Company Quick10K Filing
Macquarie Infrastructure
Price38.93 EPS2
Shares86 P/E24
MCap3,363 P/FCF8
Net Debt2,250 EBIT299
TEV5,613 TEV/EBIT19
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-05
10-K 2019-12-31 Filed 2020-02-25
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-07-31
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-20
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-02-21
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-02-21
10-Q 2016-09-30 Filed 2016-10-31
10-Q 2016-06-30 Filed 2016-08-01
10-Q 2016-03-31 Filed 2016-05-02
10-K 2015-12-31 Filed 2016-02-23
10-Q 2015-09-30 Filed 2015-11-02
10-Q 2015-06-30 Filed 2015-08-03
10-Q 2015-03-31 Filed 2015-05-04
10-K 2014-12-31 Filed 2015-02-18
10-Q 2014-09-30 Filed 2014-10-29
10-Q 2014-06-30 Filed 2014-07-30
10-Q 2014-03-31 Filed 2014-04-30
10-K 2013-12-31 Filed 2014-02-19
10-Q 2013-09-30 Filed 2013-10-28
10-Q 2013-06-30 Filed 2013-07-31
10-Q 2013-03-31 Filed 2013-04-29
10-K 2012-12-31 Filed 2013-02-20
10-Q 2012-09-30 Filed 2012-10-31
10-Q 2012-06-30 Filed 2012-08-01
10-Q 2012-03-31 Filed 2012-05-02
10-K 2011-12-31 Filed 2012-02-22
10-Q 2011-09-30 Filed 2011-11-02
10-Q 2011-06-30 Filed 2011-08-03
10-Q 2011-03-31 Filed 2011-05-04
10-K 2010-12-31 Filed 2011-02-23
10-Q 2010-09-30 Filed 2010-11-03
10-Q 2010-06-30 Filed 2010-08-04
10-Q 2010-03-31 Filed 2010-05-05
10-K 2009-12-31 Filed 2010-02-25
8-K 2020-05-14
8-K 2020-05-05
8-K 2020-03-16
8-K 2020-02-25
8-K 2019-10-31
8-K 2019-10-30
8-K 2019-07-31
8-K 2019-05-15
8-K 2019-05-01
8-K 2019-02-20
8-K 2018-12-05
8-K 2018-10-30
8-K 2018-10-12
8-K 2018-09-05
8-K 2018-08-01
8-K 2018-07-27
8-K 2018-06-27
8-K 2018-05-16
8-K 2018-05-09
8-K 2018-05-02
8-K 2018-02-21
8-K 2018-01-03

MIC 10Q Quarterly Report

Part I
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 mic-20200331xex101.htm
EX-31.1 mic-20200331xex311.htm
EX-31.2 mic-20200331xex312.htm
EX-32.1 mic-20200331xex321.htm
EX-32.2 mic-20200331xex322.htm

Macquarie Infrastructure Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
1.00.80.60.30.1-0.12012201420172020
Rev, G Profit, Net Income
0.60.30.1-0.2-0.4-0.72012201420172020
Ops, Inv, Fin

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mic:facility
 
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 March 31, 2020
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)
_____________________________
Delaware
43-2052503
(State or Other Jurisdiction of
Incorporation or Organization)
(IRS Employer
Identification No.)
125 West 55th Street
New York, New York 10019
(Address of Principal Executive Offices) (Zip Code)
(212) 231-1000
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report): N/A
_____________________________
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 Filer
Accelerated Filer
  
 
Non-accelerated Filer
Smaller Reporting Company
Emerging 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 86,853,672 shares of common stock, with $0.001 par value, outstanding at May 1, 2020.
 



MACQUARIE INFRASTRUCTURE CORPORATION
TABLE OF CONTENTS
 
 
Page
Macquarie Infrastructure Corporation (MIC) 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 MIC.

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, statements regarding the anticipated specific and overall impacts of COVID-19, 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, 2019, this Quarterly Report on Form 10-Q 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. Six of the eight members of our Board, and all of the members of each of our Audit, Compensation and Nominating and Governance 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 storage and handling services to third-parties at 17 terminals in the U.S. and two in Canada;
Atlantic Aviation:  a provider of jet fuel, terminal, aircraft hangaring and other services primarily to operators of general aviation (GA) jet aircraft at 70 airports throughout the U.S.;
MIC Hawaii:  comprising a 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 headquarters in New York City) and a shared services center in Plano, Texas.
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 periods reflect this change. In September 2019, we completed the last of the sales of our renewables businesses included in discontinued operations including our majority interest in a renewable power development business. A relationship with a third-party developer of renewable power facilities was reported as a component of Corporate and Other through the expiration of the relationship in July 2019.
Overview
Use of Non-GAAP measures
In addition to our results under U.S. GAAP, we use certain non-GAAP measures including EBITDA excluding non-cash items and Free Cash Flow to assess the performance and prospects of our businesses.
We measure EBITDA excluding non-cash items as it reflects our businesses’ ability to effectively manage the amount of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses.
In analyzing the financial performance of our businesses, we focus primarily on cash generation and Free Cash Flow in particular. We believe investors use Free Cash Flow as a measure of our ability to sustain and potentially increase our quarterly cash dividend and to fund a portion of our growth.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Consolidated — Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) 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.

1


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 2.0 years at March 31, 2020.
At Atlantic Aviation, our focus is on the sale of jet fuel and other services to operators of GA aircraft through our fixed based operations (FBOs). The financial performance of the business 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, 2019, MIC has paid or declared the following dividends:
Declared
 
Period Covered
 
$ per Share
 
Record Date
 
Payable Date
February 14, 2020
 
Fourth quarter 2019
 
$1.00
 
March 6, 2020
 
March 11, 2020
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
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 distributable cash flow over time as a result of their positive correlation with inflation and provision of basic services to customers. Given the uncertainty stemming from COVID-19, however, we are working to increase our balance sheet strength and liquidity by, among other things, retaining any excess cash flow. Therefore, on April 2, 2020, we suspended our quarterly cash dividend resulting in the retention of approximately $260 million should the suspension remain in place through 2020.
Our Board regularly reviews our dividend policy and the proportion of our Free Cash Flow that any distribution represents. In determining whether to issue dividends in the future, our Board will take into account such matters as the state of the capital markets and general business and economic conditions, the short and long term impacts of, and disruptions in our businesses, and/or in the business or economic environment due to COVID-19, or other non-economic events, 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 stockholders or by its subsidiaries to the Company, and any other factors that it deems relevant, subject to maintaining a prudent level of reserves. Moreover, the Company’s senior secured credit facility and the debt commitments at our operating businesses contain restrictions that may limit the Company’s ability to pay dividends.
Strategic Alternatives
On October 31, 2019, we announced our intention to pursue strategic alternatives for our Company and have since been actively engaged in processes that could result in the sale of our Company or one or more of our operating businesses. We continue to believe that these efforts will maximize value for stockholders and we intend to move the processes forward, although recent volatility in the capital markets, ongoing disruption in business and economic conditions and the limitations on travel and other restrictions on interactions imposed by responses to COVID-19 are expected to slow these processes. The measures undertaken to date, including the suspension of the quarterly dividend, will provide MIC with additional financial flexibility to proceed with such processes in a manner consistent with maximizing value for stockholders. We have not set a timetable for completing any transaction and there can be no assurance that any transaction(s) will occur on favorable terms or at all.
On October 30, 2019, we entered into a Disposition Agreement with our Manager to facilitate our pursuit of strategic alternatives (see Exhibit 10.3 of our Annual Report on Form 10-K filed with the SEC on February 25, 2020). Outside of this agreement, we do not have the ability to terminate the Management Services Agreement between us and our Manager other than in limited circumstances. With this agreement, the Management Services Agreement will terminate as to any businesses, or substantial portions thereof, that are sold and, in connection therewith, we will make payments to our Manager calculated in accordance with the Disposition Agreement. 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.

2


Rating Agency Update
On April 15, 2020, Standard and Poor’s (S&P) lowered Atlantic Aviation’s issuer credit rating to ‘B+’ from ‘BB-’ and Atlantic Aviation’s senior secured debt to ‘BB-’ from ‘BB’. The downgrade was predicated on the impact of COVID-19 related travel restrictions on Atlantic Aviation’s business. On April 22, 2020, S&P lowered MIC’s rating to ‘BB’ from ‘BB+’ and changed the MIC outlook from stable to negative. The downgrade resulted in a lowering of IMTT’s rating as a subsidiary rating is capped by the parent rating. On a standalone basis IMTT would be rated ‘BBB-’.
On April 17, 2020, Moody's Investors Service (Moody's) lowered its rating of Atlantic Aviation’s senior secured debt to ‘B2’ from ‘Ba3’ (including the probability of default rating). The action reflects Moody's expectation that Atlantic Aviation will face a difficult operating environment involving a significant decline in GA flight activity that will lead to earnings pressure and a weaker financial profile.
The ratings actions have no impact on any of Atlantic Aviation, IMTT or MIC’s existing financial covenants. The downgrade of the MIC and IMTT ratings will increase the margin on the drawn portion of each entities’ revolving credit facilities as well as the IMTT Tax-Exempt Bonds by 0.25%. The commitment fees on the undrawn portions of the IMTT and MIC holding company level revolving credit facilities will increase by 0.05%.

3


Results of Operations
Consolidated
Impact of COVID-19
The impact of COVID-19 has varied across our portfolio of businesses. The reduction in consumption of refined petroleum products associated with the slowing of economic activity, together with increased production of crude oil, has for the time being resulted in increased demand for storage of these products and driven improved performance at IMTT. Conversely, stay-at-home orders and limitations on travel have abruptly reduced demand for the products and services provided by our Atlantic Aviation and MIC Hawaii businesses. Our businesses are not unique in these respects. The petroleum storage industry has, in general, performed well during the pandemic while the travel and tourism industries, and the businesses reliant on them, have been significantly negatively affected.
In response to the effects of the pandemic, we have remained focused on ensuring the health and safety of our employees and customers while simultaneously implementing a range of cost reduction and cost control initiatives aimed at ensuring both the continuity and value of our businesses when the crisis is over. For example, where possible, we have tried to reduce employee working hours and to maintain healthcare benefits rather than conduct layoffs. These and other expense reduction initiatives commenced in March 2020 and are expected to yield annualized savings of approximately $50 million assuming current operating conditions continue. We are also evaluating the benefits that may be available to our businesses and their employees under the U.S. Coronavirus Aid, Relief and Economic Security (CARES) Act.
We have suspended our cash dividend which will result in the retention of approximately $260 million should it remain in place through the end of 2020. We also immediately sought to increase cash available by drawing on certain of our credit facilities. We drew $599 million on our holding company revolving credit facility and $275 million on the Atlantic Aviation revolving credit facility in mid-March. The drawdowns added to our approximately $300 million of cash already on hand.
Subsequently on April 30, 2020, Atlantic Aviation fully repaid the outstanding balance on its revolving credit facility and effective May 4, 2020, reduced the commitments on this facility to $10 million resulting in consolidated cash on hand of approximately $870 million. The $10 million revolving commitments are in place solely with respect to letters of credit currently outstanding. The amendment of the facility eliminates any leverage-based maintenance covenant on the Atlantic Aviation term loan as long as the letters of credit issued under the facility are cash collateralized and rolled over to standalone letters of credit facilities upon renewal.
Operations are ongoing at each of our businesses. In light of the ongoing impacts of the pandemic on our businesses, the reduced level of economic activity and uncertainty around the timing of any recovery from the impact of the pandemic, we withdrew the financial guidance we had provided to the market on February 25, 2020. We continue to have visibility into the financial performance of IMTT given the contracted nature of its storage revenue although these may be partially offset by reduction in revenue related to the provision of ancillary services including blending, packaging or throughput. The uncontracted nature of the majority of the revenue generated by Atlantic Aviation and MIC Hawaii means that we have extraordinarily limited visibility into the prospects for these businesses over the short to medium term. A relaxation of travel restrictions and stay-at-home orders will likely be an early indication that we could expect improved performance from Atlantic Aviation and MIC Hawaii, although the rate of any such improvement is highly unpredictable given our inability to forecast the consumer response in a post-COVID-19 environment. Given the significant decline in jet fuel sales at Atlantic Aviation and gas sales at MIC Hawaii in April 2020, we do not currently anticipate meaningful improvement during the second quarter of 2020.
With the steps taken to strengthen our liquidity position summarized above, we have no immediate need for additional capital. We expect to fund the operation of our businesses and our financial obligations in 2020 using the approximately $300 million of cash on hand prior to the March 2020 drawdown on our revolving credit facilities and utilizing cash we expect to be generated by our operating businesses over the remainder of the year. We also currently expect to support the growth of the cash generating capacity of our businesses by using a portion of these resources to fund projects to which we are contractually obligated and which are projected to generate incremental earnings.
Executive Committee
As an additional precaution, our board has established an Executive Committee comprising the Chairman (or alternate), the Chief Executive Officer (or alternate) and one of the independent members of the board (or alternate) to exercise all powers and authority of the board when the board is not in session or in the event one of more of its members is/are incapacitated. Decisions of the Committee require the approval of a majority of its independent members, and a majority of the Committee’s independent members may refer any matter to the full board for determination. The Executive Committee does not have powers that, under Delaware corporate law, cannot be delegated including approving a sale of the Company. In addition, the Executive Committee may not, among other things, reinstate or declare a dividend or amend or terminate the Disposition Agreement with our Manager.


4

Results of Operations: Consolidated – (continued)

Results Update
Our consolidated results for the quarter ended March 31, 2020 reflect: (i) the absence of a $39 million contract termination payment (the termination payment) received by IMTT in the first quarter of 2019; (ii) a decrease in the sales of jet fuel and gas at Atlantic Aviation and MIC Hawaii, respectively; and (iii) an increase in expenses incurred in connection with our pursuit of strategic alternatives.
For the quarter ended March 31, 2020, there were no contributions to our consolidated results from discontinued operations due to the completion of the sale of the wind and solar power generating portfolios during 2019.
Our consolidated results of operations are as follows:
 
Quarter Ended March 31,
 
Change
Favorable/(Unfavorable)
 
2020
 
2019
 
$
 
%
 
($ In Millions, Except Share and Per Share Data) (Unaudited)
Revenue
 
 
 
 
 
 
 
Service revenue
$
356

 
$
418

 
(62
)
 
(15
)
Product revenue
60

 
64

 
(4
)
 
(6
)
Total revenue
416

 
482

 
(66
)
 
(14
)
Costs and expenses
 
 
 
 
 
 
 
Cost of services
145

 
168

 
23

 
14

Cost of product sales
42

 
40

 
(2
)
 
(5
)
Selling, general and administrative
96

 
80

 
(16
)
 
(20
)
Fees to Manager-related party
7

 
8

 
1

 
13

Depreciation
51

 
48

 
(3
)
 
(6
)
Amortization of intangibles
14

 
15

 
1

 
7

Total operating expenses
355

 
359

 
4

 
1

Operating income
61

 
123

 
(62
)
 
(50
)
Other income (expense)
 
 
 
 
 
 
 
Interest income

 
3

 
(3
)
 
(100
)
Interest expense(1)
(42
)
 
(42
)
 

 

Other income, net
1

 
4

 
(3
)
 
(75
)
Net income from continuing operations before income taxes
20

 
88

 
(68
)
 
(77
)
Provision for income taxes
(9
)
 
(24
)
 
15

 
63

Net income from continuing operations
11

 
64

 
(53
)
 
(83
)
Discontinued Operations
 
 
 
 
 
 
 
Net income from discontinued operations before income taxes

 
3

 
(3
)
 
(100
)
Benefit for income taxes

 
2

 
(2
)
 
(100
)
Net income from discontinued operations

 
5

 
(5
)
 
(100
)
Net income
11

 
69

 
(58
)
 
(84
)
 
 
 
 
 
 
 
 
Net income from continuing operations
11

 
64

 
(53
)
 
(83
)
Net income from continuing operations attributable to MIC
11

 
64

 
(53
)
 
(83
)
Net income from discontinued operations

 
5

 
(5
)
 
(100
)
Less: net loss attributable to noncontrolling interests

 
(1
)
 
(1
)
 
(100
)
Net income from discontinued operations attributable to MIC

 
6

 
(6
)
 
(100
)
Net income attributable to MIC
$
11

 
$
70

 
(59
)
 
(84
)
Basic income per share from continuing operations attributable to MIC
$
0.13

 
$
0.75

 
(0.62
)
 
(83
)
Basic income per share from discontinued operations attributable to MIC

 
0.07

 
(0.07
)
 
(100
)
Basic income per share attributable to MIC
$
0.13

 
$
0.82

 
(0.69
)
 
(84
)
Weighted average number of shares outstanding: basic
86,686,972

 
85,872,132

 
814,840

 
1

___________
(1)
Interest expense includes non-cash losses on derivative instruments of $9 million and $4 million for the quarters ended March 31, 2020 and 2019, respectively.

5

Results of Operations: Consolidated – (continued)

Revenue
Consolidated revenues decreased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of (i) decrease in the amount of jet fuel and gas sold at Atlantic Aviation and MIC Hawaii, respectively; (ii) lower wholesale cost of jet fuel and gas at Atlantic Aviation and MIC Hawaii, respectively; (iii) the absence of the termination payment received by IMTT in the first quarter of 2019; and (iv) lower average storage rates on new and renewing contracts at IMTT. These decreases were partially offset by the recognition of fees earned on tank cleaning obligations and an increase in utilization at IMTT.
Cost of Services and Cost of Product Sales
Consolidated cost of services and cost of product sales decreased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of (i) decrease in the amount of jet fuel and gas sold at Atlantic Aviation and MIC Hawaii, respectively; and (ii) a lower wholesale cost of jet fuel and gas at Atlantic Aviation and MIC Hawaii, respectively. The decrease in consolidated cost of services and cost of product sales was partially offset by realized and unrealized losses on commodity hedge contracts at Hawaii Gas (see “Results of Operations — MIC Hawaii” below).
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily due to (i) an increase in expenses incurred in connection with our pursuit of strategic alternatives; (ii) higher salaries and benefits, generally; (iii) contractual increases in rent at Atlantic Aviation; and (iv) non-cash compensation expense incurred in relation to the incentive plans for senior management of our operating businesses.
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 quarters ended March 31, 2020 and 2019, we incurred base management fees of $7 million and $8 million, respectively. Base management fees decreased primarily due to the reduction in the market capitalization of our 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 periods shown below and has currently elected to reinvest future base management fees and performance fees, if any, in new primary shares.

Period
 
Base Management
Fee Amount
($ in millions)
 
Performance
Fee Amount
($ in millions)
 
Shares
Issued
2020 Activities:
 
 
 
 
 
 
 
First quarter 2020
 
$
7

 
$

 
181,617

(1) 
 
 
 
 
 
 
 
 
2019 Activities:
 
 
 
 
 
 
 
Fourth quarter 2019
 
$
9

 
$

 
208,881

 
Third quarter 2019
 
8

 

 
201,827

 
Second quarter 2019
 
7

 

 
192,103

 
First quarter 2019
 
8

 

 
184,448

 
___________
(1)
Our Manager elected to reinvest all of the monthly base management fees for the first quarter of 2020 in new primary shares. We issued 181,617 shares for the quarter ended March 31, 2020, including 39,206 shares that were issued in April 2020 for the March 2020 monthly base management fee.
Depreciation and Amortization
The increase in depreciation and amortization expense for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 reflects primarily assets placed in service.



6

Results of Operations: Consolidated – (continued)

Interest Expense, net, and (Losses) Gains on Derivative Instruments
Interest expense, net, includes non-cash losses on derivative instruments of $9 million and $4 million for the quarters ended March 31, 2020 and 2019, respectively. (Losses) gains 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 increased to $29 million for the quarter ended March 31, 2020 from $28 million for the quarter ended March 31, 2019 reflecting primarily an increase in average debt balance, partially offset by a decrease in the weighted average interest rate of debt facilities and higher interest income earned during the quarter ended March 31, 2019. See discussions of interest expense for each of our operating businesses below.
Other Income, net
Other income, net, decreased during the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of the absence of fee income from a third-party developer of renewable power facilities. The relationship with the developer concluded during July 2019.
Discontinued Operations
We recorded no income from discontinued operations for the quarter ended March 31, 2020 as we completed the sale of the last of any businesses characterized as discontinued operations in September 2019.
Income Taxes
We file a consolidated federal income tax return that includes the financial results of IMTT, Atlantic Aviation and MIC Hawaii.  Pursuant to a tax sharing agreement, these businesses pay MIC an amount equal to the federal income tax each would pay 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. In calculating our state income tax provision, we have provided a valuation allowance for certain state income tax net operating loss (NOL) carryforwards, the use of which is uncertain.
We expect to incur a federal taxable loss for the year ended December 31, 2020. Under the CARES Act, any NOL generated in 2020 may be carried back five years.
U.S. Coronavirus Aid, Relief and Economic Security (CARES) Act
On March 27, 2020, President Trump signed the CARES Act into law. The Act includes provisions for federal grants or government-backed loans to businesses, employee benefits and retention credits, easing of certain income tax rules and a payroll tax deferral, among others. Several of these provisions may be applicable to the Company or to our operating businesses although we currently believe that they are likely to generate an immaterial benefit.
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 including EBITDA excluding non-cash items and Free Cash Flow to assess the performance and prospects of our businesses.
We measure EBITDA excluding non-cash items as it reflects our businesses’ ability to effectively manage the amount 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 reflects 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

7

Results of Operations: Consolidated – (continued)

assets; (vi) non-cash compensation expense incurred in relation to the incentive plans for senior management of our operating businesses; 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.
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.

8

Results of Operations: Consolidated – (continued)

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 March 31,
 
Change
Favorable/(Unfavorable)
 
2020
 
2019
 
$
 
%
 
($ In Millions) (Unaudited)
Net income from continuing operations
$
11

 
$
64

 
 
 
 
Interest expense, net(1)
42

 
39

 
 
 
 
Provision for income taxes
9

 
24

 
 
 
 
Depreciation
51

 
48

 
 
 
 
Amortization of intangibles
14

 
15

 
 
 
 
Fees to Manager-related party
7

 
8

 
 
 
 
Other non-cash expense, net(2)
7

 
4

 
 
 
 
EBITDA excluding non-cash items - continuing operations
$
141

 
$
202

 
(61
)
 
(30
)
 
 
 
 
 
 
 
 
EBITDA excluding non-cash items - continuing operations
$
141

 
$
202

 
 
 
 
Interest expense, net(1)
(42
)
 
(39
)
 
 
 
 
Non-cash interest expense, net(1)
13

 
11

 
 
 
 
Provision for current income taxes
(7
)
 
(7
)
 
 
 
 
Changes in working capital
(6
)
 
(16
)
 
 
 
 
Cash provided by operating activities - continuing operations
99

 
151

 
 
 
 
Changes in working capital
6

 
16

 
 
 
 
Maintenance capital expenditures
(12
)
 
(10
)
 
 
 
 
Free cash flow - continuing operations
93

 
157

 
(64
)
 
(41
)
Free cash flow - discontinued operations

 
7

 
(7
)
 
(100
)
Total Free Cash Flow
$
93

 
$
164

 
(71
)
 
(43
)
___________
(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, includes primarily pension expense of $2 million for the quarters ended March 31, 2020 and 2019, unrealized gains (losses) on commodity hedge contracts, non-cash compensation expense incurred in relation to the incentive plans for senior management of our operating businesses and non-cash gains (losses) related to the disposal of assets. Pension expense consists primarily 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.



 

9


Results of Operations: IMTT
Impact of COVID-19
IMTT continues to closely monitor the effects of COVID-19 and is actively managing its response placing a priority on the health and safety of its employees, contractors, their families, customers and the broader communities in which it operates. IMTT's services are classified as essential and its terminals remain operational and there have been no service disruptions related to the pandemic. IMTT has implemented a pandemic response plan and has taken actions that allow it to continue to provide services in a safe and effective manner. Procedures implemented include: (i) a work from home policy for all employees that are able to do so; (ii) limiting operations to only those required to meet safety, regulatory or customer needs; (iii) enhanced cleaning and disinfection of facilities; (iv) limiting interactions between employees through social distancing; (v) increased usage of personal protective equipment; (vi) modification of shift schedules to reduce exposure between shifts; (vii) limiting terminals access to essential personnel; and (viii) requiring all individuals who enter the terminals submit to temperature scans.
As a result of the implementation of these procedures, certain operating costs have increased. IMTT expects the increases to be approximately $5 million in 2020. If conditions worsen and additional measures need to be put into place, for example, having dedicated staff that remain at the terminals full time, these costs may increase. The cost increases are expected to be partially offset by reduced repair and maintenance expense and operating costs due to only essential operations occurring, lower healthcare costs and lower general and administrative expenses.
IMTT is engaged in ongoing communications with its employees, customers, vendors, lenders, ratings agencies and other stakeholders to keep them apprised of its response to the pandemic. COVID-19 and the resulting slowdown in economic activity, together with OPEC’s crude oil pricing and supply decisions, have led to an oversupply of petroleum and other liquid products stored and handled by IMTT. These factors have, in some cases, created conditions in which the expected future value of a product is higher than its current value and has increased demand for storage of these products. As a result, IMTT’s utilization is expected to increase to over 95% by mid-May from 86.3% at the end of 2019 with almost all usable tanks currently leased. In addition, some customers have renewed contracts ahead of their expiration in order to guarantee the availability of storage. The leases entered into in March and April have a volume weighted average duration of approximately one year. IMTT believes that its circumstances are not unique and that the broader bulk liquid storage industry is experiencing similar increases in demand.
Although demand for storage has increased, IMTT believes product handling activities may decrease. Reduced handling activities could reduce the portion of IMTT’s revenue that is not contracted and is based on providing ancillary services such as heating, excess throughput, blending or rail or trucking charges. Approximately 80% of IMTT’s revenue is generated from firm commitments. In addition, a sustained decrease in economic activity could result in reduced demand for certain of the products stored by IMTT and may result in lower demand for storage.
IMTT is reviewing all maintenance and growth capital expenditure projects to ensure it is prudently managing its liquidity. IMTT’s agreement to construct new storage in support of a methanol manufacturing plant being developed by Methanex in Geismar, LA includes a provision which allows Methanex to delay the project by one year. As a result of COVID-19, Methanex exercised this provision and construction of the storage is now expected to start in mid-2021 and be completed in mid-2023. No other previously announced repositioning projects have contract terms that allow the customer to unilaterally delay the project. There has been no other material COVID-19 related impacts to IMTT’s planned capital projects, however, if conditions worsen, other projects may be delayed or costs may increase due to a lack of contractor or resource availability. IMTT also anticipates a reduction in the number of inquiries regarding new growth projects.
IMTT has not experienced any significant impact to its financial controls or reporting systems. Minor modifications have been made to accommodate administrative personnel working remotely.
Although there may be a delay in accounts receivable collections in the future as a result of COVID-19, IMTT has not experienced any collections issues to date and continues to make payments to vendors as due. The business does not foresee any liquidity issues and is compliant with its debt covenants. IMTT has not drawn on its $600 million revolving credit facility, which matures in December 2023, and does not have any other debt maturities until May 2025.
IMTT monitors leading and key performance indicators such as petroleum spot prices and futures curves, throughput volumes, contract renewals and tenor, utilization, rates and accounts receivable in assessing the future impacts COVID-19 may have on the business. In addition, the business is reviewing the benefits that may be available to it under the CARES Act. Initial indications are that these are likely to be immaterial to the business’ results of operations.
The business believes current supply and demand imbalances, particularly with respect to refined petroleum products, are likely to persist over the near term and sustain demand for storage and handling of these products.

10

Results of Operations: IMTT – (continued)

Business Update
The financial performance of IMTT is driven by the amount of bulk liquid storage capacity the business has under contract (lease) and the rates for storage and other services achieved on those contracts. The portion of IMTT’s storage capacity under contract (utilization) averaged 85.4% and 82.5% for the quarters ended March 31, 2020 and 2019, respectively. Utilization averaged 85.2% for the quarter ended December 31, 2019. The slight increase in average utilization reflects primarily an increase in storage of clean petroleum products in New York Harbor associated with seasonal demand. Demand for storage across IMTT's terminals increased at the end of the first quarter and beginning of the second quarter and utilization is expected to average in the low 90s percent for full year 2020.
On February 20, 2020, IMTT entered into an agreement with Diamond Green Diesel (DGD), a joint venture between Valero Energy Corporation and Darling Ingredients, pursuant to which it will construct two pipelines connecting its St. Rose, LA terminal with the DGD renewable diesel refinery at Norco, LA five miles away. IMTT will also expand its marine and rail infrastructure and repurpose approximately 790,000 barrels of existing storage capacity from heavy and residual petroleum service to renewable diesel feedstocks and finished product. The project is expected to be completed prior to the end of 2021.
IMTT works with existing and new customers continuously to meet their storage and logistics needs. Critical to IMTT’s success is its ability to construct new assets on a build-to-suit basis and/or to repurpose existing tanks and infrastructure to meet these needs. These projects range from simple, inexpensive modifications to large scale developments requiring extensive planning and capital investment. IMTT currently expects these development and repurposing efforts will, going forward, (i) increase its customer base; (ii) improve utilization and average storage rates; (iii) increase exposure to new products that it believes have better sustainable growth prospects; (iv) generate a larger proportion of its revenue from longer-dated contracts; and (iv) reduce its exposure to short-term, cyclical markets with slower growth prospects.
The financial results recorded by IMTT in the first quarter of 2020 reflect the absence of the termination payment received in the first quarter of 2019. The absence of the termination payment impacts each of the revenue, operating income and net income lines of the GAAP income statement as well as the management reporting line items of EBITDA excluding non-cash items and Free Cash Flow.

11

Results of Operations: IMTT – (continued)

 
Quarter Ended March 31,
 
Change
Favorable/(Unfavorable)
 
2020
 
2019
 
 
$
 
$
 
$
 
%
 
($ In Millions) (Unaudited)
Revenue
132

 
161

 
(29
)
 
(18
)
Cost of services
50

 
50

 

 

Selling, general and administrative expenses
9

 
8

 
(1
)
 
(13
)
Depreciation and amortization
34

 
33

 
(1
)
 
(3
)
Operating income
39

 
70

 
(31
)
 
(44
)
Interest expense, net(1)
(15
)
 
(13
)
 
(2
)
 
(15
)
Other income, net
1

 

 
1

 
NM

Provision for income taxes
(7
)
 
(16
)
 
9

 
56

Net income
18

 
41

 
(23
)
 
(56
)
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
 
 
 
 
 
 
 
Net income
18

 
41

 
 
 
 
Interest expense, net(1)
15

 
13

 
 
 
 
Provision for income taxes
7

 
16

 
 
 
 
Depreciation and amortization
34

 
33

 
 
 
 
Other non-cash expense, net(2)
3

 
1

 
 
 
 
EBITDA excluding non-cash items
77

 
104

 
(27
)
 
(26
)
EBITDA excluding non-cash items
77

 
104

 
 
 
 
Interest expense, net(1)
(15
)
 
(13
)
 
 
 
 
Non-cash interest expense, net(1)
5

 
3

 
 
 
 
Provision for current income taxes
(2
)
 
(11
)
 
 
 
 
Changes in working capital
(17
)
 
8

 
 
 
 
Cash provided by operating activities
48

 
91

 
 
 
 
Changes in working capital
17

 
(8
)
 
 
 
 
Maintenance capital expenditures
(6
)
 
(6
)
 
 
 
 
Free cash flow
59

 
77

 
(18
)
 
(23
)
___________
NM — Not meaningful.
(1)
Interest expense, net, includes non-cash adjustments to derivative instruments and non-cash amortization of deferred financing fee.
(2)
Other non-cash expense, net, includes primarily pension expense of $2 million for the quarters ended March 31, 2020 and 2019 and non-cash compensation expense incurred in relation to incentive plans. Pension expense consists primarily 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 March 31, 2020, firm commitments had a revenue weighted average remaining contract life of 2.0 years. Revenue from firm commitments, excluding fees earned on tank cleaning obligations and the termination payment, comprised 80.7% and 80.3% of total revenue for the quarters ended March 31, 2020 and 2019, respectively.
Total revenues decreased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily due to the absence of the termination payment received during the quarter ended March 31, 2019 and the impact of contracts

12

Results of Operations: IMTT – (continued)

renewed at lower storage rates in the second half of 2019. The decrease was partially offset by the recognition of $15 million of fees earned on tank cleaning obligations and an increase in utilization.
Cost of Services and Selling, General and Administrative Expenses
Cost of services and selling, general and administrative expenses combined increased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily due to higher property taxes at Bayonne and increases in insurance expense, partially offset by lower fuel costs and repairs and maintenance expenses.
Depreciation and Amortization
Depreciation and amortization expense increased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of assets placed in service.
Interest Expense, net
Interest expense, net, includes non-cash losses on derivative instruments of $5 million and $2 million for the quarters ended March 31, 2020 and 2019, respectively. Excluding the derivative adjustments, cash interest expense was $10 million for both the quarters ended March 31, 2020 and 2019.
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, 2020, the business expects to pay state and foreign income taxes of approximately $3 million. The Provision for current income taxes of $2 million for the quarter ended March 31, 2020 in the above table relates primarily to state income tax expense.
Most 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 over 5 to 30 years using the straight-line method. For federal income tax purposes, these same fixed assets are depreciated over 5 to 15 years using accelerated methods. In addition, most terminal fixed assets qualify for federal bonus tax depreciation. A significant portion of the terminal fixed assets in Louisiana constructed in the period after Hurricane Katrina in 2005 were financed with Growth Opportunity (GO) Zone Bonds. GO Zone Bond financed assets are depreciated for tax purposes 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 depreciation except for assets financed with GO Zone Bonds.
IMTT has state NOL carryforwards that are specific to the state in which they were generated. The utilization of NOL carryforwards may reduce or eliminate state taxable income in the future.
Maintenance Capital Expenditures
For the quarter ended March 31, 2020, IMTT incurred maintenance capital expenditures of $6 million and $8 million on an accrual basis and cash basis, respectively, compared with $6 million and $7 million on an accrual basis and cash basis, respectively, for the quarter ended March 31, 2019. IMTT expects to incur between $40 million and $45 million of maintenance capital expenditures in 2020.

13


Results of Operations: Atlantic Aviation
Impact of COVID-19
Atlantic Aviation continues to closely monitor the effects of COVID-19 and is actively managing its response placing a priority on the health and safety of its employees, contractors, their families, customers and the broader communities in which it operates. Atlantic Aviation's services are classified as essential and its FBOs remain operational and there have been no service disruptions related to the pandemic. The business has implemented a pandemic response plan and is closely monitoring guidance from the Centers for Disease Control and Prevention (CDC) as well as federal, state and local governments with respect to conducting operations safely. In addition to standard operating procedures designed to maintain safe operations, Atlantic Aviation has implemented additional measures including: (i) a work from home policy for all employees that are able to do so; (ii) enhanced cleaning and disinfection of facilities; (iii) limiting interactions between employees through social distancing; and (iv) increased usage of personal protective equipment.
Atlantic Aviation is engaged in ongoing communications with its employees, customers, vendors, lenders, ratings agencies and other stakeholders to keep them apprised of its response to the pandemic. COVID-19 has significantly reduced demand for Atlantic Aviation’s services as federal, state and local governments have implemented pandemic response measures including social distancing, quarantines, travel restrictions, prohibitions on public gatherings and stay-at-home orders. These measures have significantly reduced GA flight activity and the demand for Atlantic Aviation's jet fuel, transient hangarage and aircraft parking and ancillary services. Although the amount of jet fuel sold during the first ten weeks of 2020 was generally consistent with the prior year, at the end of March and through April 2020 jet fuel sales declined by approximately 80%. We do not currently anticipate meaningful improvements during the second quarter of 2020. The duration of the pandemic, the timeline and process for phasing out the governmental response measures, as well as the ability of the U.S. and global economy to restart once they have been lifted, are uncertain. Post-pandemic changes to travel patterns including consumer willingness to travel, the availability of commercial flights and other factors are currently unknown.
In response to the decrease in flight activity, Atlantic Aviation has engaged in a thorough review of its operational and capital expenditures. Staffing levels are being reviewed and reset to reflect the reduced levels of demand for services provided. Staffing reductions have been achieved primarily through furloughs or reductions in scheduled hours. Non-payroll discretionary expenses are being cut or deferred. Similarly, capital expenditures are being reviewed, with uncommitted or non-essential items being deferred as well.
Atlantic Aviation is reviewing the benefits that may be available to it under the CARES Act. The primary benefits available to Atlantic Aviation appear to be those available to most other businesses, including, for example, deferral of payment of certain payroll taxes. Atlantic Aviation is also requesting rent relief from various airport landlords. Initial indications are that these are likely to be immaterial to the business’ results of operations.
Accounts receivable collections are being monitored closely given the uncertainty around the length of time over which travel restrictions will remain in place. Extensions of credit to customers have been restricted, generally, with those deemed to be a higher risk being asked to utilize alternative payment methods. There has been no material deterioration in Atlantic Aviation’s accounts receivable to date. To the extent the financial impact of the pandemic is protracted or government or other support for certain businesses is not forthcoming, collection times and the value of uncollectible accounts could increase.
Atlantic Aviation has not experienced any significant impact to its financial controls or reporting systems. Minor modifications have been made to accommodate administrative personnel working remotely.
On April 30, 2020, Atlantic Aviation fully repaid the outstanding balance on its revolving credit facility and effective May 4, 2020, reduced the commitments on this facility to $10 million solely with respect to letters of credit currently outstanding. The amendment of the facility eliminates any leverage-based maintenance covenant on the Atlantic Aviation term loan as long as the letters of credit issued under the facility are cash collateralized and rolled over to standalone letters of credit facilities upon renewal.
Assuming that the pandemic and its impact on the economy are unchanged relative to their current effects, and Atlantic Aviation's FBOs continue to operate at current significantly reduced levels, the business believes that the combination of its existing liquidity, cash generated from ongoing operations and cost containment efforts will enable the business to continue to operate through 2020 with minimal support from MIC.
The duration of the pandemic and the mitigation measures implemented by the government, including travel restrictions, border closings, prohibitions on public gatherings and social distancing, a lack of visibility into consumer preferences in a post-COVID-19 environment, uncertainty surrounding the level of operations of commercial airlines and the absence of a material level of contracted revenue stream, make forecasting the contribution of this business to our results in 2020 impossible at this time.

14

Results of Operations: Atlantic Aviation – (continued)

Business Update
The fundamental driver of the financial performance of Atlantic Aviation is the number of GA flight movements in a year. Over the long-term, the rate of growth in GA flight movements has tended to be positively correlated with the level of economic activity in the U.S. The significant decrease in economic activity at the end of the first quarter of 2020, together with the implementation of widespread travel restrictions and other governmental mitigation measures, contributed to a substantial reduction in GA flight activity at the end of the period.
According to data reported by the Federal Aviation Administration, the total number of GA flight movements at airports on which Atlantic Aviation operates decreased by 10.6% during the quarter ended March 31, 2020 versus the prior comparable period.
Atlantic Aviation seeks to extend FBO leases prior to their maturity in order to maintain visibility into the cash generating capacity of these assets over the long-term. Atlantic Aviation calculates a weighted average remaining lease life based on EBITDA excluding non-cash items in the prior calendar year adjusted for the impact of acquisitions, dispositions and lease extensions. The weighted average remaining lease life was 19.6 years and 19.7 years at March 31, 2020 and 2019, respectively.

15

Results of Operations: Atlantic Aviation – (continued)

 
Quarter Ended March 31,
 
Change
Favorable/(Unfavorable)
 
2020
 
2019
 
 
$
 
$
 
$
 
%
 
($ In Millions) (Unaudited)
Revenue
224

 
258

 
(34
)
 
(13
)
Cost of services (exclusive of depreciation and amortization shown separately below)
95
 
118

 
23

 
19

Gross margin
129
 
140

 
(11
)
 
(8
)
Selling, general and administrative expenses
64

 
61

 
(3
)
 
(5
)
Depreciation and amortization
27

 
26

 
(1
)
 
(4
)
Operating income
38

 
53

 
(15
)
 
(28
)
Interest expense, net(1)
(19
)
 
(19
)
 

 

Provision for income taxes
(5
)
 
(9
)
 
4

 
44

Net income
14

 
25

 
(11
)
 
(44
)
Reconciliation of net income to EBITDA
excluding non-cash items and a reconciliation
of cash provided by operating activities to Free Cash Flow:
 
 
 
 
 
 
 
Net income
14

 
25

 
 
 
 
Interest expense, net(1)
19

 
19

 
 
 
 
Provision for income taxes
5

 
9

 
 
 
 
Depreciation and amortization
27

 
26

 
 
 
 
Other non-cash expense, net(2)
1

 

 
 
 
 
EBITDA excluding non-cash items
66

 
79

 
(13
)
 
(16
)
EBITDA excluding non-cash items
66

 
79

 
 
 
 
Interest expense, net(1)
(19
)
 
(19
)
 
 
 
 
Non-cash interest expense, net(1)
5

 
5

 
 
 
 
Provision for current income taxes
(9
)
 
(7
)
 
 
 
 
Changes in working capital
16

 
(4
)
 
 
 
 
Cash provided by operating activities
59

 
54

 
 
 
 
Changes in working capital
(16
)
 
4

 
 
 
 
Maintenance capital expenditures
(3
)
 
(2
)
 
 
 
 
Free cash flow
40

 
56

 
(16
)
 
(29
)
___________
(1)
Interest expense, net, includes non-cash adjustments to derivative instruments and non-cash amortization of deferred financing fees.
(2)
Other non-cash expense, net, includes primarily non-cash compensation expense incurred in relation to incentive plans 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.
Atlantic Aviation generates most of its revenue from sales of jet fuel. Increases and decreases in the cost of jet fuel are generally passed through to customers. Accordingly, reported revenue will fluctuate based on the cost of jet fuel to Atlantic Aviation and may not reflect the business’ ability to effectively manage the amount of jet fuel sold and the margin achieved on those sales. 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 amount or margin per gallon. Conversely, a decline in revenue may be attributable to a decrease in the cost of jet fuel and not a reduction in the amount or margin per gallon.
Gross margin, which we define as revenue less cost of services, excluding depreciation and amortization, is the effective “top line” for Atlantic Aviation as it reflects the business’ ability to drive growth in the amount 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 amount 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.

16

Results of Operations: Atlantic Aviation – (continued)

Revenue and Gross Margin
The majority of the revenue generated, and the gross margin earned by Atlantic Aviation is the result of fueling GA jet 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 jet fuel sales.
Revenue decreased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 as a result of a decrease in the amount of jet fuel sold and lower wholesale cost of jet fuel. The decrease in the wholesale cost of jet fuel is reflected in a corresponding decrease in cost of services.

The impact of reduced flight activity on Atlantic Aviation’s gross margin was exacerbated by a significant decline in the wholesale price of jet fuel during the first quarter of 2020. While Atlantic Aviation’s overall exposure is limited given its modest inventory volumes, the decline of 65% in the wholesale price of jet fuel in the first quarter of 2020 resulted in a loss on fuel in inventory that reduced gross margin by an estimated $2 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of higher salaries and benefits and contractual increases in rent.
Depreciation and Amortization
Depreciation and amortization expense increased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of assets placed in service.
Operating Income
Operating income decreased in the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 due to the decrease in gross margin and increases in selling, general and administrative expenses and depreciation and amortization.
Interest Expense, net
Interest expense, net, includes non-cash losses on derivative instruments of $3 million and $2 million for the quarters ended March 31, 2020 and 2019, respectively. Excluding the derivative adjustments, cash interest expense was $14 million for both the quarters ended March 31, 2020 and 2019.
Income Taxes
The taxable income generated by Atlantic Aviation is reported on our consolidated federal income tax return. The business files standalone state income tax returns in most 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. The Provision for current income taxes of $9 million for the quarter ended March 31, 2020 in the above table includes $5 million of state income tax expense and $4 million of federal income tax expense.
Atlantic Aviation has state NOL carryforwards that are specific to the state in which they were generated. The utilization of NOL carryforwards may reduce or eliminate state taxable income in the future.
Maintenance Capital Expenditures
For the quarter ended March 31, 2020, Atlantic Aviation incurred maintenance capital expenditures of $3 million and $6 million on an accrual basis and cash basis, respectively, compared with $2 million on both an accrual basis and cash basis for the quarter ended March 31, 2019.
Results of Operations: MIC Hawaii
Impact of COVID-19
MIC Hawaii continues to closely monitor the effects of COVID-19 and is actively managing its response placing a priority on the health and safety of its employees, contractors, their families, customers and the broader communities in which it operates. Businesses within MIC Hawaii's services are classified as essential and its businesses remain operational and there have been no service disruptions related to the pandemic. Hawaii Gas continues to provide safe and reliable gas to both utility and non-utility customers while the other MIC Hawaii businesses continue to fulfill their respective commitments to deliver clean and renewable energy. Hawaii Gas has implemented a pandemic response plan to ensure safe operation of critical infrastructure and has separated its workforce into critical and non-critical employees, with the latter working remotely. A series of measures have been implemented to reduce the risk of infection among critical employees who are required to work on site, including but not limited to, (i) a work from home policy for all employees that are able to do so; (ii) enhanced cleaning and disinfection of facilities; (iii) limiting interactions between employees through social distancing; (iv) increased usage of personal protective equipment; (v) modification

17

Results of Operations: MIC Hawaii – (continued)

of shift schedules to reduce exposure between shifts; and (vi) educating customers on alternative payment and customer care options. In addition, MIC Hawaii has increased the frequency of monitoring leading and key performance indicators such as Liquefied Petroleum Gas (LPG) prices and forward curve, gas production, LPG delivery schedules and accounts receivable and accounts payable aging to ensure operational effectiveness and adequate liquidity are maintained throughout the pandemic.
MIC Hawaii is engaged in ongoing communications with its employees, customers, vendors, lenders and other stakeholders to keep them apprised of its response to the pandemic. COVID-19 and the related disruption in business and economic activity and the governmental mitigation measures, including travel restrictions, prohibition on public gatherings and social distancing, have led to a significant decline in economic activity and the number of visitors to Hawaii. Visitor arrivals to Hawaii declined by over 95% through April versus the prior comparable period, driven partially by a 14-day quarantine requirement for all visitors to Hawaii announced by the Governor on March 21, 2020 and effective March 26, 2020. The resulting significant decline in hotel occupancy levels has led to reductions in hotel operations, including temporary closures and reduced gas consumption by a significant number of commercial customers, including the hotels and restaurants. In addition to reduced consumption from declining visitor activity, lower oil and oil-derivative prices have led low-margin, but higher volume, interruptible utility customers to use lower-cost diesel instead of gas to fuel their operations. Demand for gas by residential customers has been and is expected to remain intact. Currently, these events are expected to result in an aggregate decline in total gas sales of approximately 30% to 40%.  
Because travel restrictions were implemented in late March, the impact on commercial gas sales and revenue were relatively minor for the quarter ended March 31, 2020. The overall decline in results for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 were primarily due to the decline in the amount of gas sold to utility interruptible and residential customers, together with realized losses on commodity hedge contracts described below. Hawaii Gas expects COVID-19 impacts to be more significant in the near term and potentially the medium term to the extent the pandemic and restrictive travel policies remain in place and depending on the length of time it takes for normal economic business activity to resume.
Hawaii Gas is mitigating the impact of reduced gas sales by implementing cost saving initiatives including a hiring freeze and deferral of vacancy fills of non-critical hires, reductions in overtime, deferral of non-safety related maintenance and repair work and reductions in general and administrative expenses such as IT system upgrades. Hawaii Gas has also deferred discretionary maintenance capital expenditures and growth projects to which it is not contractually obligated and not required for safety reasons. The renewal of a collective bargaining agreement that was scheduled to expire in April has been extended to June 2020 by mutual agreement. Hawaii Gas is continuing to evaluate and implement additional cost saving initiatives. In addition, the business is reviewing the benefits that may be available to it under the CARES Act. Initial indications are that these are likely to be immaterial to the business’ results of operations.
Hawaii Gas is in regular communication with key counterparties including its supplier of naphtha feedstock for its utility operations and its LPG supplier. To date, there has been no disruption in supply or supply logistics. Hawaii Gas is closely tracking and conservatively managing LPG inventory to reduce its exposure to supply chain disruptions. As a result of declines in oil and oil-derivative prices, LPG prices for the quarter ended March 31, 2020 decreased, resulting in realized losses on Hawaii Gas’ commodity hedge contracts.
MIC Hawaii has not experienced any significant impact to its financial controls or reporting systems. Minor modifications have been made to accommodate administrative personnel working remotely. In addition, the pandemic has not had any significant impact on its ability to collect payment from customers or to pay vendors. MIC Hawaii does not foresee needing additional liquidity. MIC Hawaii has not drawn on its $60 million revolving credit facility, which matures in February 2023. Its nearest mandatory debt maturity is in August 2022.
The duration of the pandemic and the mitigation measures implemented by the government, including travel restrictions, quarantines, prohibitions on public gathering and social distancing, a lack of visibility into consumer preferences in a post-COVID-19 environment, uncertainty surrounding the level of operations of commercial airlines and/or cruise lines and the absence of a material level of contracted revenue streams, make forecasting the contribution of this business to our results in 2020 impossible at this time.
Business Update
The financial performance of MIC Hawaii is a function of the number of customers served, their consumption of energy and the prices achieved on sales by each of Hawaii Gas’s utility and non-utility operations and under power purchase agreements. The amount of gas consumed is correlated with general economic activity over the long term with tourism being a key component. 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 decreased contribution from MIC Hawaii for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 principally reflects a decrease in the amount of gas sold.

18

Results of Operations: MIC Hawaii – (continued)

 
Quarter Ended March 31,
 
Change
Favorable/(Unfavorable)
 
2020
 
2019
 
 
$
 
$
 
$
 
%
 
($ In Millions) (Unaudited)
Revenue
60

 
64

 
(4
)
 
(6
)
Cost of product sales (exclusive of depreciation and amortization shown separately below)
42

 
40

 
(2
)
 
(5
)
Gross margin
18

 
24

 
(6
)
 
(25
)
Selling, general and administrative expenses
6

 
6

 

 

Depreciation and amortization
4

 
4

 

 

Operating income
8

 
14

 
(6
)
 
(43
)
Interest expense, net(1)
(3
)
 
(3
)
 

 

Provision for income taxes
(2
)
 
(3
)
 
1

 
33

Net income
3

 
8

 
(5
)
 
(63
)
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
 
 
 
 
 
 
 
Net income
3

 
8

 
 
 
 
Interest expense, net(1)
3

 
3

 
 
 
 
Provision for income taxes
2

 
3

 
 
 
 
Depreciation and amortization
4

 
4

 
 
 
 
Other non-cash expense, net(2)
3

 
2

 
 
 
 
EBITDA excluding non-cash items
15

 
20

 
(5
)
 
(25
)
EBITDA excluding non-cash items
15

 
20

 
 
 
 
Interest expense, net(1)
(3
)
 
(3
)
 
 
 
 
Non-cash interest expense, net(1)
1

 
1

 
 
 
 
Provision for current income taxes
(2
)
 
(3
)
 
 
 
 
Changes in working capital
(5
)
 
(2
)
 
 
 
 
Cash provided by operating activities
6

 
13

 
 
 
 
Changes in working capital
5

 
2

 
 
 
 
Maintenance capital expenditures
(3
)
 
(2
)
 
 
 
 
Free cash flow
8

 
13

 
(5
)
 
(38
)
___________
(1)
Interest expense, net, includes non-cash adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees.
(2)
Other non-cash expense, net, includes primarily non-cash adjustments related to unrealized gains (losses) on commodity hedge contracts, pension expense and non-cash compensation expense incurred in relation to incentive plans. Pension expense consists primarily 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.
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 to commercial, residential and governmental customers and from the production of electricity.
Hawaii Gas generates most 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 the amount of gas sold and the margins achieved on those sales. 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 amount of gas sold or margin achieved. Conversely, a decline in

19

Results of Operations: MIC Hawaii – (continued)

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 amount of gas sold or margin achieved.
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 amount 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 declined for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of a decrease in the amount of gas sold by Hawaii Gas and lower utility feedstock prices that are passed through to ratepayers. The decrease in the amount of gas sold reflects switching by select customers to lower cost alternative fuels and a decrease in commercial sales due to COVID-19.
Gross margin declined to $18 million for the quarter ended March 31, 2020 from $24 million for the quarter ended March 31, 2019 partially as a result of the unfavorable changes in the value of unrealized commodity hedge contracts. The business recorded unrealized losses of $2 million on commodity hedge contracts for the quarter ended March 31, 2020 compared with an insignificant unrealized gain for the quarter ended March 31, 2019. The change in the value of the commodity hedge contracts during the quarter ended March 31, 2020 reflects an unfavorable movement in the forecast prices of LPG relative to the hedged price.
Excluding the unrealized losses on the commodity hedge contracts, gross margin decreased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of decrease in the amount of gas sold and realized losses from commodity hedge contracts due to the decrease in LPG costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses remained flat for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 as a result of higher salaries and benefits and insurance, partially offset by a decrease in sales and marketing costs.
Operating Income
Operating income decreased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily due to the decrease in gross margin.
Interest Expense, net
Interest expense, net, includes non-cash losses on derivative instruments of $1 million for the quarter ended March 31, 2020 compared with insignificant losses for the quarter ended March 31, 2019. Excluding the derivative adjustments, cash interest expense was $2 million for both the quarters ended March 31, 2020 and 2019.
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. The Provision for Current Income Taxes of $2 million for the quarter ended March 31, 2020 in the above table includes primarily $2 million of federal income tax expense.
Maintenance Capital Expenditures
For the quarter ended March 31, 2020, MIC Hawaii incurred maintenance capital expenditures of $3 million on both an accrual basis and cash basis compared with $2 million on both an accrual basis and cash basis for the quarter ended March 31, 2019.

20


Results of Operations: Corporate and Other
Our Corporate and Other segment comprises primarily 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 March 31,
 
Change
Favorable/(Unfavorable)
 
2020
 
2019
 
 
$
 
$
 
$
 
%
 
($ In Millions) (Unaudited)
Selling, general and administrative expenses
17

 
6

 
(11
)
 
(183
)
Fees to Manager-related party
7

 
8

 
1

 
13

Operating loss
(24
)
 
(14
)
 
(10
)
 
(71
)
Interest expense, net(1)
(5
)
 
(4
)
 
(1
)
 
(25
)
Other income, net

 
4

 
(4
)
 
(100
)
Benefit for income taxes
5

 
4

 
1

 
25

Net loss
(24
)
 
(10
)
 
(14
)
 
(140
)
Reconciliation of net loss to EBITDA excluding non-cash items and a reconciliation of cash used in operating activities to Free Cash Flow:
 
 
 
 
 
 
 
Net loss
(24
)
 
(10
)
 
 
 
 
Interest expense, net(1)
5

 
4

 
 
 
 
Benefit for income taxes
(5
)
 
(4
)
 
 
 
 
Fees to Manager-related party
7

 
8

 
 
 
 
Other non-cash expense, net

 
1

 
 
 
 
EBITDA excluding non-cash items
(17
)
 
(1
)
 
(16
)
 
NM

EBITDA excluding non-cash items
(17
)
 
(1
)
 
 
 
 
Interest expense, net(1)
(5
)
 
(4
)
 
 
 
 
Non-cash interest expense, net(1)
2

 
2

 
 
 
 
Benefit for current income taxes
6

 
14

 
 
 
 
Changes in working capital

 
(18
)
 
 
 
 
Cash used in operating activities
(14
)
 
(7
)
 
 
 
 
Changes in working capital

 
18

 
 
 
 
Free cash flow
(14
)
 
11

 
(25
)
 
NM

___________
NM — Not meaningful.
(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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily due to expenses incurred in connection with our pursuit of strategic alternatives, partially offset by the absence of consulting expenses incurred during the first quarter of 2019 in connection with our evaluation of opportunities to improve efficiencies.
Fees to Manager
Fees to Manager for the quarter ended March 31, 2020 comprise base management fees of $7 million compared with $8 million for the quarters ended March 31, 2020 and 2019, respectively. Base management fees decreased primarily due to the reduction in the market capitalization of our Company. No performance fees were incurred in either of the current or prior comparable periods.

21

Results of Operations: Corporate and Other – (continued)

Interest Expense, net
Cash interest expense, net, increased to $3 million for the quarter ended March 31, 2020 from $2 million for the quarter ended March 31, 2019 primarily as a result of higher average debt balances, partially offset by higher interest income earned in the quarter ended March 31, 2019.
Other Income, net
Other income, net, decreased for the quarter ended March 31, 2020 compared with the quarter ended March 31, 2019 primarily as a result of the absence of 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 $6 million for the quarter ended March 31, 2020 in the above table reflects the current federal income tax recorded by IMTT, Atlantic Aviation and MIC Hawaii offset in consolidation with losses generated by MIC Corporate and Other.

22


Liquidity and Capital Resources
General
Our primary cash requirements have historically included normal operating expenses, debt service, debt principal payments, payments of dividends and capital expenditures. Our primary source of cash has historically been operating activities, although we have drawn and may draw on credit facilities, issued new equity or debt or sold 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.
On March 17, 2020, we drew down a total of $874 million on two revolving credit facilities. We drew $599 million on our $600 million holding company level revolving credit facility and drew $275 million on the $350 million revolving credit facility at Atlantic Aviation. The proceeds were additive to our approximately $300 million of cash already on hand. Although we had and continue to have no immediate need for the additional liquidity, the drawdowns were deemed prudent to preserve financial flexibility in light of the disruption in the global markets and the unpredictability of the sustained impact to our businesses caused by COVID-19.
On April 30, 2020, Atlantic Aviation fully repaid the outstanding balance on its revolving credit facility and effective May 4, 2020, reduced the commitments on this facility to $10 million. Prior to the reduction in the revolving credit facility commitments, the debt supporting Atlantic Aviation under its credit agreement comprised a $350 million revolving credit facility and a $1,012 million term loan. The term loan remains outstanding. The $10 million revolving commitments are in place solely with respect to letters of credit currently outstanding (and such commitments will be reduced after each existing letter of credit expires or otherwise terminates).
In connection with the repayment of the revolving credit facility and reduction in commitments, we and the required revolving lenders amended certain terms of the credit agreement.  Prior to such amendment, Atlantic Aviation covenanted to maintain its ratio of net debt/EBITDA at or below 5.5x over a trailing twelve-month period. Going forward, such financial covenant will not be applicable so long as letters of credit issued under the credit facility are cash collateralized and rolled over to standalone letter of credit facilities upon renewal.
In addition to drawing on our holding company level revolving credit facility, we have determined to improve our liquidity and financial flexibility in light of COVID-19 by suspending our dividend. We currently expect to retain approximately $260 million if the suspension remains in effect through the end of 2020. Over the remainder of 2020, we currently expect to fund our operations, service our debt, make state tax payments, fund essential maintenance capital expenditures, deploy growth capital and make required principal repayments using cash generated from the operations of our businesses and the $300 million of cash on hand prior to the March 2020 drawing on our holding company level revolving credit facility.
At March 31, 2020, our consolidated debt outstanding from continuing operations totaled $3,592 million (excluding adjustments for unamortized debt discounts) including the drawings on our revolving credit facilities. Our consolidated cash balance totaled $1,156 million including the proceeds from the revolving credit facilities and the available capacity under our revolving credit facilities was reduced from $1,610 million at December 31, 2019 to $736 million at March 31, 2020. With the cash drawn on the revolving credit facilities held in cash, our ratio of net debt/EBITDA was 4.3x as of March 31, 2020. We expect to use cash on hand to partially fund our operations and growth capital during 2020, which will increase our net debt at year-end.
The following table shows MIC’s debt obligations from continuing operations at May 1, 2020 ($ in millions):
Business
 
Debt
 
Weighted Average Remaining Life
(in years)
 
Balance Outstanding
 
Weighted
Average Rate(1)
MIC Corporate
 
Convertible Senior Notes
 
3.4

 
$
403

 
2.00
%
 
 
Revolving Facility
 
1.7

 
599

 
2.55
%
IMTT
 
Senior Notes
 
6.0

 
600

 
3.97
%
 
 
Tax-Exempt Bonds
 
5.6

 
509

 
2.98
%
Atlantic Aviation
 
Term Loan(2)
 
5.6

 
1,012

 
4.33
%
MIC Hawaii
 
Term Loan(2)
 
3.3

 
94

 
2.04
%