MACQUARIE INFRASTRUCTURE HOLDINGS, LLC The following discussion of the financial condition and results of operations ofMacquarie Infrastructure Corporation should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere herein. Results of Operations: Consolidated Impact of COVID-19 We continue to closely monitor the effects of COVID-19 and are actively managing our response placing a priority on the health and safety of our employees, contractors, their families, customers, and the broader communities in which our businesses operate. BothAtlantic Aviation and the MIC Hawaii businesses are classified as essential services businesses and remain fully operational. The businesses have implemented pandemic response plans and are following guidance from theCenters for Disease Control and Prevention (CDC ) as well as federal, state, and local governments with respect to conducting operations safely. To the extent possible, and where permitted by local guidelines, bothAtlantic Aviation and our MIC Hawaii businesses are facilitating vaccination of their employees against COVID-19. In addition to standard operating procedures designed to maintain safe operations, our businesses have implemented additional measures including: (i) a work from home policy for all employees that are able to do so; (ii) enhancing cleaning and disinfecting of facilities; (iii) limiting interactions between employees and customers through social distancing; (iv) mandating the use of personal protective equipment by employees; (v) modifying shift schedules to reduce exposure between shifts; and (vi) educating customers on alternative payment and customer care options as a means of limiting interactions with employees at MIC Hawaii. BothAtlantic Aviation and MIC Hawaii are engaged in ongoing communications with employees, customers, vendors, lenders, and other stakeholders to keep them apprised of their response to the pandemic. Consistent with recommendations of federal, state, and local authorities, our businesses have developed protocols and plans that we believe will allow staff and customers to access their facilities safely and effectively and they are implementing these as local conditions permit. COVID-19 continues to negatively affect the performance of our remaining operating businesses. Federal, state, and local governments have implemented pandemic response measures including social distancing, quarantines, travel restrictions, prohibitions on public gatherings, and stay-at-home orders that have significantly reduced business-related and international GA flight activity and the demand for fuel and ancillary services provided byAtlantic Aviation and resulted in a significant decline in economic activity and the number of visitors to Hawaii. While GA flight activity recovered significantly in the second half of 2020 from the low levels recorded in late March and April, the financial performance of the business has yet to recover to pre-COVID levels. While the increases in positive cases and infection rates in the fourth quarter appear to have had a limited effect on overall flight activity relative to levels in the third quarter, there can be no certainty that this trend will continue if the severity of the pandemic continues or worsens. The near absence of tourism inHawaii from April through mid-October significantly reduced gas sales during that period. The reopening of Hawaii to tourism in mid-October has resulted in an increase in demand for gas on the part of resorts and restaurants, although both tourism and gas sales remain well below pre-COVID levels. In general, the travel and tourism industries, and the businesses reliant on them, have been negatively affected by the pandemic. Continued stability or further increases in GA flight activity that benefitsAtlantic Aviation will depend upon the duration of the pandemic, any governmental response including renewed travel restrictions, and the state of theU.S. and global economies, as well as increases in business, international, and event-driven activity all of which are uncertain. Visitor arrivals to Hawaii, the primary driver of increases in demand for gas inHawaii , improved gradually during the fourth quarter over the third quarter following quarantine exemption for visitors with evidence of a negative COVID-19 test prior to arrival in the islands, however further improvement is uncertain. The approval of multiple COVID-19 vaccines may reduce the duration of the pandemic, however, the availability, distribution, and willingness of the public to accept the vaccines is also uncertain. Further, changes in consumer travel preferences, the availability of commercial flights, and other factors remain unknown. To ensure that each ofAtlantic Aviation andHawaii Gas are prudently managing their liquidity and mitigating the impact of reduced activity levels, the businesses have implemented cost saving initiatives including hiring freezes, reductions in regular hours and overtime, furloughs, deferral of maintenance and repair work where such deferral will not jeopardize regulatory compliance or safety, and reductions in other general and administrative expenses. We believe these actions will support the liquidity of both businesses and, together with cash generated from operations, will be sufficient to fund their ongoing operations and the growth projects to which they have committed. To increase our available cash at the onset of the pandemic, we drew on certain of our revolving credit facilities that added to our approximately$300 million of cash on hand in mid-March. We drew$599 million on our holding company revolving credit facility and$275 million on theAtlantic Aviation revolving credit facility in mid-March. The$275 million drawn on the 40 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations: Consolidated - (continued)Atlantic Aviation revolving credit facility was subsequently repaid onApril 30, 2020 . OnMay 4, 2020 , theAtlantic Aviation revolving credit facility commitments were reduced to$10 million , and further reduced to$1 million byDecember 31, 2020 , solely with respect to letters of credit then outstanding. During the second half of 2020, we fully repaid the drawn balance on our holding company revolving credit facility. We remain confident in our ability to fund our ongoing operations, meet our financial obligations, and fund the various investments to which our businesses have committed. Our sources of funding include$328 million of cash we had on hand onDecember 31, 2020 and the cash we expect our operating businesses to generate in 2021. The cash on hand atDecember 31, 2020 is net of amounts reserved for: (i) the payment of the special dividend of$11.00 per share inJanuary 2021 ; (ii) the payment of capital gains taxes and transaction costs related to the IMTT Transaction; and (iii) the retirement of holding company debt. As ofDecember 31, 2020 , there had been no material deterioration in accounts receivable at any of our operating businesses. If the economic impact of the pandemic is protracted, collection times and the value of uncollectible accounts could increase. Results of Operations: 2019 vs. 2018 During the quarter endedSeptember 30, 2020 , IMTT was classified as a discontinued operation and eliminated as a reportable segment. All periods reported herein reflect this change. For additional information, see Note 4, "Discontinued Operations and Dispositions", in our consolidated financial statements in "Financial Statements and Supplementary Data" in Part II, Item 8, of this Form 10-K. Unless specified below, for a comparison and discussion of our consolidated and operating businesses' results of operations for 2019 compared with 2018, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7, in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , which was filed with theU.S. Securities and Exchange Commission onFebruary 25, 2020 . 41 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations: Consolidated - (continued) Our consolidated results of operations for 2020 compared with 2019 are as follows: Year Ended Change December 31, Favorable/(Unfavorable) 2020 2019 $ % ($ In Millions, Except Share and Per Share Data) (Unaudited) Revenue Service revenue $ 667$ 969 (302) (31) Product revenue 180 243 (63) (26) Total revenue 847 1,212 (365) (30) Costs and expenses Cost of services 239 449 210 47 Cost of product sales 112 165 53 32 Selling, general and administrative 350 301 (49) (16) Fees to Manager - related party 21 32 11 34 Depreciation and amortization 116 122 6 5 Total operating expenses 838 1,069 231 22 Operating income 9 143 (134) (94) Other income (expense) Interest income 1 6 (5) (83) Interest expense(1) (87) (106) 19 18 Other expense, net (2) (3) 1 33
Net (loss) income from continuing operations before income taxes
(79) 40 (119) NM
Provision for income taxes (127) (15) (112) NM
Net (loss) income from continuing operations (206) 25 (231) NM
Discontinued Operations Net (loss) income from discontinued operations before income taxes
(699) 185 (884) NM
Provision for income taxes (23) (57) 34 60
Net (loss) income from discontinued operations (722) 128 (850) NM
Net (loss) income (928) 153 (1,081) NM
Net (loss) income from continuing operations (206) 25 (231) NM
Net (loss) income from continuing operations
attributable to MIC (206) 25 (231) NM
Net (loss) income from discontinued operations (722) 128 (850) NM
Less: net loss attributable to noncontrolling
interests - (3) (3) (100)
Net (loss) income from discontinued operations
attributable to MIC (722) 131 (853) NM
Net (loss) income attributable to MIC $ (928) $ 156 (1,084) NM
Basic (loss) income per share from continuing
operations attributable to MIC $ (2.36) $ 0.31 (2.67) NM
Basic (loss) income per share from discontinued
operations attributable to MIC (8.31) 1.51 (9.82) NM
Basic (loss) income per share attributable to MIC
$ 1.82 (12.49) NM
Weighted average number of shares outstanding: basic 86,951,642
86,178,212 773,430 1
NM - Not meaningful
(1)Interest expense includes non-cash losses on derivative instruments of $5
million and $8 million in 2020 and 2019, respectively
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Results of Operations: Consolidated - (continued)
Revenue
Consolidated revenues decreased in 2020 compared with 2019 primarily as a result
of: (i) a decrease in the amount of jet fuel and gas sold by Atlantic Aviation
and MIC Hawaii, respectively, due to the impact of COVID-19; and (ii) a lower
wholesale cost of jet fuel and gas.
Cost of Services and Product Sales
Consolidated cost of services and cost of product sales decreased in 2020
compared with 2019 primarily as a result of: (i) a decrease in the amount of jet
fuel and gas sold by Atlantic Aviation and MIC Hawaii, respectively, due to the
impact of COVID-19; (ii) a lower wholesale cost of jet fuel and gas; and (iii) a
favorable mark-to-market adjustment of the value of the commodity hedge
contracts on Hawaii Gas' balance sheet (see "Results of Operations - MIC Hawaii "
below).
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased in 2020 compared with
2019 primarily as a result of expenses incurred in connection with our pursuit
of strategic alternatives, principally related to the IMTT Transaction,
including a Disposition Payment of $28 million to our Manager (currently in
escrow), and a $7 million provision for costs (in excess of insurance
recoveries) of remediating certain environmental matters at Atlantic Aviation .
The increase in selling, general and administrative expenses was partially
offset by a reduction in salaries and benefits and lower professional service
fees.
Fees to Manager
Our Manager is entitled to a monthly base management fee based on our market
capitalization and potentially a quarterly performance fee based on total
stockholder returns relative to a U.S. utilities index. We incurred base
management fees of $21 million and $32 million in 2020 and 2019, respectively.
The decrease in base management fees is primarily due to the reduction in our
average market capitalization and the increase in our average holding company
cash balance during 2020. No performance fees were incurred in either of the
current or prior comparable periods. The unpaid portion of base management fees
and performance fees, if any, at the end of each reporting period is included in
the line item Due to Manager-related party in our consolidated balance sheets.
In accordance with the Management Services Agreement, our Manager elected to
reinvest any fees to which it was entitled in new primary shares in all of the
periods shown below and has currently elected to reinvest future base management
fees and performance fees, if any, in new primary shares.
Base Management Performance
Fee Amount Fee Amount Shares
Period ($ in Millions) ($ in Millions) Issued
2020 Activities:
Fourth quarter 2020 $ 5 $ - 162,791 (1)
Third quarter 2020 5 - 172,976
Second quarter 2020 4 - 146,452
First quarter 2020 7 - 181,617
2019 Activities:
Fourth quarter 2019 $ 9 $ - 208,881
Third quarter 2019 8 - 201,827
Second quarter 2019 7 - 192,103
First quarter 2019 8 - 184,448
(1)Our Manager elected to reinvest all of the monthly base management fees for
the quarter ended December 31, 2020 in new primary shares. We issued 162,791
shares for the quarter ended December 31, 2020 , including 33,760 shares that
were issued in January 2021 for the December 2020 monthly base management fee.
Depreciation and Amortization
The decrease in depreciation and amortization expense in 2020 compared with 2019
primarily reflected the full amortization of certain airport contract rights at
Atlantic Aviation , partially offset by assets placed in service.
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Results of Operations: Consolidated - (continued)
Interest Expense and Losses on Derivative Instruments
Interest expense includes non-cash losses on derivative instruments of $5
million and $8 million in 2020 and 2019, respectively, and amortization of
deferred financing costs and debt discounts. Losses on derivative instruments
recorded in interest expense are attributable to the change in fair value of
interest rate hedges. Excluding these non-cash adjustments, cash interest
expense totaled $69 million and $74 million in 2020 and 2019, respectively.
The decrease in cash interest expense primarily reflects a decrease in the
weighted average interest rate of debt facilities, partially offset by higher
average debt balances and lower interest income earned during 2020. See
discussions of interest expense for each of our operating businesses below.
Other Expense, net
Other expense, net, for 2020 reflects the write-off of projects no longer
considered viable, partially offset by $3 million of fee income recognized from
a previously owned majority interest in a renewable power development business.
Other expense, net, for 2019 includes the write-off of costs associated with
projects related to the importation of bulk LNG that were terminated by Hawaii
Gas , partially offset by fee income from a third-party developer of renewable
power facilities. The relationship with the developer concluded during July
2019 .
Discontinued Operations
During the quarter ended September 30, 2020 , IMTT was classified as held for
sale and its results of operations for current and prior comparable periods were
reported as part of discontinued operations. As part of classifying IMTT as held
for sale, the Company recognized an impairment of the IMTT disposal group of
$750 million , which included a goodwill impairment of $725 million , during the
quarter ended September 30, 2020 . Upon completion of the IMTT Transaction on
December 23, 2020 , we recognized a book loss on sale of approximately $25
million .
Discontinued operations in 2019 reflect the operating results of IMTT, the gain
on sale of our wind and solar power generating facilities, and the gain on sale
of our majority interest in a renewable power development business.
Income Taxes
We file a consolidated federal income tax return that includes the financial
results of our remaining operating businesses, Atlantic Aviation and MIC Hawaii,
and our discontinued operations, IMTT, through the date of sale. Pursuant to a
tax sharing agreement, these businesses pay MIC an amount equal to the federal
income tax each would pay on a standalone basis if they were not part of the
consolidated group. Excluding the taxable gain resulting from the IMTT
Transaction described below, the current federal tax liability for 2020 was $3
million .
In addition, our businesses file income tax returns and may pay taxes in the
state and local jurisdictions in which they operate. The current state income
tax liability from continuing operations for 2020 was $3 million . In calculating
our state income tax liability, we have provided a valuation allowance for
certain state income tax NOL carryforwards, the use of which is uncertain.
During the quarter ended September 30, 2020 , we increased our deferred tax
liability by $158 million as it became probable that IMTT would be sold in a
taxable transaction. The increase represented the tax expense on the difference
between our book and tax basis in our investment in IMTT. Subsequent to the
close of the IMTT Transaction in December 2020 , we reclassified the liability to
current and reduced the tax to $126 million . The reduction primarily reflected
the tax benefit of the Disposition Payment (currently in escrow) and the final
determination of the tax basis of our investment in IMTT, which increased due to
higher than forecasted taxable income generated prior to completion of the IMTT
Transaction, as fewer assets were placed in service for tax purposes resulting
in lower bonus tax depreciation during MIC's ownership period.
In 2019, we incurred $30 million in current federal income tax liability and $9
million in current state income tax liability from discontinued operations
primarily from the gain on sale of the renewable businesses during the year.
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Results of Operations: Consolidated - (continued)
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
excluding non-cash items and Free Cash Flow
In addition to our results under U.S. GAAP, we use the non-GAAP measures EBITDA
excluding non-cash items and Free Cash Flow to assess the performance and
prospects of our businesses.
We measure EBITDA excluding non-cash items as it reflects our businesses'
ability to effectively manage the amount of products sold or services provided,
the operating margin earned on those transactions, and the management of
operating expenses independent of the capitalization and tax attributes of those
businesses.
We believe investors use EBITDA excluding non-cash items primarily as a measure
of the operating performance of MIC's businesses and to make comparisons with
the operating performance of other businesses whose depreciation and
amortization expense may vary from ours, particularly where acquisitions and
other non-operating factors are involved. We define EBITDA excluding non-cash
items as net income (loss) or earnings - the most comparable GAAP measure -
before interest, taxes, depreciation and amortization, and non-cash items
including impairments, unrealized derivative gains and losses, adjustments for
other non-cash items, and pension expense reflected in the statements of
operations. Other non-cash items excludes the adjustment to bad debt expense
related to the specific reserve component, net of recoveries. EBITDA excluding
non-cash items also excludes base management fees and performance fees, if any,
whether paid in cash or stock.
Our businesses are characteristically owners of high-value, long-lived assets
capable of generating substantial Free Cash Flow. We define Free Cash Flow as
cash from operating activities - the most comparable GAAP measure - less
maintenance capital expenditures and adjusted for changes in working capital.
We use Free Cash Flow as a measure of our ability to fund acquisitions, invest
in growth projects, reduce or repay indebtedness, and/or return capital to
shareholders. GAAP metrics such as net income (loss) do not provide us with the
same level of visibility into our performance and prospects as a result of: (i)
the capital intensive nature of our businesses and the generation of non-cash
depreciation and amortization; (ii) shares issued to our external Manager under
the Management Services Agreement; (iii) our ability to defer all or a portion
of current federal income taxes; (iv) non-cash mark-to-market adjustment of the
value of derivative instruments; (v) gains (losses) related to the write-off or
disposal of assets or liabilities; (vi) non-cash compensation expense incurred
in relation to the incentive plans for senior management of our operating
businesses; and (vii) pension expenses. Pension expenses primarily consist of
interest cost, expected return on plan assets, and amortization of actuarial and
performance gains and losses. Any cash contributions to pension plans are
reflected as a reduction to Free Cash Flow and are not included in pension
expense. We believe that external consumers of our financial statements,
including investors and research analysts, use Free Cash Flow to assess the
Company's ability to fund acquisitions, invest in growth projects, reduce or
repay indebtedness, and/or return capital to shareholders.
In this Annual Report on Form 10-K, we have disclosed Free Cash Flow on a
consolidated basis and for each of our operating segments and Corporate and
Other. We believe that both EBITDA excluding non-cash items and Free Cash Flow
support a more complete and accurate understanding of the financial and
operating performance of our businesses than would otherwise be achieved using
GAAP results alone.
Free Cash Flow does not take into consideration required payments on
indebtedness and other fixed obligations or other cash items that are excluded
from our definition of Free Cash Flow. We note that Free Cash Flow may be
calculated differently by other companies thereby limiting its usefulness as a
comparative measure. Free Cash Flow should be used as a supplemental measure and
not in lieu of our financial results reported under GAAP.
Classification of Maintenance Capital Expenditures and Growth Capital
Expenditures
We categorize capital expenditures as either maintenance capital expenditures or
growth capital expenditures. As neither maintenance capital expenditure nor
growth capital expenditure is a GAAP term, we have adopted a framework to
categorize specific capital expenditures. In broad terms, maintenance capital
expenditures primarily maintain our businesses at current levels of operations,
capability, profitability or cash flow, while growth capital expenditures
primarily provide new or enhanced levels of operations, capability,
profitability or cash flow. We consider various factors in determining whether a
specific capital expenditure will be classified as maintenance or growth.
We do not bifurcate specific capital expenditures into maintenance and growth
components. Each discrete capital expenditure is considered within the above
framework and the entire capital expenditure is classified as either maintenance
or growth.
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Results of Operations: Consolidated - (continued)
A reconciliation of net (loss) income from continuing operations to EBITDA
excluding non-cash items from continuing operations and a reconciliation from
cash provided by operating activities from continuing operations to Free Cash
Flow from continuing operations, on a consolidated basis, is provided below.
Similar reconciliations for each of our operating businesses and Corporate and
Other follow.
Year Ended Change
December 31, Favorable/(Unfavorable)
2020 2019 $ %
($ In Millions) (Unaudited)
Net (loss) income from continuing operations $ (206) $ 25
Interest expense, net(1) 86 100
Provision for income taxes 127 15
Depreciation and amortization 116 122
Fees to Manager- related party 21
32
Other non-cash expense, net(2) 6
17
EBITDA excluding non-cash items - continuing operations(3)$ 150 $ 311 (161) (52) EBITDA excluding non-cash items - continuing operations(3)$ 150 $
311
Interest expense, net(1) (86)
(100)
Non-cash interest expense, net(1) 17
26
Provision for current income taxes(4) (132)
(6)
Changes in working capital(4)(5) 178
(16)
Cash provided by operating activities - continuing operations
127 215
Changes in working capital(4)(5) (178)
16
Maintenance capital expenditures (20)
(23)
Free cash flow - continuing operations$ (71) $ 208 (279) (134) (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 dueOctober 2023 . (2)Other non-cash expense, net, primarily includes pension expense, non-cash mark-to-market adjustment of the value of the commodity hedge contracts, non-cash compensation expense incurred in relation to the incentive plans for senior management of our operating businesses, and non-cash gains (losses) related to the write-off or disposal of assets or liabilities. Pension expense primarily consists of interest cost, expected return on plan assets, and amortization of actuarial and performance gains and losses. Other non-cash expense, net, excludes the adjustment to bad debt expense related to the specific reserve component, net of recoveries, for which this adjustment is reported in working capital in the above table. See "Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) excluding non-cash items and Free Cash Flow" above for further discussions. (3)Includes transaction costs of$28 million and a Disposition Payment of$28 million to our Manager in connection with the IMTT Transaction in 2020 (currently in escrow). (4)Includes the current federal income tax liability of$126 million related to the taxable gain on the IMTT Transaction in 2020 expected to be paid inApril 2021 . (5)Reflects current federal income taxes paid primarily related to the taxable gain on the sale of the renewable businesses in 2019. 46 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations:Atlantic Aviation At Atlantic Aviation , our focus is on the sale of jet fuel and other services to operators of GA aircraft through our network of 69 FBOs. The financial performance of the business is positively correlated with the number of GA flight movements (take-offs and landings) in theU.S. and the business' ability to service a portion of the aircraft involved in those operations. The significant decrease in economic activity beginning inmid-March 2020 as a result of COVID-19, together with the implementation of widespread travel restrictions and other efforts to mitigate the spread of COVID-19, contributed to a substantial reduction in GA flight activity. Based on data reported by theFederal Aviation Administration (FAA ), industry-wide domestic GA flight movements decreased by 21% in 2020 compared with 2019. The number of GA flight movements has recovered significantly from the trough in activity inApril 2020 at 72% below the prior comparable month, reaching 18% below the prior comparable month inJune 2020 and gradually improved through the second half of the year in spite of continued COVID-19 restrictions and preventative measures across theU.S. InDecember 2020 , activity was down 12% compared with the prior comparable month. Over the long-term, the rate of growth in GA flight movements has tended to be positively correlated with the level of economic activity in theU.S. Based on data reported by theFAA , the total number of GA flight movements at airports on whichAtlantic Aviation operates decreased by 18% and 25% during the quarter and year endedDecember 31, 2020 , respectively, versus the prior comparable periods. The decrease in activity at these airports was greater than the decline in overall domesticU.S. flight activity primarily due toAtlantic Aviation's exposure to centers of business and economic activity includingNew York ,Los Angeles , andChicago . Additionally, an increase in the proportion of shorter, domestic flights, together with a reduction in the size of the average aircraft in use, disproportionately reduced the amount of jet fuel sold relative to flight activity atAtlantic Aviation throughout the year. In response to the downturn in flight activity that commenced in March of this year,Atlantic Aviation engaged in a thorough review of its operational and capital expenditures to ensure it was prudently managing its liquidity. Staffing levels were reduced to reflect lower levels of demand for services provided. Non-payroll discretionary expenses were cut or deferred, and capital expenditures were reviewed resulting in certain uncommitted or non-essential items being deferred as well. As a result of these efforts, the business has realized savings of approximately$22 million through the year endedDecember 31, 2020 versus the prior comparable period.Atlantic Aviation seeks to extend FBO leases prior to their maturity to maintain visibility into the cash generating capacity of these assets over the long-term. Based on EBITDA excluding non-cash items for the prior calendar year adjusted for the impact of acquisitions, dispositions, and lease extensions, the weighted average remaining life of the leases in theAtlantic Aviation portfolio was 22.0 years and 19.0 years onDecember 31, 2020 and 2019, respectively. A portion of the increase in the weighted average remaining lease life reflects potentially temporary changes in the contribution to EBITDA excluding non-cash items from a number of FBOs due to COVID-19. Based on the contribution of each FBO toAtlantic Aviation's results in 2019, the EBITDA weighted remaining lease life in 2020 would have been 20.1 years. 47 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations:Atlantic Aviation - (continued) Year Ended December 31, Change 2020 2019 Favorable/(Unfavorable) $ $ $ % ($ In Millions) (Unaudited) Service revenue 667 972 (305) (31) Cost of services (exclusive of depreciation and amortization shown separately below) 239 449 210 47 Gross margin 428 523 (95) (18) Selling, general and administrative expenses 235 249 14 6 Depreciation and amortization 99 106 7 7 Operating income 94 168 (74) (44) Interest expense, net(1) (55) (74) 19 26 Other expense, net - (1) 1 100 Provision for income taxes (11) (24) 13 54 Net income 28 69 (41) (59) 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 28 69 Interest expense, net(1) 55 74 Provision for income taxes 11 24 Depreciation and amortization 99
106
Other non-cash expense, net(2) 2
3
EBITDA excluding non-cash items 195 276 (81) (29) EBITDA excluding non-cash items 195
276
Interest expense, net(1) (55)
(74)
Non-cash interest expense, net(1) 10
16
Provision for current income taxes (5)
(22)
Changes in working capital 27
13
Cash provided by operating activities 172
209
Changes in working capital (27)
(13)
Maintenance capital expenditures (13) (16) Free cash flow 132 180 (48) (27) (1)Interest expense, net, includes non-cash adjustments to derivative instruments and non-cash amortization of deferred financing fees. (2)Other non-cash expense, net, includes primarily non-cash compensation expense incurred in relation to incentive plans and non-cash gains (losses) related to the write-off or disposal of assets or liabilities. Other non-cash expense, net, excludes the adjustment to bad debt expense related to the specific reserve component, net of recoveries, for which this adjustment is reported in working capital in the above table. See "Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) excluding non-cash items and Free Cash Flow" above for further discussion.Atlantic Aviation generates most of its revenue from sales of jet fuel at facilities located on the 69 U.S. airports on which the business operates. Increases and decreases in the cost of jet fuel are generally passed through to customers.Atlantic Aviation seeks to maintain and, where appropriate, increase dollar-based margins on jet fuel sales. Accordingly, reported revenue will fluctuate based on the cost of jet fuel toAtlantic Aviation and may not reflect the business' ability to effectively manage the amount of jet fuel sold and the margin achieved on those sales. For example, an increase in revenue may be attributable to an increase in the cost of jet fuel and not an increase in the amount of jet fuel sold or 48 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations:Atlantic Aviation - (continued) margin per gallon. Conversely, a decline in revenue may be attributable to a decrease in the cost of jet fuel and not a reduction in the amount of jet fuel sold or margin per gallon. Gross margin, which we define as revenue less cost of services, excluding depreciation and amortization, is the effective "top line" forAtlantic Aviation as it reflects the business' ability to drive growth in the amount of products and services sold and the margins earned on those sales over time. We believe that our investors view gross margin as reflective of our ability to manage the amount and price of jet fuel sold, notwithstanding variances in the wholesale cost of fuel through the commodity cycle. Gross margin can be reconciled to operating income - the most comparable GAAP measure - by subtracting selling, general and administrative expenses and depreciation and amortization in the table above. Revenue and Gross Margin Revenue decreased for 2020 compared with 2019 due to a reduction in the amount of jet fuel sold, a decrease in ancillary services provided and, to a lesser extent, a reduction in rental revenue. The decrease in rental revenue was attributable to a reduced number of short-term and overnight hangar rentals and aircraft parking, partially offset by the increase in rental revenue from base tenants versus the prior year. The reduced amount of revenue also reflected the lower wholesale cost of jet fuel during 2020 compared with 2019. In general, the decrease in the wholesale cost of jet fuel is typically reflected in a corresponding decrease in cost of services, resulting in no impact to gross margin. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased for 2020 versus 2019, primarily due to lower salaries and benefits, maintenance and repair costs, and credit card fees. The decrease in selling, general and administrative expenses for 2020 was partially offset by a$7 million provision for costs (in excess of insurance recoveries) of remediating certain environmental matters. Excluding this provision, selling, general and administrative expenses would have been approximately$22 million lower for 2020 compared with 2019. Depreciation and Amortization Depreciation and amortization decreased for 2020 compared with 2019 primarily due to the full amortization of certain airport contract rights, partially offset by assets placed in service. Operating Income Operating income decreased for 2020 compared with 2019 due to the decrease in gross margin, partially offset by the decrease in selling, general and administrative expenses and depreciation and amortization. Interest Expense, Net Interest expense, net, includes non-cash losses on derivative instruments of$4 million for 2020 compared with non-cash losses of$7 million for 2019, respectively, and amortization of deferred financing costs. Excluding these non-cash adjustments, cash interest expense totaled$45 million and$58 million in 2020 and 2019, respectively. The decrease in cash interest expense primarily reflects a lower weighted average interest rate. Income Taxes The taxable income generated byAtlantic Aviation is reported on our consolidated federal income tax return. The business files standalone state income tax returns in most of the states in which it operates. The tax expense in the table above includes both state income taxes and the portion of the consolidated federal income tax liability attributable to the business. The Provision for Current Income Taxes of$5 million for 2020 in the above table includes$3 million of state income tax expense and$2 million of federal income tax expense.Atlantic Aviation has state NOL carryforwards that are specific to the state in which they were generated. The utilization of NOL carryforwards may reduce or eliminate state taxable income in the future. Maintenance Capital ExpendituresAtlantic Aviation incurred maintenance capital expenditures of$13 million and$15 million on an accrual basis and cash basis, respectively, in 2020 compared with$16 million and$12 million on an accrual basis and cash basis, respectively, for 2019. 49
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Results of Operations:MIC Hawaii MIC Hawaii comprisesHawaii Gas and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy inHawaii . The businesses of MIC Hawaii generate revenue primarily from the provision of gas to commercial, residential, and governmental customers and the generation of power. The financial performance of MIC Hawaii is a function of the number of customers served, their consumption of energy and the prices achieved on sales by each ofHawaii Gas's utility and non-utility operations and under power purchase agreements. The amount of gas consumed is correlated with general economic activity over the long term with tourism being a key component. Consumption trends and rates are a function of, among other factors, energy efficiency, weather, the range of competitive energy sources, and MIC Hawaii's input commodity costs.Hawaii Gas enters into commodity hedge contracts to hedge against financial risks of commodity price fluctuations of its LPG purchases. The financial performance of MIC Hawaii was significantly affected by a reduction in the demand for gas resulting from the 81% and 74% decline in the number of tourists visiting Hawaii during the quarter and year endedDecember 31, 2020 , respectively, versus the prior comparable periods. A corresponding decline in hotel occupancy, meals prepared in restaurants, and commercial laundry services resulted in an overall reduction in gas consumption of 27% and 26% during the quarter and year endedDecember 31, 2020 , respectively, versus the prior comparable periods.Hawaii Gas is in regular communication with key counterparties including its supplier of naphtha feedstock for its utility operations and its LPG supplier. The business' current naphtha feedstock agreement expired at the end of 2020 and a new naphtha feedstock agreement was negotiated and approved on an interim basis by the HPUC inDecember 2020 .Hawaii Gas is also closely tracking and conservatively managing LPG inventories to reduce its exposure to potential supply chain disruptions. To date, there have been no disruptions in supply or supply logistics. 50 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations:MIC Hawaii - (continued) Year Ended December 31, Change 2020 2019 Favorable/(Unfavorable) $ $ $ % ($ In Millions) (Unaudited) Product revenue 180 243 (63) (26) Cost of product sales (exclusive of depreciation and amortization shown separately below) 112 165 53 32 Gross margin 68 78 (10) (13) Selling, general and administrative expenses 24 24 - - Depreciation and amortization 16 16 - - Operating income 28 38 (10) (26) Interest expense, net(1) (8) (10) 2 20 Other expense, net (2) (6) 4 67 Provision for income taxes (6) (9) 3 33 Net income 12 13 (1) (8) 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 12 13 Interest expense, net(1) 8 10 Provision for income taxes 6 9 Depreciation and amortization 16
16
Other non-cash (income) expense, net(2) (1)
12
EBITDA excluding non-cash items 41 60 (19) (32) EBITDA excluding non-cash items 41
60
Interest expense, net(1) (8)
(10)
Non-cash interest expense, net(1) 1
2
Provision for current income taxes (3)
(4)
Changes in working capital -
8
Cash provided by operating activities 31
56
Changes in working capital -
(8)
Maintenance capital expenditures (7) (7)
Free cash flow 24 41 (17) (41)
(1)Interest expense, net, includes non-cash adjustments to derivative
instruments related to interest rate swaps and non-cash amortization of deferred
financing fees.
(2)Other non-cash (income) expense, net, includes primarily non-cash
mark-to-market adjustment of the value of the commodity hedge contracts, pension
expense, non-cash compensation expense incurred in relation to incentive plans,
and non-cash gains (losses) related to the write-off or disposal of assets or
liabilities. Pension expense consists primarily of interest cost, expected
return on plan assets, and amortization of actuarial and performance gains and
losses. Other non-cash (income) expense, net, excludes the adjustment to bad
debt expense related to the specific reserve component, net of recoveries, for
which this adjustment is reported in working capital in the above table. See
"Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
excluding non-cash items and Free Cash Flow" above for further discussion.
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Results of Operations: MIC Hawaii - (continued)
Hawaii Gas generates most of its revenue from the sale of gas. Accordingly,
revenue can fluctuate based on the wholesale cost of gas and/or feedstock to
Hawaii Gas and may not reflect the business' ability to effectively manage the
amount of gas sold and the margins achieved on those sales. For example, an
increase in revenue may be attributable to an increase in the wholesale cost of
gas passed through to Hawaii Gas' customers and not an increase in the amount of
gas sold or margin achieved. Conversely, a decline in revenue may be
attributable to a decrease in the wholesale cost of gas passed through to Hawaii
Gas' customers and not a reduction in the amount of gas sold or margin achieved.
Gross margin, which we define as revenue less cost of product sales, excluding
depreciation and amortization, is the effective "top line" for Hawaii Gas as it
is reflective of the business' ability to drive growth in the amount of products
sold and the margins earned on those sales over time. We believe that investors
use gross margin to evaluate the business as it is reflective of our performance
in managing volume and price throughout the commodity cycle. Gross margin is
reconciled to operating income - the most comparable GAAP measure - by
subtracting selling, general and administrative expenses and depreciation and
amortization in the table above.
Revenue and Gross Margin
Revenue declined in 2020 compared with 2019 primarily as a result of a decrease
in the amount of gas sold by Hawaii Gas and lower SNG feedstock prices passed
through to ratepayers. The decrease in the amount of gas sold reflects a
decrease in consumption of gas, mainly by commercial and industrial customers,
due to reductions in tourism and commercial activity associated with COVID-19.
Gross margin decreased to $68 million in 2020 from $78 million in 2019 as a
result of the decrease in the amount of gas sold. The 2020 results also includes
realized losses of $6 million on commodity hedge contracts resulting from the
decrease in the wholesale market price of LPG. The decrease in gross margin was
partially offset by favorable changes in the mark-to-market adjustment of the
value of the commodity hedge contracts on MIC Hawaii's balance sheet. The
business recorded favorable adjustments of $7 million in the mark-to-market
adjustment of the value of the commodity hedge contracts for 2020 compared with
unfavorable adjustments of $4 million for 2019. The change in the mark-to-market
adjustment of the value of the commodity hedge contracts during 2020 reflects a
favorable movement in the forecast wholesale prices of LPG relative to the
hedged price.
Selling, General and Administrative Expenses
Selling, general and administrative expenses remained flat for 2020 compared
with 2019 reflecting an expected increase in insurance costs, partially offset
by a decrease in salaries and benefits and advertising expense.
Operating Income
Operating income decreased for 2020 compared with 2019 primarily due to the
decrease in gross margin.
Interest Expense, Net
Interest expense, net, includes non-cash losses on derivative instruments of $1
million in both 2020 and 2019 and amortization of deferred financing costs.
Excluding these non-cash adjustments, cash interest expense totaled $7 million
and $8 million in 2020 and 2019, respectively. The decrease in cash interest
expense primarily reflects a lower weighted average interest rate.
Other Expenses, Net
Other expense, net, in 2020 primarily includes write-offs of fixed assets no
longer considered viable, partially offset by previously unclaimed Hawaiian
general excise tax credits. Other expense, net, in 2019 reflects the write-off
of costs associated with projects related to the importation of bulk LNG that
were terminated by Hawaii Gas .
Income Taxes
The taxable income generated by the MIC Hawaii businesses is reported on our
consolidated federal income tax return. The businesses file standalone state
income tax returns in Hawaii . The tax expense in the table above includes both
the state income tax and the portion of the consolidated federal income tax
liability attributable to the businesses. The Provision for Current Income Taxes
of $3 million for 2020 in the above table is primarily attributable to federal
income tax expense.
Maintenance Capital Expenditures
Maintenance capital expenditures totaled $7 million in each of 2020 and 2019, on
both on an accrual and cash basis.
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Results of Operations: Corporate and Other Our Corporate and Other segment comprises primarily results from MIC Corporate inNew York City , our shared services center inPlano, Texas , and from our relationship with a developer of renewable power facilities (formerly reported inContracted Power ). The relationship with the developer was concluded duringJuly 2019 . Year Ended December 31, Change 2020 2019 Favorable/(Unfavorable) $ $ $ % ($ In Millions) (Unaudited) Selling, general and administrative expenses 91 31 (60) (194) Fees to Manager-related party 21 32 11 34 Depreciation and amortization 1 - (1) NM Operating loss (113) (63) (50) (79) Interest expense, net(1) (23) (16) (7) (44) Other income, net - 4 (4) (100) (Provision) benefit for income taxes (110) 18 (128) NM Net loss (246) (57) (189) NM 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 (246)
(57)
Interest expense, net(1) 23
16
Provision (benefit) for income taxes 110
(18)
Fees to Manager-related party 21
32
Depreciation and amortization 1
-
Other non-cash expense, net(2) 5
2
EBITDA excluding non-cash items(3) (86) (25) (61) NM EBITDA excluding non-cash items(3) (86)
(25)
Interest expense, net(1) (23)
(16)
Non-cash interest expense, net(1) 6
8
(Provision) benefit for current income taxes(4) (124)
20
Changes in working capital(4)(5) 151
(37)
Cash used in operating activities (76)
(50)
Changes in working capital(4)(5) (151) 37 Free cash flow (227) (13) (214) NM NM - Not meaningful (1)Interest expense, net, includes non-cash amortization of deferred financing fees and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes dueOctober 2023 . (2)Other non-cash expense, net, includes primarily non-cash adjustments related to non-cash compensation expense incurred in relation to incentive plans and non-cash gains (losses) related to the write-off or disposal of assets or liabilities. See "Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) excluding non-cash items and Free Cash Flow" above for further discussion. (3)Includes transaction costs of$28 million and a Disposition Payment of$28 million to our Manager in connection with the IMTT Transaction in 2020 (currently in escrow). (4)Includes the current federal income tax liability of$126 million related to the taxable gain on the IMTT Transaction in 2020 expected to be paid inApril 2021 . 53 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations: Corporate and Other - (continued) (5)Reflects current federal income taxes paid primarily related to the taxable gain on the sale of the renewable businesses in 2019. Selling, General and Administrative Expenses Selling, general and administrative expenses increased in 2020 compared with 2019 primarily due to expenses incurred in connection with our pursuit of strategic alternatives, principally related to the IMTT Transaction, including a Disposition Payment of$28 million to our Manager (currently in escrow), partially offset by reduction in professional service fees. Fees to Manager Fees to Manager for 2020 and 2019 was comprised of base management fees of$21 million and$32 million , respectively. The decrease in base management fees is primarily due to the reduction in our average market capitalization and the increase in our average holding company cash balance during 2020. No performance fees were incurred in either of the current or prior comparable periods. Interest Expense, net Interest expense, net, includes non-cash amortization of deferred financing costs and debt discounts. Excluding these non-cash adjustments, cash interest expense, net, totaled$17 million and$8 million in 2020 and 2019, respectively. The increase in cash interest expense reflects primarily higher average debt balances and lower interest income earned during 2020, partially offset by lower weighted average interest rates. Other Income, net Other income, net, for 2020 reflects$3 million of fee income recognized from a previously owned renewable power development business, partially offset by a$3 million write-off of projects no longer considered viable. Other income, net, for 2019 includes fee income from a third-party developer of renewable power facilities. The relationship with the developer concluded duringJuly 2019 . Income Taxes The Provision for Current Income Taxes of$124 million for 2020 in the above table primarily reflects$126 million of current federal income tax liability related to the taxable gain on the IMTT Transaction, partially offset by the current federal income tax expense recorded byAtlantic Aviation and MIC Hawaii offset in consolidation with losses generated by Corporate and Other. 54
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Liquidity and Capital ResourcesGeneral Cash requirements of our remaining operating businesses include primarily normal operating expenses, debt service, debt principal payments, payments of dividends to our holding company, and capital expenditures. Their source of cash has been primarily operating activities although we have drawn on and may in the future draw on credit facilities, have issued and may in the future issue new equity or debt, and have sold and may in the future sell assets to generate cash. We may from time to time seek to purchase or retire our outstanding debt in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, could be material and will depend on market conditions, our liquidity needs, and other factors. Response to COVID-19 OnMarch 17, 2020 , we drew a total of$874 million on two revolving credit facilities. We drew$599 million on our$600 million holding company level revolving credit facility and drew$275 million on the$350 million revolving credit facility atAtlantic Aviation . The proceeds were additive to our approximately$300 million of cash on hand inmid-March 2020 . The drawdowns were deemed prudent to preserve financial flexibility in light of the disruption and uncertainty surrounding the impact of COVID-19 on our businesses. In addition to drawing on our revolving credit facilities, we determined to improve our liquidity and financial flexibility by suspending our quarterly dividend. The$275 million drawn on theAtlantic Aviation revolving credit facility was subsequently repaid onApril 30, 2020 . OnMay 4, 2020 , theAtlantic Aviation revolving credit facility commitments were reduced to$10 million , and further to$1 million byDecember 31, 2020 , solely with respect to letters of credit then outstanding. During the second half of 2020, we fully repaid the$559 million of the drawn balance on our holding company revolving credit facility. Net Proceeds from IMTT Transaction OnDecember 23, 2020 , we completed the IMTT Transaction for$2.67 billion , net of closing adjustments, and including assumed debt of approximately$1.11 billion . The net proceeds of$1.55 billion were or are expected to be used to: (i) pay a special dividend of$11.00 per share onJanuary 8, 2021 ; (ii) settle capital gains taxes expected to be paid byApril 2021 ; (iii) pay transaction costs; (iv) pay a Disposition Payment to our Manager inDecember 2020 (currently in escrow); and (v) retire holding company level debt. We expect the actual and proposed use of proceeds from the sale of IMTT to provide us with the financial flexibility to move forward with sales processes forAtlantic Aviation and MIC Hawaii in a manner and at a time consistent with maximizing value for stockholders. Cancellation of Holding Company Revolving Credit Facility The IMTT Transaction resulted in the termination of commitments under our holding company level revolving credit facility onJanuary 19, 2021 , in accordance with the terms of that agreement. All drawings on the revolving credit facility were fully repaid as ofDecember 31, 2020 . Ongoing Operations We currently expect to fund our operations, service and/or repay our debt, make required tax payments, fund essential maintenance capital expenditures, and deploy growth capital during 2021 using cash generated from the operations of our remaining operating businesses and our$328 million of cash on hand onDecember 31, 2020 , excluding the use or expected use of the net proceeds received from the IMTT Transaction described above. On December 31 2020, the consolidated debt outstanding at our remaining operating businesses and at our holding company totaled$1,602 million (excluding adjustments for unamortized debt discounts). As discussed above, our consolidated cash balance at our remaining operating businesses totaled$328 million and an undrawn revolving credit facility at MIC Hawaii of$60 million . The ratio of net debt/EBITDA for our remaining operating businesses was 4.0x onDecember 31, 2020 . 55 -------------------------------------------------------------------------------- TABLE OF CONTENTS Liquidity and Capital Resources - (continued) The following table shows MIC's debt obligations from continuing operations onFebruary 12, 2021 ($ in millions): Weighted Average Remaining Life Balance Weighted Business Debt (in years) Outstanding Average Rate(1) MIC Corporate Convertible Senior Notes 2.6$ 403 2.00 % Atlantic Aviation Term Loan(2) 4.8 1,005 4.21 % MIC Hawaii(3) Term Loan(2) 2.5 94 1.87 % Senior Notes 1.5 100 4.22 % Total 3.9$ 1,602 3.52 % (1)Reflects annualized interest rate on all facilities including interest rate hedges. (2)The weighted average remaining life does not reflect the scheduled amortization on these facilities. (3)MIC Hawaii also has a$60 million revolving credit facility that was undrawn. The revolving credit facility floats at LIBOR plus 1.25% and matures inFebruary 2023 . We generally capitalize our businesses in part using floating rate debt with medium-term maturities of between four and seven years. We also use longer dated private placement debt and other forms of capital including bond or hybrid debt instruments to capitalize our businesses. In general, the debt facilities of our businesses are non-recourse to the holding company and there are no cross-collateralization or cross-guarantee provisions in these facilities. COMMITMENTS AND CONTINGENCIES The following table summarizes our future obligations for continuing operations, by period due, as ofDecember 31, 2020 , under our various contractual obligations and commitments. We had no other off-balance sheet arrangement at that date or currently.
Payments Due by Period
Less than More than
Total One Year 1 - 3 Years 3 - 5 Years 5 Years
($ In Millions)
Long-term debt(1) $ 1,602 $ 11
238 54 99 85 -
Operating lease obligations(3) 747 44 84 81 538
Pension and post-retirement benefit
obligations(4) 32 3 6 6 17
Purchase commitments 133 37 64 32 -
Service commitments 4 3 1 - -
Capital expenditure commitments 40 37 3 - -
Total contractual cash
obligations(5)(6) $ 2,796 $ 189 $ 862 $ 1,181 $ 564
(1)The long-term debt represents the consolidated principal obligations to
various lenders. The primary debt facilities are subject to certain covenants,
the violation of which could result in acceleration of the maturity dates. For a
description of the material terms of MIC and its businesses, see Note 9,
"Long-Term Debt", in our consolidated financial statements in "Financial
Statements and Supplementary Data" in Part II, Item 8, of this Form 10-K.
(2)The variable rate portion on the interest obligation on long-term debt was
calculated using three-months LIBOR forward spot rate on December 31, 2020 .
(3)This represents the minimum annual rentals required to be paid under
non-cancellable operating leases with terms in excess of one year. In 2019, we
adopted ASU No. 2016-2, Leases, which requires lessees to recognize a
right-of-use asset and lease liability on the balance sheet. See Note 5,
"Leases", in our consolidated financial statements in "Financial Statements and
Supplementary Data" in Part II, Item 8, of this Form 10-K for further
discussions.
(4)The pension and post-retirement benefit obligation is forecasted payments, by
actuaries, for the next ten years.
(5)The above table does not reflect certain long-term obligations for which we
are unable to estimate the period in which the obligation will be incurred.
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Liquidity and Capital Resources - (continued)
(6)The above table does not reflect certain expenses that we may incur dependent
on the outcome of our pursuit of strategic alternatives. These include payments
to our Manager calculated in accordance with the Disposition Agreement, fees to
financial advisors and other professional services providers, and transaction
related payments to certain employees of our operating businesses.
In addition to these commitments and contingencies, we typically incur capital
expenditures on a regular basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Classification of Maintenance
Capital Expenditures and Growth Capital Expenditures" and "Investing Activities"
below for further discussions of growth capital expenditures. Maintenance
capital expenditures are discussed above in "Results of Operations" for each of
our businesses.
We also have other contingencies, including pending or threatened legal and
administrative proceedings that are not reflected above as amounts at this time
are not ascertainable. See "Legal Proceedings" in Part I, Item 3.
Our sources of cash to meet these obligations may include:
•cash generated from our operations (see "Operating Activities" in "Liquidity
and Capital Resources");
•refinancing of our current credit facilities on or before maturity (noting that
it may be more difficult and/or costly to obtain financing while global markets
continue to be disrupted by COVID-19 (see "Financing Activities" in "Liquidity
and Capital Resources");
•any undrawn credit facilities (see "Financing Activities" in "Liquidity and
Capital Resources"); and
•proceeds from the sale of all or part of any of our businesses (see "Investing
Activities" in "Liquidity and Capital Resources").
ANALYSIS OF CONSOLIDATED HISTORICAL CASH FLOWS FROM CONTINUING OPERATIONS
The following section discusses our sources and uses of cash on a consolidated
basis from continuing operations. All intercompany activities such as corporate
allocations, capital contributions to our businesses, and distributions from our
businesses have been excluded from the tables as these transactions are
eliminated on consolidation.
Year Ended
December 31, Change
2020 2019 Favorable/(Unfavorable)
($ In Millions) $ $ $ %
Cash provided by operating activities 127 215 (88) (41)
Cash used in investing activities (71) (69) (2) (3)
Cash used in financing activities (99) (706) 607 86
Historical Cash Flows: 2019 vs. 2018
During the quarter ended September 30, 2020 , IMTT was classified as a
discontinued operation and eliminated as a reportable segment. All periods
reported herein reflect this change. For additional information, see Note 4,
"Discontinued Operations and Dispositions", in our consolidated financial
statements in "Financial Statements and Supplementary Data" in Part II, Item 8,
of this Form 10-K.
For a comparison and discussion of our consolidated liquidity and capital
resources and our cash flow activities for 2019 compared with 2018, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7, in our Annual Report on Form 10-K for the year
ended December 31, 2019 , which was filed with the U.S. Securities and Exchange
Commission on February 25, 2020 .
Operating Activities from Continuing Operations
Cash provided by (used in) operating activities is generally comprised of EBITDA
excluding non-cash items (as defined by us), less cash interest, cash taxes, and
pension payments, and changes in working capital. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations" for discussions around the components of EBITDA excluding non-cash
items on a consolidated basis from continuing operations and for each of our
operating businesses and Corporate and Other above.
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Liquidity and Capital Resources - (continued)
The decrease in consolidated cash provided by operating activities in 2020
compared with 2019 was primarily due to:
•a decrease in EBITDA excluding non-cash items, which reflects the impact of
COVID-19 to our remaining operating businesses, as well as the Disposition
Payment (currently in escrow) and transaction costs primarily related to the
IMTT Transaction; partially offset by
•federal income tax liability recorded and paid in 2019 in relation to a gain on
sale of our renewable power generation business (current tax expense was
recorded in discontinued operations);
•an increase in the change in accounts receivable resulting from a decline in
sales activity and lower retail prices on jet fuel;
•a provision recorded for remediating certain environmental matters at Atlantic
Aviation ; and
•decrease in cash interest expense.
We believe our operating activities overall provide a source of sustainable and
stable cash flows over the long-term with the opportunity for future growth as a
result of:
•consistent customer demand driven by the basic nature of the services provided;
•our strong competitive position due to factors including:
•high initial development and construction costs;
•difficulty in obtaining suitable land on which to operate;
•concessions, leases, or customer contracts;
•required government approvals, which may be difficult or time-consuming to
obtain;
•lack of immediate cost-effective alternatives for the services provided; and
•product/service pricing that we expect will keep pace with cost increases as a
result of:
•consistent demand;
•limited alternatives;
•contractual terms; and
•regulatory rate setting.
Investing Activities from Continuing Operations
Cash provided by investing activities include proceeds from divestitures of
businesses and disposal of fixed assets. Cash used in investing activities
include acquisitions of businesses in new and existing segments and capital
expenditures.
The increase in cash used in investing activities in 2020 compared with 2019 is
primarily attributable to the absence of cash proceeds received from the
repayment of a loan from a third-party renewable developer during 2019 and an
acquisition of an FBO during 2020 at an airport on which Atlantic Aviation
already operated. This increase in cash used in investing activities is
partially offset by the decrease in capital expenditures.
Capital Deployment (includes both continuing and discontinued operations)
Capital deployment includes growth capital expenditures and "bolt-on"
acquisitions, the majority of which are expected to generate incremental
earnings. In 2020 and 2019, growth capital deployed totaled $197 million and
$211 million , respectively, of which $148 million and $147 million ,
respectively, were recorded in discontinued operations. We continuously evaluate
opportunities to prudently deploy capital in bolt-on acquisitions and growth
projects across our existing businesses.
Financing Activities from Continuing Operations
Cash provided by financing activities includes new equity and debt issuance
primarily to fund acquisitions and capital expenditures. Cash used in financing
activities includes dividends paid to our stockholders and the repayment of debt
principal balances.
The decrease in cash used in financing activities in 2020 compared with 2019 was
primarily due to the decrease in net repayment on debt facilities and a decrease
in dividends paid.
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Liquidity and Capital Resources - (continued)
Atlantic Aviation
On December 31, 2020 , Atlantic Aviation had $1,005 million of its senior secured
first lien term loan facility outstanding. During 2020, Atlantic Aviation drew
down $275 million on its $350 million senior secured first lien revolving credit
facility, which was subsequently fully repaid on April 30, 2020 . On May 4, 2020 ,
the revolving credit facility commitments were reduced to $10 million , and
further reduced to $1 million by December 31, 2020 , solely with respect to
letters of credit then outstanding. Cash interest expense totaled $45 million
and $58 million in 2020 and 2019, respectively.
MIC Hawaii
On December 31, 2020 , MIC Hawaii had total debt outstanding of $194 million
consisting of a $100 million of senior secured note borrowings and $94 million
of term loans. MIC Hawaii also had a $60 million revolving credit facility that
was undrawn on December 31, 2020 . Cash interest expense totaled $7 million and
$8 million in 2020 and 2019, respectively. On December 31, 2020 , MIC Hawaii was
in compliance with its financial covenants.
MIC Corporate
On December 31, 2020 , MIC had $403 million of 2.00% Convertible Senior Notes due
October 2023 outstanding. During 2020, MIC Corporate drew down and fully repaid
$599 million on its revolving credit facility. Cash interest expense totaled $17
million and $8 million in 2020 and 2019, respectively.
For a description of the material terms of MIC and its businesses' debt
facilities, see Note 9, "Long-Term Debt", in our consolidated financial
statements in "Financial Statements and Supplementary Data" in Part II, Item 8,
of this Form 10-K.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements requires management to make
estimates and judgments that affect the amounts reported in the financial
statements and accompanying notes. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results could differ from these estimates under
different assumptions and judgments and uncertainties, and potentially could
result in materially different results under different conditions. Our critical
accounting policies and estimates are discussed below. These estimates and
policies are consistent with the estimates and accounting policies followed by
the businesses we own and operate.
Business Combinations
Our acquisitions of businesses that we control are accounted for under the
purchase method of accounting. The amounts assigned to the identifiable assets
acquired and liabilities assumed in connection with acquisitions are based on
estimated fair values as of the date of the acquisition, with the remainder, if
any, recorded as goodwill. The fair values are determined by our management,
taking into consideration information supplied by the management of acquired
entities and other relevant information. Such information includes valuations
supplied by independent appraisal experts for significant business combinations.
The valuations are generally based upon future cash flow projections for the
acquired assets, discounted to a present value. The determination of fair values
requires significant judgment both by management and outside experts engaged to
assist in this process.
Goodwill , Intangible Assets and Property, Plant and Equipment
Significant assets acquired in connection with our acquisition of businesses
include contractual arrangements, customer relationships, non-compete
agreements, trademarks, property and equipment, and goodwill.
Goodwill and Trademarks
Trademarks are generally considered to be indefinite life intangibles.
Trademarks and goodwill are not amortized in most circumstances although it may
be appropriate to amortize some trademarks. We are required to perform annual
impairment reviews (or more frequently in certain circumstances) for unamortized
intangible assets.
ASU No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill
for Impairment, permits an entity to make a qualitative assessment of whether it
is more likely than not that a reporting unit's fair value is less than its
carrying amount before applying the two-step goodwill impairment test, as
discussed below. If an entity concludes it is not more likely than not that the
fair value of a reporting unit is less than its carrying amount, it need not
perform the two-step impairment test.
ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment, simplifies the measurement of goodwill and no
longer requires an entity to perform a hypothetical purchase price allocation
when computing the estimated fair value to measure goodwill impairment. Instead,
impairment will be assessed by quantifying the difference between the fair value
of a reporting unit and its carrying amount. An impairment charge would be
recognized for the amount by which the carrying amount exceeds the reporting
unit's fair value, on condition that the charge doesn't exceed the total amount
of goodwill allocated to that reporting unit.
If an entity concludes that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, or if there is a triggering
event that indicates impairment, the Company needs to perform a quantitative
impairment test. This requires management to make judgments in determining what
assumptions to use in the calculation. The first step is to determine the
estimated fair value of each reporting unit with goodwill. The reporting units
of the Company, for purposes of the impairment test, are those components of
operating segments for which discrete financial information is available and
segment management regularly reviews the operating results of that component.
When determining reporting units, components with similar economic
characteristics are combined.
The Company estimates the fair value of each reporting unit by estimating the
present value of the reporting unit's future discounted cash flows or value
expected to be realized in a third-party sale. If the recorded net assets of the
reporting unit are less than the reporting unit's estimated fair value, then no
impairment is indicated. If the recorded amount of goodwill exceeds the
estimated fair value, an impairment charge is recorded for the excess.
IMTT, Atlantic Aviation , and the MIC Hawaii businesses are separate reporting
units for purposes of this analysis. The impairment test for trademarks, which
are not amortized, requires the determination of the fair value of such assets.
If the fair value of the trademarks is less than their carrying value, an
impairment loss is recognized in an amount equal to the difference. We cannot
predict the occurrence of certain future events that might adversely affect the
reported value of goodwill and/or intangible assets. Such events include, but
are not limited to, strategic decisions made in response to economic and
competitive conditions, the impact of the economic environment on our customer
base, or a material negative change in relationship with significant customers.
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We test for goodwill impairment at the reporting unit level on October 1st of
each year and between annual tests if a triggering event indicates the
possibility of an impairment. We monitor changing business conditions as well as
industry and economic factors, among others, for events which could trigger the
need for an interim impairment analysis. During 2020, we have experienced a
sustained decline in our market capitalization largely triggered by the impact
of COVID-19 on our businesses and economic activity.
We performed an interim impairment analysis based on our financial results
through September 30, 2020 . We used both the market and income approaches,
weighting them based on their applicability to the segment. The income approach
used forecasted cash flows reflecting the impact of COVID-19 to our remaining
operating businesses and the expected recovery therefrom in the short to medium
term. The analysis concluded that fair value of our remaining operating
businesses exceeded their carrying value and no impairment was recorded. On
December 31, 2020 , there were no new triggering events that indicated
impairment.
During the quarter ended September 30, 2020 , we determined that each of the
criteria to be classified as held for sale under ASC 205-20, Presentation of
Financial Statements - Discontinued Operations, had been met as it relates to
the potential sale of IMTT as part of our continued pursuit of our strategic
alternatives. Accordingly, during the quarter ended September 30, 2020 , IMTT was
classified as a discontinued operation and the assets and liabilities of this
business were classified as held for sale in the consolidated condensed balance
sheet. Additionally, IMTT has been eliminated as a reportable segment. All prior
periods have been restated to reflect these changes.
As a result of the classification as held for sale, we were required to evaluate
the IMTT disposal group for impairment. The goodwill impairment test indicated
that the carrying value of IMTT was higher than its fair value. The decline in
fair value was primarily due to the decrease in valuation multiples for
transactions involving businesses comparable to IMTT and trading multiples for
public entities engaged in the midstream energy sector. Multiples decreased
during 2020 primarily due to the uncertainty associated with the impact of
COVID-19 and overall weakness in the energy sector. As a result, the Company
recognized an impairment of the IMTT disposal group of $750 million , which
includes a goodwill impairment of $725 million reported in discontinued
operations for the quarter ended September 30, 2020 .
Property, Plant and Equipment and Intangible Assets
Property and equipment is initially stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the property and equipment after consideration of historical results
and anticipated results based on our current plans. Our estimated useful lives
represent the period the asset remains in service assuming normal routine
maintenance. We review the estimated useful lives assigned to property and
equipment when our business experience suggests that they do not properly
reflect the consumption of economic benefits embodied in the property and
equipment nor result in the appropriate matching of cost against revenue.
Factors that lead to such a conclusion may include physical observation of asset
usage, examination of realized gains and losses on asset disposals, and
consideration of market trends such as technological obsolescence or change in
market demand.
Significant intangibles, including contractual arrangements, customer
relationships, non-compete agreements, and technology are amortized using the
straight-line method over the estimated useful lives of the intangible asset
after consideration of historical results and anticipated results based on our
current plans. With respect to contractual arrangements at Atlantic Aviation ,
the useful lives will generally match the remaining lease terms plus extensions
under the business' control.
We perform impairment reviews of property and equipment and intangibles subject
to amortization when events or circumstances indicate that fair value of the
assets are less than their carrying amount and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount of
those assets. In this circumstance, the impairment charge is determined based
upon the amount by which the net book value of the assets exceeds their fair
market value. Any impairment is measured by comparing the fair value of the
asset to its carrying value.
The estimated fair value of reporting units and fair value of property and
equipment and intangible assets is determined by our management and is generally
based upon future cash flow projections for the acquired assets, discounted to
present value. We use outside valuation experts when management considers that
it is appropriate to do so.
We test for goodwill and indefinite-lived intangible assets annually as of
October 1st or when there is an indicator of impairment. See Note 7, "Property,
Equipment, Land, and Leasehold Improvements", and Note 8, "Intangible Assets and
Goodwill ", in our consolidated financial statements in "Financial Statements and
Supplementary Data" in Part II, Item 8, of this Form 10-K for financial
information and further discussions.
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TABLE OF CONTENTS Accounting Policies, Accounting Changes, and Future Application of Accounting Standards See Note 2, "Summary of Significant Accounting Policies", in our consolidated financial statements in "Financial Statements and Supplementary Data" in Part II, Item 8, of this Form 10-K for financial information and further discussions, for a summary of the Company's significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.
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