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MIC Reports Third Quarter 2017 Financial Results, Increases Quarterly Cash Dividend

NEW YORK, Nov. 1, 2017 /PRNewswire/ -- Macquarie Infrastructure Corporation (NYSE: MIC) today reported its financial results for the third quarter of 2017.

"MIC's performance in the third quarter was consistent with the first half of the year with continued strong performance at Atlantic Aviation tempered by modest headwinds at our Contracted Power business," said James Hooke, chief executive officer of MIC. "We successfully completed the acquisitions of Epic Midstream and Orion Jet Center, as anticipated, and we continue to find opportunities to put growth capital to work at a rate that should see the Company achieve full year deployments of at least $650.0 million."

"MIC's financial results for the quarter supported an increase in our quarterly cash dividend to $1.42 per share — a 10.1% uptick versus the third quarter in 2016," Hooke added. The Company reaffirmed its guidance with respect to a 10% increase year over year in its cash dividend in 2017. Management's expectation for growth in cash generation and dividends assumes the continued improvement in operating results of existing businesses, together with anticipated contributions from investments and acquisitions.

MIC reported a 14.8% decrease in net income to $36.2 million for the quarter ended September 30, 2017 compared with $42.5 million in the third quarter of 2016. The decrease reflects primarily unrealized non-cash losses on interest rate hedging contracts compared with unrealized gains on similar contracts in the prior period. The losses were partially offset by improved operating results. Through nine months of the year, MIC's net income increased 13.3% to $94.8 million.

The Company reported cash generated by operating activities of $148.5 million and $397.7 million in the quarter and nine months ended September 30, 2017, respectively, compared with $159.1 million and $437.0 million reported in the prior comparable periods. The decrease in cash from operations in the quarter reflects primarily the timing of payment of insurance premiums, higher state taxes and changes in working capital related to higher inventory costs. The impact of these was partially offset by improved operating results and contributions from acquired businesses.

MIC's businesses produced an aggregate $144.4 million and $432.4 million of Adjusted Free Cash Flow in the quarter and year to date periods ended September 30, 2017, respectively, up 9.5% and 10.4% from the amounts generated in the prior corresponding periods. The Company defines Adjusted Free Cash Flow as cash from operating activities (including from its proportionate interest in wind and solar facilities), less maintenance capital expenditures, less changes in working capital, adjusted for certain one-time items. (See Summary Financial Information below)

"With the consistent performance of our existing businesses, we made a decision to spend approximately $5.0 million more on our business development platforms and insourcing of operations of our renewable power business," Hooke noted. "This decision will make it likely that the Company will now generate growth in Free Cash Flow of approximately 9% in 2017 compared with 2016."

MIC has committed capital to various development platforms, including those involved in fuel storage, logistics and wind and solar power that are not expected to deliver cash flow generating projects over the near term. MIC also incurred costs in 2017 to insource aspects of the operations and oversight of the Company's renewable energy power generation projects that had previously been conducted by various third party providers. Management believes that insourcing will lead to improved performance from these projects. The combined cost of the two initiatives is expected to result in a reduction in Free Cash Flow generation of approximately $5.0 million, or $0.06 per share, for the full year.

Consistent with past practices, MIC is expected to provide the market with its views on 2018 performance in the context of its full year results release next February. 2018 guidance is likely to reflect the benefit of growth capital deployed in 2017, the impact of a fully functioning shared services capability and the expected uplift associated with the general rate filing by MIC's Hawaii Gas business.

"We're excited about our prospects in 2018, given the pending completion of the buildout of BEC II and the benefits of the gas lateral completed this past year, as well as the full-year contribution from the several acquisitions we have been able to complete," said Hooke. "We also expect to see some initial economic benefits from our investment in development of renewable power projects."

The MIC board of directors authorized a cash dividend of $1.42 per share, or $5.68 annualized, for the third quarter of 2017. The dividend will be payable November 16, 2017 to shareholders of record on November 13, 2017. The payment represents a 10.1% increase over the dividend paid for the third quarter of 2016 and is consistent with MIC's guidance for a 10% increase in its annual dividend in 2017 over 2016.

The ongoing implementation of MIC's shared services initiative is resulting in reductions in general and administrative expenses consistent with the Company's guidance for savings of between $7.0 and $8.0 million in 2017. As anticipated, the savings have been offset by expenses including primarily severance payments and consulting fees. Those expenses totaled $1.4 million in the third quarter and $6.8 million in the year to date periods. The Company does not expect to incur implementation costs in 2018 and has excluded those incurred in 2017 from its presentation of both Adjusted EBITDA excluding non-cash items and Adjusted Free Cash Flow in an effort to provide clarity with respect to the recurring cash flows generated by its businesses.

MIC expects to realize annual general and administrative cost savings of between $12.0 million and $15.0 million in 2018, compared with its 2016 baseline, as a result of the shared services initiative. The expected savings will not be spread evenly, or even proportionately, across MIC's businesses and some businesses may simply benefit from an improvement in service levels. Shared services provides business support functions including Accounting, Human Resources, Tax, Information Technology, Procurement and Risk Management support to each of MIC's operating entities.

MIC incurred approximately $3.0 million of transaction related expenses during the third quarter as a result of a heightened level of activity associated with the evaluation of various investment and acquisition opportunities. Through nine months, transaction related costs have totaled $7.9 million. These costs have been recorded as an expense in the Corporate and Other segment of MIC's financial statements and have been excluded from the Company's presentation of both Adjusted EBITDA excluding non-cash items and Adjusted Free Cash Flow in an effort to provide clarity with respect to the recurring cash flows being generated by its businesses.

Management Changes
On September 11, 2017, James Hooke, MIC's chief executive officer notified the Company's board of directors of his intent to resign. Subsequently, Hooke and the board agreed that the effective date of his resignation would be December 31, 2017.

On October 30, 2017, the MIC board appointed Christopher Frost as chief executive officer of the Company, effective January 1, 2018. Frost, age 48, was appointed president and chief operating officer of the Company effective October 26, 2017.

Quarterly Segment Highlights
Growth in revenue at IMTT reflected a partial quarter contribution from the recently acquired Epic Midstream terminalling business, partially offset by a decline in utilization and a reduced contribution from IMTT subsidiary OMI Environmental Solutions due to reduced spill response activity. Utilization rates at IMTT decreased to 92.7% and 94.3% for the quarter and nine month periods ended September 30, 2017, respectively, versus 96.7% and 96.4% in the prior comparable periods. The sequential decline from 94.0% in the second quarter of 2017 reflected primarily the impact of two large tanks in Louisiana being out of service for portions of the quarter. Both tanks were re-leased by the middle of October.

Comparison of IMTT's results for the quarter to date period ended September 30, 2017 should be considered in light of the approximately $13.0 million of insurance proceeds related to dock damage recorded in Other Income, net and $13.9 million of related maintenance capital expenditures in the third quarter in 2016. Excluding these, IMTT's EBITDA excluding non-cash items would have increased by $4.9 million or 6.6% for the third quarter and by $14.2 million or 6.2% for the nine months ended September 30, 2017. Free Cash Flow generated by IMTT increased by 7.9% in the quarter ended September 30, 2017 and by 10.0% on a year to date basis in part as a result of improvement in operations and a reduction in maintenance capital expenditures.

Strong growth in general aviation flight activity during the third quarter, together with contributions from acquisitions, drove improvement in the financial performance of Atlantic Aviation. Domestic general aviation flight activity increased by approximately 4.0%, based on data reported by the Federal Aviation Administration.

The increase in flight activity, together with contributions from two additional sites added to the Atlantic Aviation network of fixed base operations (FBO) over the past twelve months, drove growth in EBITDA excluding non-cash items and Free Cash Flow of 12.8% and 15.4%, respectively, in the quarter. For the nine months ended September 30, 2017, EBITDA excluding non-cash items and Free Cash Flow generated by Atlantic increased 9.6% and 13.3%, respectively. At the end of the third quarter Atlantic Aviation completed its second FBO acquisition of the year, acquiring the Orion Jet Center at Opa Locka-Miami Executive Airport north of downtown Miami. The south Florida region is one of the fastest growing general aviation markets in the U.S.

MIC's portfolio of wind and solar power facilities benefitted from contributions from acquisitions completed during the past year, although these were partially offset by a reduction in wind and solar resources versus the prior comparable quarter and year to date periods. MIC has entered into agreements with developers of both wind and solar projects and continues to make a portion of its capital available for the construction of additional renewable power facilities. One of those developers sold a number of solar projects in the third quarter and distributed of a portion of the profits to MIC, per the terms of the development agreement, during the period.

MIC has elected to insource the operations oversight of its renewable power businesses. The insourcing was undertaken as a result of a lack of oversight on the part of third party service providers that led to lost power generation revenue and opportunities to optimize the performance of certain assets. With ten renewable facilities in its portfolio and additional facilities in development, MIC expects the insourced capability to facilitate creation of scale in the sector and to provide control benefits.

MIC's Bayonne Energy Center (BEC) is a thermal power facility providing peaking power to parts of New York City from a plant located in Bayonne, NJ. 62.5% of the plant's capacity generates revenue pursuant to a tolling agreement independent of the power needs of the community. 37.5% of the capacity is available on a merchant basis and therefore exposed to demand for peak power. The merchant portion of the facility underperformed expectations in the third quarter as a result of lower than anticipated capacity prices during the summer of 2017 and a reduction in utilization and energy margins relative to prior years driven by milder weather in 2017 versus 2016. The reduced contribution was partially offset by lower natural gas costs as a result of connecting the plant to a second, less expensive source of gas during the summer of 2017 and by additional tariff revenue from the grid operator for new services provided.

In aggregate, the businesses comprising MIC's Contracted Power segment generated $0.66 million, or 2.0%, less EBITDA excluding non-cash items and $0.75 million, or 2.8%, less Free Cash Flow in the third quarter of 2017 compared with the third quarter in 2016. For the nine months ended September 30, 2017, the segment produced an increase in EBITDA excluding non-cash items of $1.5 million and no change in Free Cash Flow.

The Company's MIC Hawaii segment reported revenue growth driven by an increase in the volume of gas sold by Hawaii Gas and contributions from acquisitions compared with the third quarter of 2016. A portion of the increase was offset by higher state taxes in the quarter and lower prices achieved on gas sales in certain markets.

For the quarter ended September 30, 2017, EBITDA excluding non-cash items and Free Cash Flow generated by MIC Hawaii decreased by $0.27 million, or 2.0%, and $0.56 million or 6.4%, respectively, versus the prior comparable period. For the nine months ended September 30, 2017, EBITDA excluding non-cash items was flat and Free Cash Flow increased by $1.9 million or 6.4%.

Summary Financial Information












Quarter Ended
September 30,


Change
Favorable/(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/(Unfavorable)



2017


2016


$


%


2017


2016


$


%



($ In Thousands, Except Share and Per Share Data) (Unaudited)

GAAP Metrics

































Net income


$

36,173



$

42,481




(6,308)




(14.8)



$

94,836



$

83,738




11,098




13.3


Weighted average
number of shares
outstanding: basic



83,644,806




81,220,841




2,423,965




3.0




82,743,285




80,570,192




2,173,093




2.7


Net income per
share attributable
to MIC


$

0.48



$

0.52




(0.04)




(7.7)



$

1.23



$

1.04




0.19




18.3


Cash provided by
operating activities



148,465




159,070




(10,605)




(6.7)




397,669




436,988




(39,319)




(9.0)


MIC Non-GAAP
Metrics

































EBITDA excluding
non-cash items(1)(2)


$

182,684



$

186,823




(4,139)




(2.2)



$

533,923



$

529,582




4,341




0.8


Shared service
implementation
costs



1,402







1,402




NM




6,847







6,847




NM


Investment and
acquisition costs



3,023







3,023




NM




7,873







7,873




NM


Adjusted EBITDA
excluding non-cash
items(2)


$

187,109



$

186,823




286




0.2



$

548,643



$

529,582




19,061




3.6


Cash interest(3)


$

(27,151)



$

(27,389)




238




0.9



$

(79,435)



$

(82,008)




2,573




3.1


Cash taxes



(2,154)




(1,115)




(1,039)




(93.2)




(8,493)




(5,283)




(3,210)




(60.8)


Maintenance
capital
expenditures(4)



(12,106)




(24,472)




12,366




50.5




(23,062)




(44,725)




21,663




48.4


Noncontrolling interest(5)



(1,308)




(1,947)




639




32.8




(5,223)




(5,954)




731




12.3


Adjusted Free Cash Flow


$

144,390



$

131,900




12,490




9.5



$

432,430



$

391,612




40,818




10.4



NM — Not meaningful


(1) EBITDA excluding non-cash items is calculated as net income before interest expense, taxes, depreciation and amortization expense, management fees, pension expense and other non-cash (income) expense recorded in the consolidated statement of operations. See below for reconciliation of net income (loss) to EBITDA excluding non-cash items.


(2) For the quarter and nine months ended September 30, 2016, EBITDA excluding non-cash items included $13.0 million and $15.5 million, respectively, of insurance recoveries related to damaged docks at IMTT.


(3) Cash interest is calculated as interest expense excluding the impact of non-cash adjustments for unrealized (gains) losses from derivative instruments, amortization of deferred financing costs and the amortization of debt discount recorded in the consolidated statement of operations.


(4) For the quarter and nine months ended September 30, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses, at IMTT.


(5) Noncontrolling interest adjustment represents the portion of Free Cash Flow not attributable to MIC's ownership interest.

Adjusted EBITDA excluding non-cash items, on a proportionately combined basis, would have increased by 8.2% to $185.0 million in the quarter ended September 30, 2017 excluding the impact of the insurance recovery by IMTT in 2016 discussed above. Through the nine months ended September 30, 2017, the increase would have been 7.0% to $541.0 million.

Conference Call and Webcast

When: MIC has scheduled a conference call for 8:00 a.m. Eastern Time on Thursday, November 2, 2017 during which management will review and comment on the third quarter 2017 results.

How: To listen to the conference call dial +1(650) 521-5252 or +1(877) 852-2928 at least 10 minutes prior to the scheduled start time. A webcast of the call will be accessible via the Company's website at www.macquarie.com/mic. Allow extra time prior to the call to visit the site and download the software needed to listen to the webcast.

Slides: MIC will prepare materials in support of its conference call. The materials will be available for downloading from the Company's website prior to the call.

Replay: For interested individuals unable to participate in the live conference call, a replay will be available after 2:00 p.m. on November 2, 2017 through midnight on November 8, 2017, at +1(404) 537-3406 or +1(855) 859-2056, Passcode: 98492892. An online archive of the webcast will be available on the Company's website for one year following the call.

About MIC
MIC owns and operates a diversified group of businesses providing basic services to customers primarily in the United States. Its businesses consist of a bulk liquid terminals business, International-Matex Tank Terminals; an airport services business, Atlantic Aviation; entities comprising an energy services, production and distribution segment, MIC Hawaii; and entities comprising a Contracted Power segment. For additional information, please visit the MIC website at www.macquarie.com/mic. MIC-G

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

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

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

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

The Company's businesses are characteristically owners of high-value, long-lived assets capable of generating substantial Free Cash Flow. MIC defines Free Cash Flow as cash from operating activities — the most comparable GAAP measure — which includes cash paid for interest, taxes and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures, and excludes changes in working capital.

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

In its Quarterly Report on Form 10-Q, the Company has disclosed Free Cash Flow on a consolidated basis and for each of its operating segments and MIC Corporate. Management believes 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 its 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 MIC's definition of Free Cash Flow. Management notes 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 its financial results reported under GAAP.

See also "Reconciliation of Consolidated Net Income (Loss) to EBITDA Excluding Non-Cash Items and a Reconciliation from Cash Provided by Operating Activities to Free Cash Flow" below.

Classification of Maintenance Capital Expenditures and Growth Capital Expenditures
MIC categorizes capital expenditures as either maintenance capital expenditures or growth capital expenditures. As neither maintenance capital expenditure nor growth capital expenditure is a GAAP term, the Company has adopted a framework to categorize specific capital expenditures. In broad terms, maintenance capital expenditures primarily maintain MIC's businesses at current levels of operations, capability, profitability or cash flow, while growth capital expenditures primarily provide new or enhanced levels of operations, capability, profitability or cash flow. Management considers a number of factors in determining whether a specific capital expenditure will be classified as maintenance or growth.

In some cases, specific capital expenditures contain characteristics of both maintenance and growth capital expenditures. MIC does 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.

Forward-Looking Statements
This press release contains forward-looking statements. MIC may, in some cases, use words such as "project", "believe", "anticipate", "plan", "expect", "estimate", "intend", "should", "would", "could", "potentially", or "may" or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this release are subject to a number of risks and uncertainties, some of which are beyond MIC's control including, among other things: changes in general economic or business conditions; its ability to service, comply with the terms of and refinance debt, successfully integrate and manage acquired businesses, retain or replace qualified employees, manage growth, make and finance future acquisitions, and implement its strategy; risks associated with development, investment and expansion in the power industry; its regulatory environment establishing rate structures and monitoring quality of service; demographic trends, the political environment, the economy, tourism, construction and transportation costs, air travel, environmental costs and risks; fuel and gas and other commodity costs; its ability to recover increases in costs from customers, cybersecurity risks, work interruptions or other labor stoppages; risks related to its shared services initiative; reliance on sole or limited source suppliers, risks or conflicts of interests involving its relationship with the Macquarie Group and changes in U.S. federal tax law.

MIC's actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which MIC is not currently aware could also cause its actual results to differ. In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this release may not occur. These forward-looking statements are made as of the date of this release. MIC undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

"Macquarie Group" refers to the Macquarie Group of companies, which comprises Macquarie Group Limited and its worldwide subsidiaries and affiliates. Macquarie Infrastructure Corporation is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Infrastructure Corporation.

MACQUARIE INFRASTRUCTURE CORPORATION


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








September 30,
2017


December 31,
2016



(Unaudited)




ASSETS







Current assets:







Cash and cash equivalents


$

35,737


$

44,767

Restricted cash



22,809



16,420

Accounts receivable, less allowance for doubtful accounts of $1,037 and $1,434,
respectively



145,506



124,846

Inventories



35,960



31,461

Prepaid expenses



13,799



14,561

Fair value of derivative instruments



8,675



5,514

Other current assets



16,742



7,099

Total current assets



279,228



244,668

Property, equipment, land and leasehold improvements, net



4,611,633



4,346,536

Investment in unconsolidated business



9,526



8,835

Goodwill



2,075,965



2,024,409

Intangible assets, net



931,433



888,971

Fair value of derivative instruments



18,743



30,781

Other noncurrent assets



28,835



15,053

Total assets


$

7,955,363


$

7,559,253

LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







Due to Manager-related party


$

6,098


$

6,594

Accounts payable



59,078



69,566

Accrued expenses



101,766



83,734

Current portion of long-term debt



48,335



40,016

Fair value of derivative instruments



3,992



9,297

Other current liabilities



40,932



41,802

Total current liabilities



260,201



251,009

Long-term debt, net of current portion



3,424,776



3,039,966

Deferred income taxes



955,542



896,116

Fair value of derivative instruments



5,807



5,966

Tolling agreements – noncurrent



54,540



60,373

Other noncurrent liabilities



158,308



158,289

Total liabilities



4,859,174



4,411,719

Commitments and contingencies





Stockholders' equity(1):







Common stock ($0.001 par value; 500,000,000 authorized; 84,481,865 shares issued
and outstanding at September 30, 2017 and 82,047,526 shares issued and outstanding
at December 31, 2016)


$

84


$

82

Additional paid in capital



1,942,417



2,089,407

Accumulated other comprehensive loss



(26,222)



(28,960)

Retained earnings



994,495



892,365

Total stockholders' equity



2,910,774



2,952,894

Noncontrolling interests



185,415



194,640

Total equity



3,096,189



3,147,534

Total liabilities and equity


$

7,955,363


$

7,559,253


(1) The Company is authorized to issue 100,000,000 shares of preferred stock, par value $0.001 per share. At September 30, 2017 and December 31, 2016, no preferred stock were issued or outstanding. The Company has 100 shares of special stock issued and outstanding to its Manager at September 30, 2017 and December 31, 2016.



MACQUARIE INFRASTRUCTURE CORPORATION


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



Quarter Ended September 30,

Nine Months Ended September 30,



2017



2016



2017



2016

Revenue












Service revenue

$

358,220


$

323,975


$

1,067,069


$

942,437

Product revenue


94,841



96,549



276,439



272,053

Total revenue


453,061



420,524



1,343,508



1,214,490

Costs and expenses












Cost of services


153,218



134,512



455,038



371,832

Cost of product sales


35,669



39,845



123,143



107,923

Selling, general and administrative


84,898



77,468



244,817



222,182

Fees to Manager – related party


17,954



18,382



54,610



49,570

Depreciation


58,009



59,242



172,753



172,125

Amortization of intangibles


17,329



15,417



50,920



49,917

Total operating expenses


367,077



344,866



1,101,281



973,549

Operating income


85,984



75,658



242,227



240,941

Other income (expense)












Interest income


54



27



129



85

Interest expense(1)


(29,291)



(20,871)



(90,129)



(117,268)

Other income, net


4,973



16,689



7,893



20,389

Net income before income taxes


61,720



71,503



160,120



144,147

Provision for income taxes


(25,547)



(29,022)



(65,284)



(60,409)

Net income

$

36,173


$

42,481


$

94,836


$

83,738

Less: net (loss) income attributable to noncontrolling
interests


(3,922)



455



(7,294)



165

Net income attributable to MIC

$

40,095


$

42,026


$

102,130


$

83,573

Basic income per share attributable to MIC

$

0.48


$

0.52


$

1.23


$

1.04

Weighted average number of shares
outstanding: basic


83,644,806



81,220,841



82,743,285



80,570,192

Diluted income per share attributable to MIC

$

0.48


$

0.51


$

1.23


$

1.03

Weighted average number of shares
outstanding: diluted


87,916,538



85,750,096



82,752,800



81,313,767

Cash dividends declared per share

$

1.42


$

1.29


$

4.12


$

3.74


(1) Interest expense includes losses on derivative instruments of $162,000 and $6.9 million for the quarter and nine months ended September 30, 2017, respectively. For the quarter and nine months ended September 30, 2016, interest expense includes gains on derivative instruments of $3.7 million and losses on derivative instruments of $43.0 million, respectively.


MACQUARIE INFRASTRUCTURE CORPORATION


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



Nine Months Ended
September 30,


2017


2016

Operating activities






Net income

$

94,836


$

83,738

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization of property and equipment


172,753



172,125

Amortization of intangible assets


50,920



49,917

Amortization of debt financing costs


6,464



7,536

Amortization of debt discount


2,377



Adjustments to derivative instruments


3,414



20,022

Fees to Manager- related party


54,610



49,570

Deferred taxes


56,791



55,126

Pension expense


6,481



6,512

Other non-cash income, net


(2,651)



(2,255)

Changes in other assets and liabilities, net of acquisitions:







Restricted cash


(691)



727

Accounts receivable


(18,938)



(10,094)

Inventories


(4,563)



(1,047)

Prepaid expenses and other current assets


(7,040)



5,967

Due to Manager-related party


(178)



21

Accounts payable and accrued expenses


(4,444)



(3,365)

Income taxes payable


(1,223)



3,848

Other, net


(11,249)



(1,360)

Net cash provided by operating activities


397,669



436,988

Investing activities







Acquisitions of businesses and investments, net of cash acquired


(208,377)



(38,989)

Purchases of property and equipment


(234,833)



(198,151)

Proceeds from insurance claim




10,002

Loan to project developer


(18,675)



Loan repayment from project developer


6,604



Change in restricted cash


(6,154)



Other, net


178



861

Net cash used in investing activities


(461,257)



(226,277)

MACQUARIE INFRASTRUCTURE CORPORATION


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








Nine Months Ended
September 30,



2017


2016

Financing activities









Proceeds from long-term debt


$

585,500



$

370,000


Payment of long-term debt



(200,722)




(295,950)


Proceeds from the issuance of shares



5,699




7,651


Dividends paid to common stockholders



(332,867)




(290,527)


Contributions received from noncontrolling interests



102




15,431


Purchase of noncontrolling interest






(9,909)


Distributions paid to noncontrolling interests



(2,962)




(3,682)


Offering and equity raise costs paid



(355)




(678)


Debt financing costs paid



(447)




(1,784)


Change in restricted cash



527




5,379


Payment of capital lease obligations



(366)




(1,151)


Net cash provided by (used in) financing activities



54,109




(205,220)


Effect of exchange rate changes on cash and cash equivalents



449




494


Net change in cash and cash equivalents



(9,030)




5,985


Cash and cash equivalents, beginning of period



44,767




22,394


Cash and cash equivalents, end of period


$

35,737



$

28,379


Supplemental disclosures of cash flow information









Non-cash investing and financing activities:









Accrued equity offering costs


$

97



$

90


Accrued financing costs


$

21



$

548


Accrued purchases of property and equipment


$

33,184



$

31,728


Issuance of shares to Manager


$

54,927



$

116,373


Issuance of shares to independent directors


$

681



$

750


Issuance of shares for acquisition of business


$

125,000



$


Conversion of convertible senior notes to shares


$

17



$

4


Distributions payable to noncontrolling interests


$

32



$

10


Taxes paid, net


$

9,810



$

1,426


Interest paid


$

82,108



$

81,998


MACQUARIE INFRASTRUCTURE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS – MD&A




Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


$


%


2017


2016


$


%



($ In Thousands, Except Share and Per Share Data) (Unaudited)





Revenue

































Service revenue


$

358,220



$

323,975




34,245




10.6



$

1,067,069



$

942,437




124,632




13.2


Product revenue



94,841




96,549




(1,708)




(1.8)




276,439




272,053




4,386




1.6


Total revenue



453,061




420,524




32,537




7.7




1,343,508




1,214,490




129,018




10.6


Costs and expenses

































Cost of services



153,218




134,512




(18,706)




(13.9)




455,038




371,832




(83,206)




(22.4)


Cost of product sales



35,669




39,845




4,176




10.5




123,143




107,923




(15,220)




(14.1)


Selling, general and administrative



84,898




77,468




(7,430)




(9.6)




244,817




222,182




(22,635)




(10.2)


Fees to Manager – related party



17,954




18,382




428




2.3




54,610




49,570




(5,040)




(10.2)


Depreciation



58,009




59,242




1,233




2.1




172,753




172,125




(628)




(0.4)


Amortization of intangibles



17,329




15,417




(1,912)




(12.4)




50,920




49,917




(1,003)




(2.0)


Total operating expenses



367,077




344,866




(22,211)




(6.4)




1,101,281




973,549




(127,732)




(13.1)


Operating income



85,984




75,658




10,326




13.6




242,227




240,941




1,286




0.5


Other income (expense)

































Interest income



54




27




27




100.0




129




85




44




51.8


Interest expense(1)



(29,291)




(20,871)




(8,420)




(40.3)




(90,129)




(117,268)




27,139




23.1


Other income, net



4,973




16,689




(11,716)




(70.2)




7,893




20,389




(12,496)




(61.3)


Net income before income taxes



61,720




71,503




(9,783)




(13.7)




160,120




144,147




15,973




11.1


Provision for income taxes



(25,547)




(29,022)




3,475




12.0




(65,284)




(60,409)




(4,875)




(8.1)


Net income


$

36,173



$

42,481




(6,308)




(14.8)



$

94,836



$

83,738




11,098




13.3


Less: net (loss) income attributable to
noncontrolling interests



(3,922)




455




4,377




NM




(7,294)




165




7,459




NM


Net income attributable to MIC


$

40,095



$

42,026




(1,931)




(4.6)



$

102,130



$

83,573




18,557




22.2


Basic income per share attributable to
MIC


$

0.48



$

0.52




(0.04)




(7.7)



$

1.23



$

1.04




0.19




18.3


Weighted average number of shares
outstanding: basic



83,644,806




81,220,841




2,423,965




3.0




82,743,285




80,570,192




2,173,093




2.7



NM — Not meaningful


(1) Interest expense includes losses on derivative instruments of $162,000 and $6.9 million for the quarter and nine months ended September 30, 2017, respectively. For the quarter and nine months ended September 30, 2016, interest expense includes gains on derivative instruments of $3.7 million and losses on derivative instruments of $43.0 million, respectively.

MACQUARIE INFRASTRUCTURE CORPORATION
RECONCILIATION OF CONSOLIDATED NET INCOME TO EBITDA EXCLUDING NON-CASH
ITEMS AND A RECONCILIATION FROM CASH PROVIDED BY OPERATING ACTIVITIES TO FREE
CASH FLOW




















Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


$


%


2017


2016


$


%



($ In Thousands) (Unaudited)

Net income


$

36,173



$

42,481











$

94,836



$

83,738










Interest expense, net(1)



29,237




20,844












90,000




117,183










Provision for income taxes



25,547




29,022












65,284




60,409










Depreciation



58,009




59,242












172,753




172,125










Amortization of intangibles



17,329




15,417












50,920




49,917










Fees to Manager-related party



17,954




18,382












54,610




49,570










Pension expense(2)



2,160




2,117












6,481




6,512










Other non-cash income, net(3)



(3,725)




(682)












(961)




(9,872)










EBITDA excluding non-cash items(4)


$

182,684



$

186,823




(4,139)




(2.2)



$

533,923



$

529,582




4,341




0.8


EBITDA excluding non-cash items(4)


$

182,684



$

186,823











$

533,923



$

529,582










Interest expense, net(1)



(29,237)




(20,844)












(90,000)




(117,183)










Adjustments to derivative instruments recorded
in interest expense(1)



(959)




(8,832)












1,724




27,639










Amortization of debt financing costs(1)



2,163




2,287












6,464




7,536










Amortization of debt discount(1)



882















2,377













Provision for income taxes, net of changes in deferred taxes



(2,154)




(1,115)












(8,493)




(5,283)










Changes in working capital



(4,914)




751












(48,326)




(5,303)










Cash provided by operating activities



148,465




159,070












397,669




436,988










Changes in working capital



4,914




(751)












48,326




5,303










Maintenance capital
expenditures(5)



(12,106)




(24,472)












(23,062)




(44,725)










Free cash flow


$

141,273



$

133,847




7,426




5.5



$

422,933



$

397,566




25,367




6.4




(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. For the nine months ended September 30, 2016, interest expense also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas.


(2) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.


(3) Other non-cash income, net, primarily includes non-cash amortization of tolling liabilities, unrealized gains (losses) on commodity hedges and non-cash gains (losses) related to disposal of assets. See "Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics" above for further discussion.


(4) For the quarter and nine months ended September 30, 2016, EBITDA excluding non-cash items included $13.0 million and $15.5 million, respectively, of insurance recoveries related to damaged docks at IMTT.


(5) For the quarter and nine months ended September 30, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses, at IMTT.

MACQUARIE INFRASTRUCTURE CORPORATION
RECONCILIATION FROM CONSOLIDATED FREE CASH FLOW TO PROPORTIONATELY
COMBINED FREE CASH FLOW




















Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


$


%


2017


2016


$


%



($ In Thousands) (Unaudited)

Free Cash Flow – Consolidated basis


$

141,273



$

133,847




7,426




5.5



$

422,933



$

397,566




25,367




6.4


100% of CP Free Cash Flow included in
consolidated Free Cash Flow



(25,970)




(26,718)












(56,513)




(56,532)










MIC's share of CP Free Cash Flow



24,667




24,773












51,300




50,580










100% of MIC Hawaii Free Cash Flow
included in consolidated Free Cash Flow



(8,137)




(8,696)












(32,368)




(30,432)










MIC's share of MIC Hawaii Free Cash Flow



8,132




8,694












32,358




30,430










Free Cash Flow – Proportionately Combined
basis


$

139,965



$

131,900




8,065




6.1



$

417,710



$

391,612




26,098




6.7


MACQUARIE INFRASTRUCTURE CORPORATION
RECONCILIATION OF SEGMENT NET INCOME (LOSS) TO EBITDA EXCLUDING NON-CASH
ITEMS AND A RECONCILIATION FROM CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES TO FREE CASH FLOW


IMTT




















Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


2017


2016



$


$


$


%


$


$


$


%



($ In Thousands) (Unaudited)

Revenue



134,167




133,143




1,024




0.8




410,128




396,786




13,342




3.4


Cost of services



48,982




53,085




4,103




7.7




148,052




149,845




1,793




1.2


Selling, general and administrative expenses



9,104




8,358




(746)




(8.9)




25,627




24,322




(1,305)




(5.4)


Depreciation and amortization



31,511




35,709




4,198




11.8




93,826




103,612




9,786




9.4


Operating income



44,570




35,991




8,579




23.8




142,623




119,007




23,616




19.8


Interest expense, net(1)



(10,187)




(7,827)




(2,360)




(30.2)




(30,707)




(41,462)




10,755




25.9


Other income, net



794




13,495




(12,701)




(94.1)




1,954




16,947




(14,993)




(88.5)


Provision for income taxes



(14,422)




(17,079)




2,657




15.6




(46,686)




(38,717)




(7,969)




(20.6)


Net income



20,755




24,580




(3,825)




(15.6)




67,184




55,775




11,409




20.5


Less: net income attributable to noncontrolling interests


















59




59




100.0


Net income attributable to MIC



20,755




24,580




(3,825)




(15.6)




67,184




55,716




11,468




20.6



































Reconciliation of net income to EBITDA
excluding non-cash items and a
reconciliation of cash provided by operating
activities to Free Cash Flow:

































Net income



20,755




24,580












67,184




55,775










Interest expense, net(1)



10,187




7,827












30,707




41,462










Provision for income taxes



14,422




17,079












46,686




38,717










Depreciation and amortization



31,511




35,709












93,826




103,612










Pension expense(2)



1,883




1,752












5,649




5,414










Other non-cash expense, net



178




73












315




631










EBITDA excluding non-cash items(3)



78,936




87,020




(8,084)




(9.3)




244,367




245,611




(1,244)




(0.5)


EBITDA excluding non-cash items(3)



78,936




87,020












244,367




245,611










Interest expense, net(1)



(10,187)




(7,827)












(30,707)




(41,462)










Adjustments to derivative instruments recorded in interest expense(1)



(524)




(2,433)












(257)




10,723










Amortization of debt financing costs(1)



413




411












1,236




1,242










Provision for income taxes, net of changes in deferred taxes



344




(904)












(3,069)




(3,071)










Changes in working capital



3,732




(1,243)












(12,413)




(11,726)










Cash provided by operating activities



72,714




75,024












199,157




201,317










Changes in working capital



(3,732)




1,243












12,413




11,726










Maintenance capital expenditures(4)



(8,116)




(19,860)












(13,563)




(33,099)










Free cash flow



60,866




56,407




4,459




7.9




198,007




179,944




18,063




10.0




(1) Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.


(2) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.


(3) For the quarter and nine months ended September 30, 2016, EBITDA excluding non-cash items included $13.0 million and $15.5 million, respectively, of insurance recoveries related to damaged docks. These insurance recoveries were used to repair damaged docks and were recorded in Other Income, net. The cost of those repairs were recorded in Maintenance Capital Expenditures. Excluding insurance proceeds, EBITDA excluding non-cash items would have been $74.0 million and $230.1 million for the quarter and nine months ended September 30, 2016, respectively. On that basis, EBITDA excluding non-cash items would have increased by $4.9 million, or 6.6%, for the quarter ended September 30, 2017, and increased by $14.2 million, or 6.2%, for the nine months ended September 30, 2017, compared with the prior comparable periods.


(4) For the quarter and nine months ended September 30, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses. Excluding these costs, maintenance capital expenditures would have been $6.0 million and $19.2 million for the quarter and nine months ended September 30, 2016, respectively. On that basis, maintenance capital expenditures would have increased by $2.1 million, or 35.2%, for the quarter ended September 30, 2017, and decreased by $5.7 million, or 29.5%, for the nine months ended September 30, 2017, compared with the prior comparable periods.

Atlantic Aviation




















Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


2017


2016



$


$


$


%


$


$


$


%



($ In Thousands) (Unaudited)

Revenue



211,457




186,823




24,634




13.2




621,149




544,029




77,120




14.2


Cost of services (exclusive of depreciation
and amortization shown separately below)



92,106




77,524




(14,582)




(18.8)




272,985




218,126




(54,859)




(25.2)


Gross margin



119,351




109,299




10,052




9.2




348,164




325,903




22,261




6.8


Selling, general and administrative expenses



57,026




53,027




(3,999)




(7.5)




163,512




157,019




(6,493)




(4.1)


Depreciation and amortization



25,286




22,148




(3,138)




(14.2)




73,894




69,041




(4,853)




(7.0)


Operating income



37,039




34,124




2,915




8.5




110,758




99,843




10,915




10.9


Interest expense, net(1)



(4,295)




(5,199)




904




17.4




(13,648)




(27,437)




13,789




50.3


Other (expense) income, net



(14)




(150)




136




90.7




(119)




191




(310)




(162.3)


Provision for income taxes



(11,139)




(11,543)




404




3.5




(36,766)




(29,258)




(7,508)




(25.7)


Net income



21,591




17,232




4,359




25.3




60,225




43,339




16,886




39.0



































Reconciliation of net income to EBITDA
excluding non-cash items and a
reconciliation of cash provided by operating
activities to Free Cash Flow:

































Net income



21,591




17,232












60,225




43,339










Interest expense, net(1)



4,295




5,199












13,648




27,437










Provision for income taxes



11,139




11,543












36,766




29,258










Depreciation and amortization



25,286




22,148












73,894




69,041










Pension expense(2)



5




16












15




50










Other non-cash expense, net



1,212




200












1,252




448










EBITDA excluding non-cash
items



63,528




56,338




7,190




12.8




185,800




169,573




16,227




9.6


EBITDA excluding non-cash
items



63,528




56,338












185,800




169,573










Interest expense, net(1)



(4,295)




(5,199)












(13,648)




(27,437)










Convertible senior notes interest(3)



(2,012)















(5,769)













Adjustments to derivative instruments
recorded in interest expense(1)



464




(2,371)












3,150




4,416










Amortization of debt financing costs(1)



284




791












819




2,496










Provision for income taxes, net of changes in
deferred taxes



(1,208)




(159)












(5,810)




(2,521)










Changes in working capital



(1,335)




5,142












(6,667)




11,412










Cash provided by operating activities



55,426




54,542












157,875




157,939










Changes in working capital



1,335




(5,142)












6,667




(11,412)










Maintenance capital expenditures



(2,165)




(2,075)












(5,071)




(5,816)










Free cash flow



54,596




47,325




7,271




15.4




159,471




140,711




18,760




13.3




(1) Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.


(2) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.


(3) Represents the cash interest expense reclassified from MIC Corporate related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviation's credit facility in October 2016.

Contracted Power




















Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


2017


2016



$


$


$


%


$


$


$


%



($ In Thousands) (Unaudited)

Product revenue



42,445




45,538




(3,093)




(6.8)




110,681




114,017




(3,336)




(2.9)


Cost of product sales



5,171




7,344




2,173




29.6




15,528




17,495




1,967




11.2


Selling, general and administrative expenses



6,909




6,824




(85)




(1.2)




18,318




19,331




1,013




5.2


Depreciation and amortization



14,830




14,000




(830)




(5.9)




45,031




41,693




(3,338)




(8.0)


Operating income



15,535




17,370




(1,835)




(10.6)




31,804




35,498




(3,694)




(10.4)


Interest expense, net(1)



(6,281)




(2,764)




(3,517)




(127.2)




(20,431)




(31,614)




11,183




35.4


Other income, net



4,334




3,531




803




22.7




6,440




3,839




2,601




67.8


Provision for income taxes



(6,337)




(8,013)




1,676




20.9




(8,209)




(7,626)




(583)




(7.6)


Net income



7,251




10,124




(2,873)




(28.4)




9,604




97




9,507




NM


Less: net (loss) income attributable to noncontrolling interest



(3,890)




566




4,456




NM




(7,223)




217




7,440




NM


Net income (loss) attributable to MIC



11,141




9,558




1,583




16.6




16,827




(120)




16,947




NM



































Reconciliation of net income to EBITDA
excluding non-cash items and a reconciliation of
cash provided by operating activities to Free
Cash Flow:

































Net income



7,251




10,124












9,604




97










Interest expense, net(1)



6,281




2,764












20,431




31,614










Provision for income taxes



6,337




8,013












8,209




7,626










Depreciation and amortization



14,830




14,000












45,031




41,693










Other non-cash income, net(2)



(1,914)




(1,459)












(6,170)




(5,424)










EBITDA excluding non-cash items



32,785




33,442




(657)




(2.0)




77,105




75,606




1,499




2.0


EBITDA excluding non-cash items



32,785




33,442












77,105




75,606










Interest expense, net(1)



(6,281)




(2,764)












(20,431)




(31,614)










Adjustments to derivative instruments recorded
in interest expense(1)



(922)




(3,778)












(1,282)




11,994










Amortization of debt financing costs(1)



379




376












1,137




1,113










Provision for income taxes, net of changes in deferred taxes



9




1












6




(8)










Changes in working capital



(1,842)




949












(9,703)




(1,909)










Cash provided by operating activities



24,128




28,226












46,832




55,182










Changes in working capital



1,842




(949)












9,703




1,909










Maintenance capital expenditures






(559)












(22)




(559)










Free cash flow



25,970




26,718




(748)




(2.8)




56,513




56,532




(19)




(0.0)




NM — Not meaningful


(1) Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees.


(2) Other non-cash income, net, primarily includes amortization of tolling liabilities. See "Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics" above for further discussion.

MIC Hawaii




















Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


2017


2016



$


$


$


%


$


$


$


%



($ In Thousands) (Unaudited)

Product revenue



52,396




51,011




1,385




2.7




165,758




158,036




7,722




4.9


Service revenue



13,826




5,258




8,568




163.0




39,476




5,258




34,218




NM


Total revenue



66,222




56,269




9,953




17.7




205,234




163,294




41,940




25.7


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



30,498




32,501




2,003




6.2




107,615




90,428




(17,187)




(19.0)


Cost of services (exclusive of depreciation and amortization shown separately below)



12,131




3,946




(8,185)




NM




34,015




3,946




(30,069)




NM


Cost of revenue – total



42,629




36,447




(6,182)




(17.0)




141,630




94,374




(47,256)




(50.1)


Gross margin



23,593




19,822




3,771




19.0




63,604




68,920




(5,316)




(7.7)


Selling, general and administrative expenses



6,874




6,540




(334)




(5.1)




19,729




16,230




(3,499)




(21.6)


Depreciation and amortization



3,711




2,802




(909)




(32.4)




10,922




7,696




(3,226)




(41.9)


Operating income



13,008




10,480




2,528




24.1




32,953




44,994




(12,041)




(26.8)


Interest expense, net(1)



(1,877)




(1,571)




(306)




(19.5)




(5,795)




(6,224)




429




6.9


Other expense, net



(141)




(187)




46




24.6




(382)




(588)




206




35.0


Provision for income taxes



(4,830)




(3,246)




(1,584)




(48.8)




(10,772)




(14,863)




4,091




27.5


Net income



6,160




5,476




684




12.5




16,004




23,319




(7,315)




(31.4)


Less: net loss attributable to noncontrolling interests



(32)




(111)




(79)




(71.2)




(71)




(111)




(40)




(36.0)


Net income attributable to MIC



6,192




5,587




605




10.8




16,075




23,430




(7,355)




(31.4)



































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



6,160




5,476












16,004




23,319










Interest expense, net(1)



1,877




1,571












5,795




6,224










Provision for income taxes



4,830




3,246












10,772




14,863










Depreciation and amortization



3,711




2,802












10,922




7,696










Pension expense(2)



272




349












817




1,048










Other non-cash (income) expense,
net(3)



(3,360)




316












3,108




(6,090)










EBITDA excluding non-cash items



13,490




13,760




(270)




(2.0)




47,418




47,060




358




0.8


EBITDA excluding non-cash items



13,490




13,760












47,418




47,060










Interest expense, net(1)



(1,877)




(1,571)












(5,795)




(6,224)










Adjustments to derivative instruments recorded in interest expense(1)



23




(250)












113




506










Amortization of debt financing
costs(1)



99




96












303




848










Provision for income taxes, net of changes in deferred taxes



(1,773)




(1,361)












(5,265)




(6,507)










Changes in working capital



(2,535)




(1,394)












(12,852)




5,554










Cash provided by operating activities



7,427




9,280












23,922




41,237










Changes in working capital



2,535




1,394












12,852




(5,554)










Maintenance capital expenditures



(1,825)




(1,978)












(4,406)




(5,251)










Free cash flow



8,137




8,696




(559)




(6.4)




32,368




30,432




1,936




6.4




NM — Not meaningful


(1) Interest expense, net, includes adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees. For the nine months ended September 30, 2016, interest expense also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas.


(2) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.


(3) Other non-cash (income) expense, net, primarily includes non-cash adjustments related to unrealized gains (losses) on commodity hedges. See "Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics" above for further discussion.

Corporate and Other




















Quarter Ended
September 30,


Change
Favorable/
(Unfavorable)


Nine Months Ended
September 30,


Change
Favorable/
(Unfavorable)



2017


2016


2017


2016



$


$


$


%


$


$


$


%



($ In Thousands) (Unaudited)

Fees to Manager-related party



17,954




18,382




428




2.3




54,610




49,570




(5,040)




(10.2)


Selling, general and administrative
expenses(1)



6,214




3,925




(2,289)




(58.3)




21,301




8,831




(12,470)




(141.2)


Operating loss



(24,168)




(22,307)




(1,861)




(8.3)




(75,911)




(58,401)




(17,510)




(30.0)


Interest expense, net(2)



(6,597)




(3,483)




(3,114)




(89.4)




(19,419)




(10,446)




(8,973)




(85.9)


Benefit for income taxes



11,181




10,859




322




3.0




37,149




30,055




7,094




23.6


Net loss



(19,584)




(14,931)




(4,653)




(31.2)




(58,181)




(38,792)




(19,389)




(50.0)



































Reconciliation of net loss to EBITDA
excluding non-cash items and a
reconciliation of cash used in operating
activities to Free Cash Flow:

































Net loss



(19,584)




(14,931)












(58,181)




(38,792)










Interest expense, net(2)



6,597




3,483












19,419




10,446










Benefit for income taxes



(11,181)




(10,859)












(37,149)




(30,055)










Fees to Manager-related party



17,954




18,382












54,610




49,570










Other non-cash expense



159




188












534




563










EBITDA excluding non-cash items



(6,055)




(3,737)




(2,318)




(62.0)




(20,767)




(8,268)




(12,499)




(151.2)


EBITDA excluding non-cash items



(6,055)




(3,737)












(20,767)




(8,268)










Interest expense, net(2)



(6,597)




(3,483)












(19,419)




(10,446)










Convertible senior notes interest(3)



2,012















5,769













Amortization of debt financing costs(2)



988




613












2,969




1,837










Amortization of debt discount(2)



882















2,377













Benefit for income taxes, net of changes in deferred taxes



474




1,308












5,645




6,824










Changes in working capital



(2,934)




(2,703)












(6,691)




(8,634)










Cash used in operating activities



(11,230)




(8,002)












(30,117)




(18,687)










Changes in working capital



2,934




2,703












6,691




8,634










Free cash flow



(8,296)




(5,299)




(2,997)




(56.6)




(23,426)




(10,053)




(13,373)




(133.0)




(1) For the quarter and nine months ended September 30, 2017, selling, general and administrative expenses included $1.4 million and $6.8 million, respectively, of costs related to the implementation of a shared service initiative. Selling, general and administrative expenses for the quarter and nine months ended September 30, 2017 also includes $3.0 million and $7.9 million, respectively, of costs incurred in connection with the evaluation of various investment and acquisition opportunities.


(2) Interest expense, net, included non-cash amortization of deferred financing fees and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023.


(3) Represents the cash interest expense reclassified to Atlantic Aviation related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviation's credit facility in October 2016.

MACQUARIE INFRASTRUCTURE CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA
EXCLUDING NON-CASH ITEMS AND A RECONCILIATION FROM CASH PROVIDED BY/(USED IN)
OPERATING ACTIVITIES TO PROPORTIONATELY COMBINED FREE CASH FLOW






















For the Quarter Ended September 30, 2017









IMTT


Atlantic Aviation


Contracted Power(1)


MIC Hawaii(1)


MIC Corporate


Proportionately Combined(2)




Contracted Power 100%


MIC
Hawaii
100%

($ in Thousands) (Unaudited)

Net income (loss)



20,755




21,591




7,705




6,161




(19,584)




36,628








7,251




6,160


Interest expense, net(3)



10,187




4,295




5,598




1,875




6,597




28,552








6,281




1,877


Provision (benefit) for income taxes



14,422




11,139




6,337




4,830




(11,181)




25,547








6,337




4,830


Depreciation and
amortization
of intangibles



31,511




25,286




12,949




3,706







73,452








14,830




3,711


Fees to Manager-related
party















17,954




17,954












Pension expense(4)



1,883




5







272







2,160











272


Other non-cash expense (income), net(5)



178




1,212




(1,913)




(3,361)




159




(3,725)








(1,914)




(3,360)


EBITDA excluding non-cash items



78,936




63,528




30,676




13,483




(6,055)




180,568








32,785




13,490


EBITDA excluding non-cash items



78,936




63,528




30,676




13,483




(6,055)




180,568








32,785




13,490


Interest expense, net(3)



(10,187)




(4,295)




(5,598)




(1,875)




(6,597)




(28,552)








(6,281)




(1,877)


Convertible senior notes interest(6)






(2,012)










2,012















Adjustments to
derivative instruments
recorded in interest
expense, net(3)



(524)




464




(786)




23







(823)








(922)




23


Amortization of debt financing charges(3)



413




284




365




99




988




2,149








379




99


Amortization of debt discount(3)















882




882












Provision/benefit for
income taxes, net of
changes in deferred taxes



344




(1,208)




10




(1,773)




474




(2,153)








9




(1,773)


Changes in working capital



3,732




(1,335)




(2,284)




(2,534)




(2,934)




(5,355)








(1,842)




(2,535)


Cash provided by (used in) operating activities



72,714




55,426




22,383




7,423




(11,230)




146,716








24,128




7,427


Changes in working capital



(3,732)




1,335




2,284




2,534




2,934




5,355








1,842




2,535


Maintenance capital expenditures



(8,116)




(2,165)







(1,825)







(12,106)











(1,825)


Proportionately Combined Free Cash flow



60,866




54,596




24,667




8,132




(8,296)




139,965








25,970




8,137




For the Quarter Ended September 30, 2016









IMTT


Atlantic Aviation


Contracted Power(1)


MIC
Hawaii(1)


MIC
Corporate


Proportionately Combined(2)




Contracted
Power 100%


MIC
Hawaii
100%

($ in Thousands) (Unaudited)

Net income (loss)



24,580




17,232




9,489




5,479




(14,931)




41,849








10,124




5,476


Interest expense, net(3)



7,827




5,199




2,352




1,568




3,483




20,429








2,764




1,571


Provision (benefit) for
income taxes



17,079




11,543




8,014




3,246




(10,859)




29,023








8,013




3,246


Depreciation and
amortization of
intangibles



35,709




22,148




12,122




2,800







72,779








14,000




2,802


Fees to Manager-related
party















18,382




18,382












Pension expense(4)



1,752




16







349







2,117











349


Other non-cash expense
(income), net(5)



73




200




(1,459)




316




188




(682)








(1,459)




316


EBITDA excluding non-
cash items(7)



87,020




56,338




30,518




13,758




(3,737)




183,897








33,442




13,760


EBITDA excluding non-
cash items(7)



87,020




56,338




30,518




13,758




(3,737)




183,897








33,442




13,760


Interest expense, net(3)



(7,827)




(5,199)




(2,352)




(1,568)




(3,483)




(20,429)








(2,764)




(1,571)


Adjustments to derivative instruments
recorded in interest
expense, net(3)



(2,433)




(2,371)




(3,334)




(253)







(8,391)








(3,778)




(250)


Amortization of debt financing charges(3)



411




791




362




96




613




2,273








376




96


Provision/benefit for
income taxes, net of
changes in deferred taxes



(904)




(159)







(1,361)




1,308




(1,116)








1




(1,361)


Changes in working capital



(1,243)




5,142




875




(1,390)




(2,703)




681








949




(1,394)


Cash provided by (used
in) operating activities



75,024




54,542




26,069




9,282




(8,002)




156,915








28,226




9,280


Changes in working capital



1,243




(5,142)




(875)




1,390




2,703




(681)








(949)




1,394


Maintenance capital
expenditures(8)



(19,860)




(2,075)




(421)




(1,978)







(24,334)








(559)




(1,978)


Proportionately
Combined Free Cash
Flow



56,407




47,325




24,773




8,694




(5,299)




131,900








26,718




8,696




For the Nine Months Ended September 30, 2017









IMTT


Atlantic Aviation


Contracted Power(1)


MIC
Hawaii(1)


MIC
Corporate


Proportionately Combined(2)




Contracted Power 100%


MIC
Hawaii
100%

($ in Thousands) (Unaudited)

Net income (loss)



67,184




60,225




9,858




16,009




(58,181)




95,095








9,604




16,004


Interest expense, net(3)



30,707




13,648




18,177




5,789




19,419




87,740








20,431




5,795


Provision (benefit) for
income taxes



46,686




36,766




8,209




10,772




(37,149)




65,284








8,209




10,772


Depreciation and amortization of intangibles



93,826




73,894




39,390




10,908







218,018








45,031




10,922


Fees to Manager-related
party















54,610




54,610












Pension expense(4)



5,649




15







817







6,481











817


Other non-cash expense (income), net(5)



315




1,252




(6,148)




3,108




534




(939)








(6,170)




3,108


EBITDA excluding non-cash items



244,367




185,800




69,486




47,403




(20,767)




526,289








77,105




47,418


EBITDA excluding non-cash items



244,367




185,800




69,486




47,403




(20,767)




526,289








77,105




47,418


Interest expense, net(3)



(30,707)




(13,648)




(18,177)




(5,789)




(19,419)




(87,740)








(20,431)




(5,795)


Convertible senior notes interest(6)






(5,769)










5,769















Adjustments to derivative instruments recorded in interest expense, net(3)



(257)




3,150




(1,088)




112







1,917








(1,282)




113


Amortization of debt financing charges(3)



1,236




819




1,094




303




2,969




6,421








1,137




303


Amortization of debt discount(3)















2,377




2,377












Provision/benefit for income taxes, net of changes in deferred taxes



(3,069)




(5,810)




7




(5,265)




5,645




(8,492)








6




(5,265)


Changes in working capital



(12,413)




(6,667)




(9,824)




(12,833)




(6,691)




(48,428)








(9,703)




(12,852)


Cash provided by (used in) operating activities



199,157




157,875




41,498




23,931




(30,117)




392,344








46,832




23,922


Changes in working capital



12,413




6,667




9,824




12,833




6,691




48,428








9,703




12,852


Maintenance capital expenditures



(13,563)




(5,071)




(22)




(4,406)







(23,062)








(22)




(4,406)


Proportionately Combined Free Cash Flow



198,007




159,471




51,300




32,358




(23,426)




417,710








56,513




32,368




For the Nine Months Ended September 30, 2016









IMTT(9)


Atlantic Aviation


Contracted Power(1)


MIC
Hawaii(1)


MIC
Corporate


Proportionately Combined(2)




Contracted Power 100%


MIC
Hawaii
100%

($ in Thousands) (Unaudited)

Net income (loss)



55,775




43,339




896




23,322




(38,792)




84,540








97




23,319


Interest expense, net(3)



41,462




27,437




27,801




6,221




10,446




113,367








31,614




6,224


Provision (benefit) for income taxes



38,717




29,258




7,625




14,863




(30,055)




60,408








7,626




14,863


Depreciation and
amortization of
intangibles



103,612




69,041




36,067




7,694







216,414








41,693




7,696


Fees to Manager-related
party















49,570




49,570












Pension expense(4)



5,414




50







1,048







6,512











1,048


Other non-cash expense (income), net(5)



631




448




(5,405)




(6,090)




563




(9,853)








(5,424)




(6,090)


EBITDA excluding non-cash items(7)



245,611




169,573




66,984




47,058




(8,268)




520,958








75,606




47,060


EBITDA excluding non-cash items(7)



245,611




169,573




66,984




47,058




(8,268)




520,958








75,606




47,060


Interest expense, net(3)



(41,462)




(27,437)




(27,801)




(6,221)




(10,446)




(113,367)








(31,614)




(6,224)


Adjustments to
derivative instruments
recorded in interest
expense, net(3)



10,723




4,416




10,756




503







26,398








11,994




506


Amortization of debt financing charges(3)



1,242




2,496




1,071




848




1,837




7,494








1,113




848


Provision/benefit for
income taxes, net of
changes in deferred taxes



(3,071)




(2,521)




(9)




(6,507)




6,824




(5,284)








(8)




(6,507)


Changes in working capital



(11,726)




11,412




(2,187)




5,558




(8,634)




(5,577)








(1,909)




5,554


Cash provided by (used in) operating activities



201,317




157,939




48,814




41,239




(18,687)




430,622








55,182




41,237


Changes in working capital



11,726




(11,412)




2,187




(5,558)




8,634




5,577








1,909




(5,554)


Maintenance capital expenditures(8)



(33,099)




(5,816)




(421)




(5,251)







(44,587)








(559)




(5,251)


Proportionately Combined Free Cash Flow



179,944




140,711




50,580




30,430




(10,053)




391,612








56,532




30,432




(1) Represents MIC's proportionately combined interests in the businesses comprising these reportable segments.


(2) The sum of the amounts attributable to MIC in proportion to its ownership.


(3)Interest expense, net, includes adjustments to derivative instruments, non-cash amortization of deferred financing charges and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023. For the nine months ended September 30, 2016, interest expense, net, also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas.


(4) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses.


(5) Other non-cash expense (income), net, primarily includes non-cash amortization of tolling liabilities, unrealized gains (losses) on commodity hedges and non-cash gains (losses) related to disposal of assets. See "Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics" above for further discussion.


(6) Represents the cash interest expense reclassified from MIC Corporate to Atlantic Aviation related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviation's credit facility in October 2016.


(7) For the quarter and nine months ended September 30, 2016, EBITDA excluding non-cash items included $13.0 million and $15.5 million, respectively, of insurance recoveries related to damaged docks at IMTT.


(8) For the quarter and nine months ended September 30, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses, at IMTT.


(9) On March 31, 2016, IMTT acquired the remaining 33.3% interest in its Quebec terminal that it did not previously own. IMTT was previously providing management services to this terminal and no operational changes are expected. Prior to the acquisition, IMTT consolidated the results of the Quebec terminal in its financial statements and adjusted for the portion that it did not own through noncontrolling interests. Since the IMTT Acquisition in July 2014 and prior to the acquisition of the noncontrolling interest, MIC reported IMTT's EBITDA excluding non-cash items and Free Cash Flow including the 33.3% portion of the Quebec terminal. The contribution from the minority interest was not significant. Therefore, there were no changes to our historical EBITDA excluding non-cash items, Free Cash Flow or results generally as a function of acquiring this noncontrolling interest.

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SOURCE Macquarie Infrastructure Corporation