EX-99.1 2 v486472_exh99x1.htm EXHIBIT 99.1

Exhibit 99.1

MIC

   
125 West 55th Street
New York, NY10019
United States
  Telephone
Facsimile
Internet:
  +1 212 231 1825
+1 212 231 1828
www.macquarie.com/mic

FOR IMMEDIATE RELEASE

MIC REPORTS 2017 FINANCIAL RESULTS,
INCREASE IN QUARTERLY DIVIDEND

Capital deployment tops $625.0 million in 2017, growth in cash generation exceeds 8%
Fourth Quarter 2017 cash dividend of $1.44 per share authorized
Tax reform extends federal income tax shield to 2020, including expected capital deployment tax shield extended to 2022
Guidance for 2018 dividend of $1.00 per share, per quarter, initiated

New York, February 21, 2018 – Macquarie Infrastructure Corporation (NYSE: MIC) today reported financial results for full year 2017 that included growth investments of more than $625.0 million and a cash dividend of $1.44 per share for the fourth quarter.

“The performance of our businesses in the fourth quarter and the full year 2017 resulted in year over year growth in cash generation of 8.2%, including the impact of a 2.9% increase in the weighted number of shares outstanding,” said Christopher Frost, chief executive officer of MIC. “Effective deployment of a substantial amount of growth capital offset a slightly weaker than anticipated rate of organic growth. With the increase in cash generation, we are pleased to announce that the MIC board has approved a cash dividend for the fourth quarter that raises the total distribution for 2017 to $5.56 per share, consistent with our guidance for a year over year increase of 10%.”

“While our results for 2017 were solid, in an effort to improve MIC’s overall mix of business we are undertaking a review of strategic options available to us with respect to the Bayonne Energy Center, OMI Environmental Solutions and other smaller businesses in our portfolio,” Frost noted. “Having largely completed the development of the Bayonne Energy Center as envisioned when we acquired the business in 2015, we believe now may be an opportune time to monetize a portion of it. To address changing demand drivers for certain liquid products, as we have in the past, we intend to repurpose certain of the assets of our bulk liquid terminals business as well. We believe these actions will position MIC to continue to deliver attractive total shareholder returns.”

“In addition, we have made the decision to reduce our 2018 dividend in favor of internally funding the repurposing of the assets at International-Matex Tank Terminals and to take advantage of the incentives to invest in growth projects that are a part of recent tax reform,” Frost added. “We believe that our guidance for a dividend of $1.00 per share, per quarter, in 2018 strikes a balance between continuing to return the majority of our Free Cash Flow to shareholders in the form of a dividend and strengthening our balance sheet in support of future dividend growth.”

MIC reported fourth quarter and full year 2017 net income of $361.3 million and $456.1 million, respectively, an increase of 408% and 195% compared with $71.1 million and $154.9 million in the comparable periods in 2016. The increases in net income were primarily the result of changes in U.S. tax law that went into effect with the signing of the Tax Cuts and Jobs Act of 2017 (“Tax Act”) in December of 2017. A reduction in the Company’s net Deferred Tax Liability to reflect a reduction in the corporate federal income tax rate constituted the largest portion of the benefit.

Net income before taxes decreased to $61.8 million and $222.0 million, respectively, for the fourth quarter and full year in 2017, compared with $82.0 million and $226.1 million in comparable periods in 2016. The decrease in pre-tax net income reflects primarily higher interest expense in the fourth quarter and a decrease in other income related to the absence of insurance recoveries in 2017 in the full year period.


 
 

The Company reported generation of cash from operating activities of $131.8 million and $529.5 million in the quarter and full-year periods ended December 31, 2017, respectively, compared with $123.3 million and $560.3 million in the comparable periods in 2016. Cash from operating activities declined primarily as a result of changes in working capital related to fluctuations in the price of jet fuel and gas sold by certain of MIC’s businesses.

MIC produced $135.5 million and $568.0 million of Adjusted Free Cash Flow in the fourth quarter and full year periods in 2017, respectively, up from $118.6 million and $510.2 million in the comparable periods in 2016. The aggregate increase in Adjusted Free Cash Flow of 14.2% and 11.3% for the quarter and full-year, respectively, was partially offset by an increase in the weighted average number of shares of MIC outstanding.

Fourth Quarter 2017 Dividend

The MIC board of directors has authorized a cash dividend of $1.44 per share for the fourth quarter of 2017. The dividend will be payable March 8, 2018 to shareholders of record on March 5, 2018. Including the dividend of $1.44, MIC will have distributed approximately 81.4% of the Adjusted Free Cash Flow generated during 2017 for a dividend coverage ratio of approximately 1.2 times.

Outlook

Taking into consideration the planned repurposing of certain of the assets of International-Matex Tank Terminals (“IMTT”), MIC is forecasting generation of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) excluding non-cash items in a range of between $690.0 million and $720.0 million in 2018. The year over year decline reflects a decrease in EBITDA generated by IMTT, offset by continued increases at Atlantic Aviation, Contracted Power and MIC Hawaii. Atlantic Aviation is expected to benefit from ongoing increases in flight activity while Contracted Power is expected to benefit from the completion of the BEC II expansion project.

With respect to the Company’s preliminary outlook for EBITDA excluding non-cash items in 2018, a reconciliation to net income (loss), the most comparable GAAP measure, is not available without unreasonable effort due to the Company’s limited visibility into and inability to make accurate projections and estimates of items including management fees, hedging agreements, depreciation and any (benefit) provision for income taxes. These items may vary greatly from year to year and could significantly impact MIC’s results as reported in accordance with GAAP.

MIC expects Free Cash Flow produced in 2018 to decline by between 8% and 10% versus 2017 including the impact of expected share issuance. The Company’s forecast reflects primarily a reduction in cash generation by IMTT, increased interest expense and the near-term impact of tax reform. IMTT is forecast to generate a reduced amount of cash in 2018 as consequence of global shifts in refined petroleum product production and consumption that have reduced demand for residual and heavy oil and trading activity related to those products. IMTT’s cash generating capacity will be lower while certain of its tanks are out of service for cleaning and repurposing.

Offsetting a portion of the anticipated decline in Free Cash Flow are contributions from the more than $625.0 million deployed in growth investments in 2017, together with the partial year impact of the pending Hawaii Gas rate case and potential capital deployment in 2018. The primary components of the 2017 capital deployment activity were:

Investments by Atlantic Aviation of approximately $230.0 million including acquisitions of FBOs in Oxford, CT and Opa-Locka, FL totaling $155.0 million;
Investments by IMTT of approximately $220.0 million including the acquisition of Epic Midstream Terminals for $171.5 million;
Investments within Contracted Power of approximately $140.0 million including construction of the Bayonne Energy Center Phase II (“BEC II”) and related projects of approximately $120.0 million; and
Investments within MIC Hawaii of approximately $25.0 million.

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MIC believes that the contribution to EBITDA from these investments will be approximately $60.0 million on an annualized basis.

“We believe that MIC’s performance will continue to reflect the generally strong demand for the products and services its businesses provide,” Frost said. “While we foresee a temporary downturn in the contribution from IMTT tied primarily to reduced demand for storage and handling of residual and heavy oil, we have a clear repurposing strategy with respect to capitalizing on our preeminent locations in the Lower Mississippi River and New York Harbor markets and taking advantage of positive demand trends in other products and segments of the bulk liquid marketplace.”

The Company anticipates deploying approximately $350.0 million of growth capital per year in each of the next several years. Approximately half of the expected deployments in 2018 relate to residual expenditures for initiatives including previously granted lease extensions at Atlantic Aviation and the completion of BEC II. MIC anticipates funding the entirety of its planned 2018 deployments using internally generated resources including capital retained as a consequence of the dividend reduction, and potential proceeds from sales of non-core assets.

“We remain confident in our prospects and our ability to drive value for our shareholders. We have the financial and human capital to deploy in the construction or acquisition of quality, cash generative opportunities in each of our segments and look forward to making the most of favorable trends in those in 2018 and beyond,” said Frost.

2017 Segment Cash Generation

MIC’s fourth quarter and full-year results reflected continued strong performance by its airport services business, Atlantic Aviation, including contributions from two acquisitions completed in 2017. In May, Atlantic Aviation acquired the fixed base operator at Waterbury-Oxford Airport in Oxford, CT and acquired a fixed base operator at Miami Opa-Locka airport in Opa-Locka, FL in September. Excluding interest rate swap breakage fees and the premium paid on an interest rate cap associated with the refinancing of the business in 2016, Free Cash Flow generated by Atlantic Aviation decreased by 2.3% in the fourth quarter and increased 9.5% for the full year versus the prior comparable periods. The period over period decrease in Free Cash Flow generation in the fourth quarter was attributable in part to the timing of certain state income tax payments. Atlantic Aviation’s performance was underpinned by growth in general aviation flight activity in the U.S. of approximately 3.6% in 2017.

The Company’s bulk liquid terminals business, IMTT, benefitted from an acquisition of a portfolio of seven terminals in August of 2017 and generated increases in Free Cash Flow of 7.6% and 9.4%, respectively, in the fourth quarter and full year periods versus the comparable periods in 2016. Contributions from the acquired terminals helped offset non-renewal of a small number of primarily residual and heavy oil contracts late in the year and a full-year loss at IMTT subsidiary OMI Environmental Services, Inc. (“OMI”). OMI generates revenue primarily from oil spill clean-up and tank cleaning and inspection activities.

MIC’s Contracted Power segment includes a thermal facility in Bayonne, NJ, the Bayonne Energy Center (“BEC”), and a portfolio of renewable facilities primarily in the southwest U.S. Together, these produced growth in segment Free Cash Flow of 15.7% in the fourth quarter and 3.4% for the full year versus the prior comparable periods. The increases in cash generation were the result of a full-year contribution from the acquisition of a renewable facility in 2016 and additional tariff-based services completed in 2017, together with receipt of development profits related to the sale of wind projects during the year. The increases were offset by higher interest expense and by mild weather in the Northeast that reduced demand for power from BEC as well as unplanned outages that had an adverse impact on portions of the renewables portfolio.

MIC Hawaii comprises Hawaii Gas, a mechanical contractor and several renewable power facilities, all located in Hawaii. Free Cash Flow produced by the segment increased by 8.0% in the fourth quarter and by 6.6% for the full year compared with 2016. The increases were attributable to a reduction in maintenance capital expenditures and the absence of a cash pension contribution, partially offset by negative Free Cash Flow generation by the mechanical contracting business reflecting primarily cost overruns on projects with fixed revenue.

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MIC’s Corporate and Other segment comprises primarily interest expense on holding company level debt, investments in various development platforms and costs not otherwise covered by the fee paid to MIC’s external manager. The segment recorded positive Free Cash Flow in the fourth quarter of $2.4 million compared with negative Free Cash Flow of $5.2 million in the prior comparable quarter primarily as a result of a current federal income tax benefit that reflects tax sharing payments made to MIC by its subsidiaries. For the full year 2017, the Corporate and Other segment recorded negative Free Cash Flow of $21.0 million compared with negative Free Cash Flow of $15.3 million in 2016 as a result of increased costs related to both acquisitions and the implementation of the Company’s shared services center.

“Each of our larger businesses produced solid growth in cash generation including the impact of capital deployed in 2017,” noted Frost. “Portfolio wide, aggregate same store growth in Free Cash Flow was approximately 3% for the year with capital deployment contributing the balance. The deployment of growth capital relatively late in the year and in some case into projects that will not be in service until this year means that those deployments will have a larger impact on our 2018 results.”

Impact of Tax Reform

At year-end 2016, MIC had gross Net Operating Loss (“NOL”) carryforwards of approximately $400.0 million. At year-end 2017, MIC’s gross NOL was approximately $350.0 million with $50.0 million having been used to offset current federal income taxes of approximately $63.0 million. As a consequence of the recent reforms to the U.S. Tax Code and their impact on the utilization of NOLs, MIC does not foresee having a material federal income tax liability prior to 2020.

The Tax Act includes a provision that allows for immediate expensing, or bonus depreciation, of investments in qualifying capital assets. MIC expects a substantial portion of its approximately $350.0 million per year of growth capital deployments over the 2018 – 2021 time period will be into qualifying assets. If the Company is successful in these efforts, it expects they will shield it from any material federal income tax liability until 2022.

The enactment of the Tax Act has an immediate impact on two of MIC’s businesses. Although the regulated portion of MIC’s Hawaii Gas business is expected to realize a year over year increase in revenue as a result of the pending rate case, any increase will be partially offset as a consequence of the business collecting a smaller amount of federal taxes. The revenue reduction will be offset by a corresponding decrease in Hawaii Gas’ standalone federal income tax liability. Tax reform should have a positive impact on the unregulated portion of MIC Hawaii.

Second, IMTT has been capitalized in part using tax exempt bonds. The indenture agreements related to those bonds provide that the bondholder must be compensated for a reduction in federal tax rates. As a result, the interest on the bonds will increase by approximately 0.6% to compensate the bondholders for the reduced tax advantage under the new federal income tax regime.

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Summary Financial Information

               
               
  Quarter Ended
December 31,
  Change
Favorable/(Unfavorable)
  Year Ended
December 31,
  Change
Favorable/(Unfavorable)
     2017   2016   $   %   2017   2016   $   %
     ($ In Thousands, Except Share and Per Share Data) (Unaudited)
GAAP Metrics
                                                                       
Net income   $ 361,276     $ 71,131       290,145       NM     $ 456,112     $ 154,869       301,243       194.5  
Weighted average number of shares outstanding: basic     84,572,725       81,853,027       2,719,698       3.3       83,204,404       80,892,654       2,311,750       2.9  
Net income per share attributable to MIC   $ 4.13     $ 0.89       3.24       NM     $ 5.42     $ 1.93       3.49       180.8  
Cash provided by operating activities     131,790       123,332       8,458       6.9       529,459       560,320       (30,861 )      (5.5 ) 
MIC Non-GAAP Metrics
                                                                       
EBITDA excluding non-cash items(1)(2)   $ 177,980     $ 166,006       11,974       7.2     $ 711,903     $ 695,588       16,315       2.3  
Shared service implementation costs(3)     1,655             1,655       NM       8,502             8,502       NM  
Investment and acquisition costs(3)     1,381             1,381       NM       9,254             9,254       NM  
Adjusted EBITDA excluding non-cash items(2)(3)   $ 181,016     $ 166,006       15,010       9.0     $ 729,659     $ 695,588       34,071       4.9  
Cash interest(4)   $ (28,106 )    $ (25,922 )      (2,184 )      (8.4 )    $ (107,541 )    $ (107,930 )      389       0.4  
Cash taxes     (2,667 )      (2,027 )      (640 )      (31.6 )      (11,160 )      (7,310 )      (3,850 )      (52.7 ) 
Cash pension contribution           (3,500 )      3,500       100.0             (3,500 )      3,500       100.0  
Maintenance capital expenditures(5)     (12,140 )      (13,478 )      1,338       9.9       (35,202 )      (58,203 )      23,001       39.5  
Noncontrolling interest(6)     (2,583 )      (2,446 )      (137 )      (5.6 )      (7,806 )      (8,400 )      594       7.1  
Adjusted Free Cash Flow(3)(4)   $ 135,520     $ 118,633       16,887       14.2     $ 567,950     $ 510,245       57,705       11.3  

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 year ended December 31, 2016, EBITDA excluding non-cash items included $1.0 million and $16.5 million, respectively, of insurance recoveries related to damaged docks at IMTT.
(3) For the quarter and year ended December 31, 2017, Adjusted EBITDA excluding non-cash items and Adjusted Free Cash Flow exclude costs relating to implementation of our shared services initiative and costs relating to certain investment and acquisition activities.
(4) Cash interest is calculated as interest expense, net, 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. For purposes of calculating Adjusted Free Cash Flow, for the quarter and year ended December 31, 2016, cash interest excludes $17.8 million for the payment of interest rate swap breakage fees and $8.6 million for the payment of interest rate cap premium.
(5) For the year ended December 31, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses, at IMTT.
(6) Noncontrolling interest adjustment represents the portion of Free Cash Flow not attributable to MIC's ownership interest.

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Conference Call and Webcast

When: Management has scheduled a conference call for 8:00 a.m. Eastern Time on Thursday, February 22, 2018 during which it will review and comment on MIC’s results for the fourth quarter and full year 2017.

How: To listen to the conference call please 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. Please allow extra time prior to the call to visit the site and download the necessary software to listen to the webcast.

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

Replay: For interested individuals unable to participate in the live conference call, a replay will be available after 2:00 p.m. on February 22, 2018 through midnight on March 1, 2018, at +1(404) 537-3406 or +1(855) 859-2056, Passcode: 9489207. 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 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 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 Contracted Power 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,

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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 total 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 total return.

In its Report on Form 10-K, 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.

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

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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.

For further information, please contact:

 
Investors:
Jay Davis
Investor Relations
MIC
212-231-1825
  Media:
Melissa McNamara
Corporate Communications
MIC
212-231-1667

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

   
  As of December 31,
     2017   2016
ASSETS
                 
Current assets:
                 
Cash and cash equivalents   $ 47,121     $ 44,767  
Restricted cash     24,963       16,420  
Accounts receivable, less allowance for doubtful accounts of $895 and $1,434, respectively     158,152       124,846  
Inventories     36,955       31,461  
Prepaid expenses     14,685       14,561  
Fair value of derivative instruments     11,965       5,514  
Other current assets     13,804       7,099  
Total current assets     307,645       244,668  
Property, equipment, land and leasehold improvements, net     4,659,614       4,346,536  
Investment in unconsolidated business     9,526       8,835  
Goodwill     2,068,668       2,024,409  
Intangible assets, net     914,098       888,971  
Fair value of derivative instruments     24,455       30,781  
Other noncurrent assets     24,945       15,053  
Total assets   $ 8,008,951     $ 7,559,253  
LIABILITIES AND STOCKHOLDERS' EQUITY
                 
Current liabilities:
                 
Due to Manager – related party   $ 5,577     $ 6,594  
Accounts payable     60,585       69,566  
Accrued expenses     89,496       83,734  
Current portion of long-term debt     50,835       40,016  
Fair value of derivative instruments     1,710       9,297  
Other current liabilities     47,762       41,802  
Total current liabilities     255,965       251,009  
Long-term debt, net of current portion     3,530,311       3,039,966  
Deferred income taxes     632,070       896,116  
Fair value of derivative instruments     4,668       5,966  
Tolling agreements – noncurrent     52,595       60,373  
Other noncurrent liabilities     182,639       158,289  
Total liabilities     4,658,248       4,411,719  
Commitments and contingencies            
Stockholders’ equity:
                 
Common stock ($0.001 par value; 500,000,000 authorized; 84,733,957 shares issued and outstanding at December 31, 2017 and 82,047,526 shares issued and outstanding at December 31, 2016)   $ 85     $ 82  
Additional paid in capital     1,840,033       2,089,407  
Accumulated other comprehensive loss     (29,993 )      (28,960 ) 
Retained earnings     1,343,567       892,365  
Total stockholders’ equity     3,153,692       2,952,894  
Noncontrolling interests     197,011       194,640  
Total equity     3,350,703       3,147,534  
Total liabilities and equity   $ 8,008,951     $ 7,559,253  

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

     
  Year Ended December 31,
     2017   2016   2015
Revenue
                          
Service revenue   $ 1,445,832     $ 1,288,562     $ 1,288,501  
Product revenue     368,881       363,169       350,749  
Total revenue     1,814,713       1,651,731       1,639,250  
Costs and expenses
                          
Cost of services     624,214       524,423       551,029  
Cost of product sales     164,311       142,731       168,954  
Selling, general and administrative     331,345       303,033       304,862  
Fees to Manager – related party     71,388       68,486       354,959  
Depreciation     234,164       226,492       215,243  
Amortization of intangibles     68,253       65,425       101,435  
Total operating expenses     1,493,675       1,330,590       1,696,482  
Operating income (loss)     321,038       321,141       (57,232 ) 
Other income (expense)
                          
Interest income     199       132       55  
Interest expense(1)     (110,602 )      (116,933 )      (123,079 ) 
Other income, net     11,323       21,786       1,288  
Net income (loss) before income taxes     221,958       226,126       (178,968 ) 
Benefit (provision) for income taxes     234,154       (71,257 )      65,161  
Net income (loss)   $ 456,112     $ 154,869     $ (113,807 ) 
Less: net income (loss) attributable to noncontrolling interests     4,910       (1,512 )      (5,270 ) 
Net income (loss) attributable to MIC   $ 451,202     $ 156,381     $ (108,537 ) 
Basic income (loss) per share attributable to MIC   $ 5.42     $ 1.93     $ (1.39 ) 
Weighted average number of shares outstanding: basic     83,204,404       80,892,654       77,997,826  
Diluted income (loss) per share attributable to MIC   $ 5.13     $ 1.85     $ (1.39 ) 
Weighted average number of shares outstanding: diluted     91,073,362       82,218,627       77,997,826  
Cash dividends declared per share   $ 5.56     $ 5.05     $ 4.46  

(1) Interest expense includes gains on derivative instruments of $3.0 million and losses on derivative instruments of $5.0 million and $28.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.

10


 
 

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

     
  Year Ended December 31,
     2017   2016   2015
Operating activities
                          
Net income (loss)   $ 456,112     $ 154,869     $ (113,807 ) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                          
Depreciation and amortization of property and equipment     234,164       226,492       215,243  
Amortization of intangible assets     68,253       65,425       101,435  
Amortization of debt financing costs     8,700       21,041       9,075  
Amortization of debt discount     3,266       1,007        
Adjustments to derivative instruments     (9,010 )      (54,549 )      (47,208 ) 
Fees to Manager – related party     71,388       68,486       287,139  
Deferred taxes     (245,314 )      63,947       (58,734 ) 
Pension expense     8,106       8,601       7,300  
Other non-cash income, net     (2,463 )      (1,370 )      (1,047 ) 
Changes in other assets and liabilities, net of acquisitions:
                          
Restricted cash     425       525       722  
Accounts receivable     (31,444 )      (8,415 )      5,418  
Inventories     (6,182 )      (2,343 )      (84 ) 
Prepaid expenses and other current assets     (7,044 )      7,794       (6,964 ) 
Due to Manager – related party     (130 )      135       (33 ) 
Accounts payable and accrued expenses     (7,073 )      4,686       (8,002 ) 
Income taxes payable     464       8,251       (5,926 ) 
Pension contribution           (3,500 )       
Other, net     (12,759 )      (762 )      (3,371 ) 
Net cash provided by operating activities     529,459       560,320       381,156  
Investing activities
                          
Acquisitions of businesses and investments, net of cash acquired     (209,962 )      (69,168 )      (266,895 ) 
Purchases of property and equipment     (340,952 )      (314,684 )      (194,148 ) 
Proceeds from insurance claim     83       11,068        
Loan to project developer     (23,341 )      (5,000 )       
Loan repayment from project developer     17,079              
Change in restricted cash     (9,295 )      (84 )      10,559  
Other, net     272       1,023       1,668  
Net cash used in investing activities     (566,116 )      (376,845 )      (448,816 ) 

11


 
 

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

     
  Year Ended December 31,
     2017   2016   2015
Financing activities
                          
Proceeds from long-term debt   $ 931,001     $ 1,311,000     $ 2,486,569  
Payment of long-term debt     (440,950 )      (1,476,228 )      (2,554,552 ) 
Proceeds from the issuance of shares     6,060       12,623       492,433  
Dividends paid to common stockholders     (452,949 )      (396,093 )      (341,560 ) 
Contributions received from noncontrolling interests     458       15,431       532  
Purchase of noncontrolling interest           (9,909 )       
Distributions paid to noncontrolling interests     (3,936 )      (4,630 )      (2,546 ) 
Offering and equity raise costs paid     (466 )      (1,601 )      (16,984 ) 
Debt financing costs paid     (717 )      (17,392 )      (23,816 ) 
Proceeds from the issuance of convertible senior notes           402,500        
Change in restricted cash     397       5,587       5,166  
Payment of capital lease obligations     (398 )      (2,601 )      (2,346 ) 
Net cash provided by (used in) financing activities     38,500       (161,313 )      42,896  
Effect of exchange rate changes on cash and
cash equivalents
    511       211       (856 ) 
Net change in cash and cash equivalents     2,354       22,373       (25,620 ) 
Cash and cash equivalents, beginning of period     44,767       22,394       48,014  
Cash and cash equivalents, end of period   $ 47,121     $ 44,767     $ 22,394  
Supplemental disclosures of cash flow information
                          
Non-cash investing and financing activities:
                          
Accrued financing costs   $ 107     $ 3     $ 3  
Accrued purchases of property and equipment   $ 24,940     $ 28,228     $ 23,396  
Acquisition of equipment through capital leases   $     $     $ 398  
Issuance of shares to Manager   $ 72,274     $ 135,345     $ 218,645  
Issuance of shares to independent directors   $ 681     $ 750     $ 750  
Issuance of shares for acquisition of business   $ 125,000     $     $  
Conversion of convertible senior notes to shares   $ 20     $ 4     $ 25  
Conversion of LLC interests to common stock   $     $     $ 79  
Conversion of LLC interests to additional paid in capital   $     $     $ 2,428,334  
Distributions payable to noncontrolling interests   $ 22     $ 42     $ 33  
Taxes paid (refund), net   $ 10,704     $ (898 )    $ 6,654  
Interest paid   $ 112,132     $ 108,737     $ 109,450  

12


 
 

MACQUARIE INFRASTRUCTURE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS – MD&A

               
  Quarter Ended December 31,   Change
Favorable/
(Unfavorable)
  Year Ended
December 31,
  Change
Favorable/
(Unfavorable)
     2017   2016   $   %   2017   2016   $   %
     ($ In Thousands, Except Share and Per Share Data) (Unaudited)
Revenue
                                                                       
Service revenue   $ 378,763     $ 346,125       32,638       9.4     $ 1,445,832     $ 1,288,562       157,270       12.2  
Product revenue     92,442       91,116       1,326       1.5       368,881       363,169       5,712       1.6  
Total revenue     471,205       437,241       33,964       7.8       1,814,713       1,651,731       162,982       9.9  
Costs and expenses
                                                                       
Cost of services     169,176       152,591       (16,585 )      (10.9 )      624,214       524,423       (99,791 )      (19.0 ) 
Cost of product sales     41,168       34,808       (6,360 )      (18.3 )      164,311       142,731       (21,580 )      (15.1 ) 
Selling, general and administrative     86,528       80,851       (5,677 )      (7.0 )      331,345       303,033       (28,312 )      (9.3 ) 
Fees to Manager - related party     16,778       18,916       2,138       11.3       71,388       68,486       (2,902 )      (4.2 ) 
Depreciation     61,411       54,367       (7,044 )      (13.0 )      234,164       226,492       (7,672 )      (3.4 ) 
Amortization of intangibles     17,333       15,508       (1,825 )      (11.8 )      68,253       65,425       (2,828 )      (4.3 ) 
Total operating expenses     392,394       357,041       (35,353 )      (9.9 )      1,493,675       1,330,590       (163,085 )      (12.3 ) 
Operating income     78,811       80,200       (1,389 )      (1.7 )      321,038       321,141       (103 )       
Other income (expense)
                                                                       
Interest (expense) income, net(1)     (20,403 )      382       (20,785 )      NM       (110,403 )      (116,801 )      6,398       5.5  
Other income, net     3,430       1,397       2,033       145.5       11,323       21,786       (10,463 )      (48.0 ) 
Net income before income taxes     61,838       81,979       (20,141 )      (24.6 )      221,958       226,126       (4,168 )      (1.8 ) 
Benefit (provision) for income taxes     299,438       (10,848 )      310,286       NM       234,154       (71,257 )      305,411       NM  
Net income   $ 361,276     $ 71,131       290,145       NM     $ 456,112     $ 154,869       301,243       194.5  
Less: net income (loss) attributable to noncontrolling
interests
    12,204       (1,677 )      (13,881 )      NM       4,910       (1,512 )      (6,422 )      NM  
Net income attributable to MIC   $ 349,072     $ 72,808       276,264       NM     $ 451,202     $ 156,381       294,821       188.5  
Basic income per share attributable to MIC   $ 4.13     $ 0.89       3.24       NM     $ 5.42     $ 1.93       3.49       180.8  
Weighted average number of shares outstanding: basic     84,572,725       81,853,027       2,719,698       3.3       83,204,404       80,892,654       2,311,750       2.9  

NM — Not meaningful

(1) Interest expense, net, includes gains on derivative instruments of $9.9 million and $3.0 million for the quarter and year ended December 31, 2017, respectively. For the quarter and year ended December 31, 2016, interest (expense) income, net, includes gains on derivative instruments of $38.0 million and losses on derivative instruments of $5.0 million, respectively.

13


 
 

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
December 31,
  Change
Favorable/
(Unfavorable)
  Year Ended
December 31,
  Change
Favorable/
(Unfavorable)
     2017   2016   $   %   2017   2016   $   %
     ($ In Thousands) (Unaudited)
Net income   $ 361,276     $ 71,131                       $ 456,112     $ 154,869                    
Interest expense (income), net(1)     20,403       (382 )                        110,403       116,801                    
(Benefit) provision for income taxes     (299,438 )      10,848                         (234,154 )      71,257                    
Depreciation     61,411       54,367                         234,164       226,492                    
Amortization of intangibles     17,333       15,508                         68,253       65,425                    
Fees to Manager – related party     16,778       18,916                         71,388       68,486                    
Pension expense(2)     1,625       2,088                         8,106       8,601                    
Other non-cash income, net(3)     (1,408 )      (6,470 )                     (2,369 )      (16,343 )                
EBITDA excluding non-cash items(4)   $ 177,980     $ 166,006       11,974       7.2     $ 711,903     $ 695,588       16,315       2.3  
EBITDA excluding non-cash items(4)   $ 177,980     $ 166,006                       $ 711,903     $ 695,588                    
Interest (expense) income, net(1)     (20,403 )      382                         (110,403 )      (116,801 )                   
Adjustments to derivative instruments recorded in interest expense(1)     (10,828 )      (40,816 )                        (9,104 )      (13,177 )                   
Amortization of debt financing costs(1)     2,236       13,505                         8,700       21,041                    
Amortization of debt discount(1)     889       1,007                         3,266       1,007                    
Interest rate swap breakage fees           (17,770 )                              (17,770 )                   
Interest rate cap premium           (8,629 )                              (8,629 )                   
Provision for current income taxes     (2,667 )      (2,027 )                        (11,160 )      (7,310 )                   
Pension contribution           (3,500 )                              (3,500 )                   
Changes in working capital     (15,417 )      15,174                   (63,743 )      9,871              
Cash provided by operating activities     131,790       123,332                         529,459       560,320                    
Changes in working capital     15,417       (15,174 )                        63,743       (9,871 )                   
Maintenance capital expenditures(5)     (12,140 )      (13,478 )                     (35,202 )      (58,203 )                
Free cash flow   $ 135,067     $ 94,680       40,387       42.7     $ 558,000     $ 492,246       65,754       13.4  

(1) Interest expense (income), 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. Interest expense (income), net, also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas and the October 2016 refinancing at Atlantic Aviation.
(2) Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are not included in pension expense, but rather reflected as a reduction to Free Cash Flow, as noted in the table above.
(3) Other non-cash income, net, primarily includes non-cash amortization of tolling liabilities, unrealized gains (losses) on commodity hedges, adjustments to asset retirement obligations 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 year ended December 31, 2016, EBITDA excluding non-cash items included $1.0 million and $16.5 million, respectively, of insurance recoveries related to damaged docks at IMTT.
(5) For the year ended December 31, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses, at IMTT.

14


 
 

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

               
  Quarter Ended December 31,   Change
Favorable/
(Unfavorable)
  Year Ended December 31,   Change
Favorable/
(Unfavorable)
     2017   2016   $   %   2017   2016   $   %
     ($ In Thousands) (Unaudited)
Free Cash Flow – Consolidated basis   $ 135,067     $ 94,680       40,387       42.7     $ 558,000     $ 492,246       65,754       13.4  
100% of CP Free Cash Flow included in consolidated Free Cash Flow     (18,621 )      (16,099 )                        (75,134 )      (72,631 )                   
MIC's share of CP Free Cash Flow     16,042       13,654                         67,342       64,234                    
100% of MIC Hawaii Free Cash Flow included in consolidated Free Cash Flow     (6,347 )      (5,879 )                        (38,715 )      (36,311 )                   
MIC's share of MIC Hawaii Free Cash Flow     6,343       5,878                      38,701       36,308                 
Free Cash Flow – Proportionately Combined basis   $ 132,484     $ 92,234       40,250       43.6     $ 550,194     $ 483,846       66,348       13.7  

15


 
 

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
December 31,
  Change
Favorable/
(Unfavorable)
  Year Ended
December 31,
  Change
Favorable/
(Unfavorable)
     2017   2016   2017   2016
     $   $   $   %   $   $   $   %
     ($ In Thousands) (Unaudited)
Revenue     139,294       135,686       3,608       2.7       549,422       532,472       16,950       3.2  
Cost of services     48,317       54,434       6,117       11.2       196,369       204,279       7,910       3.9  
Selling, general and administrative expenses     10,779       8,365       (2,414 )      (28.9 )      36,406       32,687       (3,719 )      (11.4 ) 
Depreciation and amortization     32,637       30,773       (1,864 )      (6.1 )      126,463       134,385       7,922       5.9  
Operating income     47,561       42,114       5,447       12.9       190,184       161,121       29,063       18.0  
Interest (expense) income, net(1)     (7,650 )      2,710       (10,360 )      NM       (38,357 )      (38,752 )      395       1.0  
Other (expense) income, net     (196 )      1,562       (1,758 )      (112.5 )      1,758       18,509       (16,751 )      (90.5 ) 
Benefit (provision) for income taxes     256,150       (19,019 )      275,169       NM       209,464       (57,736 )      267,200       NM  
Net income     295,865       27,367       268,498       NM       363,049       83,142       279,907       NM  
Less: net income attributable to noncontrolling interests                                   59       59       100.0  
Net income attributable to MIC     295,865       27,367       268,498       NM       363,049       83,083       279,966       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     295,865       27,367                         363,049       83,142                    
Interest expense (income), net(1)     7,650       (2,710 )                        38,357       38,752                    
(Benefit) provision for income taxes     (256,150 )      19,019                         (209,464 )      57,736                    
Depreciation and amortization     32,637       30,773                         126,463       134,385                    
Pension expense(2)     1,347       1,805                         6,996       7,219                    
Other non-cash expense, net     452       26                      767       657                 
EBITDA excluding non-cash items(3)     81,801       76,280       5,521       7.2       326,168       321,891       4,277       1.3  
EBITDA excluding non-cash items(3)     81,801       76,280                         326,168       321,891                    
Interest (expense) income, net(1)     (7,650 )      2,710                         (38,357 )      (38,752 )                   
Adjustments to derivative instruments recorded in interest expense(1)     (3,577 )      (12,892 )                        (3,834 )      (2,169 )                   
Amortization of debt financing costs(1)     411       412                         1,647       1,654                    
Provision for current income taxes     (1,348 )      (2,367 )                        (4,417 )      (5,438 )                   
Changes in working capital     (20,382 )      7,992                   (32,795 )      (3,734 )             
Cash provided by operating activities     49,255       72,135                         248,412       273,452                    
Changes in working capital     20,382       (7,992 )                        32,795       3,734                    
Maintenance capital expenditures(4)     (6,580 )      (5,521 )                     (20,143 )      (38,620 )                
Free cash flow     63,057       58,622       4,435       7.6       261,064       238,566       22,498       9.4  

NM — Not meaningful

(1) Interest (expense) income, 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 year ended December 31, 2016, EBITDA excluding non-cash items included $1.0 million and $16.5 million, respectively, of insurance recoveries related to damaged docks. These insurance recoveries were used to repair damaged docks and recorded in Other (expense) income, net. The cost of those repairs were recorded in Maintenance Capital Expenditures. Excluding insurance proceeds, EBITDA excluding non-cash items would have been $75.3 million and $305.4 million for the quarter and year ended December 31, 2016, respectively. On that basis, EBITDA excluding non-cash items would have increased by $6.5 million, or 8.6%, for the quarter ended December 31, 2017, and increased by $20.8 million, or 6.8%, for the year ended December 31, 2017 compared with the prior comparable periods.
(4) For the year ended December 31, 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 $24.7 million for the year ended December 31, 2016. On that basis, maintenance capital expenditures would have decreased by $4.6 million, or 18.6%, for the year ended December 31, 2017 compared with the prior comparable period.

16


 
 

Atlantic Aviation

               
  Quarter Ended
December 31,
  Change
Favorable/
(Unfavorable)
  Year Ended
December 31,
  Change
Favorable/
(Unfavorable)
     2017   2016   2017   2016
     $   $   $   %   $   $   $   %
     ($ In Thousands) (Unaudited)
Revenue     225,282       196,180       29,102       14.8       846,431       740,209       106,222       14.4  
Cost of services (exclusive of depreciation and amortization of intangibles shown separately below)     105,509       85,773       (19,736 )      (23.0 )      378,494       303,899       (74,595 )      (24.5 ) 
Gross margin     119,773       110,407       9,366       8.5       467,937       436,310       31,627       7.2  
Selling, general and administrative expenses     58,693       55,312       (3,381 )      (6.1 )      222,205       212,331       (9,874 )      (4.7 ) 
Depreciation and amortization     26,296       21,618       (4,678 )      (21.6 )      100,190       90,659       (9,531 )      (10.5 ) 
Operating income     34,784       33,477       1,307       3.9       145,542       133,320       12,222       9.2  
Interest expense, net(1)     (864 )      (6,524 )      5,660       86.8       (14,512 )      (33,961 )      19,449       57.3  
Other (expense) income, net     (32 )      (123 )      91       74.0       (151 )      68       (219 )      NM  
Benefit (provision) for income taxes     30,257       (10,631 )      40,888       NM       (6,509 )      (39,889 )      33,380       83.7  
Net income     64,145       16,199       47,946       NM       124,370       59,538       64,832       108.9  
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     64,145       16,199                         124,370       59,538                    
Interest expense, net(1)     864       6,524                         14,512       33,961                    
(Benefit) provision for income taxes     (30,257 )      10,631                         6,509       39,889                    
Depreciation and amortization     26,296       21,618                         100,190       90,659                    
Pension expense(2)     5       60                         20       110                    
Other non-cash expense, net     390       457                      1,642       905                 
EBITDA excluding non-cash items     61,443       55,489       5,954       10.7       247,243       225,062       22,181       9.9  
EBITDA excluding non-cash items     61,443       55,489                         247,243       225,062                    
Interest expense, net(1)     (864 )      (6,524 )                        (14,512 )      (33,961 )                   
Convertible senior notes interest(3)     (2,013 )      (1,969 )                        (7,782 )      (1,969 )                   
Adjustments to derivative instruments recorded in interest expense(1)     (2,721 )      (8,574 )                        429       (4,158 )                   
Amortization of debt financing costs(1)     351       11,699                         1,170       14,195                    
Interest rate swap breakage fees           (17,770 )                              (17,770 )                   
Interest rate cap premium           (8,629 )                              (8,629 )                   
(Provision) benefit for current income taxes     (8,647 )      384                         (14,457 )      (2,137 )                   
Changes in working capital     (573 )      (248 )                  (7,240 )      11,164              
Cash provided by operating activities     46,976       23,858                         204,851       181,797                    
Changes in working capital     573       248                         7,240       (11,164 )                   
Maintenance capital expenditures     (2,894 )      (4,816 )                     (7,965 )      (10,632 )                
Free cash flow     44,655       19,290       25,365       131.5       204,126       160,001       44,125       27.6  

NM — Not meaningful

(1) Interest expense, net, included adjustments to derivative instruments and non-cash amortization of deferred financing fees. For the quarter and year ended December 31, 2016, interest expense also included non-cash write-off of deferred financing costs related to the October 2016 refinancing.
(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.

17


 
 

Contracted Power

               
  Quarter Ended
December 31,
  Change
Favorable/
(Unfavorable)
  Year Ended
December 31,
  Change
Favorable/
(Unfavorable)
     2017   2016   2017   2016
     $   $   $   %   $   $   $   %
     ($ In Thousands) (Unaudited)
Product revenue     35,245       35,993       (748 )      (2.1 )      145,926       150,010       (4,084 )      (2.7 ) 
Cost of product sales     4,996       5,807       811       14.0       20,524       23,302       2,778       11.9  
Selling, general and administrative expenses     7,385       6,143       (1,242 )      (20.2 )      25,703       25,474       (229 )      (0.9 ) 
Depreciation and amortization     15,269       13,855       (1,414 )      (10.2 )      60,300       55,548       (4,752 )      (8.6 ) 
Operating income     7,595       10,188       (2,593 )      (25.5 )      39,399       45,686       (6,287 )      (13.8 ) 
Interest (expense) income, net(1)     (3,056 )      10,328       (13,384 )      (129.6 )      (23,487 )      (21,286 )      (2,201 )      (10.3 ) 
Other income, net     5,025       182       4,843       NM       11,465       4,021       7,444       185.1  
Benefit (provision) for income taxes     2,040       (6,702 )      8,742       130.4       (6,169 )      (14,328 )      8,159       56.9  
Net income     11,604       13,996       (2,392 )      (17.1 )      21,208       14,093       7,115       50.5  
Less: net income attributable to noncontrolling interest     12,281       1,875       (10,406 )      NM       5,058       2,092       (2,966 )      (141.8 ) 
Net (loss) income attributable to MIC     (677 )      12,121       (12,798 )      (105.6 )      16,150       12,001       4,149       34.6  
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     11,604       13,996                         21,208       14,093                    
Interest expense (income), net(1)     3,056       (10,328 )                        23,487       21,286                    
(Benefit) provision for income taxes     (2,040 )      6,702                         6,169       14,328                    
Depreciation and amortization     15,269       13,855                         60,300       55,548                    
Other non-cash income, net(2)     (1,933 )      (1,623 )                     (8,103 )      (7,047 )                
EBITDA excluding non-cash
items
    25,956       22,602       3,354       14.8       103,061       98,208       4,853       4.9  
EBITDA excluding non-cash
items
    25,956       22,602                         103,061       98,208                    
Interest (expense) income, net(1)     (3,056 )      10,328                         (23,487 )      (21,286 )                   
Adjustments to derivative instruments recorded in interest expense(1)     (4,019 )      (16,756 )                        (5,301 )      (4,762 )                   
Amortization of debt financing costs(1)     379       376                         1,516       1,489                    
(Provision) benefit for current income taxes     (135 )      2                         (129 )      (6 )                   
Changes in working capital     6,223       780                   (3,480 )      (1,129 )             
Cash provided by operating activities     25,348       17,332                         72,180       72,514                    
Changes in working capital     (6,223 )      (780 )                        3,480       1,129                    
Maintenance capital expenditures     (504 )      (453 )                     (526 )      (1,012 )                
Free cash flow     18,621       16,099       2,522       15.7       75,134       72,631       2,503       3.4  

NM — Not meaningful

(1) Interest (expense) income, 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.

18


 
 

MIC Hawaii

               
  Quarter Ended
December 31,
  Change
Favorable/
(Unfavorable)
  Year Ended
December 31,
  Change
Favorable/
(Unfavorable)
     2017   2016   2017   2016
     $   $   $   %   $   $   $   %
     ($ In Thousands) (Unaudited)
Product revenue     57,197       55,123       2,074       3.8       222,955       213,159       9,796       4.6  
Service revenue     15,437       15,504       (67 )      (0.4 )      54,913       20,762       34,151       164.5  
Total revenue     72,634       70,627       2,007       2.8       277,868       233,921       43,947       18.8  
Cost of product sales (exclusive of depreciation and amortization of intangibles shown separately below)     36,172       29,001       (7,171 )      (24.7 )      143,787       119,429       (24,358 )      (20.4 ) 
Cost of services (exclusive of depreciation and amortization of intangibles shown separately below)     15,350       12,389       (2,961 )      (23.9 )      49,365       16,335       (33,030 )      NM  
Cost of revenue – total     51,522       41,390       (10,132 )      (24.5 )      193,152       135,764       (57,388 )      (42.3 ) 
Gross margin     21,112       29,237       (8,125 )      (27.8 )      84,716       98,157       (13,441 )      (13.7 ) 
Selling, general and administrative expenses     7,209       8,046       837       10.4       26,938       24,276       (2,662 )      (11.0 ) 
Depreciation and amortization     4,381       3,629       (752 )      (20.7 )      15,303       11,325       (3,978 )      (35.1 ) 
Operating income     9,522       17,562       (8,040 )      (45.8 )      42,475       62,556       (20,081 )      (32.1 )