mic-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-Q

_____________________________


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 001-32384

_____________________________

MACQUARIE INFRASTRUCTURE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

_____________________________


Delaware			43-2052503
(State or Other Jurisdiction of Incorporation or Organization)			(IRS Employer Identification No.)

125 West 55th Street

New York, New York 10019

(Address of Principal Executive Offices) (Zip Code)

(212) 231-1000

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report): N/A

_____________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

MIC

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes ☐ No ☒

There were 87,852,177 shares of common stock, with $0.001 par value, outstanding on July 30, 2021.

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MACQUARIE INFRASTRUCTURE CORPORATION

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		Page
PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
Quantitative and Qualitative Disclosures About Market Risk		21
Controls and Procedures		21
Consolidated Condensed Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020		22
Consolidated Condensed Statements of Operations for the Quarters and Six Months Ended June 30, 2021 and 2020 (Unaudited)		24
Consolidated Condensed Statements of Comprehensive Income (L oss) for the Quarters and Six Months Ended June 3 0 , 2021 and 2020 (Unaudited)		26
Consolidated Condensed Statements of Stockholders’ Equity for the Quarters and Six Months Ended June 3 0 , 2021 and 2020 (Unaudited)		27
Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 3 0 , 2021 and 2020 (Unaudited)		29
Notes to Consolidated Condensed Financial Statements (Unaudited)		31

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	55

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

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Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this quarterly report on Form 10-Q (Quarterly Report) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements may appear throughout this Quarterly Report, including without limitation, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section. We may, in some cases, use words such as “project”, “believe”, “anticipate”, “plan”, “expect”, “estimate”, “intend”, “should”, “would”, “could”, “potentially”, “may”, or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, statements regarding sales of our businesses (including our previously approved reorganization), the ability to complete such sales and the anticipated uses of any proceeds therefrom, statements regarding the anticipated specific and overall impacts of COVID-19 and any related recovery, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the risks identified in our Annual Report on the Form 10-K for the year ended December 31, 2020, this Quarterly Report on Form 10-Q, and in other reports we file from time to time with the Securities and Exchange Commission (SEC).

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

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PART I

FINANCIAL INFORMATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of Macquarie Infrastructure Corporation (MIC) should be read in conjunction with the consolidated condensed financial statements and the notes to those statements included elsewhere herein.

MIC is a Delaware corporation formed on May 21, 2015. MIC’s predecessor, Macquarie Infrastructure Company LLC, was formed on April 13, 2004. Except as otherwise specified, all references in this Form 10-Q to “MIC”, “we”, “us”, and “our” refer to Macquarie Infrastructure Corporation and its subsidiaries.

MIC is externally managed by Macquarie Infrastructure Management (USA) Inc. (our Manager), pursuant to the terms of a Management Services Agreement, subject to the oversight and supervision of our Board. Six of the eight members of our Board, and all members of each of our Audit, Compensation, and Nominating and Governance Committees, are independent and have no affiliation with Macquarie. Our Manager is a member of the Macquarie Group of companies comprising Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Securities Exchange.

We currently own and operate businesses that provide products and services to corporations, government agencies, and individual customers in the United States (U.S.). Our operations are organized into three segments:

•Atlantic Aviation: a provider of fuel, terminal, aircraft hangaring, and other services primarily to owners and operators of general aviation (GA) jet aircraft at 69 airports throughout the U.S.;

•MIC Hawaii: comprising an energy company that processes and distributes gas and provides related services (Hawaii Gas) and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii; and

•Corporate and Other: comprising a holding company headquartered in New York City, MIC Corporate, and a shared services center in Plano, Texas, MIC Global Services (MGS).

In October 2019, along with actively managing our existing portfolio of businesses, our Board resolved to pursue strategic alternatives including potentially a sale of our Company or our operating businesses as a means of unlocking additional value for stockholders. During the quarter ended September 30, 2020, our International-Matex Tank Terminals (IMTT) business was classified as a discontinued operation and eliminated as a reportable segment. All periods reported herein reflect this change. In December 2020, we completed the sale of IMTT (IMTT Transaction).

In June 2021, we entered into agreements for the sales of our remaining businesses, Atlantic Aviation and MIC Hawaii. We currently expect to close the sale of Atlantic Aviation at the end of the third quarter of 2021 and the sale of MIC Hawaii in the first half of 2022. Our strategic priority at this point is the satisfaction of any condition precedent to and the closing of both transactions.

On July 28, 2021, our Board set August 23, 2021 as the record date for a Special Meeting of Shareholders to be held on September 21, 2021. At the meeting, shareholders of record will be asked to separately approve the sale of Atlantic Aviation (the AA Transaction) and the MIC Hawaii Merger (the MH Merger). If approved, MIC expects the AA Transaction to close at the end of the third quarter of 2021 and the MH Merger to conclude in the first half of 2022. Upon the closing of the MH Merger, our Company will no longer be a publicly traded entity.

Atlantic Aviation Stock Purchase Agreement (Purchase Agreement)

On June 7, 2021, we entered into a Purchase Agreement with KKR Apple Bidco, LLC (Purchaser), a Delaware limited liability company controlled by funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (KKR). The Purchase Agreement provides that Purchaser will acquire all outstanding shares of the common stock of our Company which, following the previously approved Reorganization described below, will hold our Atlantic Aviation business (the AA Business), for $4.475 billion, including cash and the assumption of debt and other transaction and reorganization related obligations (the AA Transaction). We expect to receive $3.525 billion at closing following the Reorganization of MIC into a limited liability company, Macquarie Infrastructure Holdings, LLC (MIH), a recently formed Delaware limited liability company and a direct wholly-owned subsidiary of MIC. We intend to complete the Reorganization promptly after the Special Meeting of Shareholders, if the AA Transaction proposal is approved, and complete the AA Transaction within two business days after the Reorganization is completed (subject to the satisfaction or waiver of all other conditions contained in the Purchase Agreement).

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The AA Transaction is expected to result in cash proceeds of approximately $3.296 billion being available for distribution to our unitholders after a disposition payment by MIH to our Manager of $228.6 million. The MIH Board is expected to authorize a cash distribution of approximately $37.35 per unit following closing of the transaction. The AA Transaction is expected to close at the end of the third quarter of 2021, subject to customary regulatory approvals and approval from our shareholders.

MIC Hawaii Merger Agreement (Merger Agreement)

On June 14, 2021, we entered into a Merger Agreement with AMF Hawaii Holdings, LLC (AMF Parent), a Delaware limited liability company affiliated with Argo Infrastructure Partners, LP (Argo), and AMF Hawaii Merger Sub, LLC (AMF Merger Sub), a recently formed Delaware limited liability company and direct wholly-owned subsidiary of AMF Parent. The Merger Agreement provides that AMF Merger Sub will be merged with and into MIH, with MIH surviving as a wholly-owned subsidiary of AMF Parent (the MH Merger). Following the previously approved Reorganization and the AA Transaction, MIH will hold our MIC Hawaii business. Upon the completion of the MH Merger, each of the MIH common units (excluding common units held by AMF Parent or AMF Merger Sub or common units held by MIH in treasury and common units held by any subsidiary of MIH or AMF Parent (other than AMF Merger Sub)), will be converted into the right to receive $3.83 in cash, without interest; or, if the MH Merger is consummated after July 1, 2022, then each such unit will be converted into the right to receive $4.11 in cash, without interest.

Under the terms of the Merger Agreement, at closing, Argo will pay the merger consideration to our unitholders, and fund transaction costs and fund a disposition payment to our Manager of $81.7 million if the MH Merger closes on or before July 1, 2022 or $56.7 million if the MH Merger closes after this date.

The MH Merger is expected to be completed in the first half of 2022 subject to customary approvals, including by the Hawaii Public Utilities Commission (HPUC) and by our shareholders and the prior closing of the AA Transaction. We intend to seek shareholder approval for both the MH Merger and the AA Transaction at the Special Meeting of Shareholders.

Reorganization

We are required to complete a reorganization in connection with and prior to the consummation of the AA Transaction. On May 6, 2021, our shareholders approved a proposal to adopt the agreement and plan of merger, dated as of March 30, 2021 (as amended from time to time, the Reorg Merger Agreement), by and among MIC, MIH, and Plum Merger Sub, Inc. (Plum Merger Sub), a recently formed Delaware corporation and a direct wholly owned subsidiary of MIH, providing for the merger of Plum Merger Sub with and into MIC (the Reorg Merger), resulting in MIC becoming a wholly-owned subsidiary of MIH. Upon the effectiveness of the Reorg Merger, MIC common stock will be converted into MIH common units and stock certificates representing MIC common stock immediately prior to the Reorg Merger will be deemed to represent MIH common units without an exchange of certificates. Following the Reorg Merger, a direct subsidiary of MIC will distribute all of the limited liability company interests of MIC Hawaii to MIC and MIC will in turn distribute all of the limited liability company interests of MIC Hawaii to MIH (such distributions, the Hawaii distribution and together with the Reorg Merger, the Reorganization). Upon completion of the Reorganization, MIH will directly own (i) MIC, which will own the AA Business, and (ii) MIC Hawaii. We intend to complete the Reorganization promptly after the Special Meeting of Shareholders, if the AA Transaction proposal is approved, and complete the AA Transaction within two business days after the Reorganization is completed (subject to the satisfaction or waiver of all other conditions contained in the AA Transaction agreement).

Overview

Use of Non-GAAP measures

In addition to our results under U.S. GAAP, we use certain non-GAAP measures including EBITDA excluding non-cash items and Free Cash Flow to assess the performance and prospects of our businesses.

We measure EBITDA excluding non-cash items as it reflects our businesses’ ability to effectively manage the amount of products sold or services provided, the operating margin earned on those transactions, and the management of operating expenses independent of the capitalization and tax attributes of those businesses.

In analyzing the financial performance of our businesses, we focus primarily on cash generation and Free Cash Flow in particular. We believe investors use Free Cash Flow to assess our ability to fund acquisitions, invest in growth projects, reduce or repay indebtedness, and/or return capital to shareholders.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Consolidated — Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items and Free Cash Flow” for further information on our calculation of EBITDA excluding non-cash items and Free Cash Flow and for reconciliations of these non-GAAP measures to the most comparable GAAP measures.

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Historical Dividends

Since January 1, 2020, MIC has paid or declared the following dividends:

Declared

Period Covered

$ per Share

Record Date

Payable Date

December 23, 2020

(1)

11.00

January 5, 2021

January 8, 2021

February 14, 2020

Fourth quarter 2019

1.00

March 6, 2020

March 11, 2020

___________

(1)Special dividend declared and paid out of the net proceeds from the IMTT Transaction. Shares of MIC traded with “due-bills” attached through January 8, 2021 and traded ex-dividend on January 11, 2021.

As a result of the signing of the AA Transaction Purchase Agreement and the MIC Hawaii Merger Agreement in June 2021, we do not expect to pay a regular dividend. See further discussion above regarding distributions expected to be made upon closing of each of the transactions.

Results of Operations: Consolidated

Impact of COVID-19

We continue to closely monitor the effects of COVID-19 and are actively managing our response by placing a priority on the health and safety of our employees, contractors, their families, customers, and the broader communities in which our businesses operate. Both Atlantic Aviation and the MIC Hawaii businesses are classified as essential services businesses and remain fully operational. The businesses are adhering to pandemic response plans and are following guidance from the Centers 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 as permitted by local guidelines, our businesses are facilitating vaccination of their employees against COVID-19 and a return to the workplace for those employees that have been working remotely.

In addition to standard operating procedures designed to maintain safe operations, our businesses have implemented additional measures including: (i) a work from home policy; (ii) enhanced cleaning and disinfecting of facilities; (iii) limited interactions between employees and customers through social distancing; (iv) mandated the use of personal protective equipment by employees; and (v) education of customers on alternative payment and customer care options as a means of limiting interactions with employees at MIC Hawaii. The MIC businesses are engaged in ongoing communications with employees, customers, vendors, lenders, and other stakeholders apprising them of the business' response to the pandemic. We believe our staff and customers can access our facilities safely and in compliance with relevant directives.

Visitor arrivals to Hawaii, the primary driver of increases in demand for gas in Hawaii, improved sequentially in the second quarter of 2021 as increased visitor confidence levels due to the availability of COVID-19 vaccines and a relatively low level of infections in the islands combined to create an attractive environment for visitors from the U.S. mainland. The rate of recovery in the number of visitors to Hawaii in the future remains uncertain. COVID-19 continues to negatively affect the performance of our MIC Hawaii businesses, although the effects have diminished relative to this time last year. The easing of travel restrictions has resulted in an increase in economic activity and the number of primarily domestic visitors to Hawaii, but not to pre-COVID-19 levels. A significant surge in COVID-19 rates could negatively impact Hawaii tourism.

As federal, state, and local governments' pandemic response measures including social distancing, quarantines, travel restrictions, prohibitions on public gatherings, and stay-at-home orders have been rolled back, GA flight activity and the demand for jet fuel and ancillary services provided by Atlantic Aviation has recovered to levels above the comparable periods in 2019. The widespread availability of COVID-19 vaccines is expected to have a positive effect on activity levels. The level of GA flight activity in the future will depend upon the continued effectiveness of COVID-19 vaccines, the impact of COVID-19 variants and any significant surge in COVID-19 cases, the roll-back of various pandemic response measures, and the state of the U.S. and global economies among other factors. Changes in the level of flight activity may also reflect the number of business, international, and event-driven flights, all of which are uncertain, and the potential reversion of leisure oriented flight activity to pre-COVID-19 trends.

Cost saving initiatives implemented in connection with COVID-19 including hiring freezes, reductions in regular hours and overtime, furloughs, and deferral of maintenance and repair work have been eased as demand for services has increased. While management of our businesses remain focused on conducting operations as efficiently as possible, we believe that the cash generated by their ongoing operations will be sufficient to fund our businesses, including growth projects to which the businesses have committed.

In addition to the cash generated by our operating businesses, our sources of funding included the $285.7 million of cash we had on hand on June 30, 2021, which was net of amounts reserved for the repurchase of any and all of our $34.0 million of 2.00% Convertible Senior Notes outstanding.

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Results of Operations: Consolidated – (continued)

Our consolidated results of operations are as follows:


	Quarter Ended June 30,				Change Favorable/(Unfavorable)		Six Months Ended June 30,				Change Favorable/(Unfavorable)
	2021		2020		$	%	2021		2020		$	%
	($ In Thousands, Except Share and Per Share Data) (Unaudited)
Revenue
Service revenue	$	230,037	$	104,318	125,719	121	$	439,641	$	328,315	111,326	34
Product revenue	58,740		36,795		21,945	60	113,327		97,257		16,070	17
Total revenue	288,777		141,113		147,664	105	552,968		425,572		127,396	30
Costs and expenses
Cost of services	99,534		29,280		(70,254)	NM	181,767		123,943		(57,824)	(47)
Cost of product sales	37,834		18,225		(19,609)	(108)	72,590		60,159		(12,431)	(21)
Selling, general and administrative	80,822		73,049		(7,773)	(11)	157,834		160,632		2,798	2
Fees to Manager - related party	7,551		3,824		(3,727)	(97)	13,103		11,180		(1,923)	(17)
Depreciation and amortization	27,916		29,018		1,102	4	55,435		59,549		4,114	7
Total operating expenses	253,657		153,396		(100,261)	(65)	480,729		415,463		(65,266)	(16)
Operating income (loss)	35,120		(12,283)		47,403	NM	72,239		10,109		62,130	NM
Other income (expense)
Interest income	41		189		(148)	(78)	202		657		(455)	(69)
Interest expense(1)	(16,773)		(23,639)		6,866	29	(35,392)		(50,344)		14,952	30
Other income (expense), net	793		46		747	NM	1,295		(100)		1,395	NM
Net income (loss) from continuing operations before income taxes	19,181		(35,687)		54,868	154	38,344		(39,678)		78,022	197
(Provision) benefit for income taxes	(12,248)		11,258		(23,506)	NM	(17,614)		8,261		(25,875)	NM
Net income (loss) from continuing operations	6,933		(24,429)		31,362	128	20,730		(31,417)		52,147	166

Discontinued Operations
Net income from discontinued operations before income taxes	—		22,371		(22,371)	(100)	—		46,916		(46,916)	(100)
Provision for income taxes	—		(5,240)		5,240	100	—		(11,570)		11,570	100
Net income from discontinued operations	—		17,131		(17,131)	(100)	—		35,346		(35,346)	(100)
Net income (loss)	6,933		(7,298)		14,231	195	20,730		3,929		16,801	NM

Net income (loss) from continuing operations	6,933		(24,429)		31,362	128	20,730		(31,417)		52,147	166
Less: net (loss) income attributable to noncontrolling interests	(416)		656		1,072	163	181		581		400	69
Net income (loss) from continuing operations attributable to MIC	7,349		(25,085)		32,434	129	20,549		(31,998)		52,547	164
Net income from discontinued operations	—		17,131		(17,131)	(100)	—		35,346		(35,346)	(100)

Net income from discontinued operations attributable to MIC	—		17,131		(17,131)	(100)	—		35,346		(35,346)	(100)
Net income (loss) attributable to MIC	$	7,349	$	(7,954)	15,303	192	$	20,549	$	3,348	17,201	NM

Basic income (loss) per share from continuing operations attributable to MIC	$	0.08	$	(0.29)	0.37	128	$	0.23	$	(0.37)	0.60	162
Basic income per share from discontinued operations attributable to MIC	—		0.20		(0.20)	(100)	—		0.41		(0.41)	(100)
Basic income (loss) per share attributable to MIC	$	0.08	$	(0.09)	0.17	189	$	0.23	$	0.04	0.19	NM
Weighted average number of shares outstanding: basic	87,628,429		86,871,892		756,537	1	87,520,541		86,779,432		741,109	1

___________

NM — Not meaningful.

(1)Interest expense includes non-cash losses on derivative instruments of $78,000 and non-cash gains of $203,000 for the quarter and six months ended June 30, 2021, respectively, compared with non-cash losses of $172,000 and $4.4 million for the quarter and six months ended June 30, 2020, respectively.

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Results of Operations: Consolidated – (continued)

Revenue

Consolidated revenues increased for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 primarily due to (i) an increase in the amount of jet fuel sold by Atlantic Aviation and gas sold by MIC Hawaii; and (ii) a higher wholesale cost of jet fuel.

Cost of Services and Product Sales

Consolidated cost of services and cost of product sales increased for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 primarily due to (i) an increase in the amount of jet fuel sold by Atlantic Aviation and gas sold by MIC Hawaii; and (ii) the higher wholesale cost of jet fuel. The increase in cost of product sales was partially offset by a favorable mark-to-market adjustment of the value of the commodity hedge contracts for wholesale liquified petroleum gas (LPG) purchases executed by MIC Hawaii (see “Results of Operations — MIC Hawaii” below).

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter ended June 30, 2021 compared with the quarter ended June 30, 2020 primarily due to higher (i) costs incurred in connection with efforts to sell our businesses; (ii) salaries and benefits; and (iii) insurance costs. These increases to selling, general and administrative expenses were partially offset by the absence of a $7.2 million provision for estimated costs (in excess of insurance recoveries) related to remediation of certain environmental matters at Atlantic Aviation.

Selling, general and administrative expenses decreased for the six months ended June 30, 2021 compared with the six months ended June 30, 2020 primarily due to the absence of a $7.2 million provision for estimated costs (in excess of insurance recoveries) related to remediation of certain environmental matters at Atlantic Aviation and lower costs incurred in connection with efforts to sell our businesses. The decreases were partially offset by costs incurred related to the repurchase of our 2.00% Convertible Senior Notes during the first quarter of 2021.

Fees to Manager

Our Manager is entitled to a monthly base management fee based on our market capitalization and potentially a quarterly performance fee based on total stockholder returns relative to a U.S. utilities index. For the quarter and six months ended June 30, 2021, we incurred base management fees of $7.5 million and $13.1 million, respectively, compared with $3.8 million and $11.2 million for the quarter and six months ended June 30, 2020, respectively. The increase in base management fees reflects an increase in our average market capitalization and the decrease in our average holding company cash balance during the quarter and six months ended June 30, 2021. No performance fees were incurred in either of the current or prior comparable periods. The unpaid portion of base management fees and performance fees, if any, at the end of each reporting period is included in the line item Due to Manager-related party in our consolidated condensed balance sheets.

In accordance with the Management Services Agreement, our Manager elected to reinvest any fees to which it was entitled in new primary shares in the periods shown below and has currently elected to reinvest future base management fees and performance fees, if any, in new primary shares.


Period	Base Management Fee Amount ($ in Thousands)		Performance Fee Amount ($ in Thousands)		Shares Issued
2021 Activities:
Second quarter 2021	$	7,551	$	—	214,040	(1)
First quarter 2021	5,552		—		176,296

2020 Activities:
Fourth quarter 2020	$	4,903	$	—	162,791
Third quarter 2020	4,980		—		172,976
Second quarter 2020	3,824		—		146,452
First quarter 2020	7,356		—		181,617

___________

(1)Our Manager elected to reinvest all monthly base management fees for the quarter ended June 30, 2021 in new primary shares. We issued 214,040 shares for the quarter ended June 30, 2021, including 71,638 shares that were issued in July 2021 for the June 2021 monthly base management fee.

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Results of Operations: Consolidated – (continued)

Depreciation and Amortization

The decrease in depreciation and amortization expense for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 primarily reflects the full amortization of certain airport contract rights at Atlantic Aviation, partially offset by assets placed in service.

Interest Expense, net, and Gains (Losses) on Derivative Instruments

Interest expense includes non-cash losses on derivative instruments of $78,000 and non-cash gains of $203,000 for the quarter and six months ended June 30, 2021, respectively, compared with non-cash losses of $172,000 and $4.4 million for the quarter and six months ended June 30, 2020, respectively, and amortization of debt financing costs and debt discount. Gains (losses) on derivatives recorded in interest expense are attributable to the change in fair value of interest rate hedges. For the quarter and six months ended June 30, 2021, interest expense also includes non-cash write-offs of debt financing costs of $251,000 and $4.6 million, respectively, related to the repurchase of our 2.00% Convertible Senior Notes, the cancellation of the holding company revolving credit facility, and the full repayment of the Hawaii Gas $100.0 million senior secured notes.

Excluding these non-cash adjustments and write-offs, cash interest expense totaled $15.3 million and $28.4 million for the quarter and six months ended June 30, 2021, respectively, and $19.2 million and $37.8 million for the quarter and six months ended June 30, 2020, respectively. The decrease in cash interest expense primarily reflects a lower weighted average debt balance, partially offset by a $4.7 million 'make-whole' payment related to the full repayment of the Hawaii Gas $100.0 million senior secured notes incurred in April 2021 and a higher weighted average interest rate. See discussions of interest expense for each of our operating businesses below.

Other Income (Expense), net

The increase in other income (expense), net, for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 primarily reflects income from a Transition Services Agreement with IMTT.

Discontinued Operations

For the quarter and six months ended June 30, 2020, discontinued operations reflects the operating results of IMTT. The IMTT Transaction closed on December 23, 2020.

Income Taxes

We file a consolidated federal income tax return that includes the financial results of our operating businesses, Atlantic Aviation and MIC Hawaii. Pursuant to a tax sharing agreement, these businesses pay MIC an amount equal to the federal income tax each would pay on a standalone basis as if they were not part of the consolidated group. For 2021, we expect our current federal income tax liability to be approximately $8.3 million.

In addition, our businesses file income tax returns and may pay taxes in the states and local jurisdictions in which they operate. We expect the aggregate current year state income tax liability to be approximately $9.0 million. In calculating our state income tax provision, we have provided a valuation allowance for certain state income tax NOL carryforwards, the use of which is uncertain.

The increase in the 2021 current federal and state income tax liabilities from the estimates reported in the Form 10-Q for the quarter ended March 31, 2021 reflects the better than expected performance of Atlantic Aviation in the quarter ended June 30, 2021.

During the quarter ended June 30, 2021, we increased our deferred tax liability by $7.3 million on the assumption that MIC Hawaii would be disposed of by MIC in a taxable transaction as part of the Reorganization. The increase represents the deferred tax expense on the difference between our book and tax basis in our investment in MIC Hawaii.

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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 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, net, 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 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 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 Quarterly Report on Form 10-Q, we have disclosed Free Cash Flow on a consolidated basis and for each of our operating segments and for 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 to help understand our financial performance 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 income (loss) from continuing operations to EBITDA excluding non-cash items from continuing operations and a reconciliation from cash (used in) provided by operating activities from continuing operations to Free Cash Flow from continuing operations, on a consolidated basis, is provided below. Similar reconciliations for each of our operating businesses and Corporate and Other follow.


	Quarter Ended June 30,				Change Favorable/(Unfavorable)		Six Months Ended June 30,				Change Favorable/(Unfavorable)
	2021		2020		$	%	2021		2020		$	%

	($ In Thousands) (Unaudited)
Net income (loss) from continuing operations	$	6,933	$	(24,429)			$	20,730	$	(31,417)
Interest expense, net(1)	16,732		23,450				35,190		49,687
Provision (benefit) for income taxes	12,248		(11,258)				17,614		(8,261)
Depreciation and amortization	27,916		29,018				55,435		59,549
Fees to Manager - related party	7,551		3,824				13,103		11,180
Other non-cash (income) expense, net(2)	(102)		(3,727)				1,856		604
EBITDA excluding non-cash items - continuing operations	$	71,278	$	16,878	54,400	NM	$	143,928	$	81,342	62,586	77

EBITDA excluding non-cash items - continuing operations	$	71,278	$	16,878			$	143,928	$	81,342
Interest expense, net(1)	(16,732)		(23,450)				(35,190)		(49,687)
Non-cash interest expense, net(1)	1,345		4,186				6,748		11,853
(Provision) benefit for current income taxes	(4,730)		5,638				(7,939)		818
Changes in working capital	(130,700)		14,527				(147,093)		24,993
Cash (used in) provided by operating activities - continuing operations	(79,539)		17,779				(39,546)		69,319
Changes in working capital	130,700		(14,527)				147,093		(24,993)
Maintenance capital expenditures	(6,140)		(3,738)				(9,804)		(9,452)
Free cash flow - continuing operations	$	45,021	$	(486)	45,507	NM	$	97,743	$	34,874	62,869	180

___________

NM — Not meaningful.

(1) Interest expense, net, includes non-cash adjustments to derivative instruments, non-cash amortization of debt financing fees, and non-cash amortization of debt discount related to our 2.00% Convertible Senior Notes. For the quarter and six months ended June 30, 2021, interest expense also includes non-cash write-offs of debt financing costs related to the repurchase of our 2.00% Convertible Senior Notes, the cancellation of the holding company revolving credit facility in January 2021, and the full repayment of the Hawaii Gas $100.0 million senior secured notes. In connection with the repayment of the Hawaii Gas $100.0 million senior secured notes, the Company paid a $4.7 million 'make-whole' payment.

(2) Other non-cash (income) expense, net, includes primarily 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. 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: 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 the U.S. and the business’ ability to service a portion of the aircraft involved in those operations. Over the long-term, the rate of growth in GA flight movements has tended to be positively correlated with the level of economic activity in the U.S.

During the second quarter, GA flight activity in the U.S. exceeded levels recorded during the comparable quarter in 2019. Based on data reported by the Federal Aviation Administration (FAA), industry-wide domestic GA flight movements for the quarter and six months ended June 30, 2021 increased 109% and 46% compared with the quarter and six months ended June 30, 2020, respectively, and increased 13% and 5% compared with the quarter and six months ended June 30, 2019, respectively.

Based on data reported by the FAA, the total number of GA flight movements at airports on which Atlantic Aviation operates increased 137% and 49% for the quarter and six months ended June 30, 2021, respectively, compared with the quarter and six months ended June 30, 2020 and increased by 11% and 2%, respectively, compared with the quarter and six months ended June 30, 2019. The Intermountain West and Florida continued to experience very high levels of activity. Centers of business and economic activity such as New York, Los Angeles, and Chicago have experienced increased levels of activity, but are still trailing the comparable period in 2019.

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. The weighted average remaining life of the leases in the Atlantic Aviation portfolio, based on EBITDA excluding non-cash items in the prior calendar year adjusted for the impact of acquisitions, dispositions, and lease extensions was 21.6 years and 19.8 years on June 30, 2021 and 2020, respectively. A portion of the increase reflects potentially temporary changes in the contribution to EBITDA excluding non-cash items from certain FBOs due to COVID-19. Based on the EBITDA excluding non-cash items weighting in 2019, the remaining lease life on June 30, 2021 would have been 19.7 years.

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Results of Operations: Atlantic Aviation – (continued)


	Quarter Ended June 30,		Change Favorable/(Unfavorable)		Six Months Ended June 30,		Change Favorable/(Unfavorable)
	2021	2020			2021	2020
	$	$	$	%	$	$	$	%
	($ In Thousands) (Unaudited)
Service revenue	230,037	104,318	125,719	121	439,641	328,315	111,326	34
Cost of services (exclusive of depreciation and amortization shown separately below)	99,534	29,280	(70,254)	NM	181,767	123,943	(57,824)	(47)
Gross margin	130,503	75,038	55,465	74	257,874	204,372	53,502	26
Selling, general and administrative expenses	62,512	58,860	(3,652)	(6)	124,098	123,000	(1,098)	(1)
Depreciation and amortization	23,589	24,865	1,276	5	46,889	51,444	4,555	9
Operating income (loss)	44,402	(8,687)	53,089	NM	86,887	29,928	56,959	190
Interest expense, net(1)	(10,764)	(14,129)	3,365	24	(21,494)	(33,005)	11,511	35
Other income (expense), net	2	(133)	135	102	(16)	(205)	189	92
(Provision) benefit for income taxes	(9,015)	6,401	(15,416)	NM	(17,611)	922	(18,533)	NM
Net income (loss)	24,625	(16,548)	41,173	NM	47,766	(2,360)	50,126	NM
Reconciliation of net income (loss) to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
Net income (loss)	24,625	(16,548)			47,766	(2,360)
Interest expense, net(1)	10,764	14,129			21,494	33,005
Provision (benefit) for income taxes	9,015	(6,401)			17,611	(922)
Depreciation and amortization	23,589	24,865			46,889	51,444
Other non-cash expense, net(2)	2,326	849			3,895	1,662
EBITDA excluding non-cash items	70,319	16,894	53,425	NM	137,655	82,829	54,826	66

EBITDA excluding non-cash items	70,319	16,894			137,655	82,829
Interest expense, net(1)	(10,764)	(14,129)			(21,494)	(33,005)
Non-cash interest expense, net(1)	938	2,486			1,881	7,645
(Provision) benefit for current income taxes	(6,490)	8,497			(10,970)	(80)
Changes in working capital	6,961	8,050			8,877	23,717
Cash provided by operating activities	60,964	21,798			115,949	81,106
Changes in working capital	(6,961)	(8,050)			(8,877)	(23,717)
Maintenance capital expenditures	(4,494)	(2,361)			(7,044)	(5,406)
Free cash flow	49,509	11,387	38,122	NM	100,028	51,983	48,045	92

___________

NM — Not meaningful.

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

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Results of Operations: Atlantic Aviation – (continued)

Atlantic Aviation generates most of its revenue from sales of jet fuel at FBOs located on the 69 U.S. airports on which the business operates. Increases and decreases in the wholesale 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 wholesale cost of jet fuel to Atlantic Aviation and may not reflect the business’ ability to effectively manage the amount of jet fuel sold and the margin achieved on those sales. For example, an increase in revenue may be attributable to an increase in the wholesale cost of jet fuel and not an increase in the amount of jet fuel sold or margin per gallon. Conversely, a decline in revenue may be attributable to a decrease in the wholesale 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” for Atlantic Aviation as it reflects the business’ ability to drive growth in the amount of products and services sold and the margins earned on those sales over time. We believe that our investors view gross margin as reflective of our ability to manage the amount and price of jet fuel sold, notwithstanding variances in the wholesale cost of jet 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 and gross margin increased for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 due to an increase in the amount of jet fuel sold and ancillary services provided. The increase in revenue also reflects the higher wholesale cost of jet fuel in the quarter and six months ended June 30, 2021 versus the prior comparable period. In general, the increase in the wholesale cost of jet fuel is typically reflected in a corresponding increase in cost of services, resulting in no impact to gross margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter and six months ended June 30, 2021 versus the prior comparable period primarily due to higher salaries and benefits and maintenance and repair costs, partially offset by the absence of a $7.2 million provision for estimated costs (in excess of insurance recoveries) related to remediation of certain environmental liabilities recorded during the quarter ended June 30, 2020.

Depreciation and Amortization

Depreciation and amortization decreased for the quarter and six months ended June 30, 2021 versus the prior comparable period primarily due to the full amortization of certain airport contract rights, partially offset by assets placed in service.

Operating Income

Operating income increased in the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 due to the increase in gross margin and the decrease in depreciation and amortization, partially offset by the increase in selling, general and administrative expenses.

Interest Expense, Net

Interest expense, net, includes non-cash losses on derivative instruments of an insignificant amount for the quarter and six months ended June 30, 2021 compared with non-cash losses of $49,000 and $3.5 million for the quarter and six months ended June 30, 2020, respectively, and amortization of debt financing costs. Excluding these non-cash adjustments, cash interest expense totaled $9.8 million and $19.6 million for the quarter and six months ended June 30, 2021, respectively, and $11.7 million and $25.4 million for the quarter and six months ended June 30, 2020, respectively. The decrease in cash interest expense primarily reflects a lower weighted average interest rate and lower weighed average debt balance.

Income Taxes

The taxable income generated by Atlantic Aviation is reported on our consolidated federal income tax return. The business files standalone state income tax returns in most of the states in which it operates. The tax expense in the table above includes both state income taxes and the portion of the consolidated federal income tax liability attributable to the business. For the year ended December 31, 2021, the business expects to pay state income taxes of approximately $8.4 million. The Provision for Current Income Taxes of $11.0 million for the six months ended June 30, 2021 in the above table includes $6.7 million of federal income tax expense and $4.3 million of state 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.

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Results of Operations: Atlantic Aviation – (continued)

Maintenance Capital Expenditures

For the six months ended June 30, 2021, Atlantic Aviation incurred maintenance capital expenditures of $7.0 million and $6.9 million on an accrual basis and cash basis, respectively, compared with $5.4 million and $7.6 million on an accrual basis and cash basis, respectively, for the six months ended June 30, 2020.

Results of Operations: MIC Hawaii

MIC Hawaii comprises Hawaii Gas and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. The businesses of MIC Hawaii generate revenue primarily from the provision of gas to commercial, residential, and governmental customers and 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 of Hawaii Gas’s utility and non-utility operations and under power purchase agreements. The amount of gas consumed is positively correlated with visitor arrivals and general economic activity over the long term. Consumption trends and prices are a function of, among other factors, energy efficiency, weather, the range of competitive energy sources, and MIC Hawaii’s commodity input costs.

The financial performance of MIC Hawaii continues to be affected by the reduced demand for gas resulting from the lower number of visitors to Hawaii relative to pre-COVID-19 periods. The number of visitors to Hawaii increased from 31,000 and 2.2 million for the quarter and six months ended June 30, 2020, respectively, to 1.9 million and 2.8 million for the quarter and six months ended June 30, 2021, respectively, but remains lower compared to 2.6 million and 5.2 million versus the quarter and six months ended June 30, 2019, respectively. A corresponding improvement in hotel occupancy, restaurants patronage, and use of commercial laundry services resulted in an overall increase in gas consumption of 54% and 8% during the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020, respectively, but overall gas consumption is still lower by 8% and 15% compared to the quarter and six months ended June 30, 2019, respectively.

Hawaii Gas uses commodity hedge contracts to reduce the financial risks of commodity price fluctuations associated with wholesale LPG purchases for the unregulated portion of its business. Hawaii Gas has entered into contracts with varying maturities through December 2023 with respect to a portion of its expected LPG purchases during that time.

On April 9, 2021, the HPUC issued an order establishing a procedural schedule to govern the remanded 2018 rate case proceeding and directed Hawaii Gas to update its 2018 test year data to reflect a 2022 test year and submit certain analysis related to greenhouse gas lifecycle emissions associated with two small scale liquefied natural gas (LNG) projects. The HPUC order also expanded the scope of participation of certain parties and established a modified statement of issues. The ultimate impact of the HPUC order on the approved revenue requirement is unclear; however, the remanded proceeding is not expected to be adjudicated completely in 2021, which would result in no anticipated financial impact in 2021.

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Results of Operations: MIC Hawaii – (continued)


	Quarter Ended June 30,		Change Favorable/(Unfavorable)		Six Months Ended June 30,		Change Favorable/(Unfavorable)
	2021	2020			2021	2020
	$	$	$	%	$	$	$	%
	($ In Thousands) (Unaudited)
Product revenue	58,740	36,795	21,945	60	113,327	97,257	16,070	17
Cost of product sales (exclusive of depreciation and amortization shown separately below)	37,834	18,225	(19,609)	(108)	72,590	60,159	(12,431)	(21)
Gross margin	20,906	18,570	2,336	13	40,737	37,098	3,639	10
Selling, general and administrative expenses	6,929	6,438	(491)	(8)	12,606	12,760	154	1

Depreciation and amortization	3,840	3,778	(62)	(2)	7,588	7,402	(186)	(3)
Operating income	10,137	8,354	1,783	21	20,543	16,936	3,607	21
Interest expense, net(1)	(5,664)	(1,780)	(3,884)	NM	(6,968)	(4,555)	(2,413)	(53)
Other expense, net	(82)	(56)	(26)	(46)	(418)	(168)	(250)	(149)
Provision for income taxes	(1,318)	(1,772)	454	26	(3,685)	(3,547)	(138)	(4)
Net income	3,073	4,746	(1,673)	(35)	9,472	8,666	806	9
Less: net (loss) income attributable to noncontrolling interests	(416)	656	1,072	163	181	581	400	69
Net income attributable to MIC	3,489	4,090	(601)	(15)	9,291	8,085	1,206	15
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash (used in) provided by operating activities to Free Cash Flow:
Net income	3,073	4,746			9,472	8,666
Interest expense, net(1)	5,664	1,780			6,968	4,555
Provision for income taxes	1,318	1,772			3,685	3,547

Depreciation and amortization	3,840	3,778			7,588	7,402
Other non-cash income, net(2)	(2,836)	(4,841)			(3,092)	(1,728)
EBITDA excluding non-cash items	11,059	7,235	3,824	53	24,621	22,442	2,179	10

EBITDA excluding non-cash items	11,059	7,235			24,621	22,442
Interest expense, net(1)	(5,664)	(1,780)			(6,968)	(4,555)
Non-cash interest expense, net(1)	274	188			43	1,191
Provision for current income taxes	(669)	(791)			(2,185)	(2,914)
Changes in working capital	(5,760)	8,692			(7,456)	3,606
Cash (used in) provided by operating activities	(760)	13,544			8,055	19,770
Changes in working capital	5,760	(8,692)			7,456	(3,606)
Maintenance capital expenditures	(1,646)	(1,377)			(2,760)	(4,046)
Free cash flow	3,354	3,475	(121)	(3)	12,751	12,118	633	5

___________

NM — Not meaningful.

(1)Interest expense, net, includes non-cash adjustments to derivative instruments, non-cash amortization of debt financing fees, and non-cash write-offs of debt financing costs related to the full repayment of the Hawaii Gas $100.0 million senior secured notes. In connection with the repayment of the Hawaii Gas $100.0 million senior secured notes, Hawaii Gas paid a $4.7 million 'make-whole' payment.

TABLE OF CONTENTS

Results of Operations: MIC Hawaii – (continued)

(2)Other non-cash income, net, includes primarily non-cash mark-to-market adjustment of the value of the commodity hedge contracts, 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 income, 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.

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 increased for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 primarily due to an increase in the amount of gas sold by Hawaii Gas. The increase in the amount of gas sold reflects increased consumption by commercial and industrial customers, as a result of an increase in the number of visitors to Hawaii and increased commercial activity as Hawaii recovers from the impact of COVID-19.

Gross margin increased to $20.9 million and $40.7 million for the quarter and six months ended June 30, 2021, respectively, from $18.6 million and $37.1 million for the quarter and six months ended June 30, 2020, respectively. The increase in gross margin for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 was primarily due to an increase in the amount of gas sold and a larger favorable change in the mark-to-market adjustment of the value of the commodity hedge contracts executed by MIC Hawaii for the six month ended June 30, 2021. The increase in gross margin for the quarter and six months ended June 30, 2021 is partially offset by higher wholesale cost of LPG.

The business recorded favorable adjustments of $3.8 million and $4.9 million in the mark-to-market adjustment of the value of the commodity hedge contracts for the quarter and six months ended June 30, 2021, respectively, compared with $6.4 million and $4.0 million for the quarter and six months ended June 30, 2020, respectively. The change in the mark-to-market adjustment of the value of the commodity hedge contracts during the quarter and six months ended June 30, 2021 primarily reflects higher forecast wholesale prices of LPG relative to the hedged price.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter ended June 30, 2021 and was flat for the six months ended June 30, 2021 compared with the prior comparable periods. The increase for the quarter ended June 30, 2021 was primarily due to higher insurance costs and salaries and benefits.

Operating Income

Operating income increased for the quarter ended June 30, 2021 compared with the quarter ended June 30, 2020 primarily due to higher gross margin, partially offset by higher selling, general and administrative expenses and depreciation and amortization.

Operating income increased for the six months ended June 30, 2021 compared with the six months ended June 30, 2020 primarily due to the higher gross margin and lower selling, general and administrative expenses, partially offset by higher depreciation and amortization.

Interest Expense, Net

Interest expense, net, includes non-cash losses on derivative instruments of $78,000 and non-cash gains of $205,000 for the quarter and six months ended June 30, 2021, respectively, compared with non-cash losses on derivative instruments of $123,000 and $956,000 for the quarter and six months ended June 30, 2020, respectively, and amortization of debt financing costs. For the quarter and six months ended June 30, 2021, interest expense also includes non-cash write-offs of debt financing costs of $154,000 related to the full repayment of the Hawaii Gas $100.0 million senior secured notes.

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Results of Operations: MIC Hawaii – (continued)

Excluding the non-cash adjustments, cash interest expense totaled $5.4 million and $6.9 million for the quarter and six months ended June 30, 2021, respectively, compared with $1.6 million and $3.4 million for the quarter and six months ended June 30, 2020. The increase in cash interest expense primarily reflects a $4.7 million 'make-whole' payment related to the full repayment of the Hawaii Gas $100.0 million senior secured notes incurred in April 2021, partially offset by a lower weighted average debt balance and a lower weighted average interest rate.

Income Taxes

The taxable income generated by the MIC Hawaii businesses is reported on our consolidated federal income tax return. The businesses file a consolidated Hawaii state income tax return. The tax expense in the table above includes both the state income tax and the portion of the consolidated federal income tax liability attributable to the businesses. For the year ended December 31, 2021, the business expects to pay state income taxes of approximately $600,000. The Provision for Current Income Taxes of $2.2 million for the six months ended June 30, 2021 in the above table includes $1.7 million of federal income tax expense and $463,000 of state income tax expense.

Maintenance Capital Expenditures

For the six months ended June 30, 2021, MIC Hawaii incurred maintenance capital expenditures of $2.8 million and $3.1 million on an accrual and cash basis, respectively, compared with $4.0 million and $4.3 million on an accrual and cash basis, respectively, for the six months ended June 30, 2020.

Results of Operations: Corporate and Other

Our Corporate and Other segment comprises primarily results from MIC Corporate in New York City and our shared services center in Plano, Texas, MGS. To facilitate the sales of our remaining businesses, we have undertaken a windup of MGS. During the quarter ended June 30, 2021, the non-information technology services being provided to our former subsidiary, IMTT, were concluded and the majority of the staff providing those services separated from MGS. The majority of the remaining staff, including the information technology staff, were transferred to Atlantic Aviation. Each of Atlantic Aviation and MIC Hawaii now have a stand-alone back office.

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Results of Operations: Corporate and Other – (continued)


	Quarter Ended June 30,		Change Favorable/(Unfavorable)		Six Months Ended June 30,		Change Favorable/(Unfavorable)
	2021	2020			2021	2020
	$	$	$	%	$	$	$	%
	($ In Thousands) (Unaudited)
Selling, general and administrative expenses	11,381	7,751	(3,630)	(47)	21,130	24,872	3,742	15
Fees to Manager - related party	7,551	3,824	(3,727)	(97)	13,103	11,180	(1,923)	(17)
Depreciation and amortization	487	375	(112)	(30)	958	703	(255)	(36)
Operating loss	(19,419)	(11,950)	(7,469)	(63)	(35,191)	(36,755)	1,564	4
Interest expense, net(1)	(304)	(7,541)	7,237	96	(6,728)	(12,127)	5,399	45
Other income, net	873	235	638	NM	1,729	273	1,456	NM
(Provision) benefit for income taxes	(1,915)	6,629	(8,544)	(129)	3,682	10,886	(7,204)	(66)
Net loss	(20,765)	(12,627)	(8,138)	(64)	(36,508)	(37,723)	1,215	3
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	(20,765)	(12,627)			(36,508)	(37,723)
Interest expense, net(1)	304	7,541			6,728	12,127
Provision (benefit) for income taxes	1,915	(6,629)			(3,682)	(10,886)
Fees to Manager - related party	7,551	3,824			13,103	11,180
Depreciation and amortization	487	375			958	703
Other non-cash expense, net(2)	408	265			1,053	670
EBITDA excluding non-cash items	(10,100)	(7,251)	(2,849)	(39)	(18,348)	(23,929)	5,581	23

EBITDA excluding non-cash items	(10,100)	(7,251)			(18,348)	(23,929)
Interest expense, net(1)	(304)	(7,541)			(6,728)	(12,127)
Non-cash interest expense, net(1)	133	1,512			4,824	3,017
Benefit (provision) for current income taxes	2,429	(2,068)			5,216	3,812
Changes in working capital	(131,901)	(2,215)			(148,514)	(2,330)
Cash used in operating activities	(139,743)	(17,563)			(163,550)	(31,557)
Changes in working capital	131,901	2,215			148,514	2,330
Free cash flow	(7,842)	(15,348)	7,506	49	(15,036)	(29,227)	14,191	49

___________

NM — Not meaningful.

(1)Interest expense, net, includes, non-cash amortization of debt financing fees and non-cash amortization of debt discount related to our 2.00% Convertible Senior Notes. For the quarter and six months ended June 30, 2021, interest expense also includes non-cash write-offs of debt financing costs related to the repurchase of our 2.00% Convertible Senior Notes and the cancellation of the holding company revolving credit facility in January 2021.

(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.

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Results of Operations: Corporate and Other – (continued)

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter ended June 30, 2021 compared with the quarter ended June 30, 2020 primarily due to higher costs incurred in connection with efforts to sell our businesses.

Selling, general and administrative expenses decreased for the six months ended June 30, 2021 compared with the six months ended June 30, 2020 primarily due to lower costs incurred in connection with efforts to sell our businesses. The decreases were partially offset by costs incurred related to the repurchase of our 2.00% Convertible Senior Notes during the first quarter of 2021.

Fees to Manager

Fees to Manager for the quarter and six months ended June 30, 2021 comprise base management fees of $7.5 million and $13.1 million, respectively, compared with $3.8 million and $11.2 million for the quarter and six months ended June 30, 2020, respectively. The increase in base management fees reflects an increase in our average market capitalization and the decrease in our average holding company cash balance during the quarter and six months ended June 30, 2021. No performance fees were incurred in either of the current or prior comparable period.

Interest Expense, net

Interest expense, net, includes non-cash amortization of debt financing costs and debt discounts. For the quarter and six months ended June 30, 2021, interest expense also includes non-cash write-offs of debt financing costs of $97,000 and $4.4 million, respectively, related to the repurchase of our 2.00% Convertible Senior Notes and the cancellation of the holding company revolving credit facility in January 2021.

Excluding the non-cash adjustments, cash interest expense totaled $171,000 and $1.9 million for the quarter and six months ended June 30, 2021, respectively, compared with $6.0 million and $9.1 million for the quarter and six months ended June 30, 2020. The decrease in cash interest expense primarily reflects a lower weighted average debt balance and a lower weighted average interest rate.

Other Income, net

The increase in other income, net, for the quarter and six months ended June 30, 2021 compared with the quarter and six months ended June 30, 2020 primarily reflects income from a Transition Services Agreement with IMTT.

Income Taxes

The Benefit for Current Income Taxes of $5.2 million for the six months ended June 30, 2021 in the above table primarily reflects the consolidation of the current federal income tax expense recorded by Atlantic Aviation and MIC Hawaii and the federal income tax losses generated by Corporate and Other. This results in a consolidated current federal tax liability of $3.8 million.

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Liquidity and Capital Resources

General

Cash requirements of our 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.

2.00% Convertible Senior Notes Tender

On February 17, 2021, we initiated a tender offer for any and all of our 2.00% Convertible Senior Notes outstanding. On March 16, 2021, we repurchased $358.6 million in aggregate principal amount of the Notes in the tender offer. During the second quarter of 2021, we repurchased an additional $9.9 million resulting in an outstanding balance of $34.0 million.

Hawaii Gas Senior Secured Notes

On April 19, 2021, Hawaii Gas fully repaid all of its $100.0 million senior secured notes outstanding and incurred a $4.7 million 'make-whole' payment.

Cancellation of Holding Company Revolving Credit Facility

The IMTT Transaction resulted in the termination of all commitments under our holding company level revolving credit facility on January 19, 2021, in accordance with the terms of that agreement. All drawings on the revolving credit facility were fully repaid as of December 31, 2020.

Ongoing Operations

We currently expect Atlantic Aviation and MIC Hawaii to service and/or repay their debts, make required tax payments, fund maintenance capital expenditures, and deploy growth capital during 2021 using cash generated from their respective operations and their cash on hand.

Debt

On June 30, 2021, the consolidated debt outstanding at our operating businesses and at our holding company totaled $1,126.6 million. We had access to an undrawn revolving credit facility at MIC Hawaii of $60.0 million. The ratio of net debt/EBITDA excluding non-cash items for our operating businesses was 2.9x on June 30, 2021.

The following table shows MIC’s debt obligations on July 30, 2021 ($ in thousands):


Business	Debt	Weighted Average Remaining Life (in years)	Balance Outstanding		Weighted Average Rate(1)
MIC Corporate	Convertible Senior Notes	2.2	$	34,039	2.00	%



Atlantic Aviation	Term Loan(2)	4.4	999,375		4.20	%
MIC Hawaii(3)	Term Loan(2)	2.9	93,231		1.84	%

Total		4.2	$	1,126,645	3.94	%

___________

(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 $60.0 million revolving credit facility that was undrawn. The revolving credit facility floats at LIBOR plus 1.25%. During the quarter ended June 30, 2021, MIC Hawaii extended the maturity on its term loan and revolving credit facility from February 2023 to February 2024.

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.

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Liquidity and Capital Resources – (continued)

Analysis of Consolidated Historical Cash Flows from Continuing Operations

The following section discusses our sources and uses of cash on a consolidated basis from continuing operations. All intercompany activities such as corporate allocations, capital contributions to our businesses, and distributions from our businesses have been excluded from the table as these transactions are eliminated on consolidation.


($ In Thousands)	Six Months Ended June 30,			Change Favorable/(Unfavorable)
		2021	2020
		$	$	$	%
Cash (used in) provided by operating activities		(39,546)	69,319	(108,865)	(157)
Cash used in investing activities		(32,805)	(42,769)	9,964	23
Cash (used in) provided by financing activities		(1,435,389)	505,998	(1,941,387)	NM

___________

NM — Not meaningful.

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.

The change in consolidated cash provided by operating activities for the six months ended June 30, 2020 to consolidated cash used in operating activities for the six months ended June 30, 2021 primarily reflects:

•payment of capital gains taxes and expenses related to the IMTT Transaction during 2021;

•an unfavorable change to accounts receivable and inventory and favorable change to accounts payable resulting from the decline in business activity and cost of jet fuel and gas from the impact of COVID-19 during 2020;

•the absence of a provision recorded in 2020 related to remediation of certain environmental matters at Atlantic Aviation; and

•an increase in current taxes; partially offset by

•an increase in EBITDA excluding non-cash items; and

•a decrease in cash interest expense.

Investing Activities from Continuing Operations

Cash provided by investing activities include proceeds from divestitures of businesses and disposal of fixed assets. Cash used in investing activities include acquisitions of businesses in existing segments and capital expenditures.

The decrease in cash used in investing activities for the six months ended June 30, 2021 compared with the six months ended June 30, 2020 is primarily attributable to the absence of an acquisition of an FBO during 2020 at an airport on which Atlantic Aviation already operated, partially offset by higher capital expenditures.

Capital Deployment

Capital deployment includes growth capital expenditures and “bolt-on” acquisitions, the majority of which are expected to generate incremental earnings. For the six months ended June 30, 2021 and 2020, growth capital deployed from continuing operations totaled $22.9 million and $30.9 million, respectively. 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 change from cash provided by financing activities for the six months ended June 30, 2020 to cash used in financing activities for the six months ended June 30, 2021 is primarily attributable to a special dividend of $11.00 per share paid in January 2021, the repurchase of our 2.00% Convertible Senior Notes during 2021, and the full repayment of the Hawaii Gas

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Liquidity and Capital Resources – (continued)

$100.0 million senior secured notes. During the six months ended June 30, 2020, the Company drew down $874.0 million on its available revolving credit facilities in response to the outbreak of COVID-19, of which $275.0 million was repaid through June 30, 2020.

Atlantic Aviation

On June 30, 2021, Atlantic Aviation had approximately $1.0 billion outstanding on its senior secured first lien term loan facility. Cash interest expense totaled $19.6 million and $25.4 million for the six months ended June 30, 2021 and 2020, respectively.

MIC Hawaii

On June 30, 2021, MIC Hawaii had total term loan debt outstanding of $93.2 million. MIC Hawaii also had a $60.0 million revolving credit facility that was undrawn on June 30, 2021. Cash interest expense totaled $6.9 million, which included a $4.7 million 'make-whole' payment related to the full repayment of the Hawaii Gas $100.0 million senior secured notes, and $3.4 million for the six months ended June 30, 2021 and 2020, respectively. On June 30, 2021, MIC Hawaii was in compliance with its financial covenants.

MIC Corporate

On June 30, 2021, MIC had $34.0 million of the 2.00% Convertible Senior Notes outstanding. Cash interest expense totaled $1.9 million and $9.1 million for the six months ended June 30, 2021 and 2020, respectively.

For a description of the material terms of MIC and its businesses' debt facilities, see Note 9, “Long-Term Debt”, in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Commitments and Contingencies

Except as noted above and the Company entering into the Atlantic Aviation Stock Purchase Agreement and the MIC Hawaii Merger Agreement, on June 30, 2021, there were no material changes in our commitments and contingencies compared with those on December 31, 2020. On June 30, 2021, we did not have any material purchase obligations. For a discussion of our other future obligations, due by period, under the various contractual obligations, off-balance sheet arrangements, and commitments, see “Liquidity and Capital Resources — Commitments and Contingencies” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 17, 2021.

On June 30, 2021, we did not have any material reserves for contingencies. We have other contingencies occurring in the normal course of business, including pending legal and administrative proceedings that are not reflected at this time as they are not ascertainable.

Our sources of cash to meet these obligations include:

•cash generated from our operations (see “Operating Activities” in “Liquidity and Capital Resources”);

•the issuance of shares (see “Financing Activities” in “Liquidity and Capital Resources”);

•cash available from our undrawn credit facilities (see “Financing Activities” in “Liquidity and Capital Resources”); and

•if advantageous, sales of all or parts of any of our businesses (see “Investing Activities” in “Liquidity and Capital Resources”).

Critical Accounting Policies and Estimates

For critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” in Part II, Item 7 and Note 2, “Summary of Significant Accounting Policies”, in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and see Note 2, “Basis of Presentation”, in our Notes to Consolidated Condensed Financial Statements in Part I of this Form 10-Q for recently issued accounting standards. Our critical accounting policies and estimates have not changed materially from the description contained in our Annual Report.

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Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Our exposure to market risk has not changed materially since February 17, 2021, the filing date for our Annual Report on Form 10-K, except for the impact of higher wholesale LPG prices on our commodity hedge contracts.

Interim Goodwill Review

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 the quarter and six months ended June 30, 2021, there were no triggering events indicating goodwill impairment.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The purpose of disclosure controls is to ensure that information required to be disclosed in our reports filed with or submitted to the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

($ in Thousands, Except Share Data)


	June 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	319,690	$	1,828,063
Restricted cash	11,790		11,157
Accounts receivable, net of allowance for doubtful accounts	55,057		46,862
Inventories	19,663		16,551
Prepaid expenses	13,385		8,326

Other current assets	12,101		9,197
Total current assets	431,686		1,920,156
Property, equipment, land and leasehold improvements, net	849,530		854,200
Operating lease assets, net	321,941		322,892

Goodwill	617,072		616,939
Intangible assets, net	441,012		457,587
Other noncurrent assets	8,863		6,865
Total assets	$	2,670,104	$	4,178,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Due to Manager-related party	$	2,755	$	1,203
Accounts payable	31,406		30,470
Accrued expenses	50,177		46,112
Current portion of long-term debt	11,333		11,310
Dividend payable	—		960,981
Operating lease liabilities - current	17,069		17,157

Income taxes payable	3,200		132,113
Other current liabilities	24,121		22,861
Total current liabilities	140,061		1,222,207
Long-term debt, net of current portion	1,097,923		1,554,359
Deferred income taxes	132,738		126,858
Operating lease liabilities - noncurrent	311,122		311,597
Other noncurrent liabilities	64,893		70,312
Total liabilities	1,746,737		3,285,333
Commitments and contingencies	—		—

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS – (continued)

($ in Thousands, Except Share Data)


	June 30, 2021		December 31, 2020
	(Unaudited)
Stockholders’ equity(1):
Common Stock ($0.001 par value; 500,000,000 authorized; 87,780,539 shares issued and outstanding on June 30, 2021 and 87,361,929 shares issued and outstanding on December 31, 2020)	$	88	$	87
Additional paid in capital	180,346		177,975
Accumulated other comprehensive loss	(6,175)		(6,175)
Retained earnings	740,640		713,129
Total stockholders’ equity	914,899		885,016
Noncontrolling interests	8,468		8,290
Total equity	923,367		893,306
Total liabilities and equity	$	2,670,104	$	4,178,639

___________

(1)The Company is authorized to issue 100,000,000 shares of preferred stock, par value $0.001 per share authorized. On June 30, 2021 and December 31, 2020, no preferred stocks were issued or outstanding. The Company had 100 shares of special stock, par value $0.001 per share, issued and outstanding to its Manager on June 30, 2021 and December 31, 2020.

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

($ in Thousands, Except Share and Per Share Data)


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue
Service revenue	$	230,037	$	104,318	$	439,641	$	328,315
Product revenue	58,740		36,795		113,327		97,257
Total revenue	288,777		141,113		552,968		425,572
Costs and expenses
Cost of services	99,534		29,280		181,767		123,943
Cost of product sales	37,834		18,225		72,590		60,159
Selling, general and administrative	80,822		73,049		157,834		160,632
Fees to Manager - related party	7,551		3,824		13,103		11,180
Depreciation	19,629		19,745		38,860		39,271
Amortization of intangibles	8,287		9,273		16,575		20,278
Total operating expenses	253,657		153,396		480,729		415,463
Operating income (loss)	35,120		(12,283)		72,239		10,109
Other income (expense)
Interest income	41		189		202		657
Interest expense(1)	(16,773)		(23,639)		(35,392)		(50,344)
Other income (expense), net	793		46		1,295		(100)
Net income (loss) from continuing operations before income taxes	19,181		(35,687)		38,344		(39,678)
(Provision) benefit for income taxes	(12,248)		11,258		(17,614)		8,261
Net income (loss) from continuing operations	6,933		(24,429)		20,730		(31,417)

Discontinued Operations(2)
Net income from discontinued operations before income taxes	—		22,371		—		46,916
Provision for income taxes	—		(5,240)		—		(11,570)
Net income from discontinued operations	—		17,131		—		35,346
Net income (loss)	6,933		(7,298)		20,730		3,929

Net income (loss) from continuing operations	6,933		(24,429)		20,730		(31,417)
Less: net (loss) income attributable to noncontrolling interests	(416)		656		181		581
Net income (loss) from continuing operations attributable to MIC	7,349		(25,085)		20,549		(31,998)
Net income from discontinued operations	—		17,131		—		35,346

Net income from discontinued operations attributable to MIC	—		17,131		—		35,346
Net income (loss) attributable to MIC	$	7,349	$	(7,954)	$	20,549	$	3,348

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS – (continued)

(Unaudited)

($ in Thousands, Except Share and Per Share Data)


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Basic income (loss) per share from continuing operations attributable to MIC	$	0.08	$	(0.29)	$	0.23	$	(0.37)
Basic income per share from discontinued operations attributable to MIC	—		0.20		—		0.41
Basic income (loss) per share attributable to MIC	$	0.08	$	(0.09)	$	0.23	$	0.04
Weighted average number of shares outstanding: basic	87,628,429		86,871,892		87,520,541		86,779,432

Diluted income (loss) per share from continuing operations attributable to MIC	$	0.08	$	(0.29)	$	0.23	$	(0.37)
Diluted income per share from discontinued operations attributable to MIC	—		0.20		—		0.41
Diluted income (loss) per share attributable to MIC	$	0.08	$	(0.09)	$	0.23	$	0.04
Weighted average number of shares outstanding: diluted	87,728,174		86,871,892		87,612,379		86,779,432

___________

(2)See Note 4, “Discontinued Operations and Dispositions”, for discussions on businesses classified as held for sale.

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

($ in Thousands)


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	6,933	$	(7,298)	$	20,730	$	3,929
Other comprehensive income (loss), net of taxes:

Translation adjustment (1)	—		1,644		—		(1,077)
Other comprehensive income (loss)	—		1,644		—		(1,077)
Comprehensive income (loss)	6,933		(5,654)		20,730		2,852
Less: comprehensive (loss) income attributable to noncontrolling interests	(416)		656		181		581
Comprehensive income (loss) attributable to MIC	$	7,349	$	(6,310)	$	20,549	$	2,271

___________

(1)Translation adjustment is presented net of tax expense of $639,000 and tax benefit of $419,000 for the quarter and six months ended June 30, 2020, respectively. See Note 10, “Stockholders’ Equity”, for further discussions.

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

($ in Thousands, Except Share Data)


	In Shares		Common Stock		Additional Paid In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Special Stock	Common Stock(1)
Balance on March 31, 2021	100	87,505,452	$	88	$	170,678	$	(6,175)	$	733,291	$	897,882	$	8,887	$	906,769
Issuance of shares to Manager	—	209,522	—		6,901		—		—		6,901		—		6,901
Stock vested under compensation plans(2)	—	74,580	—		—		—		—		—		—		—
Stock withheld for taxes on vested stock(2)	—	(9,015)	—		—		—		—		—		—		—


Stock-based compensation expense	—	—	—		2,767		—		—		2,767		—		2,767


Distributions to noncontrolling interests	—	—	—		—		—		—		—		(3)		(3)



Comprehensive income (loss), net of taxes	—	—	—		—		—		7,349		7,349		(416)		6,933
Balance on June 30, 2021	100	87,780,539	$	88	$	180,346	$	(6,175)	$	740,640	$	914,899	$	8,468	$	923,367

Balance on December 31, 2020	100	87,361,929	$	87	$	177,975	$	(6,175)	$	713,129	$	885,016	$	8,290	$	893,306
Issuance of shares to Manager	—	352,458	1		11,550		—		—		11,551		—		11,551
Stock vested under compensation plans(2)	—	75,532	—		—		—		—		—		—		—
Stock withheld for taxes on vested stock(2)	—	(9,380)	—		—		—		—		—		—		—
Stock-based compensation expense	—	—	—		4,942		—		—		4,942		—		4,942
Distributions to noncontrolling interests	—	—	—		—		—		—		—		(3)		(3)
Impact of ASU No. 2020-06 adoption, net of taxes(3)	—	—	—		(14,121)		—		6,962		(7,159)		—		(7,159)
Comprehensive income, net of taxes	—	—	—		—		—		20,549		20,549		181		20,730
Balance on June 30, 2021	100	87,780,539	$	88	$	180,346	$	(6,175)	$	740,640	$	914,899	$	8,468	$	923,367

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY – (continued)

(Unaudited)

($ in Thousands, Except Share Data)


	In Shares		Common Stock		Additional Paid In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Special Stock	Common Stock(1)
Balance on March 31, 2020	100	86,814,466	$	87	$	1,122,735	$	(39,593)	$	1,652,292	$	2,735,521	$	8,081	$	2,743,602
Issuance of shares to Manager	—	133,288	—		3,366		—		—		3,366		—		3,366
Stock vested under compensation plans(2)	—	21,390	—		—		—		—		—		—		—

Stock-based compensation expense	—	—	—		942		—		—		942		—		942

Comprehensive income (loss), net of taxes	—	—	—		—		1,644		(7,954)		(6,310)		656		(5,654)
Balance on June 30, 2020	100	86,969,144	$	87	$	1,127,043	$	(37,949)	$	1,644,338	$	2,733,519	$	8,737	$	2,742,256

Balance on December 31, 2019	100	86,600,302	$	87	$	1,197,845	$	(36,872)	$	1,640,990	$	2,802,050	$	8,156	$	2,810,206
Issuance of shares to Manager	—	346,653	—		12,607		—		—		12,607		—		12,607
Stock vested under compensation plans(2)	—	22,490	—		—		—		—		—		—		—
Stock withheld for taxes on vested stock(2)	—	(301)	—		—		—		—		—		—		—
Stock-based compensation expense	—	—	—		3,333		—		—		3,333		—		3,333
Dividends to common stockholders (4)	—	—	—		(86,742)		—		—		(86,742)		—		(86,742)
Comprehensive (loss) income, net of taxes	—	—	—		—		(1,077)		3,348		2,271		581		2,852
Balance on June 30, 2020	100	86,969,144	$	87	$	1,127,043	$	(37,949)	$	1,644,338	$	2,733,519	$	8,737	$	2,742,256

___________

(1)The Company is authorized to issue 500,000,000 shares of common stock with a par value $0.001 per share.

(2)Stocks vested and issued under the 2016 Omnibus Employee Incentive Plan and 2014 Independent Directors' Equity Plan. Under the 2016 Omnibus Employee Incentive Plan, shares are withheld for the employee portion of taxes on vested awards and are available for future grants.

(3)On January 1, 2021, the Company adopted ASU No. 2020-06, Debt - Debt with Conversion and Other Options, using the modified retrospective method and made an adjustment to the beginning balance to Retained Earnings of $7.0 million, net of taxes. See Note 8, “Long-Term Debt”, for further discussions.

(4)See Note 13, “Related Party Transactions”, for discussion on cash dividends declared and paid on shares for each period.

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in Thousands)


	Six Months Ended June 30,
	2021		2020
Operating activities
Net income (loss) from continuing operations	$	20,730	$	(31,417)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities from continuing operations:
Depreciation	38,860		39,271
Amortization of intangibles	16,575		20,278
Write-off of debt financing costs	4,562		1,468
Amortization of debt discount and financing costs	2,476		5,218
Adjustments to derivative instruments	(5,153)		1,192
Fees to Manager - related party	13,103		11,180
Deferred taxes	9,675		(7,443)
Other non-cash expense, net	6,647		4,944
Changes in other assets and liabilities, net of acquisitions:
Accounts receivable	(8,136)		25,756
Inventories	(3,720)		6,079
Prepaid expenses and other current assets	(5,480)		(2,734)
Due to Manager - related party	—		(41)
Accounts payable and accrued expenses	3,988		(13,010)
Income taxes payable	(128,085)		(2,263)
Other, net	(5,588)		10,841
Net cash (used in) provided by operating activities from continuing operations	(39,546)		69,319
Investing activities
Acquisitions of businesses and investments, net of cash, cash equivalents, and restricted cash acquired	—		(13,495)
Purchases of property and equipment	(32,864)		(29,285)



Other, net	59		11
Net cash used in investing activities from continuing operations	(32,805)		(42,769)
Financing activities
Proceeds from long-term debt	—		874,000
Payment of long-term debt	(474,113)		(280,874)
Dividends paid to common stockholders	(960,981)		(86,742)
Distributions paid to noncontrolling interest	(3)		—
Debt financing costs paid	(292)		(386)
Net cash (used in) provided by financing activities from continuing operations	(1,435,389)		505,998
Net change in cash, cash equivalents, and restricted cash from continuing operations	(1,507,740)		532,548

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS – (continued)

(Unaudited)

($ in Thousands)


	Six Months Ended June 30,
	2021		2020
Cash flows provided by (used in) discontinued operations:
Net cash provided by operating activities	$	—	$	103,276
Net cash used in investing activities	—		(106,003)

Net cash used in discontinued operations	—		(2,727)
Effect of exchange rate changes on cash and cash equivalents	—		(222)
Net change in cash, cash equivalents, and restricted cash	(1,507,740)		529,599
Cash, cash equivalents, and restricted cash, beginning of period	1,839,220		358,565
Cash, cash equivalents, and restricted cash, end of period	$	331,480	$	888,164

Supplemental disclosures of cash flow information:
Non-cash investing and financing activities:
Accrued purchases of property and equipment from continuing operations	$	6,231	$	3,317
Accrued purchases of property and equipment from discontinued operations	—		15,939
Accrued debt financing costs from continuing operations	—		59
Leased assets obtained in exchange for new operating lease liabilities from continuing operations	806		5,267
Leased assets obtained in exchange for new operating lease liabilities from discontinued operations	—		726

Taxes paid, net, from continuing operations	135,894		1,444
Taxes paid, net, from discontinued operations	—		2,653
Interest paid, net, from continuing operations	32,899		39,205
Interest paid, net, from discontinued operations	—		19,689

The following table provides a reconciliation of cash, cash equivalents, and restricted cash from both continuing and discontinued operations reported within the consolidated condensed balance sheets that is presented in the consolidated condensed statements of cash flows:


	As of June 30,
	2021		2020
Cash and cash equivalents	$	319,690	$	845,604
Restricted cash - current	11,790		13,721
Cash, cash equivalents, and restricted cash included in assets held for sale	—		28,839
Total of cash, cash equivalents, and restricted cash shown in the consolidated condensed statement of cash flows	$	331,480	$	888,164

See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business

Macquarie Infrastructure Corporation (MIC) is a Delaware corporation formed on May 21, 2015. MIC’s predecessor, Macquarie Infrastructure Company LLC, was formed on April 13, 2004. Macquarie Infrastructure Corporation, both on an individual entity basis and together with its consolidated subsidiaries, is referred to in these financial statements as the “Company” or “MIC”.

MIC is externally managed by Macquarie Infrastructure Management (USA) Inc. (the Manager) pursuant to the terms of a Management Services Agreement, subject to the oversight and supervision of the Board. Six of the eight members of the Board, and all members of each of the Company's Audit, Compensation, and Nominating and Governance Committees, are independent and have no affiliation with Macquarie. The Manager is a member of the Macquarie Group of companies comprising Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Securities Exchange.

The Company owns its businesses through its direct wholly-owned subsidiary MIC Ohana Corporation, the successor to Macquarie Infrastructure Company Inc. The Company owns and operates businesses that provide products and services to corporations, government agencies, and individual customers in the United States (U.S.). The Company's operations are organized into three segments:

•Atlantic Aviation: a provider of jet fuel, terminal, aircraft hangaring, and other services primarily to operators of general aviation (GA) jet aircraft at 69 airports throughout the U.S.;

•Corporate and Other: comprising a holding company headquartered in New York City, MIC Corporate, and a shared services center in Plano, Texas, MIC Global Services (MGS).

In October 2019, along with actively managing its existing portfolio of businesses, the Board resolved to pursue strategic alternatives including potentially a sale of the Company or its operating businesses as a means of unlocking additional value for stockholders. During the quarter ended September 30, 2020, International-Matex Tank Terminals (IMTT) business was classified as a discontinued operation and eliminated as a reportable segment. All periods reported herein reflect this change. In December 2020, the Company completed the sale of IMTT (IMTT Transaction). For additional information, see Note 4, “Discontinued Operations and Dispositions”.

In June 2021, the Company entered into agreements for the sales of its remaining businesses, Atlantic Aviation and MIC Hawaii. The Company currently expect to close the sale of Atlantic Aviation at the end of the third quarter of 2021 and the sale of MIC Hawaii in the first half of 2022. The Company's strategic priority at this point is the satisfaction of any condition precedent to and the closing of both transactions. Upon the closing of the MIC Hawaii Merger, the Company will no longer be a publicly traded entity.

Atlantic Aviation Stock Purchase Agreement (Purchase Agreement)

On June 7, 2021, MIC entered into a Purchase Agreement with KKR Apple Bidco, LLC (Purchaser), a Delaware limited liability company controlled by funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (KKR). The Purchase Agreement provides that Purchaser will acquire all outstanding shares of common stock of the Company which, following the previously approved Reorganization described below, will hold the Company’s Atlantic Aviation business (the AA Business), for $4.475 billion, including cash and the assumption of debt and other transaction and reorganization related obligations (the AA Transaction). MIC expects to receive $3.525 billion at closing following the Reorganization of MIC into a limited liability company, Macquarie Infrastructure Holdings, LLC (MIH), a recently formed Delaware limited liability company and a direct wholly-owned subsidiary of MIC. The Company intends to complete the Reorganization promptly after the Special Meeting of Shareholders, if the AA Transaction proposal is approved, and complete the AA Transaction within two business days after the Reorganization is completed (subject to the satisfaction or waiver of all other conditions contained in the Purchase Agreement).

The AA Transaction is expected to result in cash proceeds of approximately $3.296 billion being available for distribution to unitholders after a disposition payment by MIH to MIC’s Manager of $228.6 million. The MIH Board is expected to authorize a cash distribution of approximately $37.35 per unit following closing of the transaction.

The AA Transaction is expected to close at the end of the third quarter of 2021, subject to customary regulatory approvals and approval from MIC shareholders.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business – (continued)

MIC Hawaii Merger Agreement (Merger Agreement)

On June 14, 2021, MIC entered into a Merger Agreement with AMF Hawaii Holdings, LLC (AMF Parent), a Delaware limited liability company affiliated with Argo Infrastructure Partners, LP (Argo), and AMF Hawaii Merger Sub, LLC (AMF Merger Sub), a recently formed Delaware limited liability company and direct wholly-owned subsidiary of AMF Parent. The Merger Agreement provides that AMF Merger Sub will be merged with and into MIH, with MIH surviving as a wholly-owned subsidiary of AMF Parent (the MH Merger). Following the previously approved Reorganization and the AA Transaction, MIH will hold the Company’s MIC Hawaii business. Upon the completion of the MH Merger, each of the MIH common units (excluding common units held by AMF Parent or AMF Merger Sub or common units held by MIH in treasury and common units held by any subsidiary of MIH or AMF Parent (other than AMF Merger Sub)), will be converted into the right to receive $3.83 in cash, without interest; or, if the MH Merger is consummated after July 1, 2022, then each such unit will be converted into the right to receive $4.11 in cash, without interest.

Under the terms of the Merger Agreement, at closing, Argo will pay the merger consideration to unitholders, and fund transaction costs and fund a disposition payment to MIC’s Manager of $81.7 million if the MH Merger closes on or before July 1, 2022 or $56.7 million if the MH Merger closes after this date.

The MH Merger is expected to be completed in the first half of 2022 subject to customary approvals, including by the Hawaii Public Utilities Commission (HPUC) and by MIC shareholders and the prior closing of the AA Transaction. The Company intends to seek shareholder approval for both the MH Merger and the AA Transaction at the Special Meeting of Shareholders. For additional information, see Note 15, “Subsequent Events”.

Reorganization

MIC is required to complete a reorganization in connection with and prior to the consummation of the AA Transaction. On May 6, 2021, MIC’s shareholders approved a proposal to adopt the agreement and plan of merger, dated as of March 30, 2021 (as amended from time to time, the Reorg Merger Agreement), by and among MIC, MIH, and Plum Merger Sub, Inc. (Plum Merger Sub), a recently formed Delaware corporation and a direct wholly owned subsidiary of MIH, providing for the merger of Plum Merger Sub with and into MIC (the Reorg Merger), resulting in MIC becoming a wholly-owned subsidiary of MIH. Upon the effectiveness of the Reorg Merger, MIC common stock will be converted into MIH common units and stock certificates representing MIC common stock immediately prior to the Reorg Merger will be deemed to represent MIH common units without an exchange of certificates. Following the Reorg Merger, a direct subsidiary of MIC will distribute all of the limited liability company interests of MIC Hawaii to MIC and MIC will in turn distribute all of the limited liability company interests of MIC Hawaii to MIH (such distributions, the Hawaii distribution and together with the Reorg Merger, the Reorganization). Upon completion of the Reorganization, MIH will directly own (i) MIC, which will own the AA Business, and (ii) MIC Hawaii. MIC intends to complete the Reorganization promptly after the Special Meeting of Shareholders, if the AA Transaction proposal is approved, and complete the AA Transaction within two business days after the Reorganization is completed (subject to the satisfaction or waiver of all other conditions contained in the AA Transaction agreement).

2. Basis of Presentation

The unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The consolidated balance sheet on December 31, 2020 has been derived from audited financial statements but does not include all the information and notes required by GAAP for complete financial statements. Certain reclassifications were made to the consolidated financial statements for the prior period to conform to current period presentation.

The interim financial information contained herein should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 17, 2021. Operating results for the quarter and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any future interim periods.

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

2. Basis of Presentation – (continued)

Use of Estimates

The preparation of unaudited consolidated condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures related thereto at the date of the unaudited consolidated condensed financial statements and the reported amounts of revenue and expenses during the reporting period. Management evaluates these estimates and assumptions on an ongoing basis.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited interim consolidated condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Financial Instruments

The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and variable-rate senior debt, are carried at cost, which approximates their fair value because of either the short-term maturity or competitive interest rates assigned to these financial instruments. The fair values of the Company’s other debt instruments fall within level 1 or level 2 of the fair value hierarchy.

The Company considers all highly liquid investments, including commercial paper issued by counterparties with Standard & Poor's rating of A1+ or higher, with maturity of three months or less when purchased to be cash and cash equivalents. The Company did not have any commercial paper on June 30, 2021 or December 31, 2020.

Income Taxes

The Company files a consolidated federal income tax return that includes the financial results of its operating businesses, Atlantic Aviation and MIC Hawaii. Pursuant to a tax sharing agreement, these businesses pay MIC an amount equal to the federal income tax each would pay on a standalone basis as if they were not part of the consolidated federal income tax return. In addition, the businesses file income tax returns and may pay taxes in the state and local jurisdictions in which they operate. In calculating its state income tax provision, the Company has provided a valuation allowance for certain state income tax net operating loss (NOL) carryforwards, the use of which is uncertain.

During the quarter ended June 30, 2021, the Company increased its deferred tax liability by $7.3 million on the assumption that MIC Hawaii would be disposed of by MIC in a taxable transaction as part of the Reorganization. The increase represents the deferred tax expense on the difference between the Company's book and tax basis in its investment in MIC Hawaii and is recorded in the consolidated condensed statement of operations.

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this ASU impact the accounting for convertible instruments by reducing the number of accounting models used to account for these instruments and amending diluted earnings per share calculations. It also simplifies the requirements for contracts indexed to and potentially settled in an entity's own equity. The amendments in this update are effective for fiscal years ending after December 15, 2021. Early adoption is permitted. The Company early adopted this ASU on January 1, 2021 using the modified retrospective method and made an adjustment to the beginning balance to Retained Earnings. The impact of this ASU has been reflected in the consolidated condensed financial statements and the disclosures related to the Company's convertible debt instruments. See Note 8, "Long-Term Debt", for further discussions.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting, which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (LIBOR) or another reference rate expected to be discontinued as a result of reference rate reform. In January 2021, the FASB also issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 and ASU No. 2021-01 are effective as of

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

2. Basis of Presentation – (continued)

March 12, 2020 and through December 31, 2022, and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the impact of adoption on its financial statements and related disclosures.

3. Impact of COVID-19

Atlantic Aviation

MIC Hawaii

Visitor arrivals to Hawaii, the primary driver of increases in demand for gas in Hawaii, improved sequentially in the second quarter of 2021 as increased visitor confidence levels due to the availability of COVID-19 vaccines and a relatively low level of infections in the islands combined to create an attractive environment for visitors from the U.S. mainland. The rate of recovery in the number of visitors to Hawaii in the future remains uncertain. COVID-19 continues to negatively affect the performance of the MIC Hawaii businesses, although the effects have diminished relative to this time last year. The easing of travel restrictions has resulted in an increase in economic activity and the number of primarily domestic visitors to Hawaii, but not to pre-COVID-19 levels. A significant surge in COVID-19 rates could negatively impact Hawaii tourism.

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

4. Discontinued Operations and Dispositions

The Company accounts for disposals that represent a strategic shift that should have or will have a major effect on operations as discontinued operations in the consolidated condensed statement of operations commencing in the period in which the business or group of businesses meets the criteria of a discontinued operation. These results include any gain or loss recognized on disposal or adjustment of the carrying amount to fair value less cost to sell.

On December 23, 2020, the Company completed the IMTT Transaction to an affiliate of Riverstone Holdings, LLC for $2.67 billion, net of closing adjustments, and including assumed debt including accrued interest of approximately $1.11 billion. The net proceeds of $1.55 billion were used to: (i) pay a special dividend of $11.00 per share on January 8, 2021; (ii) pay capital gains taxes in April 2021; (iii) pay transaction costs; (iv) pay a disposition payment under the Disposition Agreement, dated October 30, 2019, to its Manager; and (v) repurchase its 2.00% Convertible Senior Notes.

The sale of IMTT is part of the Company's efforts to maximize value for its shareholders. During the quarter ended September 30, 2020, the Company 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 IMTT. It was additionally determined that the sale of IMTT is considered a strategic shift for the Company that will have a major effect on operations. Accordingly, IMTT was classified as a discontinued operation and the IMTT segment was eliminated. All prior periods have been restated to reflect these changes.

Upon completion of the IMTT Transaction on December 23, 2020, the Company recognized a book loss on sale of approximately $25.0 million. The Company incurred $28.5 million in transaction costs and a Disposition Payment of $28.2 million to its Manager, which are included in Selling, general and administrative expenses in the consolidated statement of operations. As part of classifying IMTT as held for sale, the Company recognized an impairment of the IMTT disposal group of $750.0 million, which includes a goodwill impairment of $725.0 million, reported in discontinued operations for the quarter ended September 30, 2020.

During the quarter ended September 30, 2020, the Company increased its deferred tax liability by $158.0 million as it became probable that IMTT would be sold in a taxable transaction. The increase represented the deferred tax expense on the difference between the Company's book and tax basis in its investment in IMTT. Subsequent to the close of the IMTT Transaction in December 2020, the Company reclassified the liability to current and reduced the tax to $126.2 million. The reduction primarily reflected the tax benefit of the Disposition Payment and the final determination of the tax basis of its 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 the Company’s ownership period.

Summarized financial information for discontinued operations included in Company's consolidated condensed statement of operations related to the IMTT segment for the quarter and six months ended June 30, 2020 are as follows ($ in thousands):


	Quarter Ended June 30,		Six Months Ended June 30,
	2020			2020
Service revenue	$	120,381		$	252,407
Cost of services	(45,995)			(95,824)
Selling, general and administrative expenses	(9,645)			(19,079)

Depreciation and amortization	(33,750)			(68,230)
Interest expense, net	(9,941)			(25,240)
Other income, net	1,321			2,882
Net income from discontinued operations before income taxes	$	22,371		$	46,916
Provision for income taxes	(5,240)			(11,570)

Net income from discontinued operations attributable to MIC	$	17,131		$	35,346

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

5. Income per Share

Following is a reconciliation of the basic and diluted income (loss) per share computations ($ in thousands, except share and per share data):


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Basic and diluted net income (loss) from continuing operations attributable to MIC	$	7,349	$	(25,085)	$	20,549	$	(31,998)
Basic and diluted net income from discontinued operations attributable to MIC	$	—	$	17,131	$	—	$	35,346
Denominator:
Weighted average number of shares outstanding: basic	87,628,429		86,871,892		87,520,541		86,779,432
Dilutive effect of restricted stock unit grants(1)	99,745		—		91,838		—


Weighted average number of shares outstanding: diluted	87,728,174		86,871,892		87,612,379		86,779,432

___________

(1)Dilutive effect of restricted stock unit grants includes grants to independent directors under the 2014 Independent Directors' Equity Plan and certain employees of the Company's operating businesses under the 2016 Omnibus Employee Incentive Plan.


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Income per share:
Basic income (loss) per share from continuing operations attributable to MIC	$	0.08	$	(0.29)	$	0.23	$	(0.37)
Basic income per share from discontinued operations attributable to MIC	—		0.20		—		0.41
Basic income (loss) per share attributable to MIC	$	0.08	$	(0.09)	$	0.23	$	0.04

Diluted income (loss) per share from continuing operations attributable to MIC	$	0.08	$	(0.29)	$	0.23	$	(0.37)
Diluted income per share from discontinued operations attributable to MIC	—		0.20		—		0.41
Diluted income (loss) per share attributable to MIC	$	0.08	$	(0.09)	$	0.23	$	0.04

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

5. Income per Share - (continued)

The following represents the weighted average potential dilutive shares of common stock that were excluded from the diluted income per share calculation:


	Quarter Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Restricted stock unit grants	—	87,059	—	59,087

2.00% Convertible Senior Notes(1)	458,434	3,634,173	2,306,861	3,634,173
Total	458,434	3,721,232	2,306,861	3,693,260

___________

(1)During the quarter and six months ended June 30, 2021, the Company repurchased $9.9 million and $368.5 million, respectively, in aggregate principal amount of its 2.00% Senior Convertible Notes, of which $358.6 million was repurchased in the tender offer completed on March 16, 2021. For the quarter and six months ended June 30, 2021, the weighted average shares reflect the “if-converted” dilutive impact to common stock for the repurchased Notes for the period that the Notes were outstanding and the impact of the increase to the conversion rate following the special dividend paid on January 8, 2021. See Note 8, “Long-Term Debt”, for further discussion.

6. Property, Equipment, Land and Leasehold Improvements

Property, equipment, land and leasehold improvements on June 30, 2021 and December 31, 2020 consisted of the following ($ in thousands):


	June 30, 2021		December 31, 2020
Land	$	10,710	$	10,710
Buildings	4,259		4,141
Leasehold and land improvements	790,057		778,768
Machinery and equipment	569,672		556,126
Furniture and fixtures	38,726		37,133
Construction in progress	45,604		38,696
	1,459,028		1,425,574
Less: accumulated depreciation	(609,498)		(571,374)
Property, equipment, land and leasehold improvements, net	$	849,530	$	854,200

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(Unaudited)

7. Intangible Assets and Goodwill

Intangible assets on June 30, 2021 and December 31, 2020 consisted of the following ($ in thousands):


	June 30, 2021		December 31, 2020
Contractual arrangements	$	914,430	$	914,430
Non-compete agreements	9,665		9,665
Customer relationships	65,915		65,915
Trade names	15,671		15,671
Leasehold rights	100		100
Technology	460		460
	1,006,241		1,006,241
Less: accumulated amortization	(565,229)		(548,654)
Intangible assets, net	$	441,012	$	457,587

The goodwill balance by reportable segments on June 30, 2021 is comprised of the following ($ in thousands):


	Atlantic Aviation		MIC Hawaii		Total
Goodwill acquired in business combinations, net of disposals, on December 31, 2020	$	620,599	$	123,333	$	743,932
Accumulated impairment charges	(123,200)		(3,215)		(126,415)
Other	(653)		75		(578)

Balance on December 31, 2020	496,746		120,193		616,939
Other	133		—		133

Balance on June 30, 2021	$	496,879	$	120,193	$	617,072

The Company tests 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. There were no triggering events that indicated impairment for the six months ended June 30, 2021.

8. Long-Term Debt

On June 30, 2021 and December 31, 2020, the Company’s consolidated long-term debt balance comprised of the following ($ in thousands):


	June 30, 2021		December 31, 2020

Atlantic Aviation	$	999,375	$	1,004,500
MIC Hawaii	93,231		193,758
MIC Corporate	34,039		391,252
Total	1,126,645		1,589,510
Current portion	(11,333)		(11,310)
Long-term portion	1,115,312		1,578,200
Unamortized debt financing costs(1)	(17,389)		(23,841)
Long-term portion less unamortized debt discount and debt financing costs	$	1,097,923	$	1,554,359

___________

(1)The weighted average remaining life of the debt financing costs on June 30, 2021 was 4.3 years.

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8. Long-Term Debt – (continued)

MIC Corporate

Senior Secured Revolving Credit Facility

On December 31, 2020, MIC Corporate had a $600.0 million senior secured revolving credit facility that was undrawn. During 2020, the Company borrowed $599.0 million on its revolving credit facility and subsequently repaid the amount in full using cash on hand.

On January 19, 2021, in accordance with the terms of the facility agreement, all commitments under the senior secured revolving credit facility were terminated as a result of the IMTT Transaction. During the six months ended June 30, 2021, the Company wrote-off $667,000 of unamortized debt financing costs related to the senior secured revolving credit facility.

2.00% Convertible Senior Notes due October 2023 (2.00% Convertible Senior Notes)

The 2.00% Convertible Senior Notes consisted of the following ($ in thousands):


	June 30, 2021(1)		December 31, 2020
Liability Component:
Principal	$	34,039	$	402,500
Unamortized debt discount	—		(11,248)
Long-term debt, net of unamortized debt discount	34,039		391,252
Unamortized debt financing costs	(306)		(4,134)
Net carrying amount	$	33,733	$	387,118
Equity Component	$	—	$	26,748

___________

(1)Reflects the repurchase of 2.00% Convertible Senior Notes and the adoption of ASU No. 2020-06 effective January 1, 2021.

In October 2016, the Company completed an underwritten public offering of a seven year, $402.5 million aggregate principal amount of 2.00% Convertible Senior Notes. The Notes are convertible, at the holder’s option, only upon satisfaction of one or more conditions set forth in the indenture governing the Notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Company’s common stock, or a combination thereof, at the Company’s election.

The $402.5 million of 2.00% Convertible Senior Notes had an initial value of the principal amount recorded as a liability of $375.8 million, using an effective interest rate of 3.1%. The remaining $26.7 million of principal amount was allocated to the conversion feature and recorded in Additional Paid in Capital. This amount represents a discount to the debt to be amortized through interest expense using the effective interest method through maturity. The Company also recorded $11.2 million in debt financing costs from the issuance of the 2.00% Convertible Senior Notes, of which $744,000 was recorded as equity issuance costs as a component of Stockholders’ Equity. On December 31, 2020, the outstanding balance of the liability component of the 2.00% Convertible Senior Notes was $391.3 million with a fair value of approximately $390.0 million.

On January 1, 2021, the Company adopted ASU 2020-06 under the modified retrospective method. ASU 2020-06 removes the accounting for cash conversion feature of the notes such that the notes would only be classified as a liability. The adoption of ASU 2020-06 resulted in the reversal of the initial equity component recorded of $26.7 million and made an adjustment to the beginning balance to Retained Earnings of $7.0 million primarily for the reversal of the amortization of debt discount taken through date, net of taxes.

During 2021, the Company repurchased $368.5 million in aggregate principal amount of the 2.00% Convertible Senior Notes, of which $358.6 million was repurchased in a tender offer on March 16, 2021. In connection with the repurchases, the Company incurred $1.2 million of transaction costs and wrote-off $3.7 million of debt financing costs recorded in Selling, General and Administrative Expenses and Interest Expense, respectively, in the consolidated condensed statements of operations. On June 30, 2021, the outstanding balance of the liability component of the 2.00% Convertible Senior Notes was $34.0 million which approximated its fair value. The conversion rate on June 30, 2021 was 12.6572 shares of common stock per $1,000 principal amount.

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8. Long-Term Debt – (continued)

Interest expense related to the 2.00% Convertible Senior Notes consisted of the following:


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Contractual interest expense	$	183	$	2,012	$	1,937	$	4,025
Amortization of debt discount	—		961		—		1,914
Amortization of debt financing cost	37		376		382		752
Write-off of debt financing cost	97		—		3,741		—
Total interest expense	$	317	$	3,349	$	6,060	$	6,691

Atlantic Aviation

On June 30, 2021 and December 31, 2020, Atlantic Aviation had approximately $1.0 billion outstanding on its seven-year senior secured first lien term loan facility.

Atlantic Aviation drew $275.0 million on its revolving credit facility on March 17, 2020. On April 30, 2020, Atlantic Aviation fully repaid the outstanding balance on its revolving credit facility and effective May 4, 2020, reduced the commitments on this facility to $10.0 million, and further to $1.0 million, solely with respect to letters of credit then outstanding. On July 1, 2021, the commitments on this facility were eliminated. The amendment of the facility eliminated any leverage-based maintenance covenant on the Atlantic Aviation term loan.

On June 30, 2021 and December 31, 2020, Atlantic Aviation had $9.5 million and $9.6 million, respectively, in letters of credit outstanding that were cash collateralized.

MIC Hawaii

On December 31, 2020, Hawaii Gas had $100.0 million of fixed rate senior notes, that had a fair value of approximately $105.0 million. On April 19, 2021, Hawaii Gas fully repaid all of its $100.0 million senior secured notes outstanding and incurred a $4.7 million 'make-whole' payment and wrote-off $154,000 of debt financing costs both recorded in Interest Expense in the consolidated condensed statement of operations.

On June 30, 2021 and December 31, 2020, Hawaii Gas had a $80.0 million term loan outstanding and a $60.0 million revolving credit facility that remained undrawn. During the quarter ended June 30, 2021, MIC Hawaii extended the maturity on its term loan and revolving credit facility from February 2023 to February 2024.

In addition, MIC Hawaii's solar facilities had a term loan outstanding of $13.2 million and $13.8 million on June 30, 2021 and December 31, 2020, respectively.

9. Derivative Instruments and Hedging Activities

Interest Rate Contracts

The Company and certain of its businesses have in place variable-rate debt. Management believes that it is prudent to limit the variability of a portion of the business’ interest payments. To meet this objective, the Company enters into interest rate agreements, primarily using interest rate swaps and from time to time using interest rate caps, to manage fluctuations in cash flows resulting from interest rate risk on a portion of its debt with a variable-rate component. Interest rate swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the portion of the debt that is swapped.

On June 30, 2021, the Company had $1.1 billion of current and long-term debt, of which $413.2 million was economically hedged with interest rate contracts, $34.0 million was fixed rate debt, and $679.4 million was unhedged. The Company does not use hedge accounting. All movements in the fair value of the interest rate derivatives are recorded directly through earnings.

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(Unaudited)

9. Derivative Instruments and Hedging Activities – (continued)

Commodity Price Contracts

The risks associated with fluctuations in the prices that Hawaii Gas, a business within the MIC Hawaii reportable segment, pays for liquefied petroleum gas (LPG) is principally a result of market forces reflecting changes in supply and demand for LPG and other energy commodities. Hawaii Gas’ gross margin (revenue less cost of product sales excluding depreciation and amortization) is sensitive to changes in LPG supply costs and Hawaii Gas may not always be able to pass through cost increases fully or on a timely basis, particularly when product costs rise rapidly. To reduce the volatility of the business’ LPG wholesale market price risk, Hawaii Gas has used and expects to continue to use over-the-counter commodity derivative instruments. Hawaii Gas does not use commodity derivative instruments for speculative or trading purposes. Over-the-counter derivative instruments used by Hawaii Gas to hedge forecasted purchases of LPG are generally settled at expiration of the contract. On June 30, 2021, Hawaii Gas had 15.7 million gallons of LPG hedged through December 2023.

Financial Statement Location Disclosure for Derivative Instruments

The Company measures derivative instruments at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations use primarily observable (level 2) inputs, including contractual terms, interest rates, and yield curves observable at commonly quoted intervals.

The Company’s fair value measurements of its derivative instruments and the related location of the assets and liabilities within the consolidated condensed balance sheets on June 30, 2021 and December 31, 2020 were ($ in thousands):


	Assets (Liabilities) at Fair Value
Balance Sheet Classification	June 30, 2021		December 31, 2020
Fair value of derivative instruments - other current assets	$	4,562	$	937
Fair value of derivative instruments - other noncurrent assets	1,237		—
Total derivative contracts - assets	$	5,799	$	937

Fair value of derivative instruments - other current liabilities	$	(166)	$	(172)
Fair value of derivative instruments - other noncurrent liabilities	(163)		(449)
Total derivative contracts – liabilities	$	(329)	$	(621)

The Company’s hedging activities for the quarters and six months ended June 30, 2021 and 2020 and the related location within the consolidated condensed statements of operations were ($ in thousands):


Income Statement Classification	Amount of Gain (Loss) Recognized in, Consolidated Condensed Statement of Operations
	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest expense - interest rate caps	$	—	$	(49)	$	(2)	$	(3,483)
Interest expense - interest rate swaps	(78)		(123)		205		(956)
Cost of product sales - commodity swaps	3,726		4,116		5,352		(998)
Total	$	3,648	$	3,944	$	5,555	$	(5,437)

All of the Company's derivative instruments are collateralized by the assets of the respective businesses.

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10. Stockholders' Equity

2014 Independent Directors' Equity Plan (2014 Plan)

On May 14, 2020, the Company granted its independent directors a total of 32,112 director share units with a grant date fair value of $27.43 per share. During the quarter ended March 31, 2021, the Company granted an additional 12,024 director share units to preserve the economic value of the unvested director share units after giving effect to the special dividend made in connection with the IMTT Transaction. These director share units vested on May 11, 2021, the day immediately preceding the 2021 Annual Meeting of Shareholders.

On May 19, 2021, the Company granted its independent directors a total of 25,974 director share units with a grant date fair value of $34.90 per share. These director share units will vest on the day immediately preceding the 2022 Annual Meeting of Shareholders. Compensation expense related to the director share units were $225,000 and $450,000, respectively, for the quarter and six months ended June 30, 2021, compared with $205,000 and $430,000 for the quarter and six months ended June 30, 2020.

Macquarie Infrastructure Corporation Short-Term Incentive Plan (STIP) for MIC Operating Businesses — Restricted Stock Units (RSUs)

The Company has a STIP to provide cash and stock-based incentives to eligible employees of its operating businesses under the Company’s 2016 Omnibus Employee Incentive Plan (2016 Plan). In general, the cash component comprises 75% of any incentive award and is paid in a lump-sum. The remaining 25% of any incentive award is in the form of RSUs representing an interest in the common stock of the Company. RSUs are granted following assessment of performance against Key Performance Indicators post the one-year performance period and vest in two equal annual installments following the grant date.

The following represents unvested STIP RSU grants through June 30, 2021:


	STIP Grants
	Number of RSUs (in units)	Weighted Average Grant-Date Fair Value (per share)
Unvested balance on December 31, 2019	—	$	—
Granted	55,661	24.50
Forfeited	(1,468)	24.50
Vested(1)	(19,566)	32.57
Unvested balance on December 31, 2020	34,627	$	24.50
Granted(2)	57,071	24.49

Vested	(24,569)	18.66
Unvested balance on June 30, 2021	67,129	$	26.74

___________

(1)As a result of the IMTT Transaction, the Company's Compensation Committee and Board approved the accelerated vesting of the STIP RSU grants for former eligible employees of IMTT.

(2)During the quarter ended March 31, 2021, the Company granted an additional 12,614 RSUs to preserve the economic value of the unvested RSUs after giving effect to the special dividend made in connection with the IMTT Transaction.

On June 30, 2021, the grant date fair value of the unvested awards was $1.8 million and is expected to be recognized over a weighted-average period of 0.9 years. Compensation expense related to the STIP RSUs were $843,000 and $1.2 million for the quarter and six months ended June 30, 2021, respectively, compared with $156,000 and $329,000 (which includes the former eligible participants of IMTT) for the quarter and six months ended June 30, 2020, respectively.

From time to time, the Company can issue RSUs to reward or retain employees, or to attract new employees, or other reasons by providing special grants of RSUs. Vesting dates and terms can vary for each award at the discretion of the Company.

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(Unaudited)

10. Stockholders’ Equity – (continued)

The following represents unvested Special RSU grants through June 30, 2021:


	Special RSU Grants
	Number of RSUs (in units)	Weighted Average Grant-Date Fair Value (per share)
Unvested balance on December 31, 2019	6,067	$	40.30
Granted	4,602	23.50
Vested	(5,702)	26.74
Unvested balance on December 31, 2020	4,967	40.30
Granted(1)	1,860	—
Vested	(6,827)	29.32
Unvested balance on June 30, 2021	—	$	—

___________

(1)During the quarter ended March 31, 2021, the Company granted an additional 1,860 RSUs to preserve the economic value of the unvested RSUs after giving effect to the special dividend made in connection with the IMTT Transaction.

Compensation expense related to the Special RSU grants were $200,000 and $44,000 for the six months ended June 30, 2021 and 2020, respectively.

Macquarie Infrastructure Corporation Long-Term Incentive Plan (LTIP) for MIC Operating Businesses — Performance Stock Units (PSUs)

The Company has a LTIP pursuant to which it may make stock-based incentive awards to eligible employees of its operating businesses. The awards would take the form of PSUs convertible into common stock of the Company as authorized under its 2016 Plan. The number of PSUs a participant may be awarded reflects a target level of performance by the participant. The participant may be awarded more (over performance limit) or less (threshold limit) than the target number of PSUs based on their achievements relative to Key Performance Indicators during the three-year performance period. Following finalization of the participant’s performance review at the end of the third year of the program generally, the Company may award the PSUs.

The following represents unvested LTIP PSU grants through June 30, 2021 at the target level of performance:


	LTIP Grants (at Target)
	Number of PSUs (in units)	Weighted Average Grant-Date Fair Value (per share)
Unvested balance on December 31, 2019	125,194	$	39.62

Forfeited	(18,965)	39.70
Vested(1)	(34,708)	39.88
Unvested balance on December 31, 2020	71,521	39.47
Granted(2)	245,541	28.11
Forfeited	(692)	40.01

Unvested balance on June 30, 2021	316,370	$	30.65

___________

(1)As a result of the IMTT Transaction, the Company's Compensation Committee and Board approved the accelerated vesting of the LTIP PSU grants for former eligible employees of IMTT.

(2)During the quarter ended March 31, 2021, the Company granted an additional 26,004 PSUs to preserve the economic value of the unvested PSUs after giving effect to the special dividend made in connection with the IMTT Transaction.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

10. Stockholders’ Equity – (continued)

On June 30, 2021, depending upon actual performance, the number of PSUs to be issued will vary from zero to 553,656, net of forfeitures. On June 30, 2021, the grant date fair value of the unvested awards was $9.7 million, reflecting target performance by all participants. On June 30, 2021, the unrecognized compensation cost related to unvested PSU awards was $4.6 million at target level performance and is expected to be recognized over a weighted-average period of 1.5 years. Compensation expense related to the LTIP PSUs were $1.9 million and $3.4 million for the quarter and six months ended June 30, 2021, respectively, compared with $561,000 and $1.1 million (which includes the former eligible participants of IMTT) for the quarter and six months ended 2020, respectively.

Accumulated Other Comprehensive Loss, net of taxes

The following represents the changes and balances to the components of accumulated other comprehensive loss, net of taxes, for the six months ended June 30, 2021 and 2020 ($ in thousands):


	Post-Retirement Benefit Plans, net of taxes		Translation Adjustment, net of taxes		Total Stockholders’ Accumulated Other Comprehensive Loss, net of taxes
Balance on December 31, 2019	$	(24,155)	$	(12,717)	$	(36,872)
Translation adjustment(1)	—		(1,077)		(1,077)
Balance on June 30, 2020	$	(24,155)	$	(13,794)	$	(37,949)

Balance on December 31, 2020	$	(6,175)	$	—	$	(6,175)

Balance on June 30, 2021	$	(6,175)	$	—	$	(6,175)

___________

(1)Translation adjustment is presented net of tax benefit of $419,000 for the six months ended June 30, 2020.

11. Reportable Segments

On June 30, 2021, the Company’s businesses consisted of three reportable segments: Atlantic Aviation, MIC Hawaii, and Corporate and Other.

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. In December 2020, the Company completed the sale of IMTT.

Atlantic Aviation

Atlantic Aviation derives the majority of its revenue from jet fuel delivery services and from other airport services, including de-icing and aircraft hangar rental. All of the revenue of Atlantic Aviation is generated at airports in the U.S. The business currently operates at 69 airports.

Revenue from Atlantic Aviation is recorded in service revenue. Services provided by Atlantic Aviation include:

Fuel. Revenue from jet fuel sales is recognized at a point in time as services are performed. Fuel services are recorded net of discounts and rebates.

Hangar. Hangar rentals includes both month-to-month rentals and rentals from longer term contracts. Hangar rental revenue excludes transient customer overnight hangar usage (see Other FBO services below).

Other FBO services. Other fixed based operation (FBO) services consist principally of de-icing services, landing, concession, transient overnight hangar usage, terminal use, and fuel distribution fees that are recognized as sales of services. Revenue from these transactions is recorded based on the service fee earned.

MIC Hawaii

MIC Hawaii primarily comprises: (i) Hawaii Gas, Hawaii’s only government-franchised gas utility and an unregulated LPG distribution business providing gas and related services to industrial, commercial, residential, and governmental customers; and (ii) controlling interests in two solar facilities on Oahu.

Revenue from the Hawaii Gas business is generated from the distribution and sales of synthetic natural gas (SNG), LPG, liquefied natural gas (LNG), and renewable natural gas (RNG). Revenue is primarily a function of the amount of SNG, LPG,

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11. Reportable Segments – (continued)

LNG, and RNG consumed by customers and the price per British Thermal Unit or gallon charged to customers. Revenue levels, without organic growth, will generally track global commodity prices, namely petroleum and natural gas, as its products are derived from these commodities.

Revenue from Hawaii Gas is recorded in product revenue. Hawaii Gas recognizes revenue when products are delivered. Sales of gas to customers are billed on a monthly-cycle basis. Earned but unbilled revenue is accrued and included in accounts receivable and revenue. This is based on the amount of gas that has been delivered but not billed to customers from the latest meter reading or billed delivery date to the end of an accounting period. The related costs are charged to expense.

The renewables projects within MIC Hawaii sell substantially all of the electricity generated at a fixed price to primarily electric utility customers pursuant to long-term power purchase agreements (PPAs) of 20 years. The PPAs are accounted for as operating leases and have no minimum lease payments. Lease income is recorded within product revenue when the electricity is delivered.

Corporate and Other

Corporate and Other comprises a holding company headquarters in New York City, MIC Corporate, and a shared services center in Plano, Texas, MGS.

All of the MIC business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered. Selected information by segment is presented in the following tables.

Revenue from external customers for the Company’s consolidated reportable segments were ($ in thousands):


	Quarter ended June 30, 2021
	Atlantic Aviation		MIC Hawaii		Total Reportable Segments
Service revenue
Fuel	$	162,082	$	—	$	162,082
Hangar	25,235		—		25,235
Other	42,720		—		42,720
Total service revenue	230,037		—		230,037
Product revenue
Lease	—		1,238		1,238
Gas	—		54,862		54,862
Other	—		2,640		2,640
Total product revenue	—		58,740		58,740
Total revenue	$	230,037	$	58,740	$	288,777


	Quarter ended June 30, 2020
	Atlantic Aviation		MIC Hawaii		Total Reportable Segments
Service revenue
Fuel	$	58,326	$	—	$	58,326
Hangar	24,620		—		24,620
Other	21,372		—		21,372
Total service revenue	104,318		—		104,318
Product revenue
Lease	—		1,018		1,018
Gas	—		31,950		31,950
Other	—		3,827		3,827
Total product revenue	—		36,795		36,795
Total revenue	$	104,318	$	36,795	$	141,113

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(Unaudited)

11. Reportable Segments – (continued)


	Six Months Ended June 30, 2021
	Atlantic Aviation		MIC Hawaii		Total Reportable Segments
Service revenue
Fuel	$	297,949	$	—	$	297,949
Hangar	50,405		—		50,405
Other	91,287		—		91,287
Total service revenue	439,641		—		439,641
Product revenue
Lease	—		2,128		2,128
Gas	—		105,613		105,613
Other	—		5,586		5,586
Total product revenue	—		113,327		113,327
Total revenue	$	439,641	$	113,327	$	552,968


	Six Months Ended June 30, 2020
	Atlantic Aviation		MIC Hawaii		Total Reportable Segments
Service revenue
Fuel	$	208,320	$	—	$	208,320
Hangar	49,233		—		49,233
Other	70,762		—		70,762
Total service revenue	328,315		—		328,315
Product revenue
Lease	—		1,673		1,673
Gas	—		88,776		88,776
Other	—		6,808		6,808
Total product revenue	—		97,257		97,257
Total revenue	$	328,315	$	97,257	$	425,572

In accordance with FASB ASC 280, Segment Reporting, the Company has disclosed earnings before interest, taxes, depreciation, and amortization (EBITDA) excluding non-cash items as a key performance indicator for the businesses. EBITDA excluding non-cash items is reflective of the businesses’ ability to effectively manage the 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 its businesses. The Company defines EBITDA excluding non-cash items as net income (loss) or earnings — the most comparable GAAP measure — before interest, taxes, depreciation, and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items, and pension expense reflected in the statements of operations.

EBITDA excluding non-cash items for the Company’s consolidated reportable segments from continuing operations is shown in the tables below ($ in thousands). Allocations of corporate expenses, intercompany fees, and the tax effect have been excluded as they are eliminated in consolidation.

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(Unaudited)

11. Reportable Segments – (continued)


	Quarter Ended June 30, 2021
		Atlantic Aviation		MIC Hawaii		Corporate and Other		Total Reportable Segments
Net income (loss)		$	24,625	$	3,073	$	(20,765)	$	6,933
Interest expense, net		10,764		5,664		304		16,732
Provision for income taxes		9,015		1,318		1,915		12,248
Depreciation and amortization		23,589		3,840		487		27,916
Fees to Manager - related party		—		—		7,551		7,551
Other non-cash expense (income), net		2,326		(2,836)		408		(102)
EBITDA excluding non-cash items		$	70,319	$	11,059	$	(10,100)	$	71,278


	Quarter Ended June 30, 2020
		Atlantic Aviation		MIC Hawaii		Corporate and Other		Total Reportable Segments
Net (loss) income		$	(16,548)	$	4,746	$	(12,627)	$	(24,429)
Interest expense, net		14,129		1,780		7,541		23,450
(Benefit) provision for income taxes		(6,401)		1,772		(6,629)		(11,258)
Depreciation and amortization		24,865		3,778		375		29,018
Fees to Manager - related party		—		—		3,824		3,824
Other non-cash expense (income), net		849		(4,841)		265		(3,727)
EBITDA excluding non-cash items		$	16,894	$	7,235	$	(7,251)	$	16,878


	Six Months Ended June 30, 2021
		Atlantic Aviation		MIC Hawaii		Corporate and Other		Total Reportable Segments
Net income (loss)		$	47,766	$	9,472	$	(36,508)	$	20,730
Interest expense, net		21,494		6,968		6,728		35,190
Provision (benefit) for income taxes		17,611		3,685		(3,682)		17,614
Depreciation and amortization		46,889		7,588		958		55,435
Fees to Manager - related party		—		—		13,103		13,103
Other non-cash expense (income), net		3,895		(3,092)		1,053		1,856
EBITDA excluding non-cash items		$	137,655	$	24,621	$	(18,348)	$	143,928


	Six Months Ended June 30, 2020
		Atlantic Aviation		MIC Hawaii		Corporate and Other		Total Reportable Segments
Net (loss) income		$	(2,360)	$	8,666	$	(37,723)	$	(31,417)
Interest expense, net		33,005		4,555		12,127		49,687
(Benefit) provision for income taxes		(922)		3,547		(10,886)		(8,261)
Depreciation and amortization		51,444		7,402		703		59,549
Fees to Manager - related party		—		—		11,180		11,180
Other non-cash expense (income), net		1,662		(1,728)		670		604
EBITDA excluding non-cash items		$	82,829	$	22,442	$	(23,929)	$	81,342

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

11. Reportable Segments – (continued)

Reconciliations of total reportable segments’ EBITDA excluding non-cash items to consolidated net income (loss) from continuing operations before income taxes were ($ in thousands):


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Total reportable segments EBITDA excluding non-cash items	$	71,278	$	16,878	$	143,928	$	81,342
Interest expense, net	(16,732)		(23,450)		(35,190)		(49,687)
Depreciation and amortization	(27,916)		(29,018)		(55,435)		(59,549)
Fees to Manager - related party	(7,551)		(3,824)		(13,103)		(11,180)
Other expense (income), net	102		3,727		(1,856)		(604)
Total consolidated net income (loss) from continuing operations before income taxes	$	19,181	$	(35,687)	$	38,344	$	(39,678)

Capital expenditures, on a cash basis, for the Company’s reportable segments were ($ in thousands):


	Quarter Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Atlantic Aviation	$	14,044	$	7,509	$	26,489	$	18,458
MIC Hawaii	2,925		3,186		6,264		7,991
Corporate and Other	39		1,680		111		2,836
Total capital expenditures of reportable segments	$	17,008	$	12,375	$	32,864	$	29,285

Property, equipment, land and leasehold improvements, net, and total assets for the Company’s reportable segments were ($ in thousands):


	Property, Equipment, Land and Leasehold Improvements, net				Total Assets
	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Atlantic Aviation	$	547,105	$	549,526	$	2,063,352	$	1,989,343
MIC Hawaii	296,045		297,375		526,911		509,547
Corporate and Other(1)	6,380		7,299		79,841		1,679,749
Total assets of reportable segments	$	849,530	$	854,200	$	2,670,104	$	4,178,639

___________

(1)Total assets on December 31, 2020 for Corporate and Other reflects cash received from the IMTT Transaction.

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MACQUARIE INFRASTRUCTURE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

12. Long-Term Contracted Revenue

Long-term contracted revenue consists of estimated revenue to be recognized in the future related to performance conditions that are unsatisfied or partially unsatisfied accounted for in accordance with ASC 606, Revenue from Contracts with Customers. The following long-term contracted revenue were in existence on June 30, 2021 ($ in thousands):


2021 remaining	$	36,409
2022	30,499
2023	15,682
2024	9,705
2025	6,447
Thereafter	16,768
Total	$	115,510

The above table does not include the future minimum lease revenue from the renewable businesses within the MIC Hawaii reportable segment. The payments from these leases are considered variable as they are based on the output of the underlying assets (i.e. energy generated).

13. Related Party Transactions

Management Services

On June 30, 2021 and December 31, 2020, the Manager held 14,307,279 shares and 13,954,821 shares, respectively, of the Company’s common stock. Pursuant to the terms of the Third Amended and Restated Management Agreement (Management Services Agreement), the Manager may sell these shares at any time. Under the Management Services Agreement, the Manager, at its option, may reinvest base management fees and performance fees, if any, in shares of the Company. The Manager’s holdings on June 30, 2021 represented 16.30% of the Company's outstanding common stock.

Since January 1, 2020, the Company paid the Manager cash dividends on shares held for the following periods:

Declared

Period
Covered

$ per
Share

Record
Date

Payable
Date

Cash Paid to Manager
($ in thousands)

December 23, 2020

(1)

11.00

January 5, 2021

January 8, 2021

153,503

February 14, 2020

Fourth quarter 2019

1.00

March 6, 2020

March 11, 2020

13,396

___________

(1) Special dividend declared and paid out of the net proceeds from the IMTT Transaction. Shares of MIC traded with “due-bills” attached through January 8, 2021 and traded ex-dividend on January 11, 2021.

Under the Management Services Agreement, subject to the oversight and supervision of the Company’s Board, the Manager is responsible for and oversees the management of the Company’s operating businesses. In addition, the Manager has the right to appoint the Chairman of the Board, subject to minimum equity ownership, and to assign, or second, to the Company, two of its employees to serve as chief executive officer and chief financial officer of the Company and seconds or makes other personnel available as required.

In accordance with the Management Services Agreement, the Manager is entitled to a monthly base management fee based primarily on the Company’s market capitalization, and potentially a quarterly performance fee based on total stockholder returns relative to a U.S. utilities index. Currently, the Manager has elected to reinvest the future base management fees and performance fees, if any, in additional shares. For the quarter and six months ended June 30, 2021, the Company incurred base management fees of $7.5 million and $13.1 million, respectively, compared with $3.8 million and $11.2 million for the quarter and six months ended June 30, 2020. The Company did not incur any performance fees for the quarters and six months ended June 30, 2021 and 2020.

Effective November 1, 2018, the Manager waived two portions of the base management fee to which it was entitled under the terms of the Management Services Agreement. In effect, the waivers cap the base management fee at 1% of the Company’s

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

13. Related Party Transactions - (continued)

equity market capitalization less any cash balances at the holding company. The waiver applies only to the calculation of the base management fees and not to the remainder of the Management Services Agreement. The Manager reserves the right to revoke the waivers and revert to the prior terms of the Management Services Agreement, subject to providing the Company with not less than a one year notice. A revocation of the waiver would not trigger a recapture of previously waived fees. As part of the Disposition Agreement entered into between the Company and its Manager, discussed below, the Manager has agreed not to revoke the waiver during the term of the Disposition Agreement.

Disposition Agreement

To facilitate sales of its operating businesses, the Company announced that it has entered into a Disposition Agreement (Disposition Agreement) with its Manager on October 30, 2019 (see Exhibit 10.3 of the Form 10-K filed on February 17, 2021). Outside of the Disposition Agreement, the Company has limited ability to terminate the Management Services Agreement. The Disposition Agreement provides for the termination of the Company’s external management relationship with its Manager as to any businesses, or substantial portions thereof, that are sold (including if the Company itself is sold). In connection therewith, the Company will make a payment to its Manager of approximately 2.9% to 6.1% of the net proceeds generated in the event of such sales, subject to a minimum amount of payments for all sales in the aggregate in the event of a Qualifying Termination Event (QTE) of (i) $50.0 million plus (ii) 1.5% multiplied by proceeds in excess of $500.0 million in the aggregate. A ‘‘QTE’’ means (i) the sale of the Company or (ii) a transaction or series of transactions resulting in a third party or parties acquiring all the assets of the Company. The Disposition Agreement provides that the Management Services Agreement will terminate upon the occurrence of a QTE or upon mutual agreement of the parties. If the Management Services Agreement has not been terminated prior to the sixth anniversary of the Disposition Agreement, its Manager and its independent directors will engage in reasonable, good faith discussions regarding a potential internalization or other framework for a termination of the Management Services Agreement.

The Disposition Agreement provides that if a QTE occurs on or prior to January 1, 2022 (subject to extension under certain circumstances for up to six months thereafter), then the Company will pay its Manager an additional payment of $25.0 million. The Disposition Agreement further provides that its Manager will receive a make-whole payment following a QTE, to the extent that the aggregate management fees paid to its Manager through the date of the QTE were less than (i) $20.0 million per year for the two years following the date of the Disposition Agreement and (ii) $10.0 million per year for any period thereafter. In addition, following a QTE, its Manager will be paid in cash all accrued and unpaid management fees, including fees of $8.5 million waived in accordance with the Limited Waiver, which waived fees would have been payable through October 31, 2019. The Manager has agreed not to exercise its right to retract the Limited Waiver for periods after October 31, 2019 and prior to the termination of the Disposition Agreement. The Disposition Agreement will terminate on the earlier to occur of (i) the termination of the Management Services Agreement and (ii) the sixth anniversary of the agreement, subject to extension under certain circumstances if a transaction is pending.

In connection with the IMTT Transaction and pursuant to the Disposition Agreement, the Company deposited a disposition payment of $28.2 million to its Manager in an escrow account in December 2020 and subsequently released the payment from escrow in March 2021.

In connection with the execution of the MIC Hawaii Merger Agreement, and in order to provide AMF Parent with the fixed amount of the Disposition Payment (as defined in the Disposition Agreement) payable to the Manager with respect to the MH Merger, on June 14, 2021, the Company, its subsidiary MIC Ohana, MIH, and the Manager entered into an amendment (the Amendment) to the Disposition Agreement among the Company, MIC Ohana, and the Manager. The Amendment adds MIH as a party to the Disposition Agreement and provides that the Disposition Payment payable to the Manager with respect to the AA Transaction will be $228.6 million and the Disposition Payment payable to the Manager with respect to the MH Merger will be $56.7 million (which amount includes the Waived Fees (as defined in the Disposition Agreement)). These amounts were calculated in accordance with the Disposition Agreement dated as of October 30, 2019, do not include the $25.0 million additional payment to the Manager if the final sale of the Company occurs on or prior to July 1, 2022 and assume closing dates of October 31, 2021 for the AA Transaction and March 31, 2022 for the MH Merger, which represent the Company’s current expectation as to closing dates. The Amendment also provides that the Disposition Payments with respect to the AA Transaction and the MH Merger will be paid concurrently with the relevant transaction closing, and that the Company’s Management Services Agreement with the Manager will terminate concurrent with the closing of the MH Merger and payment of all amounts payable to the Manager under the Disposition Agreement.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

13. Related Party Transactions - (continued)

The unpaid portion of the base management fees and performance fees, if any, at the end of each reporting period is included in Due to Manager-related party in the consolidated condensed balance sheets. The following table shows the Manager's reinvestment of its base management fees and performance fees, if any, in shares:


Period	Base Management Fee Amount ($ in thousands)		Performance Fee Amount ($ in thousands)		Shares Issued
2021 Activities:
Second quarter 2021	$	7,551	$	—	214,040	(1)
First quarter 2021	5,552		—		176,296

2020 Activities:
Fourth quarter 2020	$	4,903	$	—	162,791
Third quarter 2020	4,980		—		172,976
Second quarter 2020	3,824		—		146,452
First quarter 2020	7,356		—		181,617

___________

(1)The Manager elected to reinvest all monthly base management fees for the quarter ended June 30, 2021 in new primary shares. The Company issued 214,040 shares for the quarter ended June 30, 2021, including 71,638 shares that were issued in July 2021 for the June 2021 monthly base management fee.

The Manager is not entitled to any other compensation and all costs incurred by the Manager, including compensation of seconded staff, are paid by the Manager out of its base management fee. However, the Company is responsible for other direct costs including, but not limited to, expenses incurred in the administration or management of the Company and its subsidiaries, income taxes, audit and legal fees, acquisitions and dispositions, and its compliance with applicable laws and regulations. During six months ended June 30, 2021, the Manager charged the Company $1,000 for the reimbursement of out-of-pocket expenses compared with $16,000 and $304,000 for the quarter and six months ended June 30, 2020, respectively. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is included in Due to Manager-related party in the consolidated condensed balance sheets. During the six months ended June 30, 2021, the Company paid $30,000 in legal fees previously incurred for the Manager related to Shareholder Litigation. For additional information, see Note 14, "Legal Proceedings and Contingencies", for further discussions.

Macquarie Group - Other Services

The Company uses the resources of the Macquarie Group with respect to a range of advisory, procurement, insurance, hedging, lending, and other services. Engagements involving members of the Macquarie Group are reviewed and approved by the Audit Committee of the Company’s Board. Macquarie Group affiliates are engaged on an arm’s length basis and frequently as a member of a syndicate of providers whose other members establish the terms of the interaction.

Advisory Services

The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited (MBL) and Macquarie Capital (USA) Inc. (MCUSA) have provided various advisory and other services and incurred expenses in connection with the Company’s equity raising activities, acquisitions, and debt structuring for the Company and its businesses. Underwriting fees are recorded in stockholders’ equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are expensed as incurred. Debt arranging fees are generally capitalized and amortized over the term of the credit facility.

Long-Term Debt

The Company had a $600.0 million senior secured revolving credit facility at the holding company level where Macquarie Capital Funding LLC had a $40.0 million commitment. On January 19, 2021, all commitments on the senior secured revolving credit facility were terminated in accordance with the terms of that agreement. For the six months ended June 30, 2021, the Company incurred interest expense of $8,000, related to Macquarie Capital Funding LLC’s portion of the MIC senior secured revolving credit facility, compared with $274,000 and $361,000 for the quarter and six months ended June 30, 2020, respectively. All outstanding balances were repaid as of December 31, 2020.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

13. Related Party Transactions - (continued)

Other Related Party Transactions

For the six months ended June 30, 2020, the Company incurred $25,000 for advisory services from a former Board member.

14. Legal Proceedings and Contingencies

The Company and its subsidiaries are subject to legal proceedings arising in the ordinary course of business. In management’s opinion, the Company has adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions and does not believe the outcome of any pending legal proceedings will be material to the Company’s financial position or result of operations.

Shareholder Litigation

On April 23, 2018, a complaint captioned City of Riviera Beach General Employees Retirement System v. Macquarie Infrastructure Corp., et al., Case 1:18-cv-03608 (VSB), was filed in the United States District Court for the Southern District of New York. A substantially identical complaint captioned Daniel Fajardo v. Macquarie Infrastructure Corporation, et al., Case No. 1:18-cv-03744 (VSB) was filed in the same court on April 27, 2018. Both complaints asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder on behalf of a putative class consisting of all purchasers of MIC common stock between February 22, 2016 and February 21, 2018. The named defendants in both cases were the Company and four current or former officers of MIC and one of its former subsidiary, IMTT Holdings LLC. The complaints in both actions allege that the Company and the individual defendants knowingly made material misstatements and omitted material facts in its public disclosures concerning the Company’s and IMTT’s business and the sustainability of the Company’s dividend to stockholders. On January 30, 2019, the Court issued an opinion and order consolidating the two cases, appointing Moab Partners, L.P. (Moab) as Lead Plaintiff and approving Moab’s selection of lead counsel. On February 20, 2019, Moab filed a consolidated class action complaint. In addition to the claims noted above, the consolidated class action complaint also asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 relating to the Company’s November 2016 secondary public offering of common stock. The consolidated amended complaint also adds Macquarie Infrastructure Management (USA) Inc., Barclays Capital Inc., and seven additional current or former officers or directors of MIC as defendants. On April 22, 2019, the Company and the other defendants filed motions to dismiss the consolidated class action complaint in its entirety, with prejudice. Briefing concluded on July 22, 2019. The Company intends to continue to vigorously contest the claims asserted, which the Company believes are entirely meritless.

On August 9, 2018, a shareholder derivative complaint captioned Phyllis Wright v. Liam Stewart, et al., Case No. 1:18-cv-07174 (VSB), was filed in the United States District Court for the Southern District of New York. A substantially identical complaint captioned Raymond Greenlee v. James Hooke, et al., Case No. 1:18-cv-09339 (VSB) was filed in the same court on October 12, 2018. A third and substantially similar shareholder derivative complaint captioned Kim Johnson v. Liam Stewart, et al., Case No. 1:18-cv-011062 (VSB) was filed in the same court on November 27, 2018. Each of the shareholder derivative complaints assert derivative claims on behalf of the Company against certain of its current and former officers and directors arising out of the same subject matter at issue in the City of Riviera Beach and Fajardo complaints discussed above. The causes of action asserted include violation of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, unjust enrichment, and aiding and abetting breach of fiduciary duty. A motion to consolidate the three actions is currently pending. Proceedings in the Wright, Greenlee, and Johnson cases are otherwise stayed pending resolution of the motions to dismiss the securities class actions described above. The Company expects that the named defendants will vigorously contest the claims asserted in the Wright, Greenlee, and Johnson complaints.

15. Subsequent Events

Special Meeting of Shareholders

On July 28, 2021, the Board set August 23, 2021 as the record date for a Special Meeting of Shareholders to be held on September 21, 2021. At the meeting, shareholders of record will be asked to separately approve the AA Transaction and the MH Merger. If approved, MIC expects the AA Transaction to close at the end of the third quarter of 2021 and the MH Merger to conclude in the first half of 2022. Upon the closing of the MH Merger, the Company will no longer be a publicly traded entity.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

There have been no changes to legal proceedings set forth under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 17, 2021.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth under Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 17, 2021, except as follows:

Risks Related to the Reorganization, AA Transaction, and the MH Merger

If the Reorganization is consummated, the benefits expected to be obtained may not be achieved if we do not successfully complete the AA Transaction and the MH Merger.

If the Reorganization is consummated, the benefits expected to be obtained from the Reorganization may not be achieved if we do not complete the AA Transaction and the MH Merger. Consummation of the Reorganization is a condition to the completion of both the AA Transaction and the MH Merger. If the Reorganization is consummated, and thereafter we do not consummate the AA Transaction and the MH Merger, or one or more alternative strategic transactions, or if any such transactions are significantly delayed, we may not realize the anticipated benefits of the Reorganization, in which case we will have incurred time and expenses, including the diversion of management’s attention, in relation to the Reorganization, without receiving the benefit thereof.

After completion of the AA Transaction, the size of our Company may be sub-scale, we will have substantially fewer assets, we may be more susceptible to adverse events, and we may not be able to use the proceeds from the AA Transaction as intended.

The AA Transaction is not conditioned upon completion of the MH Merger. In addition, if shareholder approval is obtained, the MH Merger is expected to close several months following the closing of the AA Transaction after receipt of required regulatory approvals. If the AA Transaction is completed, until the completion of the MH Merger, or if the MH Merger is not completed, the size of our Company may be sub-scale for a public company owner of a part regulated utility/part propane distribution business, and we may have limited access to financing through the capital markets due to our size. We will have divested the AA Business and we will be subject to concentration of the risks that affect our remaining MIC Hawaii business. After completion of the AA Transaction, we will have substantially fewer assets and may experience significant decreases in earnings and cash flow and increases in operating costs or other expenses. Following the AA Transaction, we will continue to be a public company with ongoing costs associated with public company operations, which will be a greater percentage of our revenues, and we will be unlikely to recover all of those expenses from rate payers of our regulated utility, Hawaii Gas. The market price of our common stock may significantly decrease, and our common stock may be more susceptible to market fluctuations. In addition, if there are significant adverse changes in our business prospects, the industries in which we operate, or in market and economic conditions generally, we may not be able to use the proceeds from the AA Transaction as currently intended, because the proceeds may be required for operations or other needs at MIC Hawaii that we do not currently anticipate.

The AA Transaction and MH Merger are contingent on a number of conditions, and may not be completed on the timeline currently contemplated or at all.

The consummation of each of the AA Transaction and the MH Merger is subject to various conditions, including, among others, receipt of shareholder approval, receipt of regulatory approvals, and completion of the Reorganization. If either the AA Transaction or the MH Merger is not completed for any reason, the price of our common stock may decline, and our business, financial condition and results of operations may be impacted, including: to the extent that the market price of our common stock reflects positive market assumptions that the transactions will be completed and the related benefits will be realized; based on the significant expenses, such as legal and financial advisory services, which generally must be paid regardless of whether the transactions are completed; and due to the risk that we may be unable to enter into alternative transactions for the sale of our businesses on terms as favorable as the AA Transaction and the MH Merger or at all. We may receive a termination fee under certain circumstances, but such fees may not adequately compensate us for our losses if either or both of the transactions are not completed. In addition, we may be required to pay a termination fee to the purchaser if the AA Transaction agreement or MH Merger agreement, respectively, is terminated under certain circumstances.

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While the AA Transaction and the MH Merger are pending, the Company will be subject to risks and uncertainties and contractual restrictions that could disrupt our businesses or negatively impact our stock price.

The announcement and pendency of the AA Transaction and the MH Merger could cause disruptions and create uncertainty surrounding our businesses and affect our businesses’ relationships with customers, suppliers and business partners. These uncertainties could cause customers, suppliers and others that deal with us and/or our businesses to seek to change existing business relationships. In addition, employee retention could be negatively impacted during the pendency of the sales. Pending completion of the transactions, the attention of our management may be focused on the transactions and related matters, and diverted from other opportunities that might benefit us. In addition, pursuant to the AA Transaction agreement and the MH Merger agreement, prior to closing we have agreed to conduct the Atlantic Aviation business and the MIC Hawaii business in the ordinary course and not to undertake certain actions without the written consent of the applicable purchaser. These restrictions could prevent us from pursuing certain beneficial business opportunities. All of these uncertainties could adversely affect our business, financial condition and results of operations, and could negatively impact the market price of our common stock.

Non-U.S. holders of MIH common units may be subject to U.S. federal income tax and U.S. withholding tax upon the Hawaii distribution and AA Transaction.

In general, under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) provisions of the United States Internal Revenue Code of 1986, as amended, non-U.S. persons are subject to U.S. federal income tax in the same manner as U.S. persons on any gain realized on the disposition of an interest, other than an interest solely as a creditor, in U.S. real property. An interest in U.S. real property includes stock in a U.S. corporation (except for certain stock of publicly traded U.S. corporations) if, with respect to a non-U.S. holder, interests in U.S. real property constituted 50% or more by value of the sum of the corporation’s assets used in a trade or business, its U.S. real property interests and its interests in real property located outside the United States at any point in time during the shorter of the period during which such non-U.S. holder held such stock or the 5-year period ending on the date of the disposition of such interest (a USRPHC).

While it is not free from doubt, we do not expect that MIC will be treated as a USRPHC for U.S. federal income tax purposes as of either the date of the Hawaii distribution or the date of the AA Transaction completion. However, if MIC were treated as a USRPHC as of the date of the Hawaii distribution, then the Hawaii distribution could have certain negative tax consequences for non-U.S. holders of MIH common units, including causing such non-U.S. holders to be subject to U.S. federal income tax and related withholding under the FIRPTA provisions of the Code on any gain allocable to such holder with respect to the Hawaii distribution. Similarly, if MIC were treated as a USRPHC as of the date of the AA Transaction completion, then the AA Transaction could have certain negative tax consequences for non-U.S. holders of MIH common units, including causing such non-U.S. holders to be subject to U.S. federal income tax and related withholding under the FIRPTA provisions of the Code on any gain realized by MIH on the AA Transaction.

Additionally, in certain cases, non-U.S. holders may be subject to withholding tax at a 30% rate (or lower rate if reduced by an applicable tax treaty) on their allocable share of income, including income generated from the Hawaii distribution, whether or not cash or other property representing these distributive shares are distributed. Any such amounts required to be withheld in respect of a non-U.S. holder will be applied to reduce the amount of the cash distribution of AA Transaction sale proceeds (or any other distributions) to such non-U.S. holder.

If you are a non-U.S. holder, you are urged to consult your own tax advisors with regard to the U.S. federal income tax consequences to you (as well as the effects of state, local and non-U.S. tax laws) resulting from the AA Transaction and the Hawaii distribution.

Non-U.S. holders of MIH common units may be subject to U.S. federal income tax and U.S. withholding tax upon their participation in the MH Merger.

It is unclear if MIC Hawaii will be treated as a USRPHC for U.S. federal income tax purposes as of the date of the MH Merger. If MIC Hawaii were treated as a USRPHC as of such date, the MH Merger could have certain negative tax consequences for non-U.S. holders of MIH common units, including causing such non-U.S. holders to be subject to U.S. federal income tax and related withholding under the FIRPTA provisions of the Code on any gain realized by such holder on the MH Merger.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

An exhibit index has been filed as part of this Report on page E-1 and is incorporated herein by reference.

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EXHIBIT INDEX


Number						Description
2.1						Purchase Agreement dated June 7, 2021 by and among KKR Apple Bidco, LLC, Macquarie Infrastructure Corporation, Macquarie Infrastructure Holdings, LLC and, solely for specified provisions, MIC Hawaii Holdings, LLC (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 7, 2021).
2.2						Merger Agreement dated June 14, 2021 by and among AMF Hawaii Holdings, LLC, AMF Hawaii Merger Sub, LLC, Macquarie Infrastructure Corporation and Macquarie Infrastructure Holdings, LLC (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
3.1						Certificate of Incorporat ion of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on May 21, 2015).
3.2						Amended and Restated Bylaws of the Registrant, dated as of February 18, 2016 (incorporated by reference to Exhibit 3.2 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on February 23, 2016).
10.1						Amendment to Disposition Agreement, dated June 14, 2021, by and among Macquarie Infrastructure Corporation, MIC Ohana Corporation, Macquarie Infrastructure Holdings, LLC and Macquarie Infrastructure Management (USA) Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 15, 2021).
10.2†						Amendment No. 3, dated as of April 7, 2021, to the Amended and Restated Credit Agreement, dated as of February 10, 2016, as amended, among The Gas Company, LLC, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 4, 2021).
10.3†						Amendment No. 3, dated as of April 7, 2021, to the Amended and Restated Credit Agreement, dated as of February 10, 2016, as amended, among HGC Holdings LLC, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 4, 2021).
31.1*						Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
31.2*						Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
32.1**						Section 1350 Certification of Chief Executive Officer
32.2**						Section 1350 Certification of Chief Financial Officer
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						The cover page from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in XBRL and contained in Exhibit 101.

___________

* Filed herewith.

** Furnished herewith.

† The Registrant does not deem this agreement material pursuant to Regulation S-K Item 601(b)(10).

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TABLE OF CONTENTS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MACQUARIE INFRASTRUCTURE CORPORATION (Registrant)

Dated: August 3, 2021	By:	/s/ Christopher Frost
		Name: Christopher Frost
		Title: Chief Executive Officer

Dated: August 3, 2021	By:	/s/ Nick O'Neil
		Name: Nick O'Neil
		Title: Chief Financial Officer