 1
 17
 (25) (24) (1) (4)
Net income12
 16
 (4) (25) 62
 60
 2
 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 income12
 16
     62
 60
    
Interest expense, net(1)
10
 12
     38
 31
    
Provision for income taxes5
 6
     25
 24
    
Depreciation and amortization32
 33
     98
 99
    
Other non-cash expense, net(2)
3
 2
     7
 7
    
EBITDA excluding non-cash items62
 69
 (7) (10) 230
 221
 9
 4
EBITDA excluding non-cash items62
 69
     230
 221
    
Interest expense, net(1)
(10) (12)     (38) (31)    
Adjustments to derivative instruments recorded in interest expense(1)
1
 (1)     8
 (6)    
Amortization of debt financing costs(1)

 1
     1
 1
    
Provision for current income taxes(7) 3
     (19) (5)    
Changes in working capital15
 (1)     25
 10
    
Cash provided by operating activities61
 59
     207
 190
    
Changes in working capital(15) 1
     (25) (10)    
Maintenance capital expenditures(14) (9)     (28) (21)    
Free cash flow32
 51
 (19) (37) 154
 159
 (5) (3)
___________
(1)Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.
(2)
Other non-cash expense, net, primarily includes pension expense of $2 million and $6 million for the quarter and nine month periods ended September 30, 2019 and 2018, respectively, and expenses related to a long-term incentive compensation plan implemented in 2019. Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. See “Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow” above for further discussion.
Revenue
IMTT generates the majority of its revenue from contracts comprising a fixed monthly charge for access to or use of a specified amount of capacity, infrastructure or land. The monthly charge typically increases annually with inflation. We refer to revenue generated from such contracts or fixed charges as firm commitments. At September 30, 2019, firm commitments had a revenue weighted average remaining contract life of 1.9 years. Certain contracts for chemical and vegetable oil products are renewing and initiating for longer durations. Revenue from firm commitments, excluding proceeds received related to the refinery termination payment in the quarter ended March 31, 2019, comprised 83.1% and 81.7% of total revenue for the quarter and trailing twelve months ended September 30, 2019, respectively.

10

Results of Operations: IMTT – (continued)

For the quarter ended September 30, 2019, total revenue was flat compared with the quarter ended September 30, 2018 primarily due to an increase in utilization, partially offset by lower average storage rates on new and renewing contracts.
For the nine months ended September 30, 2019, total revenue increased by $12 million compared with the nine months ended September 30, 2018 primarily due to the receipt of a $39 million refinery termination payment. The increase was partially offset by the absence of revenue as a result of the sale of an environmental services business in April 2018, the decline in utilization and lower average storage rates on new and renewing contracts.
Cost of Services and Selling, General and Administrative Expenses
Cost of services and selling, general and administrative expenses combined increased by $8 million and $3 million for the quarter and nine months ended September 30, 2019 compared with the prior comparable periods, respectively. The increase in costs were primarily due to higher labor costs, an increase in property taxes assessed on the terminal at St. Rose LA, expenses related to a long-term incentive compensation plan implemented in 2019 and increased repair and maintenance costs. The increase in cost of services and selling, general and administrative expenses combined is partially offset by the absence of costs due to the sale of an environmental services business in April 2018.
Interest Expense, Net
Interest expense includes losses on derivative instruments of $1 million and $6 million for the quarter and nine months ended September 30, 2019, respectively, compared with gains on derivative instruments of $1 million and $7 million for the quarter and nine months ended September 30, 2018, respectively. Excluding the derivative adjustments, cash interest expense was $9 million and $29 million for the quarter and nine months ended September 30, 2019, respectively, compared with $12 million and approximately $35 million for the quarter and nine months ended September 30, 2018, respectively. The decreases in cash interest expense reflects lower average debt balances in 2019 compared with 2018.
Income Taxes
The taxable income generated by IMTT is reported on our consolidated federal income tax return. The business files standalone state and foreign income tax returns in the jurisdictions in which it operates. For the year ending December 31, 2019, the business expects to pay state and foreign income taxes of approximately $7 million. The Provision for current income taxes of $19 million for the nine months ended September 30, 2019 in the above table includes $11 million of federal income tax expense and $8 million of state and foreign income tax expense.
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 same fixed assets are depreciated primarily over 5 to 15 years using accelerated methods. In addition, most terminal fixed assets qualify for federal bonus tax depreciation. A significant portion of terminal fixed assets in Louisiana that were constructed in the period after Hurricane Katrina in 2005 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. Louisiana allows the use of bonus tax depreciation other than for assets financed with GO Zone Bonds.
IMTT has state NOL carryforwards that are specific to the state in which the NOL carryforwards were generated. The utilization of these NOL carryforwards may reduce or eliminate state taxable income in the future.
Maintenance Capital Expenditures
For the nine months ended September 30, 2019, IMTT incurred maintenance capital expenditures of $28 million and $29 million on an accrual basis and cash basis, respectively, compared with $21 million on both an accrual basis and cash basis for the nine months ended September 30, 2018. IMTT expects to incur between $35 million and $40 million of maintenance capital expenditures in 2019 compared with $33 million in 2018. The increase in maintenance capital expenditures in 2019 is the result of an estimated $12 million expenditure on the first phase of the rehabilitation of a pier in Bayonne. The total cost of maintaining the pier is expected to be approximately $30 million and the work is anticipated to be completed within four years.

11


Results of Operations: Atlantic Aviation

The fundamental driver of the performance of Atlantic Aviation is the number of GA flight movements in a given period. Over the long-term, the rate of growth in GA flight movements tends to be positively correlated with the level of economic activity in the U.S. Based on data reported by the Federal Aviation Administration (FAA), industry-wide domestic flight activity increased by 0.7% for the quarter ended September 30, 2019 and increased by 0.3% for the nine months ended September 30, 2019 versus the prior comparable periods. According to the U.S. Federal Reserve, the U.S. economy (GDP) is forecast to expand at a rate of 2.2% in 2019. It is unclear if the divergence in these data points represents anything other than a temporary break in the historical correlation. In addition to other shorter-term factors like weather conditions and the timing and location of specific events, it is possible that declining confidence in the macroeconomic outlook for the U.S. may have, or may in the future, negatively impact the level of GA flight activity. 
According to the data reported by the FAA, the total number of GA flight movements at airports where Atlantic Aviation operates increased by 1.0% and 0.3% during the quarter and nine months ended September 30, 2019, respectively, versus the prior comparable periods.
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 and dispositions. The weighted average remaining lease life was 19.2 years at September 30, 2019 compared with 19.9 years at September 30, 2018.

12

Results of Operations: Atlantic Aviation – (continued)

 Quarter Ended September 30, Change
Favorable/(Unfavorable)
 Nine Months Ended September 30, Change
Favorable/(Unfavorable)
 2019 2018  2019 2018 
 $ $ $ % $ $ $ %
 ($ In Millions) (Unaudited)
Revenue230
 235
 (5) (2) 724
 715
 9
 1
Cost of services (exclusive of depreciation and amortization shown separately below)104
 113
 9
 8
 335 346
 11
 3
Gross margin126
 122
 4
 3
 389 369
 20
 5
Selling, general and administrative expenses62
 57
 (5) (9) 185
 174
 (11) (6)
Depreciation and amortization27
 26
 (1) (4) 79
 78
 (1) (1)
Operating income37
 39
 (2) (5) 125
 117
 8
 7
Interest expense, net(1)
(18) (5) (13) NM
 (59) (9) (50) NM
Other expense, net
 
 
 
 
 (1) 1
 100
Provision for income taxes(5) (9) 4
 44
 (18) (29) 11
 38
Net income14
 25
 (11) (44) 48
 78
 (30) (38)
Reconciliation of net income to EBITDA
excluding non-cash items and a reconciliation
of cash provided by operating activities to Free Cash Flow:
               
Net income14
 25
     48
 78
    
Interest expense, net(1)
18
 5
     59
 9
    
Provision for income taxes5
 9
     18
 29
    
Depreciation and amortization27
 26
     79
 78
    
Other non-cash expense, net(2)

 
     1
 1
    
EBITDA excluding non-cash items64
 65
 (1) (2) 205
 195
 10
 5
EBITDA excluding non-cash items64
 65
     205
 195
    
Interest expense, net(1)
(18) (5)     (59) (9)    
Convertible senior notes interest(3)

 (2)     
 (6)    
Adjustments to derivative instruments recorded
in interest expense
(1)
2
 
     12
 (5)    
    Amortization of debt financing costs(1)
1
 
     3
 1
    
Provision for current income taxes(4) (6)     (14) (20)    
Changes in working capital4
 6
     6
 16
    
Cash provided by operating activities49
 58
     153
 172
    
Changes in working capital(4) (6)     (6) (16)    
Maintenance capital expenditures(3) (2)     (8) (5)    
Free cash flow42
 50
 (8) (16) 139
 151
 (12) (8)
___________
NM — Not meaningful.
(1)Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.
(2)
Other non-cash expense, net, primarily includes expenses related to a long-term incentive compensation plan implemented in 2019 and non-cash gains (losses) related to the disposal of assets. See “Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow” above for further discussion.
(3)Represents the cash interest expense related to the $403 million of MIC Corporate 2.00% Convertible Senior Notes due October 2023 that was reclassified to Atlantic Aviation through December 6, 2018, the date of Atlantic Aviation’s refinancing. The proceeds from this Note issuance in October 2016 were used principally to reduce the drawn balance of Atlantic Aviation’s revolving credit facility. Cash interest expense on the Note issuance is recorded in Corporate and Other after December 6, 2018.

13

Results of Operations: Atlantic Aviation – (continued)

Atlantic Aviation generates the majority of its revenue from sales of jet fuel. Increases and decreases in the cost of jet fuel are generally passed through to customers. 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 fuel 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 to customers or margin per gallon earned by the business on those sales. 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 to customers or margin per gallon earned by the business.
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 reflects 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 generated and the gross margin earned by Atlantic Aviation is the result of 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 decreased for the quarter ended September 30, 2019 compared with the quarter ended September 30, 2018 as a result of a lower wholesale cost of fuel, partially offset by increases in hangar rental revenue and the volume of fuel sold. Revenue increased for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 as a result of increases in the volume of fuel sold and hangar rental revenue, partially offset by lower wholesale cost of fuel. The decrease in the wholesale cost of fuel was offset by a corresponding decrease in cost of services. The result for the quarter and nine months ended September 30, 2019 does not include any material contribution from acquisitions in the prior comparable periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of higher salaries and benefits, rent and professional fees.
Depreciation and Amortization
Depreciation and amortization expense increased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of assets placed in service.
Operating Income
Operating income decreased for the quarter ended September 30, 2019 compared with the quarter ended September 30, 2018 primarily due to the increases in selling, general and administrative expenses and depreciation and amortization, partially offset by the increase in gross margin. Operating income increased for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 primarily due to the increase in gross margin, partially offset by the increase in selling, general and administrative expenses and depreciation and amortization.
Interest Expense, Net
Interest expense includes losses on derivative instruments of $1 million and $7 million for the quarter and nine months ended September 30, 2019, respectively, and gains on derivative instruments of $2 million and $9 million for the quarter and nine months ended September 30, 2018, respectively. Excluding the derivative adjustments, cash interest expense was $15 million and $44 million for the quarter and nine months ended September 30, 2019, respectively, compared with $7 million and approximately $20 million for the quarter and nine months ended September 30, 2018, respectively. The increase in cash interest expense reflects a higher average debt balance and a higher weighted average interest rate.
Cash interest expense for the quarter and nine months ended September 30, 2018 includes the cash interest expense related to the $403 million of MIC Corporate 2.00% Convertible Senior Notes due October 2023 that was reclassified to Atlantic Aviation through December 6, 2018, the date of Atlantic Aviation’s refinancing. The proceeds from this Note issuance in October 2016 were used principally to reduce the drawn balance of Atlantic Aviation’s revolving credit facility. Cash interest expense on the Note issuance is recorded in Corporate and Other after December 6, 2018.
Income Taxes
The taxable income generated by Atlantic Aviation is included on our consolidated federal income tax return. The business files standalone state income tax returns in the majority of the states in which it operates. The tax expense in the table above includes both state income taxes and the portion of the consolidated federal income tax liability attributable to the business.

14

Results of Operations: Atlantic Aviation – (continued)

For the year ending December 31, 2019, the business expects to pay state income taxes of approximately $7 million. The Provision for current income taxes of $14 million for the nine months ended September 30, 2019 in the above table includes $9 million of federal income tax expense and $5 million of state income tax expense.
Atlantic Aviation has state NOL carryforwards that are specific to the state in which the NOL carryforwards were generated. The utilization of these NOL carryforwards may reduce or eliminate state taxable income in the future.
Maintenance Capital Expenditures
For the nine months ended September 30, 2019, Atlantic Aviation incurred maintenance capital expenditures of $8 million and $7 million on an accrual basis and cash basis, respectively, compared with $5 million on both an accrual basis and cash basis for the nine months ended September 30, 2018.
Results of Operations: MIC Hawaii
The financial performance of MIC Hawaii is a function of the number of customers served and their consumption of energy and the prices achieved in each of Hawaii Gas’s utility and non-utility operations and under power purchase agreements. The volume of gas consumption is correlated with general economic activity over the long-term with tourism being a key component. Customer consumption trends and rates are a function of, among other factors, energy efficiency, weather, the range of competitive energy sources and MIC Hawaii’s input commodity costs.
The increase in EBITDA excluding non-cash items from our MIC Hawaii businesses for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily reflects the sale of the mechanical contractor business, partially offset by a decrease in the volume of gas sold by Hawaii Gas, in part, as a result of the warmer weather and isolated operational issues at customer locations. The increase in EBITDA excluding non-cash items for the nine months ended September 30, 2019 also reflects the impact of the Hawaii Gas utility general rate case and lower propane cost.
On December 21, 2018, the Hawaii Public Utilities Commission issued a Final Decision and Order in the rate case filed by Hawaii Gas in August 2017, authorizing an increase in regulated revenue of approximately $9 million or 8%. New rates went into effect on July 1, 2018.


15

Results of Operations: MIC Hawaii – (continued)

 Quarter Ended September 30, Change
Favorable/(Unfavorable)
 Nine Months Ended September 30, Change
Favorable/(Unfavorable)
 2019 2018  2019 2018 
 $ $ $ % $ $ $ %
 ($ In Millions) (Unaudited)
Product revenue58
 60
 (2) (3) 183
 184
 (1) (1)
Service revenue
 9
 (9) (100) 
 42
 (42) (100)
Total revenue58
 69
 (11) (16) 183
 226
 (43) (19)
Cost of product sales (exclusive of depreciation and amortization shown separately below)43
 39
 (4) (10) 128
 128
 
 
Cost of services (exclusive of depreciation and amortization shown separately below)
 10
 10
 100
 
 40
 40
 100
Cost of revenue – total43
 49
 6
 12
 128
 168
 40
 24
Gross margin15
 20
 (5) (25) 55
 58
 (3) (5)
Selling, general and administrative expenses6
 8
 2
 25
 17
 23
 6
 26
Goodwill impairment
 3
 3
 100
 
 3
 3
 100
Depreciation and amortization4
 10
 6
 60
 12
 19
 7
 37
Operating income (loss)5
 (1) 6
 NM
 26
 13
 13
 100
Interest expense, net(1)
(3) (2) (1) (50) (8) (5) (3) (60)
Other expense, net
 (22) 22
 100
 (2) (23) 21
 91
(Provision) benefit for income taxes(1) 7
 (8) (114) (5) 4
 (9) NM
Net income (loss)1
 (18) 19
 106
 11
 (11) 22
 200
Reconciliation of net income (loss) to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:               
Net income (loss)1
 (18)     11
 (11)    
Interest expense, net(1)
3
 2
     8
 5
    
Provision (benefit) for income taxes1
 (7)     5
 (4)    
Goodwill impairment
 3
     
 3
    
Depreciation and amortization4
 10
     12
 19
    
Other non-cash expense, net(2)
3
 5
     10
 10
    
EBITDA excluding non-cash items12
 (5) 17
 NM
 46
 22
 24
 109
EBITDA excluding non-cash items12
 (5)     46
 22
    
Interest expense, net(1)
(3) (2)     (8) (5)    
Adjustments to derivative instruments recorded in interest expense(1)
1
 
     2
 (1)    
Provision for current income taxes(1) (2)     (4) (3)    
Changes in working capital2
 23
     3
 17
    
Cash provided by operating activities11
 14
     39
 30
    
Changes in working capital(2) (23)     (3) (17)    
Maintenance capital expenditures(1) (2)     (5) (5)    
Free cash flow8
 (11) 19
 173
 31
 8
 23
 NM
___________
NM — Not meaningful.
(1)Interest expense, net, includes adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees.

16

Results of Operations: MIC Hawaii – (continued)

(2)
Other non-cash expense, net, primarily includes non-cash adjustments related to unrealized gains (losses) on commodity hedges, expenses related to a long-term incentive compensation plan implemented in 2019 and non-cash gains (losses) related to the disposal of assets. Other non-cash expense, net also includes the write-down of our investment in the mechanical contractor business for the quarter and nine months ended September 30, 2018. See “Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow” above for further discussion.
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 and the generation of power.
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 passed through to Hawaii Gas’ customers and not an increase in the volume of gas sold to customers or margin per therm earned by the business. Conversely, a decline in revenue may be attributable to a decrease in the wholesale cost of gas passed through to Hawaii Gas’ customers and not a reduction in the volume of gas sold to customers or margin per therm earned by the business.
Gross margin, which we define as revenue less cost of product sales, 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 sold and the margins earned on those sales over time. We believe that investors use gross margin to evaluate the business 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 decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of the sale of the mechanical contractor business and a decrease in the volume of gas sold by Hawaii Gas. The decrease in revenue for the nine months ended September 30, 2019 is partially offset by the impact of the Hawaii Gas utility rate case.
Gross margin decreased $5 million and $3 million for the quarter and nine months ended September 30, 2019 versus the prior comparable periods, respectively, primarily as a result of changes in the value of unrealized commodity hedges. The business recorded unrealized losses of $3 million and $7 million on commodity hedges for the quarter and nine months ended September 30, 2019, respectively, compared with unrealized losses of $3 million for the nine months ended September 30, 2018. The change in the quarter and nine month periods reflect unfavorable movement in the forward curve for propane relative to hedge contracts in place and an increase in the proportion of expected propane purchases hedged.
Excluding the impact of changes in the value of commodity hedges and the sale of the mechanical contractor business, gross margin decreased for the quarter ended September 30, 2019 compared with the quarter ended September 30, 2018 primarily due to the decrease in the volume of gas sold by Hawaii Gas. For the nine months ended September 30, 2019, gross margin excluding the change in the value of commodity hedges and the sale of the mechanical contractor business increased primarily due to an increase in contribution margin per therm from the utility rate case and lower propane costs at Hawaii Gas.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 due to the absence of costs from the mechanical contractor business. Excluding the sale of the mechanical contractor business, selling, general and administrative expenses were flat for the quarter ended September 30, 2019 and increased by approximately $1 million for the nine months ended September 30, 2019 versus the prior comparable periods primarily as a result of the implementation of a long-term incentive compensation plan.
Goodwill Impairment
During the quarter ended September 30, 2018, we wrote-off the goodwill balance related to the mechanical contractor business.
Depreciation and Amortization
Depreciation and amortization expense decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily as a result of the write-offs of the intangible assets and fixed assets balances at the mechanical contractor business.

17

Results of Operations: MIC Hawaii – (continued)

Operating Income
Operating income increased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily due to the decrease in depreciation and amortization expense, the decrease in selling, general and administrative expense and the absence of a goodwill impairment in the 2019 periods. The increase in operating income were partially offset by a decrease in gross margin.
Other Expense, net
Other expense, net, primarily reflects the write-down of our investment in the mechanical contractor business recorded during the quarter ended September 30, 2018.
Interest Expense, Net
Interest expense includes losses on derivative instruments of $1 million for the nine months ended September 30, 2019 compared with gains on derivative instruments of $1 million for the nine months ended September 30, 2018. Excluding the derivative adjustments, cash interest expense was $2 million and $6 million for the quarter and nine month periods ended September 30, 2019 and 2018, respectively.
Income Taxes
The taxable income generated by the MIC Hawaii businesses is reported on our consolidated federal income tax return. The businesses file standalone state income tax returns in Hawaii. The tax expense in the table above includes both the state income tax and the portion of the consolidated federal income tax liability attributable to the businesses. For the year ending December 31, 2019, the businesses expect to pay state income taxes of approximately $1 million. The Provision for current income taxes of $4 million for the nine months ended September 30, 2019 in the above table includes $3 million of federal income tax expense and $1 million of state income tax expense.
MIC Hawaii has state NOL carryforwards that are specific to the state in which the NOL carryforwards were generated. The utilization of these NOL carryforwards may reduce or eliminate state taxable income in the future.
Maintenance Capital Expenditures
For the nine months ended September 30, 2019, MIC Hawaii incurred maintenance capital expenditures of $5 million and $6 million on an accrual basis and cash basis, respectively, compared with approximately $5 million on both an accrual basis and cash basis for the nine months ended September 30, 2018.

18


Results of Operations: Corporate and Other
Our Corporate and Other segment primarily comprises results from MIC Corporate, our shared services center and from our relationship with a developer of renewable power facilities (formerly reported in Contracted Power). The relationship with the developer concluded during July 2019.
 Quarter Ended September 30, Change
Favorable/(Unfavorable)
 Nine Months Ended September 30, Change
Favorable/(Unfavorable)
 2019 2018  2019 2018 
 $ $ $ % $ $ $ %
 ($ In Millions) (Unaudited)
Selling, general and administrative expenses5
 7
 2
 29
 19
 22
 3
 14
Fees to Manager-related party8
 12
 4
 33
 23
 36
 13
 36
Operating loss(13) (19) 6
 32
 (42) (58) 16
 28
Interest expense, net(1)
(3) (9) 6
 67
 (13) (26) 13
 50
Other income, net
 1
 (1) (100) 4
 9
 (5) (56)
Benefit for income taxes4
 6
 (2) (33) 15
 17
 (2) (12)
Net loss(12) (21) 9
 43
 (36) (58) 22
 38
Reconciliation of net loss to EBITDA excluding non-cash items and a reconciliation of cash provided by (used in) operating activities to Free Cash Flow:               
Net loss(12) (21)     (36) (58)    
Interest expense, net(1)
3
 9
     13
 26
    
Benefit for income taxes(4) (6)     (15) (17)    
Fees to Manager-related party8
 12
     23
 36
    
Other non-cash expense, net
 
     1
 
    
EBITDA excluding non-cash items(5) (6) 1
 17
 (14) (13) (1) (8)
EBITDA excluding non-cash items(5) (6)     (14) (13)    
Interest expense, net(1)
(3) (9)     (13) (26)    
Convertible senior notes interest(2)

 2
     
 6
    
Amortization of debt financing costs(1)
1
 1
     3
 4
    
Amortization of debt discount(1)
1
 1
     3
 3
    
Benefit for current income taxes8
 2
     24
 17
    
Changes in working capital(3)
34
 (1)     14
 (17)    
Cash provided by (used in) operating activities36
 (10)     17
 (26)    
Changes in working capital(3)
(34) 1
     (14) 17
    
Free cash flow2
 (9) 11
 122
 3
 (9) 12
 133
___________
(1)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.
(2)Represents the cash interest expense related to the $403 million of MIC Corporate 2.00% Convertible Senior Notes due October 2023 reclassified to Atlantic Aviation through December 6, 2018, the date of Atlantic Aviation’s refinancing. The proceeds from this Note issuance in October 2016 were used principally to reduce the drawn balance on Atlantic Aviation’s revolving credit facility. Cash interest expense on this Note issuance is included in Corporate and Other after December 6, 2018.
(3)For the quarter and nine months ended September 30, 2019, the change in working capital includes the current federal income tax liability of $43 million primarily related to the gain on sale of the renewable businesses reported in the results from discontinued operations.


19

Results of Operations: Corporate and Other – (continued)

Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased for the quarter and nine months ended September 30, 2019 compared with the quarter and nine months ended September 30, 2018 primarily due to, (i) lower costs incurred in connection with the evaluation of various investment and acquisition and disposition opportunities; and (ii) lower professional services fees, primarily in connection with ongoing litigation; partially offset by (iii) an increase in expenses incurred in connection with our intention to pursue strategic alternatives. The nine months ended September 30, 2019 also includes consulting expenses incurred in connection with our evaluation of opportunities to improve efficiencies.
Fees to Manager
Fees to Manager for the quarter and nine months ended September 30, 2019 comprise base management fees of $8 million and $23 million, respectively, compared with $12 million and $36 million for the quarter and nine months ended September 30, 2018, respectively. Base management fees decreased for the quarter and nine months ended September 30, 2019 versus the prior comparable periods primarily due to the Manager’s waiver of two elements of the base management fee to which it is entitled and a reduction in the market capitalization of our Company. For the quarter and nine months ended September 30, 2019, base management fees are calculated on the equity market capitalization of our Company less cash on hand at the holding company. No performance fees were incurred in either of the current or prior comparable periods.
Interest Expense, Net
Cash interest expense was $1 million and $7 million for the quarter and nine months ended September 30, 2019 compared with $5 million and $13 million for the quarter and nine months ended September 30, 2018. The decrease in cash interest expense for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 primarily reflects a lower debt balance.
Cash interest expense for the quarter and nine months ended September 30, 2018 excludes the cash interest paid on the $403 million of MIC Corporate 2.00% Convertible Senior Notes due October 2023 through the date of the refinancing of Atlantic Aviation’s debt on December 6, 2018. The proceeds from this Note issuance in October 2016 were used principally to reduce the drawn balance of Atlantic Aviation’s revolving credit facility and the related interest expense was recorded in Atlantic Aviation's results of operations. Cash interest expense on this Note issuance is included in Corporate and Other after December 6, 2018.
Other Income, Net
Other income, net, decreased for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 primarily as a result of a reduction in fee income from a third party developer of renewable power facilities. The relationship with the developer concluded during July 2019.
Income Taxes
The Benefit for current income taxes of $24 million for the nine months ended September 30, 2019 in the above table includes $23 million of federal income tax benefit and $1 million of state income tax benefit. The federal income tax benefit represents the combined federal income tax payable by IMTT, Atlantic Aviation and MIC Hawaii that is offset in consolidation with the application of MIC holding company level NOL carryforwards. At December 31, 2018, we had $152 million in federal NOL carryforwards available to offset taxable income generated by our consolidated businesses.

20


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, issue new equity or debt or sell assets to generate cash.
We may from time to time seek to purchase or retire our outstanding debt in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on market conditions, our liquidity needs and other factors.
At September 30, 2019, our consolidated debt outstanding from continuing operations totaled $2,724 million (excluding adjustments for unamortized debt discounts), our consolidated cash balance from continuing operations totaled $473 million and consolidated available capacity under our revolving credit facilities from continuing operations totaled $1,610 million, excluding letters of credit outstanding of $13 million. On July 15, 2019, we fully repaid the outstanding balance of $350 million on our 2.875% Convertible Senior Notes due July 2019 at maturity using cash on hand.
The following table shows MIC’s debt obligations at October 29, 2019 ($ in millions):
Business Debt 
Weighted Average Remaining Life
(in years)
 Balance Outstanding 
Weighted
Average Rate(1)
MIC Corporate Convertible Senior Notes 3.9
 $403
 2.00%
IMTT Senior Notes 6.5
 600
 3.97%
  
Tax-Exempt Bonds(2)
 6.1
 509
 2.91%
Atlantic Aviation 
Term Loan(3)(4)
 6.1
 1,017
 5.23%
MIC Hawaii 
Term Loan(4)
 3.8
 95
 2.63%
  Senior Notes 2.8
 100
 4.22%
Total   5.7
 $2,724
 3.91%
___________
(1)Reflects annualized interest rate on all facilities including interest rate hedges.
(2)On December 5, 2018, IMTT completed the amendment of its existing $509 million Tax-Exempt bonds and extended the maturity to December 2025.
(3)On December 6, 2018, Atlantic Aviation completed the refinancing of its prior term loan facility with a $1,025 million Term Loan facility maturing in December 2025.
(4)The weighted average remaining life does not reflect the scheduled amortization on these facilities.
The following table profiles each revolving credit facility from continuing operations at our businesses and at MIC Corporate as of October 29, 2019 ($ in millions):
Business Debt 
Weighted
Average
Remaining Life
(in years)
 Undrawn Amount 
Interest Rate(1)
MIC Corporate(2)
 Revolving Facility 2.2
 $600
 LIBOR + 2.00%
IMTT(3)
 USD Revolving Facility 4.1
 550
 LIBOR + 1.50%
  CAD Revolving Facility 4.1
 50
 Bankers' Acceptance Rate + 1.50%
Atlantic Aviation(4)
 Revolving Facility 4.1
 350
 LIBOR + 2.00%
MIC Hawaii(5)
 Revolving Facility 3.3
 60
 LIBOR + 1.25%
Total(6)
   3.4
 $1,610
  
___________
(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. The applicable margin on the interest rate is based on a ratings grid.

21

Liquidity and Capital Resources – (continued)


(3)On December 5, 2018, IMTT completed the amendment of its $550 million USD revolving credit facility and $50 million CAD revolving credit facility and extended the maturity for both facilities to December 2023. The applicable margin on the interest rate is based on either a ratings or leverage grid.
(4)On December 6, 2018, Atlantic Aviation completed the refinancing of its prior revolving credit facility with a $350 million revolving credit facility maturing in December 2023. The applicable margin on the interest rate is based on a leverage grid.
(5)On February 12, 2018, Hawaii Gas completed the refinancing of its existing $60 million revolving credit facility and extended its maturity to February 2023.
(6)Excludes letters of credit outstanding of $13 million.
We will, in general, apply available cash to the repayment of revolving credit facility balances as a means of minimizing interest expense and periodically draw on those facilities to fund growth projects and for general corporate purposes.
We use revolving credit facilities at each of our operating companies and the holding company as a means of maintaining access to sufficient liquidity to meet future requirements, manage interest expense and fund growth projects. We base our assessment of the sufficiency of our liquidity and capital resources on the assumptions that:
our businesses overall generate, and are expected to continue to generate, significant operating cash flow;
the ongoing capital expenditures associated with our businesses are readily funded from their respective operating cash flow or available debt facilities; and
we will be able to refinance, extend and/or repay the principal amount of maturing long-term debt on terms that can be supported by our businesses.
We capitalize our businesses in part using floating rate bank debt with medium-term maturities of between four and seven years. In general, we hedge any floating rate exposure for the majority of the term of these facilities. We also use longer dated private placement debt and other forms of capital including bond or hybrid debt instruments to capitalize our businesses. In general, the debt facilities of our businesses are non-recourse to the holding company and there are no cross-collateralization or cross-guarantee provisions in these facilities.
Analysis of Consolidated Historical Cash Flows from Continuing Operations
The following section discusses our sources and uses of cash on a consolidated basis from continuing operations. All intercompany activities such as corporate allocations, capital contributions to our businesses and distributions from our businesses have been excluded from the table as these transactions are eliminated on consolidation.
($ In Millions)Nine Months Ended September 30,
Change
Favorable/(Unfavorable)
 2019 2018 
 $ $ $ %
Cash provided by operating activities 416 366 50
 14
Cash used in investing activities (160) (104) (56) (54)
Cash used in financing activities (617) (223) (394) (177)
Operating Activities from Continuing Operations
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 “Results of Operations” for discussions of the components of EBITDA excluding non-cash items on a consolidated basis from continuing operations and for each of our businesses above.
The increase in consolidated cash provided by operating activities from continuing operations for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 was primarily due to:
an increase in current taxes payable, primarily related to the gain on sale of the renewable business;
an increase in EBITDA excluding non-cash items; and
a net increase in deferred revenue; partially offset by
an unfavorable movement in accounts receivable due to timing of collections and billings on fuel sales and storage contracts;

22

Liquidity and Capital Resources – (continued)


timing of payments of insurance premiums; and
an increase in interest expense.
Investing Activities from Continuing Operations
Cash provided by investing activities include proceeds from divestitures of businesses and disposal of 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 drawing on credit facilities.
In general, maintenance capital expenditures are funded from cash provided by operating activities and growth capital expenditures are funded by drawing on our available credit facilities or with equity capital. See “Results of Operations” for maintenance capital expenditures for each of our businesses.
The increase in consolidated cash used in investing activities from continuing operations for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 resulted from an increase in capital expenditures in 2019 and the absence of cash proceeds received from the sale of non-core businesses in 2018. These increases to cash used in investing activities were partially offset by cash proceeds received from the repayment of a loan from a third party renewable developer during 2019 and cash used in an acquisition during the quarter ended March 31, 2018 that did not recur in 2019.
Capital Deployment (includes both continuing and discontinued operations)
Capital deployment includes growth capital expenditures and “bolt-on” acquisitions, the majority of which are expected to generate incremental earnings. For the nine months ended September 30, 2019 and 2018, growth capital deployed totaled $143 million and $139 million, respectively. Capital deployed in continuing operations for the nine months ended September 30, 2019 was $129 million.
We continuously evaluate opportunities to prudently deploy capital in acquisitions and growth projects, whether in our existing businesses or new lines of business. We are undertaking and expect to undertake a number of capital projects related to the repurposing and repositioning of certain assets at IMTT and the enhancement of the capabilities of the businesses in our other segments. We estimate that the majority of our 2019 growth capital expenditures will be made in support of IMTT. In total, we expect to deploy $200 million to $220 million of growth capital during 2019.
Financing Activities from Continuing Operations
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 shareholders and the repayment of debt principal balances on maturing debt.
The increase in consolidated cash used in financing activities from continuing operations for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018 resulted from higher debt repayment in 2019 and higher debt borrowings during 2018 primarily to fund an acquisition, growth capital expenditures and general corporate purposes. These increases to cash used in financing activities were partially offset by the decrease in dividends paid to shareholders in 2019.
IMTT
At September 30, 2019, IMTT had $1,109 million of debt outstanding consisting of $600 million of senior notes and $509 million of tax-exempt bonds. IMTT also has $600 million in revolving credit facilities which were undrawn at September 30, 2019. For the nine months ended September 30, 2019 and 2018, cash interest expense was $29 million and approximately $35 million, respectively. At September 30, 2019, IMTT was in compliance with its financial covenants.
Atlantic Aviation
At September 30, 2019, Atlantic Aviation had $1,017 million outstanding on its senior secured, first lien term loan facility. Atlantic Aviation also has a $350 million revolving credit facility that was undrawn at September 30, 2019.
For the nine months ended September 30, 2019 and 2018, cash interest expense was $44 million and approximately $20 million, respectively. Cash interest expense for the nine months ended September 30, 2018 includes the cash interest expense related to the $403 million of MIC Corporate 2.00% Convertible Senior Notes due October 2023 that was reclassified to Atlantic Aviation through December 6, 2018, the date of Atlantic Aviation’s refinancing. The proceeds from this Note issuance in October 2016 were used principally to reduce the drawn balance of Atlantic Aviation’s revolving credit facility. Cash interest expense on the Note issuance is recorded in Corporate and Other after December 6, 2018. At September 30, 2019, Atlantic Aviation was in compliance with its financial covenants.

23

Liquidity and Capital Resources – (continued)


MIC Hawaii
At September 30, 2019, MIC Hawaii had total debt outstanding of $195 million consisting of $100 million in senior secured note borrowings and $95 million in term loan debt. MIC Hawaii also has a $60 million revolving credit facility that was undrawn at September 30, 2019. Cash interest expense was $6 million for the nine month periods ended September 30, 2019 and 2018. At September 30, 2019, MIC Hawaii was in compliance with its financial covenants.
MIC Corporate
At September 30, 2019, MIC had $403 million of Convertible Senior Notes outstanding, that bear interest at 2.00%. On July 15, 2019, we fully repaid the outstanding balance of $350 million on our 2.875% Convertible Senior Notes due July 2019 at maturity using cash on hand. MIC Corporate also has a $600 million revolving credit facility that was undrawn at September 30, 2019.
Cash interest expense at MIC Corporate totaled $7 million and $13 million for the nine months ended September 30, 2019 and 2018, respectively. Cash interest expense for the nine months ended September 30, 2018 excludes the cash interest paid on the $403 million of MIC Corporate 2.00% Convertible Senior Notes due October 2023 through the date of the refinancing of Atlantic Aviation’s debt on December 6, 2018. The proceeds from this Note issuance in October 2016 were used principally to reduce the drawn balance of Atlantic Aviation’s revolving credit facility and the related interest expense was recorded in Atlantic Aviation's results of operations. Cash interest expense on this Note issuance is included in Corporate and Other after December 6, 2018.
At September 30, 2019, MIC Corporate was in compliance with its financial covenants.
For a description of the material terms and debt covenants of MIC and its businesses, see Note 9, “Long-Term Debt”, in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Commitments and Contingencies
Except as noted above, at September 30, 2019, there were no material changes in our commitments and contingencies compared with those at December 31, 2018. At September 30, 2019, 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, 2018, filed with the SEC on February 20, 2019.
At September 30, 2019, 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”).
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, 2018 and see Note 2, “Basis of Presentation”, and Note 4, “Implementation of ASU 2016-02”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards. Our critical accounting policies and estimates have not changed materially from the description contained in our Annual Report.

24


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, 2018. Our exposure to market risk has not changed materially since February 20, 2019, the filing date for our Annual Report on Form 10-K.
Interim Goodwill Review
We test 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 the possibility of an impairment. We monitor changing business conditions as well as industry and economic factors, among others, for events which could trigger the need for an interim impairment analysis. We have experienced a sustained decline in its market capitalization over the 18-months ended September 30, 2019. The decline reflects, in part, the sales of smaller and non-core businesses during that period. However, we concluded that the decline in our market capitalization also reflected a reduced contribution from our IMTT segment as a result of lower bulk liquid storage utilization levels and lease rates and determined that these constituted a triggering event.
We performed an interim impairment analysis based on financial results through September 30, 2019. For IMTT, we used both the market and income approaches and weighting them based on their applicability to the segment. The income approach used forecasted cash flows developed as part of our annual update of our 5-year business plan. For Atlantic Aviation and Hawaii Gas, we used only the market approach given that the fair value of these businesses substantially exceeded the book value noted in 2018. The analysis concluded that fair value of each of our reporting units exceeded their carrying value and no impairment was recorded.
At September 30, 2019, the fair value of our reporting units exceeded their aggregate book value by $2.2 billion, or 33%. Approximately $1.9 billion of the excess was attributed to Atlantic Aviation, approximately $280 million to Hawaii Gas and approximately $20 million to IMTT.
Unfavorable fluctuations in the discount rate or declines in forecasted storage revenues and margins could result in an impairment of IMTT in the future. For example, a 0.25% increase to the discount rate would decrease the value of IMTT by approximately $70 million. Any increase in the discount rate, in conjunction with any decrease in the projected cash flows for IMTT, would negatively affect the current valuations. Due to the inherent uncertainties in the estimates and assumptions used in the fair value analysis, our actual results may differ. These differences could alter the fair value of the reporting units and may result in impairment charges in future periods. We will continue to evaluate the fair value of goodwill through the fourth quarter of fiscal year 2019 for any potential impairment.

25


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, due to a material weakness in internal control over financial reporting at Atlantic Aviation described in Part II, Item 9A of our Form 10-K for the year ended December 31, 2018, because such material weakness has not yet been remediated, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2019.
Changes in Internal Control Over Financial Reporting
Effective January 1, 2019, we adopted ASC Topic 842, Leases. The adoption of this accounting standard required the implementation of new internal controls over reporting of operating leases. For example, we implemented new controls related to the adoption process and a new IT system to capture, calculate, and account for leases, and gather the necessary data to properly account for leases under ASC 842. There were no other changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the nine months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described below under the caption “Remediation.”
Remediation
As previously described in Part II, Item 9A of our Form 10-K for the year ended December 31, 2018, we began implementing remediation measures to address the control deficiencies that led to the material weakness mentioned above. The remediation measures at Atlantic Aviation include the following:
(i)reinforcing the importance of the performance of the fuel gallon and pricing management review procedures and controls;
(ii)developing and maintaining documentation to be utilized by FBO personnel in performing revenue procedures and controls;
(iii)training control owners on revenue procedures and controls;
(iv)re-enforcing accountability for compliance with internal control policies and procedure; and
(v)enhancing the existing centralized revenue control review and monitoring function.
We are in the process of implementing and testing these enhanced internal controls and related procedures. We believe that these actions will be sufficient to remediate the material weakness and strengthen our internal control over financial reporting. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed on or prior to December 31, 2019.

26

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

 September 30,
2019
 December 31, 2018
 (Unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$473
 $589
Restricted cash1
 23
Accounts receivable, net of allowance for doubtful accounts89
 95
Inventories29
 29
Prepaid expenses15
 13
Other current assets23
 23
Current assets held for sale(1)

 648
Total current assets630
 1,420
Property, equipment, land and leasehold improvements, net3,153
 3,141
Operating lease assets, net330
 
Investment in unconsolidated business9
 8
Goodwill2,043
 2,043
Intangible assets, net745
 789
Other noncurrent assets14
 43
Total assets$6,924
 $7,444
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Due to Manager-related party$3
 $3
Accounts payable48
 38
Accrued expenses80
 86
Current portion of long-term debt11
 361
Operating lease liabilities – current20
 
Income taxes payable47
 
Other current liabilities40
 33
Current liabilities held for sale(1)

 317
Total current liabilities249
 838
Long-term debt, net of current portion2,654
 2,653
Deferred income taxes665
 681
Operating lease liabilities – noncurrent314
 
Other noncurrent liabilities159
 155
Total liabilities4,041
 4,327
Commitments and contingencies
 

See accompanying notes to the consolidated condensed financial statements.
27

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

 September 30,
2019
 December 31, 2018
 (Unaudited)  
Stockholders’ equity(2):
   
Additional paid in capital$1,276
 $1,510
Accumulated other comprehensive loss(29) (30)
Retained earnings1,627
 1,485
Total stockholders’ equity2,874
 2,965
Noncontrolling interests(3)
9
 152
Total equity2,883
 3,117
Total liabilities and equity$6,924
 $7,444
___________
(1)See Note 3, “Discontinued Operations and Dispositions”, for further discussion on assets and liabilities held for sale.
(2)
The Company is authorized to issue the following classes of stock: (i) 500,000,000 shares of common stock, par value $0.001 per share. At September 30, 2019 and December 31, 2018, the Company had 86,394,716 shares and 85,800,303 shares of common stock issued and outstanding, respectively; (ii) 100,000,000 shares of preferred stock, par value $0.001 per share. At September 30, 2019 and December 31, 2018, 0 preferred stocks were issued or outstanding; and (iii) 100 shares of special stock, par value $0.001 per share, issued and outstanding to its Manager as at September 30, 2019 and December 31, 2018.
(3)
Includes $141 million of noncontrolling interest related to discontinued operations at December 31, 2018. See Note 3, “Discontinued Operations and Dispositions”, for further discussions.

See accompanying notes to the consolidated condensed financial statements.
28

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

 Quarter Ended
September 30,
 Nine Months Ended September 30,
 2019 2018 2019 2018
Revenue       
Service revenue$347
 $361
 $1,120
 $1,140
Product revenue58
 60
 183
 184
Total revenue405
 421
 1,303
 1,324
Costs and expenses       
Cost of services154
 167
 484
 534
Cost of product sales43
 39
 128
 128
Selling, general and administrative81
 78
 245
 240
Fees to Manager-related party8
 12
 23
 36
Goodwill impairment
 3
 
 3
Depreciation49
 49
 145
 143
Amortization of intangibles14
 20
 44
 53
Total operating expenses349
 368
 1,069
 1,137
Operating income56
 53
 234
 187
Other income (expense)       
Interest income2
 
 6
 
Interest expense(1)
(36) (28) (124) (71)
Other (expense) income, net
 (21) 2
 (15)
Net income from continuing operations before income taxes22
 4
 118
 101
Provision for income taxes(7) (2) (33) (32)
Net income from continuing operations$15
 $2
 $85
 $69
        
Discontinued Operations(2)
       
Net income from discontinued operations before income taxes$78
 $26
 $86
 $41
Provision for income taxes(32) (6) (32) (5)
Net income from discontinued operations$46
 $20
 $54
 $36
Net income$61
 $22
 $139
 $105
        
Net income from continuing operations$15
 $2
 $85
 $69
Net income from continuing operations attributable to MIC$15
 $2
 $85
 $69
Net income from discontinued operations$46
 $20
 $54
 $36
Less: net loss attributable to noncontrolling interests
 
 (3) (32)
Net income from discontinued operations attributable to MIC$46
 $20
 $57
 $68
Net income attributable to MIC$61
 $22
 $142
 $137

See accompanying notes to the consolidated condensed financial statements.
29

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

 Quarter Ended
September 30,
 Nine Months Ended September 30,
 2019 2018 2019 2018
Basic income per share from continuing operations attributable to
    MIC
$0.18
 $0.02
 $0.99
 $0.81
Basic income per share from discontinued operations attributable to
    MIC
0.53
 0.23
 0.67
 0.80
Basic income per share attributable to MIC$0.71
 $0.25
 $1.66
 $1.61
Weighted average number of shares outstanding: basic86,276,237
 85,378,088
 86,075,394
 85,095,956
Diluted income per share from continuing operations attributable to
    MIC
$0.18
 $0.02
 $0.99
 $0.81
Diluted income per share from discontinued operations attributable to
    MIC
0.53
 0.23
 0.67
 0.80
Diluted income per share attributable to MIC$0.71
 $0.25
 $1.66
 $1.61
Weighted average number of shares outstanding: diluted86,303,694
 85,398,566
 86,101,022
 85,109,213
Cash dividends declared per share$1.00
 $1.00
 $3.00
 $3.00
___________
(1)Interest expense includes losses on derivative instruments of $2 million and $14 million for the quarter and nine months ended September 30, 2019, respectively. Interest expense includes gains on derivative instruments of $3 million and $17 million for the quarter and nine months ended September 30, 2018, respectively.
(2)See Note 3, “Discontinued Operations and Dispositions”, for discussions on businesses classified as held for sale.

See accompanying notes to the consolidated condensed financial statements.
30

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


 Quarter Ended
September 30,
 Nine Months Ended
September 30,
 2019 2018 2019 2018
Net income$61
 $22
 $139
 $105
Other comprehensive (loss) income, net of taxes:       
Translation adjustment (1)
(1) 1
 1
 (2)
Other comprehensive (loss) income(1) 1
 1
 (2)
Comprehensive income60
 23
 140
 103
Less: comprehensive loss attributable to noncontrolling
interests

 
 (3) (32)
Comprehensive income attributable to MIC$60
 $23
 $143
 $135
___________
(1)Translation adjustment is presented net of tax expense of $1 million and tax benefit of $1 million for the nine months ended September 30, 2019 and 2018, respectively.

See accompanying notes to the consolidated condensed financial statements.
31

MACQUARIE INFRASTRUCTURE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
($ in Millions, Except Share Data)


 In Shares 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
Special
Stock
 
Common
Stock(1)
 
Balance at June 30, 2019100
 86,195,946
 $1,354
 $(28) $1,566
 $2,892
 $146
 $3,038
Issuance of shares to Manager
 198,770
 8
 
 
 8
 
 8
Dividends to common stockholders(2)

 
 (86) 
 
 (86) 
 (86)
Deconsolidation of noncontrolling interests
 
 
 
 
 
 (137) (137)
Comprehensive (loss) income, net of taxes
 
 
 (1) 61
 60
 
 60
Balance at September 30, 2019100
 86,394,716
 $1,276
 $(29) $1,627
 $2,874
 $9
 $2,883
                
Balance at December 31, 2018100
 85,800,303
 $1,510
 $(30) $1,485
 $2,965
 $152
 $3,117
Issuance of shares to Manager
 570,767
 23
 
 
 23
 
 23
Issuance of shares to independent directors
 23,646
 1
 
 
 1
 
 1
Dividends to common stockholders(2)

 
 (258) 
 
 (258) 
 (258)
Distributions to noncontrolling interests
 
 
 
 
 
 (3) (3)
Deconsolidation of noncontrolling interests
 
 
 
 
 
 (137) (137)
Comprehensive income (loss), net of taxes
 
 
 1
 142
 143
 (3) 140
Balance at September 30, 2019100
 86,394,716
 $1,276
 $(29) $1,627
 $2,874
 $9
 $2,883

 In Shares Additional
Paid In
Capital
 Accumulated
Other
Comprehensive
Loss
 Retained
Earnings
 Total
Stockholders’
Equity
 
Noncontrolling
Interests
(3)
 Total
Equity
 
Special
Stock
 
Common
Stock
(1)
 
Balance at June 30, 2018100
 85,186,385
 $1,656
 $(33) $1,458
 $3,081
 $163
 $3,244
Issuance of shares to Manager
 364,191
 15
 
 
 15
 
 15
Dividends to common stockholders(2)

 
 (86) 
 
 (86) 
 (86)
Distributions to noncontrolling interests
 
 
 
 
 
 (1) (1)
Contributions from noncontrolling interests
 
 
 
 
 
 1
 1
Comprehensive income, net of taxes
 
 
 1
 22
 23
 
 23
Balance at September 30, 2018100
 85,550,576
 $1,585
 $(32) $1,480
 $3,033
 $163
 $3,196
                
Balance at December 31, 2017100
 84,733,957
 $1,840
 $(30) $1,343
 $3,153
 $197
 $3,350
Issuance of shares to Manager
 805,194
 37
 
 
 37
 
 37
Issuance of shares, net of offering costs
 1,916
 
 
 
 
 
 
Issuance of shares to independent directors
 9,435
 1
 
 
 1
 
 1
Issuance of shares pursuant to conversion of convertible senior notes
 74
 
 
 
 
 
 
Dividends to common stockholders(2)

 
 (293) 
 
 (293) 
 (293)
Distributions to noncontrolling interests
 
 
 
 
 
 (3) (3)
Contributions from noncontrolling interests
 
 
 
 
 
 1
 1
Comprehensive (loss) income, net of taxes
 
 
 (2) 137
 135
 (32) 103
Balance at September 30, 2018100
 85,550,576
 $1,585
 $(32) $1,480
 $3,033
 $163
 $3,196
___________
(1)The Company is authorized to issue 500,000,000 shares of common stock with a par value $0.001 per share.
(2)See Note 14, “Related Party Transactions”, for cash dividends paid on shares for each period.
(3)
Includes $149 million of noncontrolling interest related to discontinued operations at September 30, 2018. See Note 3, “Discontinued Operations and Dispositions”, for further discussions.



See accompanying notes to the consolidated condensed financial statements.
32

MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in Millions)


 Nine Months Ended September 30,
 2019 2018
Operating activities   
Net income from continuing operations$85
 $69
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:   
Goodwill impairment
 3
Depreciation and amortization of property and equipment145
 143
Amortization of intangible assets44
 53
Amortization of debt financing costs7
 6
Amortization of debt discount3
 3
Adjustments to derivative instruments29
 (9)
Fees to Manager-related party23
 36
Deferred taxes20
 21
Other non-cash expense, net12
 26
Changes in other assets and liabilities, net of acquisitions:   
Accounts receivable4
 13
Inventories(1) (2)
Prepaid expenses and other current assets(10) 1
Accounts payable and accrued expenses5
 6
Income taxes payable47
 1
Other, net3
 (4)
Net cash provided by operating activities from continuing operations416
 366
Investing activities   
Acquisitions of businesses and investments, net of cash, cash equivalents and restricted cash acquired
 (13)
Purchases of property and equipment(172) (131)
Loan to project developer(1) (18)
Loan repayment from project developer16
 17
Proceeds from sale of business, net of cash divested
 41
Other, net(3) 
Net cash used in investing activities from continuing operations(160) (104)
Financing activities   
Proceeds from long-term debt
 276
Payment of long-term debt(358) (204)
Contributions received from noncontrolling interests
 1
Dividends paid to common stockholders(258) (293)
Debt financing costs paid(1) (3)
Net cash used in financing activities from continuing operations(617) (223)
Net change in cash, cash equivalents and restricted cash from continuing operations(361) 39

See accompanying notes to the consolidated condensed financial statements.
33

MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS – (continued)
(Unaudited)
($ in Millions)

 Nine Months Ended September 30,
 2019 2018
Cash flows (used in) provided by discontinued operations:   
Net cash (used in) provided by operating activities$(57) $47
Net cash provided by (used in) investing activities239
 (28)
Net cash provided by (used in) financing activities24
 (23)
Net cash provided by (used in) discontinued operations206
 (4)
Net change in cash, cash equivalents and restricted cash(155) 35
Cash, cash equivalents and restricted cash, beginning of period629
 72
Cash, cash equivalents and restricted cash, end of period$474
 $107
Supplemental disclosures of cash flow information from continuing operations:   
Non-cash investing and financing activities:   
Accrued purchases of property and equipment$18
 $20
Issuance of shares to Manager23
 37
Issuance of shares to independent directors1
 1
Taxes paid, net9
 11
Interest paid, net95
 73
The following table provides a reconciliation of cash, cash equivalents and restricted cash from both continuing and discontinued operations reported within the consolidated condensed balance sheets that is presented in the consolidated condensed statements of cash flows:
 As of September 30,
 2019 2018
Cash and cash equivalents$473
 $49
Restricted cash – current1
 23
Cash, cash equivalents and restricted cash included in assets held for sale(1)

 35
Total of cash, cash equivalents and restricted cash shown in the consolidated condensed statement of cash flows$474
 $107
___________
(1)Represents cash, cash equivalents and restricted cash related to businesses classified as held for sale. See Note 3, “Discontinued Operations and Dispositions”, for further discussion.

See accompanying notes to the consolidated condensed financial statements.
34


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, subject to the oversight and supervision of the Board. The majority of the members of the Board, and the members of all Board committees, are independent and have no affiliation with Macquarie. The Manager is a member of the Macquarie Group of companies comprising 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 portfolio of infrastructure and infrastructure-like businesses that provide services to corporations, government agencies and individual customers primarily in the United States (U.S.). The businesses are organized into 4 segments:
International-Matex Tank Terminals (IMTT):  a business providing bulk liquid terminalling to third parties at 17 terminals in the U.S. and 2 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.;
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; and
Corporate and Other:  comprising MIC Corporate (holding company) and a shared services center.
Effective October 1, 2018, the Bayonne Energy Center (BEC) and substantially all of the Company’s portfolio of solar and wind power generation businesses were classified as discontinued operations and the Company’s Contracted Power segment was eliminated. All prior comparable periods have been restated to reflect this change. In July 2019, the Company completed the sales of its wind power generating portfolio and all but one of the assets in its solar power generating portfolio. The sale of the remaining solar facility closed during September 2019. On January 1, 2019, the Company also classified its majority interest in a renewable power development business as a discontinued operation, the sale of which closed in July 2019. The Company did not restate the prior period as the disposition was deemed insignificant. A remaining relationship with a third-party developer of renewable power facilities has been reported as a component of Corporate and Other through the expiration of the relationship in July 2019.  For additional information, see Note 3, “Discontinued Operations and Dispositions”.
2. Basis of Presentation
The unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. 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, 2018 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, 2018 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 20, 2019. Operating results for the quarter and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any future interim periods.

35

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(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. The fair values of the Company’s other debt instruments fall within level 1 or level 2 of the fair value hierarchy.
At September 30, 2019, the Company had $78 million of commercial paper included in cash and cash equivalents. Commercial paper consists of maturities of three months or less and are issued by counterparties with a Standard & Poor rating of A1+. The Company did 0t have any commercial paper at December 31, 2018.
Income Taxes
The Company expects to incur federal consolidated taxable income from continuing operations for the year ending December 31, 2019, which will be fully offset by the Company’s net operating loss (NOL) carryforwards and investment tax credit (ITC) carryforwards. The Company believes that it will be able to utilize all of its federal prior year NOL carryforwards and ITC carryforwards in the current year.
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in ASU 2018-14 update disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company will include appropriate disclosures related to defined benefit plans in accordance with the standard when it adopts the provisions of this ASU.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 update the disclosure requirements on fair value measurements, including the consideration of costs and benefits. The disclosure modifications focused on Level 3 fair value measurements, and also eliminate the minimum disclosure requirements. The amendments in this update are effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the adoption of this ASU.

36

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

3. Discontinued Operations and Dispositions
The Company accounts for disposals that represent a strategic shift that should have or will have a major effect on operations as discontinued operations. The results of discontinued operations are reported in discontinued operations in the consolidated condensed statement of operations for current and prior periods commencing in the period in which the business or group of businesses meets the criteria of a discontinued operation. These results include any gain or loss recognized on disposal or adjustment of the carrying amount to fair value less cost to sell.
Bayonne Energy Center (BEC) Sale
On October 12, 2018, the Company concluded the sale of BEC and received cash of $657 million, net of the assumption of the outstanding debt balance of $244 million by the buyer and subject to post-closing working capital adjustments, resulting in a loss of approximately $17 million (excluding any transaction costs). During the year ended December 31, 2018, the Company incurred $9 million in professional fees in relation to this transaction, which was included in selling, general and administrative expenses in the consolidated statement of operations. The Company guaranteed its subsidiary’s payment and certain post-closing indemnity obligations under the purchase agreement.
Renewable Businesses Sale
During the fourth quarter of 2018, the Company commenced a sale process involving its portfolios of 142 megawatts (MW) (gross) of solar generation assets and 203 MW (gross) of wind generation assets. In July 2019, the Company completed the sales of its wind power generating portfolio and all but one of the assets in its solar power generating portfolio. The sale of the remaining solar facility closed during September 2019. Upon closing of the transactions involving the portfolios of operating solar and wind assets, MIC deconsolidated $295 million of long-term debt. In July 2019, the Company also completed the sale of its majority interest in a renewable power development business. The Company may be entitled to a deferred purchase price from the sale of its interest in the renewable power development business based on the sale of certain projects by the purchaser in the future.
The aggregate gross proceeds to the Company from the above sales are approximately $275 million, or approximately $210 million net of taxes and transaction related expenses. Upon closing of the transactions, the Company recorded a pre-tax gain of approximately $80 million excluding any transaction costs. The Company incurred approximately $10 million in professional fees in relation to these transactions, which is included in selling, general and administrative expenses in the consolidated condensed statement of operations. For the year ending December 31, 2019, the Company expects to record approximately $55 million in current taxes payable, of which $9 million was paid during September 2019, primarily related to the gain on sale.
The combination of the disposal of BEC and the commencement of the sale process of substantially all of its portfolio of solar and wind facilities represented a strategic shift for the Company that will have a major effect on operations. Accordingly, beginning in the fourth quarter of 2018, these businesses were classified as discontinued operations and the Contracted Power segment was eliminated. There was no write-down of the carrying amount of the solar and wind facility assets as a result of this change in classification. The assets and liabilities of the solar and wind facilities have been classified as held for sale in the consolidated condensed balance sheets up until the date those assets are disposed. All prior periods have been restated to reflect these changes.
During the first quarter of 2019, the Company also commenced the sale of its majority interest in its renewable power development business that was reported as part of the Company’s Corporate and Other segment in the fourth quarter of 2018. Accordingly, beginning in the first quarter of 2019, the results of this business were classified as discontinued operations and the assets and liabilities of this business have been classified as held for sale in the consolidated condensed balance sheets through the date of sale. The Company did not restate the prior period related to the commencement of the sale process involving its majority interest in a renewable power development business as the disposition is insignificant. A remaining relationship with a third-party developer of renewable power facilities has been reported as a component of Corporate and Other through the expiration of the relationship in July 2019.

37

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
3. Discontinued Operations and Dispositions  – (continued)

The following is a summary of the assets and liabilities held for sale included in the Company’s consolidated condensed balance sheets related to its former Contracted Power segment as of December 31, 2018 ($ in millions):
 December 31, 2018
Assets 
Cash and cash equivalents$3
Restricted cash14
Accounts receivable, net9
Other current assets5
Total current assets31
Property, equipment, land and leasehold improvements, net606
Intangible assets, net9
Other noncurrent assets2
Total assets$648
Liabilities 
Accounts payable and accrued expenses$7
Current portion of long-term debt20
Other current liabilities1
Total current liabilities28
Long term debt, net of current portion283
Other noncurrent liabilities6
Total liabilities$317
Noncontrolling interests$141
Summarized financial information for discontinued operations included in the Company’s consolidated condensed statement of operations for the quarters and nine months ended September 30, 2019 and 2018 are as follows ($ in millions):
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Product revenue$10
 $52
 $44
 $129
Cost of product sales(1) (8) (7) (20)
Selling, general & administrative expenses(11) (8) (18) (22)
Depreciation and amortization
 (8) 
 (38)
Interest expense, net(1) (5) (13) (11)
Other income, net (1)
81
 3
 80
 3
Net income from discontinued operations before income taxes$78
 $26
 $86
 $41
Provision for income taxes(32) (6) (32) (5)
Net income from discontinued operations$46
 $20
 $54
 $36
Less: net loss attributable to noncontrolling interests
 
 (3) (32)
Net income from discontinued operations attributable to MIC$46
 $20
 $57
 $68

_______
(1) Includes approximately $80 million of gain on sale from the renewable businesses described above.

38

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
3. Discontinued Operations and Dispositions  – (continued)

Other Dispositions
The Company reviews strategic options available, including with respect to certain other, smaller businesses in its portfolio in an effort to rationalize its portfolio and enhance the infrastructure characteristics of its businesses. Consistent with this, the Company sold (i) an environmental services business by IMTT in April 2018; (ii) its equity interests in projects involving 2 properties in May 2018; and (iii) the mechanical contractor business within MIC Hawaii in November 2018. Collectively, the sale of these business is insignificant and do not qualify for discontinued operations.
Prior to the execution of the sale agreement for the mechanical contractor business, the Company wrote-down the value of its investment in this business to reflect its underperformance during the third quarter of 2018. In total, the Company wrote-down approximately $30 million, including fixed assets and intangible assets of approximately $9 million, as well as reserving for certain contract related amounts recorded in other current liabilities and other expenses.
4. Implementation of ASU 2016-2
On February 25, 2016, FASB issued ASU No. 2016-2, 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 2016-2 requires all leases with an initial term greater than one year to be recognized on the balance sheet as a right-of-use (ROU) asset and a lease liability. The Company also serves as a lessor primarily through operating leases. The accounting for lessors has not fundamentally changed except for changes to conform and align existing guidance to the lessee guidance under ASU 2016-2, as well as to the revenue recognition guidance in ASC 606, Revenue.
The substantial population of the Company’s newly recognized ROU assets and lease liabilities relate to Atlantic Aviation’s operating leases of land, buildings and certain equipment. ROU assets represent the Company’s right to use an underlying asset for the lease term and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The considerations given for the incremental borrowing rate used in determining the present value of lease payments were the Company’s recent debt refinancing and amendment during 2018 and the Company’s credit rating.
Upon adoption of ASU No. 2016-2, the Company recorded ROU assets and corresponding lease liabilities of $351 million and $358 million, respectively, of which $19 million and $21 million related to asset and liabilities held for sale, respectively. The adoption of this ASU did not have a material impact on its consolidated condensed statements of operations, liquidity or debt covenant compliance under its current agreements.
The Company adopted the standard effective January 1, 2019 utilizing the modified retrospective method, which allowed the Company, where it was the lessee or lessor to recognize and measure leases at the beginning of the period of adoption without modifying the comparative period financial statements. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carryforward the historical lease classification. The Company also made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. Further, the standard did not have a material impact on the accounting and reporting requirements for existing operating leases where the Company is the lessor as it has elected the practical expedient whereby the Company will not separate a qualifying contract into its lease and non-lease components. The Company also determined that the accounting for sales taxes, certain lessor costs and certain requirements related to variable payments in contracts did not have a material effect on the consolidated condensed balance sheet, statement of operations or statement of cash flows.

39

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

5. Leases
The Company has operating leases primarily for land, buildings, office space and certain office equipment under non-cancellable lease agreements. Leases with an initial term of 12 months or less are not recorded on the consolidated condensed balance sheet. Some leases include 1 or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The exercise of these lease renewal options is at the Company’s sole discretion. Cash paid for operating leases is reported in operating activities on the consolidated condensed statement of cash flows.
For the quarter and nine months ended September 30, 2019, the Company’s operating lease expenses recorded within the consolidated condensed statement of operations were as follows ($ in millions):
Income Statement Classification Quarter Ended
September 30, 2019
 Nine Months Ended September 30, 2019
Cost of services $1
 $2
Cost of product sales 
 1
Selling, general and administrative 13
 38
Total operating lease expense(1)
 $14
 $41
___________
(1)Includes leases less than one year, which were not significant.
At September 30, 2019, the weighted-average remaining operating lease term was 18.7 years and the weighted average discount rate was 8.6%. The following table represents the future maturities of lease liabilities at September 30, 2019 ($ in millions):
2019 remaining $11
2020 46
2021 44
2022 42
2023 42
Thereafter 540
Total lease payment $725
Less: interest (391)
Present value of lease liability $334

Future minimum lease commitments at December 31, 2018 ($ in millions):
2019 $48
2020 44
2021 41
2022 40
2023 39
Thereafter 461
Total $673


40

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

6. Income per Share
Following is a reconciliation of the basic and diluted income per share computations ($ in millions, except share and per share data):
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Numerator:       
Net income from continuing operations attributable to MIC$15
 $2
 $85
 $69
Diluted net income from continuing operations attributable to
    MIC
$15
 $2
 $85
 $69
Basic and diluted net income from discontinued operations
    attributable to MIC
$46
 $20
 $57
 $68
Denominator:       
Weighted average number of shares outstanding: basic86,276,237
 85,378,088
 86,075,394 85,095,956
Dilutive effect of restricted stock unit grants(1)
27,457
 20,478
 25,628 13,257
Weighted average number of shares outstanding: diluted86,303,694
 85,398,566
 86,101,022 85,109,213
___________
(1) Dilutive effect of restricted stock unit grants includes grants to independent directors under the 2014 Independent Director Equity Plan and certain employees under the 2016 Omnibus Employee Incentive Plan.
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Income per share:       
Basic income per share from continuing operations
    attributable to MIC
$0.18
 $0.02
 $0.99
 $0.81
Basic income per share from discontinued operations
    attributable to MIC
0.53
 0.23
 0.67 0.80
Basic income per share attributable to MIC$0.71
 $0.25
 $1.66
 $1.61
Diluted income per share from continuing operations
    attributable to MIC
$0.18
 $0.02
 $0.99
 $0.81
Diluted income per share from discontinued operations
    attributable to MIC
0.53
 0.23
 0.67 0.80
Diluted income per share attributable to MIC$0.71
 $0.25
 $1.66
 $1.61

The following represents the weighted average potential dilutive shares of common stock that were excluded from the diluted income per share calculation:
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
2.875% Convertible Senior Notes due July 2019(1)
722,345
 4,381,499
 1,766,498
 4,363,806
2.00% Convertible Senior Notes due October 20233,634,173
 3,634,173
 3,634,173
 3,631,068
Total4,356,518
 8,015,672
 5,400,671
 7,994,874
_______
(1) On July 15, 2019, the Company fully repaid the outstanding balance on the 2.875% Convertible Senior Notes July 2019 at
maturity using cash on hand. For the quarter and nine months ended September 30, 2019, the weighted average shares
reflect the “if-converted” impact to dilutive common stock through the maturity date of the Note.

41

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

7. Property, Equipment, Land and Leasehold Improvements
Property, equipment, land and leasehold improvements at September 30, 2019 and December 31, 2018 consisted of the following ($ in millions):
 September 30,
2019
 December 31, 2018
Land$319
 $319
Buildings40
 40
Leasehold and land improvements785
 770
Machinery and equipment2,843
 2,783
Furniture and fixtures48
 45
Construction in progress187
 113
 4,222
 4,070
Less: accumulated depreciation(1,069) (929)
Property, equipment, land and leasehold improvements, net$3,153
 $3,141

8. Intangible Assets and Goodwill
Intangible assets at September 30, 2019 and December 31, 2018 consisted of the following ($ in millions):
 September 30
2019
 December 31, 2018
Contractual arrangements$921
 $921
Non-compete agreements14
 14
Customer relationships353
 353
Trade names16
 16
Technology9
 9
 1,313
 1,313
Less: accumulated amortization(568) (524)
Intangible assets, net$745
 $789


The goodwill balance as of September 30, 2019 is comprised of the following ($ in millions):
Goodwill acquired in business combinations, net of disposals$2,172
Accumulated impairment charges(1)
(126)
Other(3)
Balance at September 30, 2019$2,043

_______
(1) Accumulated impairment charges primarily relate to goodwill impairment charges at Atlantic Aviation recorded during the
year ended December 31, 2009 and 2008.
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 the possibility of an impairment. The Company monitors changing business conditions as well as industry and economic factors, among others, for events which could trigger the need for an interim impairment analysis. The Company has experienced a sustained decline in its market capitalization over the 18-months ended September 30, 2019. The decline reflects, in part, the sales of smaller and non-core businesses during that period. However, the Company concluded that the decline in its market capitalization also reflected a reduced contribution from its IMTT segment as a result of lower bulk liquid storage utilization levels and lease rates and determined that these constituted a triggering event.
The Company performed an interim impairment analysis based on financial results through September 30, 2019. For IMTT, the Company used both the market and income approaches and weighting them based on their applicability to the segment. The income approach used forecasted cash flows developed as part of the Company’s annual update of its 5-year business plan. For

42

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
8. Intangible Assets and Goodwill  – (continued)

Atlantic Aviation and Hawaii Gas, the Company used only the market approach given that the fair value of these businesses substantially exceeded the book value noted in 2018. The analysis concluded that fair value of each of the Company’s reporting units exceeded their carrying value and no impairment was recorded.
At September 30, 2019, the fair value of the Company’s reporting units exceeded their aggregate book value by $2.2 billion, or 33%. Approximately $1.9 billion of the excess was attributed to Atlantic Aviation, approximately $280 million to Hawaii Gas and approximately $20 million to IMTT.
Unfavorable fluctuations in the discount rate or declines in forecasted storage revenues and margins could result in an impairment of IMTT in the future. For example, a 0.25% increase to the discount rate would decrease the value of IMTT by approximately $70 million. Any increase in the discount rate, in conjunction with any decrease in the projected cash flows for IMTT, would negatively affect the current valuations. Due to the inherent uncertainties in the estimates and assumptions used in the fair value analysis, the Company’s actual results may differ. These differences could alter the fair value of the Company’s reporting units and may result in impairment charges in future periods. The Company will continue to evaluate the fair value of goodwill through the fourth quarter of fiscal year 2019 for any potential impairment.
9. Long-Term Debt
At September 30, 2019 and December 31, 2018, the Company’s consolidated long-term debt balance comprised of the following ($ in millions):
 September 30,
2019
 December 31, 2018
IMTT$1,109
 $1,109
Atlantic Aviation1,017
 1,025
MIC Hawaii195
 196
MIC Corporate387
 734
Total2,708
 3,064
Current portion(11) (361)
Long-term portion2,697
 2,703
Unamortized deferred financing costs(1)
(43) (50)
Long-term portion less unamortized debt discount and deferred financing costs$2,654
 $2,653
___________
(1)The weighted average remaining life of the deferred financing costs at September 30, 2019 was 5.5 years.
At September 30, 2019, the total undrawn capacity on the revolving credit facilities was $1,610 million excluding letters of credit outstanding of $13 million.
MIC Corporate
At September 30, 2019 and December 31, 2018, MIC Corporate had a $600 million senior secured revolving credit facility that remained undrawn.
2.875% Convertible Senior Notes due July 2019
At December 31, 2018, the Company had $350 million aggregate principal outstanding on its five-year, 2.875% Convertible Senior Notes due July 2019, which approximated its fair value. On July 15, 2019, at maturity, the Company fully repaid the outstanding balance on the Notes using cash on hand.
2.00% Convertible Senior Notes due October 2023
At September 30, 2019 and December 31, 2018, the Company had $387 million and $384 million, respectively, outstanding on its seven-year, 2.00% Convertible Senior Notes due October 2023. At September 30, 2019, the fair value of the liability component of the Notes were approximately $355 million. On October 13, 2019, the anniversary of the Note issuance, the Company did not increase the conversion rate of 9.0290 shares of common stock per $1,000 principal amount as there was no change to the quarterly dividend amount paid from the last anniversary date.


43

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
9. Long-Term Debt  – (continued)

The 2.00% Convertible Senior Notes due October 2023 consisted of the following ($ in millions):
 September 30,
2019
 December 31, 2018
Liability Component:   
Principal$403
 $403
Unamortized debt discount(16) (19)
Long-term debt, net of unamortized debt discount387
 384
Unamortized deferred financing costs(6) (7)
Net carrying amount$381
 $377
Equity Component$27
 $27

For the quarter and nine months ended September 30, 2019 and 2018, the Company incurred interest expense of $3 million and $10 million, respectively, related to the 2.00% Convertible Senior Notes due October 2023 which primarily includes $1 million and $4 million, respectively, related to the amortization of debt discount and deferred financing costs.
IMTT
In December 2018, IMTT entered into the Second Amendment to Credit Agreement (the Amendment) which, among other things, extended the maturity date of its $600 million revolving credit facilities from May 21, 2020 to December 5, 2023 and extended the maturity date of its $509 million Tax Exempt Bonds purchase facility from May 21, 2022 to December 5, 2025. In connection with the Amendment, supplemental indentures were entered into with respect to the $509 million of outstanding Tax Exempt Bonds. The Tax Exempt Bonds were reissued and sold to certain lenders under the IMTT Credit Agreement pursuant to the bond purchase facility. The supplemental indentures provide for (i) an interest rate on the Tax Exempt Bonds of 80% of one month LIBOR plus applicable margin plus 0.45% and (ii) an extension of the date on which holders have the right to require repurchase of the Tax Exempt Bonds from May 21, 2022 to December 5, 2025.
At September 30, 2019 and December 31, 2018, the $600 million revolving credit facilities were undrawn. IMTT also had $600 million of fixed rate senior notes outstanding that had a fair value of approximately $630 million at September 30, 2019.
Atlantic Aviation
In December 2018, Atlantic Aviation refinanced its debt and entered into a credit agreement (the New AA Credit Agreement) that provides for a seven-year $1,025 million senior secured first lien term loan facility. At September 30, 2019 and December 31, 2018, Atlantic Aviation also had a five-year, $350 million senior secured first lien revolving credit facility that was undrawn.
MIC Hawaii
At September 30, 2019, Hawaii Gas had $100 million of fixed rate senior notes outstanding, that had a fair value of approximately $105 million, and an $80 million term loan outstanding. The remaining balance of $15 million related to a term loan for the solar facilities in Hawaii. Hawaii Gas also has a $60 million revolving credit facility that was undrawn at September 30, 2019 and December 31, 2018.
10. 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 September 30, 2019, the Company had $2,724 million of current and long-term debt, of which $946 million was economically hedged with interest rate contracts, $1,102 million was fixed rate debt and $676 million was unhedged. The Company does not use hedge accounting. All movements in the fair value of the interest rate derivatives are recorded directly through earnings.

44

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
10. Derivative Instruments and Hedging Activities – (continued)

Commodity Price Hedges
The risks associated with fluctuations in the prices that Hawaii Gas, a business within the MIC Hawaii reportable segment, pays for liquefied petroleum gas (LPG) is principally a result of market forces reflecting changes in supply and demand for LPG 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’ LPG 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 LPG 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 September 30, 2019 and December 31, 2018 were ($ in millions):
  Assets (Liabilities) at Fair Value
Balance Sheet Classification September 30,
2019
 December 31, 2018
Fair value of derivative instruments - other current assets $3
 $11
Fair value of derivative instruments - other noncurrent assets 2
 15
Total derivative contracts – assets $5
 $26
Fair value of derivative instruments – other current liabilities $(8) $(3)
Fair value of derivative instruments – other noncurrent liabilities (3) 
Total derivative contracts – liabilities $(11) $(3)

The Company’s hedging activities for the quarters and nine months ended September 30, 2019 and 2018 and the related location within the consolidated condensed statements of operations were ($ in millions):
Income Statement Classification 
Amount of (Loss) Gain Recognized
in Consolidated Condensed Statements of Operations
 Quarter Ended
September 30,
 Nine Months Ended
September 30,
 2019 2018 2019 2018
Interest expense – interest rate caps $(1) $2
 $(7) $9
Interest expense – interest rate swaps (1) 1
 (7) 8
Cost of product sales – commodity swaps (6) 2
 (11) 3
Total $(8) $5
 $(25) $20

11. 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 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. Shares of common stock underlying forfeited awards are available for future grants. On March 28, 2019, the Company’s Board adopted Amendment No. 1 to the Plan (the Amendment), which was approved in May 2019 by the Company’s shareholders at the 2019 Annual Meeting of Shareholders. The Amendment, among other things, increased the number of shares of common stock available for grant under the Plan from 500,000 to 1,500,000.

45

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
11. Stockholders’ Equity – (continued)

Macquarie Infrastructure Corporation Short-Term Incentive Plan (STIP) for MIC Operating Businesses —  Restricted Stock Units (RSUs)
During the first quarter of 2019, the Company established the STIP to provide cash and stock-based incentives to eligible employees of its operating businesses under the Company’s 2016 Omnibus Employee Incentive Plan. In general, the cash component comprises approximately 75% of any incentive award and is paid in a lump-sum. The remaining 25% of any incentive award is in the form of RSUs representing an interest in the common stock of the Company. RSUs are granted following assessment of performance against Key Performance Indicators post the one-year performance period and vest in two equal annual installments following the grant date. Through September 30, 2019, 0 grants of RSUs under the STIP had been made.
From time to time, the Company can issue RSUs to award or retain employees, or to attract new employees, or other reasons by providing special grants of RSUs. Vesting dates and terms can vary for each award at the discretion of the Company.
The following represents unvested Special RSUs granted through 2019:
 2019 Special Grants
 
Number of RSUs
(in units)
 
Weighted Average Grant-Date Fair Value
(per share)
Unvested at December 31, 2018
 $
Granted6,067 40.30
Unvested at September 30, 20196,067 $40.30

Compensation expense related to the Special RSU grants for the quarter and nine months ended September 30, 2019 was not significant. At September 30, 2019, the cost is expected to be recognized over a weighted-average period of 1.3 years.
Macquarie Infrastructure Corporation Long-Term Incentive Plan (LTIP) for MIC Operating Businesses —  Performance Stock Units (PSUs)
During the first quarter of 2019, the Company established the LTIP pursuant to which it may make stock-based incentive awards to eligible employees of its operating businesses. The awards would take the form of PSUs convertible into common stock of the Company as authorized under its 2016 Omnibus Employee Incentive Plan. The number of PSUs a participant may be awarded reflects a target level of performance by the participant. The participant may be awarded more (over performance limit) or less (threshold limit) than the target number of PSUs based on their achievements relative to Key Performance Indicators during the three-year performance period. Following finalization of the participant’s performance review at the end of the third year of the program, the Company may award the PSUs.
The following represents unvested LTIP grants through September 30, 2019 at the target level of performance:
 2019 LTIP (at Target)
 
Number of PSUs
(in units)
 
Weighted Average Grant-Date Fair Value
(per share)
Unvested at December 31, 2018
 $
Granted134,671 $39.59
Forfeited(7,577) $39.26
Unvested at September 30, 2019127,094 $39.61

At September 30, 2019, depending upon actual performance, the number of PSUs to be issued will vary from 0 to 233,891, net of forfeitures. At September 30, 2019, the grant date fair value of the unvested awards was approximately $5 million, reflecting target performance by all participants. During the nine months ended September 30, 2019, the Company recognized approximately $1 million of compensation expense related to the LTIP. At September 30, 2019, the unrecognized compensation cost related to unvested PSU awards was approximately $4 million at target level performance. If target level performance is achieved, the unrecognized cost is expected to be recognized over a weighted-average period of 2.3 years.

46

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
11. Stockholders’ Equity – (continued)

Accumulated Other Comprehensive Loss, net of taxes
The following represents the changes and balances to the components of accumulated other comprehensive loss, net of taxes for the nine months ended September 30, 2019 and 2018 ($ in millions):
 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, 2017$(20) $(10) $(30)
Translation adjustment
 (2) (2)
Balance at September 30, 2018$(20) $(12) $(32)
      
Balance at December 31, 2018$(16) $(14) $(30)
Translation adjustment
 1
 1
Balance at September 30, 2019$(16) $(13) $(29)

___________
(1)Translation adjustment is presented net of tax expense of $1 million and tax benefit of $1 million for the nine months ended September 30, 2019 and 2018, respectively.
12. Reportable Segments
At September 30, 2019, the Company’s businesses consisted of 4 reportable segments: IMTT, Atlantic Aviation, MIC Hawaii and Corporate and Other.
Effective October 1, 2018, BEC and substantially all of the Company’s portfolio of solar and wind power generation businesses were classified as discontinued operations and the Company’s Contracted Power segment was eliminated. All prior comparable periods have been restated to reflect this change. In July 2019, the Company completed the sales of its wind power generating portfolio and all but one of the assets in its solar power generating portfolio. The sale of the remaining solar facility closed during September 2019. On January 1, 2019, the Company also classified its majority interest in a renewable power development business as a discontinued operation, the sale of which closed in July 2019. The Company did not restate the prior period as the disposition was deemed insignificant. A remaining relationship with a third-party developer of renewable power facilities has been reported as a component of Corporate and Other through the expiration of the relationship in July 2019.  For additional information, see Note 3, “Discontinued Operations and Dispositions”.
IMTT
IMTT provides bulk liquid storage, handling and other services in North America through 17 terminals located in the U.S., 1 terminal in Quebec, Canada and 1 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 U.S.
Revenue from IMTT is generated from the following sources and recorded in service revenue.
Lease.  These are contracts with predominantly non-cancelable terms for access to and the use of storage capacity at the various terminals owned and operated by the business. At September 30, 2019, these contracts had a revenue weighted average remaining contract life of 1.9 years. These contracts generally require payments in exchange for the provision of storage capacity and product movement (throughput) 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 842, Leases.
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 (point in time) based on contract rates. 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.

47

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments  – (continued)

Other.  Other revenue is comprised primarily of environmental response service activities through the date of sale in April 2018 and railroad operations. These revenues are generally recognized at a point in time as services are performed.
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 recorded in service revenue. Services provided by Atlantic Aviation include:
Fuel.  Revenue from fuel sales are recognized at a point in time as services are performed. Fuel services are recorded net of volume discounts and rebates.
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 fixed based operation (FBO) services consist 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.
MIC Hawaii
MIC Hawaii primarily comprises of (i) 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; and (ii) controlling interests in 2 solar facilities on Oahu.
Revenue from the Hawaii Gas business is generated from the distribution and sales of synthetic natural gas (SNG), liquefied petroleum gas (LPG), liquefied natural gas (LNG) and renewable natural gas (RNG). Revenue is primarily a function of the volume of SNG, LPG, LNG and RNG 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.
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. This is 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 renewables projects within MIC Hawaii sell substantially all of the electricity generated at a fixed price to primarily electric utility customers pursuant to long-term power purchase agreements (PPAs) of 20 years. 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.
Corporate and Other
Corporate and Other comprises of MIC Corporate (holding company) and a shared services center.
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.

48

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments  – (continued)

Revenue from external customers for the Company’s consolidated reportable segments were ($ in millions):
 Quarter Ended September 30, 2019
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Intercompany Adjustments Total Reportable Segments
Service revenue         
Terminal services$22
 $
 $
 $
 $22
Lease96
 
 
 (1) 95
Fuel
 165
 
 
 165
Hangar
 24
 
 
 24
Other
 41
 
 
 41
Total service revenue$118
 $230
 $
 $(1) $347
Product revenue         
Lease$
 $
 $2
 $
 $2
Gas
 
 54
 
 54
Other
 
 2
 
 2
Total product revenue$
 $
 $58
 $
 $58
Total revenue$118
 $230
 $58
 $(1) $405

 Quarter Ended September 30, 2018
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Intercompany Adjustments Total Reportable Segments
Service revenue         
Terminal services$19
 $
 $
 $
 $19
Lease98
 
 
 (1) 97
Fuel
 173
 
 
 173
Hangar
 22
 
 
 22
Construction
 
 8
 
 8
Other1
 40
 1
 
 42
Total service revenue$118
 $235
 $9
 $(1) $361
Product revenue         
Lease$
 $
 $1
 $
 $1
Gas
 
 55
 
 55
Other
 
 4
 
 4
Total product revenue$
 $
 $60
 $
 $60
Total revenue$118
 $235
 $69
 $(1) $421


49

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments  – (continued)

 Nine Months Ended September 30, 2019
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Intercompany Adjustments Total Reportable Segments
Service revenue         
Terminal services$68
 $
 $
 $
 $68
Lease326
 
 
 (2) 324
Fuel
 519
 
 
 519
Hangar
 70
 
 
 70
Other4
 135
 
 
 139
Total service revenue$398
 $724
 $
 $(2) $1,120
Product revenue         
Lease$
 $
 $4
 $
 $4
Gas
 
 171
 
 171
Other
 
 8
 
 8
Total product revenue$
 $
 $183
 $
 $183
Total revenue$398
 $724
 $183
 $(2) $1,303
 Nine Months Ended September 30, 2018
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Intercompany Adjustments Total Reportable Segments
Service revenue         
Terminal services$66
 $
 $
 $
 $66
Lease304
 
 
 (3) 301
Fuel
 524
 
 
 524
Hangar
 66
 
 
 66
Construction
 
 39
 
 39
Other16
 125
 3
 
 144
Total service revenue$386
 $715
 $42
 $(3) $1,140
Product revenue         
Lease$
 $
 $3
 $
 $3
Gas
 
 172
 
 172
Other
 
 9
 
 9
Total product revenue$
 $
 $184
 $
 $184
Total revenue$386
 $715
 $226
 $(3) $1,324

In accordance with FASB ASC 280, Segment Reporting, the Company has disclosed earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items as a key performance indicator for the businesses. EBITDA excluding non-cash items is reflective of the businesses’ ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of its businesses. The Company defines EBITDA excluding non-cash items as net income (loss) or earnings — the most comparable GAAP measure — before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations.
EBITDA excluding non-cash items for the Company’s consolidated reportable segments from continuing operations is shown in the tables below ($ in millions). Allocations of corporate expenses, intercompany fees and the tax effect have been excluded as they are eliminated in consolidation.

50

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments  – (continued)

 Quarter Ended September 30, 2019
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Corporate and Other Total Reportable Segments
Net income (loss)$12
 $14
 $1
 $(12) $15
Interest expense, net10
 18
 3
 3
 34
Provision (benefit) for income taxes5
 5
 1
 (4) 7
Depreciation29
 16
 4
 
 49
Amortization of intangibles3
 11
 
 
 14
Fees to Manager-related party
 
 
 8
 8
Other non-cash expense3
 
 3
 
 6
EBITDA excluding non-cash items$62
 $64
 $12
 $(5) $133
 Quarter Ended September 30, 2018
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Corporate and Other Total Reportable Segments
Net income (loss)$16
 $25
 $(18) $(21) $2
Interest expense, net12
 5
 2
 9
 28
Provision (benefit) for income taxes6
 9
 (7) (6) 2
Goodwill impairment
 
 3
 
 3
Depreciation29
 14
 6
 
 49
Amortization of intangibles4
 12
 4
 
 20
Fees to Manager-related party
 
 
 12
 12
Other non-cash expense2
 
 5
 
 7
EBITDA excluding non-cash items$69
 $65
 $(5) $(6) $123
 Nine Months Ended September 30, 2019
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Corporate and Other Total Reportable Segments
Net income (loss)$62
 $48
 $11
 $(36) $85
Interest expense, net38
 59
 8
 13
 118
Provision (benefit) for income taxes25
 18
 5
 (15) 33
Depreciation87
 46
 12
 
 145
Amortization of intangibles11
 33
 
 
 44
Fees to Manager-related party
 
 
 23
 23
Other non-cash expense7
 1
 10
 1
 19
EBITDA excluding non-cash items$230
 $205
 $46
 $(14) $467

51

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments  – (continued)

 Nine Months Ended September 30, 2018
 IMTT 
Atlantic
Aviation
 
MIC
Hawaii
 Corporate and Other Total Reportable Segments
Net income (loss)$60
 $78
 $(11) $(58) $69
Interest expense, net31
 9
 5
 26
 71
Provision (benefit) for income taxes24
 29
 (4) (17) 32
Goodwill impairment
 
 3
 
 3
Depreciation87
 43
 13
 
 143
Amortization of intangibles12
 35
 6
 
 53
Fees to Manager-related party
 
 
 36
 36
Other non-cash expense7
 1
 10
 
 18
EBITDA excluding non-cash items$221
 $195
 $22
 $(13) $425
Reconciliations of total reportable segments’ EBITDA excluding non-cash items to consolidated net income from continuing operations before income taxes were ($ in millions):
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Total reportable segments EBITDA excluding non-cash items$133
 $123
 $467
 $425
Interest income2
 
 6
 
Interest expense(36) (28) (124) (71)
Goodwill impairment
 (3) 
 (3)
Depreciation(49) (49) (145) (143)
Amortization of intangibles(14) (20) (44) (53)
Fees to Manager-related party(8) (12) (23) (36)
Other expense, net(6) (7) (19) (18)
Total consolidated net income from continuing operations
   before income taxes
$22
 $4
 $118
 $101

Capital expenditures, on a cash basis, for the Company’s reportable segments were ($ in millions):
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
IMTT$47
 $18
 $111
 $42
Atlantic Aviation17
 16
 44
 52
MIC Hawaii5
 6
 15
 17
Corporate and other1
 5
 2
 20
Total capital expenditures of reportable segments$70
 $45
 $172
 $131


52

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. 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 millions):
 
Property, Equipment,
Land and Leasehold
Improvements, net
 Goodwill Total Assets
 September 30,
2019
 December 31, 2018 September 30,
2019
 December 31, 2018 September 30,
2019
 December 31, 2018
IMTT$2,273
 $2,249
 $1,427
 $1,427
 $4,135
 $4,020
Atlantic Aviation567
 565
 496
 496
 2,040
 1,676
MIC Hawaii303
 300
 120
 120
 528
 501
Corporate and other10
 27
 
 
 221
 599
Total assets of reportable segments$3,153
 $3,141
 $2,043
 $2,043
 $6,924
 $6,796
Assets held for sale
 
 
 
 
 648
Total consolidated assets$3,153
 $3,141
 $2,043
 $2,043
 $6,924
 $7,444

13. Long-Term Contracted Revenue
Long-term contracted revenue consists of revenue from future minimum lease revenue accounted in accordance with ASC 842, 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 September 30, 2019 ($ in millions):
 
Lease
Revenue
(ASC 842)
 
Contract
Revenue
(ASC 606)
 
Total
Long-Term
Revenue
2019 remaining$81
 $23
 $104
2020219
 53
 272
2021123
 33
 156
202275
 28
 103
202349
 20
 69
Thereafter111
 18
 129
Total$658
 $175
 $833

The above table does not include the future minimum lease revenue from the renewable businesses within the MIC Hawaii reportable segment. The payments from these leases are considered variable as they are based on the output of the underlying assets (i.e. energy generated).
14. Related Party Transactions
Management Services
At September 30, 2019 and December 31, 2018, the Manager held 13,048,205 shares and 12,477,438 shares, respectively, of the Company’s common stock. Pursuant to the terms of the Third Amended and Restated Management Services Agreement (Management Services Agreement), the Manager may sell these shares at any time. Under the Management Services Agreement, the Manager, at its option, may reinvest base management fees and performance fees, if any, in shares of the Company.

53

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
14. Related Party Transactions  – (continued)

Since January 1, 2018, the Company paid the Manager cash dividends on shares held for the following periods:
Declared Period Covered $ per
Share
 Record Date Payable Date Cash Dividend Paid to Manager
(in millions)
October 29, 2019 Third quarter 2019 $1.00
 November 11, 2019 November 14, 2019 
(1) 
July 30, 2019 Second quarter 2019 1.00
 August 12, 2019 August 15, 2019 $13
April 29, 2019 First quarter 2019 1.00
 May 13, 2019 May 16, 2019 13
February 14, 2019 Fourth quarter 2018 1.00
 March 4, 2019 March 7, 2019 13
October 30, 2018 Third quarter 2018 1.00
 November 12, 2018 November 15, 2018 12
July 31, 2018 Second quarter 2018 1.00
 August 13, 2018 August 16, 2018 11
May 1, 2018 First quarter 2018 1.00
 May 14, 2018 May 17, 2018 6
February 19, 2018 Fourth quarter 2017 1.44
 March 5, 2018 March 8, 2018 8
___________
(1)The amount of dividend payable to the Manager for the third quarter of 2019 will be determined on November 11, 2019, the record date.
Under the Management Services Agreement, subject to the oversight and supervision of the Company’s Board, 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, 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 Services 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 additional shares. For the quarter and nine months ended September 30, 2019, the Company incurred base management fees of $8 million and $23 million, respectively, compared with $12 million and $36 million for the quarter and nine months ended September 30, 2018, respectively. The Company did not incur any performance fees for the quarter and nine month periods ended September 30, 2019 and 2018.
Effective November 1, 2018, the Manager waived two elements of the base management fee to which it was entitled under the terms of the Management Services Agreement. In effect, the waivers cap the base management fee at 1% of the Company’s equity market capitalization less any cash balances at the holding company. The waiver applies only to the calculation of the base management fees and not to the remainder of the Management Services Agreement. The Manager reserves the right to revoke the waivers and revert to the prior terms of the Management Services Agreement, subject to providing the Company with not less than a one year notice. A revocation of the waiver would not trigger a recapture of previously waived fees. As part of the disposition agreement entered into between the Company and its Manager, the Manager has agreed not to revoke the waiver during the term of the disposition agreement. See Note 16, “Subsequent Events” for further discussions on disposition agreement.
The unpaid portion of the base management fees and performance fees, if any, at the end of each reporting period is included in Due to Manager-related party in the consolidated condensed balance sheets.

54

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
14. Related Party Transactions  – (continued)

Period 
Base Management
Fee Amount
($ in millions)
 
Performance
Fee Amount
($ in millions)
 
Shares
Issued
2019 Activities:       
Third quarter 2019 $8
 $
 201,827
(1) 
Second quarter 2019 7
 
 192,103
 
First quarter 2019 8
 
 184,448
 
        
2018 Activities:       
Fourth quarter 2018 $9
 $
 220,208
 
Third quarter 2018 12
 
 269,286
 
Second quarter 2018 11
 
 277,053
 
First quarter 2018 13
 
 265,002
 
___________
(1)The Manager elected to reinvest all of the monthly base management fees for the third quarter of 2019 in new primary shares. The Company issued 201,827 shares for the quarter ended September 30, 2019, including 67,659 shares that were issued in October 2019 for the September 2019 monthly base management fee.
The Manager is not entitled to any other compensation and all costs incurred by the Manager, including compensation of seconded staff, are paid by the Manager out of its base management fee. However, the Company is responsible for other direct costs including, but not limited to, expenses incurred in the administration or management of the Company and its subsidiaries, income taxes, audit and legal fees, acquisitions and dispositions and its compliance with applicable laws and regulations. During the quarter and nine months ended September 30, 2019, the Manager charged the Company $76,000 and $653,000, respectively, for reimbursement of out-of-pocket expenses compared with $296,000 and $705,000, respectively, for quarter and nine months ended September 30, 2018. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is included in Due to Manager-related party in the consolidated condensed balance sheets. During the quarter ended September 30, 2019, the Company accrued $294,000 in legal fees incurred by the Manager related to the Shareholder Litigation. The unpaid expense is included in Accounts Payable in the consolidated condensed balance sheet. For additional information, see Note 15, "Legal Proceedings and Contingencies", for further discussions.
Macquarie Group - 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. 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.
Long-Term Debt
In January 2018, the Company completed the refinancing and upsizing of its senior secured revolving credit facility to $600 million from $410 million and extended the maturity through January 3, 2022. As part of the refinancing and upsizing, MIHI LLC’s $50 million commitment was replaced by a $40 million commitment from Macquarie Capital Funding LLC. As part of the closing, the Company paid Macquarie Capital Funding LLC $80,000 in closing fees.
For the quarter and nine months ended September 30, 2019, the Company incurred interest expense of $45,000 and $120,000 respectively, related to Macquarie Capital Funding LLC’s portion of the MIC senior secured revolving credit facility compared with $139,000 and $376,000 for the quarter and nine months ended September 30, 2018, respectively.

55

MACQUARIE INFRASTRUCTURE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
14. Related Party Transactions  – (continued)

Other Transactions
In May 2018, the Company sold its equity interest in projects involving 2 properties to Macquarie Infrastructure and Real Assets, Inc. (MIRA Inc.), an affiliate of the Manager, for their cost of $27 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.
From time to time, indirect subsidiaries within Macquarie Group may enter into contracts with IMTT to lease capacity. For the nine months ended September 30, 2019, the revenue from these contracts were approximately $1 million and were insignificant for the prior comparable period.
Other Related Party Transactions
During the quarter ended September 30, 2019, the Company incurred $75,000 for advisory services from a former Board member.
15. 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 Litigation
On April 23, 2018, a complaint captioned City 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 asserted 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 were the Company and four current or former officers of MIC and one of its subsidiaries, IMTT Holdings LLC. The complaints in both actions 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. On January 30, 2019, the Court issued an opinion and order consolidating the two cases, appointing Moab Partners, L.P. (Moab) as Lead Plaintiff and approving Moab’s selection of lead counsel. On February 20, 2019, Moab filed a consolidated class action complaint. In addition to the claims noted above, the consolidated class action complaint also asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 relating to the Company’s November 2016 secondary public offering of common stock. The consolidated amended complaint also adds Macquarie Infrastructure Management (USA) Inc., Barclays Capital Inc. and seven additional current or former officers or directors of MIC as defendants. On April 22, 2019, the Company and the other defendants filed motions to dismiss the consolidated class action complaint in its entirety, with prejudice. Briefing concluded on July 22, 2019. The Company intends to continue to vigorously contest the claims asserted, which the Company believes are entirely meritless.
On August 9, 2018, a shareholder derivative complaint captioned Phyllis Wright v. Liam Stewart, et al., Case No. 1:18-cv-07174 (VSB), was filed in the United States District Court for the Southern District of New York. A substantially identical complaint captioned Raymond Greenlee v. James Hooke, et al., Case No. 1:18-cv-09339 (VSB) was filed in the same court on October 12, 2018. A third and substantially similar shareholder derivative complaint captioned Kim Johnson v. Liam Stewart, et al., Case No. 1:18-cv-011062 (VSB) was filed in the same court on November 27, 2018. Each of the shareholder derivative complaints assert derivative claims on behalf of the Company against certain of its current and former officers and directors arising out of the same subject matter at issue in the City of Riviera Beach and Fajardo complaints discussed above. The causes of action asserted include violation of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, unjust enrichment, and aiding and abetting breach of fiduciary duty. A motion to consolidate the three actions is currently pending. Proceedings in the Wright, Greenlee and Johnson cases are otherwise stayed pending resolution of the motions to dismiss the securities class actions described above. The Company expects that the named defendants will vigorously contest the claims asserted in the Wright, Greenlee and Johnson complaints.

56

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


16. Subsequent Events
Pursuit of Strategic Alternatives
In October 2019, the Board resolved to actively pursue strategic alternatives including a sale of the Company or its operating businesses as a means of unlocking value for shareholders. There is no set timetable for completing any transaction and there can be no assurance that any transactions will occur on favorable terms or at all. See the Company’s Current Report on Form 8-K date October 31, 2019 for additional information.
Disposition Agreement
To facilitate the Company’s pursuit of strategic alternatives, the Company announced that it has entered into a disposition agreement with Macquarie Infrastructure Management (USA) Inc. (MIMUSA), the external manager of the Company on October 30, 2019. Other than pursuant to this agreement, the Company does not have the ability to terminate the Management Services Agreement other than in limited circumstances. Pursuant to this agreement, the Company’s Management Services Agreement with MIMUSA will terminate as to any businesses, or substantial portions thereof, that are sold and, in connection therewith, the Company will make a payment to MIMUSA based on the proceeds generated in the event of such sales and certain additional payments under certain circumstances. The disposition agreement will terminate on the earlier to occur of (i) the termination of the Management Services Agreement and (ii) the sixth anniversary, subject to extension under certain circumstances if a transaction is pending. See the Company’s Current Report on Form 8-K dated October 31, 2019 for additional information.        
Dividend
On October 29, 2019, the Board declared a dividend of $1.00 per share for the quarter ended September 30, 2019, which is expected to be paid on November 14, 2019 to holders of record on November 11, 2019.



57


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, 2018, filed with the SEC on February 20, 2019, except for the following:
Shareholder Litigation
On April 23, 2018, a complaint captioned City 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 asserted 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 were the Company and four current or former officers of MIC and one of its subsidiaries, IMTT Holdings LLC. The complaints in both actions 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. On January 30, 2019, the Court issued an opinion and order consolidating the two cases, appointing Moab Partners, L.P. (Moab) as Lead Plaintiff and approving Moab’s selection of lead counsel. On February 20, 2019, Moab filed a consolidated class action complaint. In addition to the claims noted above, the consolidated class action complaint also asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 relating to the Company’s November 2016 secondary public offering of common stock. The consolidated amended complaint also adds Macquarie Infrastructure Management (USA) Inc., Barclays Capital Inc. and seven additional current or former officers or directors of MIC as defendants. On April 22, 2019, the Company and the other defendants filed motions to dismiss the consolidated class action complaint in its entirety, with prejudice. Briefing concluded on July 22, 2019. The Company intends to continue to vigorously contest the claims asserted, which the Company believes are entirely meritless.
On August 9, 2018, a shareholder derivative complaint captioned Phyllis Wright v. Liam Stewart, et al., Case No. 1:18-cv-07174 (VSB), was filed in the United States District Court for the Southern District of New York. A substantially identical complaint captioned Raymond Greenlee v. James Hooke, et al., Case No. 1:18-cv-09339 (VSB) was filed in the same court on October 12, 2018. A third and substantially similar shareholder derivative complaint captioned Kim Johnson v. Liam Stewart, et al., Case No. 1:18-cv-011062 (VSB) was filed in the same court on November 27, 2018. Each of the shareholder derivative complaints assert derivative claims on behalf of the Company against certain of its current and former officers and directors arising out of the same subject matter at issue in the City of Riviera Beach and Fajardo complaints discussed above. The causes of action asserted include violation of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, unjust enrichment, and aiding and abetting breach of fiduciary duty. A motion to consolidate the three actions is currently pending. Proceedings in the Wright, Greenlee and Johnson cases are otherwise stayed pending resolution of the motions to dismiss the securities class actions described above. The Company expects that the named defendants will vigorously contest the claims asserted in the Wright, Greenlee and Johnson complaints.

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, 2018, filed with the SEC on February 20, 2019, except for the following:

While we are pursuing strategic alternatives, we may not be successful in identifying or completing any strategic alternative and any such strategic alternative may not yield additional value for stockholders.

In October 2019, we announced that we are pursuing strategic alternatives, which could result in, among other things, a sale of one or more of our businesses or of the Company. Our pursuit of strategic alternatives may not result in the identification or consummation of any transaction or may not yield additional value for our stockholders. In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of pursuing strategic alternatives may be time consuming and disruptive to our business operations, and if we are unable to effectively manage the process, our businesses, financial condition and results of operations could be adversely affected. Any potential transactions, and the related valuations, would be dependent upon a number of factors that may be beyond our control, including, among others, market conditions, industry trends, the interest of third parties in our businesses and the availability of financing to potential buyers on reasonable terms.

58




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.

59


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: October 31, 2019By:/s/ Christopher Frost
  Name: Christopher Frost
  Title:  Chief Executive Officer
   
Dated: October 31, 2019By:/s/ Liam Stewart
  Name: Liam Stewart
  Title:  Chief Financial Officer

60


EXHIBIT INDEX
Number Description
 
 
 
 
 
 
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
___________
*Filed herewith.
**Furnished herewith.



E-1