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Sunday, April 26, 2009 2:45:18 PM
Macquarie Infrastructure Company Reports Fourth Quarter and Full Year 2008 Results
Date : 02/26/2009 @ 7:30AM
Source : Business Wire
Stock : Macquarie Infrastructure Company (MIC)
Quote : 2.37 -0.04 (-1.66%) @ 8:00PM
Free Macquarie Infrastructure Company Annual Company Report
Macquarie Infrastructure Company Reports Fourth Quarter and Full Year 2008 Results
Macquarie Infrastructure Company (NYSE: MIC), a market leader in the ownership and operation of U.S. infrastructure businesses, today reported its fourth quarter and full year 2008 financial results. 2008 full year gross profit increased 13% to $398.5 million compared with $351.5 million in 2007.
Estimated cash available for distribution (“CAD”) increased 1% to $106.1 million in 2008 from $105.0 million in 2007. The Company reported CAD of $19.6 million or $0.44 per share for the fourth quarter compared with $25.6 million, or $0.57 per share, for the fourth quarter in 2007. MIC believes that CAD, a non-GAAP measure, provides additional insight into its operating performance and generation of cash available to reduce debt, make distributions to equity holders or reinvest in the growth of the Company. In future periods the Company will disclose "cash available before debt reduction" and "CAD" will be replaced with "CADR". The calculation will be unchanged but the definition will encompass the impact of cash sweeps and the redirection of cash to prepayment of debt principal.
MIC continued to reduce risks associated with its capital structure during the fourth quarter of 2008 and first quarter of 2009 in response to the overall decline in economic activity. The Company’s strategy has led to substantial reductions in the debt of the airport services business and significant modifications to the debt facility of that business. MIC continues to pursue opportunities to further reduce debt at both its holding company and operating company levels.
The modifications of the airport services debt included a prepayment of approximately $44.9 million and an easing of a leverage ratio (debt to adjusted EBITDA) covenant. As a part of the agreement, the Company will sweep 100% of available cash flows generated by the airport services business to the prepayment of debt until the debt to adjusted EBITDA ratio in the business falls below specified levels.
The analysis also resulted in a decision to pursue strategic alternatives with respect to MIC’s airport parking business including a possible sale, debt restructuring or filing for bankruptcy protection. The Company has advised lenders to the airport parking business that it does not intend to provide the business with additional capital contributions other than a maximum of $12.0 million in obligations that it has guaranteed. Implementation of any of the strategic alternatives would have no impact on the continued operation or cash generation of any other of MIC’s businesses.
“We have made considerable progress in terms of reducing our exposure to risks associated with the economic slowdown”, said Peter Stokes, Chief Executive Officer of MIC. “Our airport services business is in a much better position as a result of its reduced debt level, and we have provided investors with a clear statement on the alternatives we are pursuing with the airport parking business,” he added.
Along with its operating results, MIC announced that it has recorded a pre-tax non-cash charge of $253.5 million in the fourth quarter of 2008 to write-down the carrying value of a portion of the intangible and long-lived assets on its balance sheet. $166.0 million of the write-down was attributed to the Company’s airport parking business and $87.5 million was attributed to its airport services business.
The Company reported a net loss of $185.3 million and $178.5 million for the quarter and full year, respectively, largely as a result of the impairment charges in the fourth quarter. Excluding the impact of the impairment charges, the Company would have reported a net loss of $12.0 million for the year.
Although the Company’s operating entities continue to generate substantial levels of cash, MIC’s board of directors has decided to suspend the payment of quarterly cash distributions to shareholders. Cash accumulated as a result of the suspension will be used to accelerate the reduction of the Company’s debt. The Company believes that it will be able to resume the payment of distributions when debt levels at its airport services business and holding company have been reduced further.
MIC’s gas production and distribution business and its district energy business remained resilient in the face of the economic downturn and performed in line with expectations in the fourth quarter and for the full year. The Company’s bulk liquid storage terminal business generated solid growth in operating income on continued strong demand for storage and contributions from new capacity which was commissioned in 2008.
While operating cash flows of the bulk liquid storage business are expected to increase again in 2009, the business anticipates that maintenance capital expenditures will also rise over the near term. Reflecting the increased capital expenditures, total CAD generated by the business is expected to be between $28.0 million and $36.0 million in 2009. The amount of any dividends payable to MIC will be a function of, among other factors, the outlook for market conditions, the level of the business’ indebtedness and the availability of funding for growth projects.
Financial Highlights
Consolidated revenue for full year 2008 increased 27% to $1.05 billion compared with $831.4 million in 2007. The acquisition of 32 additional facilities by the Company’s airport services business in 2007 and 2008 drove the majority of the increase. Higher jet fuel prices resulting from the mid-year spike in crude oil prices also contributed to the increase. The higher fuel prices are passed through to customers and the recovery of the cost is reflected in revenue. Consolidated revenue for the fourth quarter decreased 20% to $209.8 million compared with $263.7 million in the fourth quarter of 2007. The decrease was primarily the result of reduced activity at the Company’s airport services business and the lower average cost of jet fuel in the fourth quarter of 2008 compared with the fourth quarter of 2007.
Consolidated gross profit for the full year increased 13% to $398.5 million on contributions from the recently acquired airport services facilities. Consolidated gross profit decreased 30% to $74.9 million in the fourth quarter compared with $106.4 million in the fourth quarter of 2007. The decrease reflects a decline in activity at the airport parking business and the impact of $19.1 million of impairment charges related to the write-down of intangible and other long-lived assets in the quarter. The Company believes that reporting gross profit, or revenue less costs of goods sold/sales, improves transparency regarding its financial performance. Analysis of gross profit removes the volatility in revenue associated with expenses that are effectively borne by customers of its businesses.
For the full year 2008, CADR increased 1% to $106.1 million from $105.0 million in 2007. CADR was $19.6 million, or $0.44 per share, for the fourth quarter compared with $25.6 million, or $0.57 per share, for the fourth quarter in 2007. The decline in CADR in the fourth quarter was attributable primarily to softer performance by the airport services business during that period. MIC believes that CADR, a non-GAAP measure, provides additional insight into its operating performance and generation of cash available to reduce debt, make distributions to equity holders or reinvest in the growth of the Company. A reconciliation of CADR to cash from operations is provided below.
The Company reported a net loss for the full year of $178.5 million or $3.97 per share including the effects of the write-down of intangible assets and long-lived assets. Excluding the write-down, the Company’s full year 2008 net loss was $12.0 million or $0.27 per share.
Amendment of Airport Services Debt Facility
MIC, in cooperation with its lenders, has amended certain terms of the debt facility at its airport services business. As a part of the amendment, the Company will sweep all excess cash from the airport services business to debt repayments until such time as the ratio of debt to adjusted EBITDA decreases to less than 6.0. When the debt to adjusted EBITDA ratio falls below 6.0, 50% of the cash flows from the business will be available to MIC until the ratio is reduced to less than 5.5. MIC will have access to 100% of the excess cash flows from the airport services business when the debt to adjusted EBITDA ratio is below 5.5, provided that the ratio remains below that level. At year-end 2008 the ratio was 6.68.
The amendments include a relaxation of the leverage covenant. For 2009, the maximum leverage ratio permitted is increased from 7.25 to 8.25. The maximum leverage ratio declines each year through the maturity of the debt.
In February 2009, the Company paid down approximately $44.9 million of airport services’ debt principal, net interest rate swap break fees of $5.1 million. The reduction in debt is expected to lower annualized interest expense by $3.0 million.
The interest margin on the debt and its scheduled maturity were not changed.
Airport Parking
It is unlikely that the Company’s airport parking business will be able to refinance its debt obligations that mature in 2009 as a result of the continued erosion of revenue caused by the decline in the level of commercial air travel. MIC has advised lenders to the airport parking business that it does not intend to provide the business with additional capital contributions other than a maximum of $12.0 million in obligations in connection with certain interest rate swap obligations, shuttle bus leases and one facility lease that it has guaranteed.
The primary debt facility of MIC’s airport parking business is a limited recourse facility without any other parent or cross guarantees. The average maturity of debt facilities other than in the airport parking business is 5.1 years.
Distributions to Shareholders Suspended to Accelerate Capital Restructure
MIC has suspended the payment of quarterly cash distributions to shareholders. The Company will further strengthen its balance sheet using internally generated cash to reduce debt levels. MIC also believes that it will avoid the need to raise new capital for debt repayment on unfavorable terms in the current environment.
Cash accumulated as a result of the suspension of distributions can be used to reduce debt at the airport services business or to reduce the drawn balance on MIC’s holding company revolving credit facility.
The Company has limited visibility into the timing of an economic recovery and increased stability in the capital markets and is therefore unlikely to make distributions to shareholders during 2009. However, MIC believes that it will be able to resume payment of cash distributions when it has successfully reduced its overall debt levels and has reasonable visibility into the functioning of the capital markets.
Intangible and Long-Lived Asset Non-Cash Write-down
MIC recorded a non-cash pre-tax impairment charge in the fourth quarter of 2008 of $253.5 million to write down the carrying value of intangible assets and long-lived assets on its balance sheet in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) and Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). These standards require the Company to evaluate intangible assets and long-lived assets for impairment whenever a triggering event exists. The decline in the Company’s stock price during the fourth quarter of 2008 caused its carrying value to exceed its market capitalization, which the Company determined to be a triggering event in accordance with SFAS No. 142 and SFAS No. 144. These standards require the Company to consider the fair value of its reporting units in its evaluation of impairment. Factors considered in determining fair value for purposes of SFAS 142 include, among other things, the Company’s market capitalization as determined by quoted market prices for its common stock, market values of the Company’s reporting units based on common market multiples for comparable companies, and discount rates that appropriately reflect not only the Company’s businesses, but also the current overall macroeconomic environment. The extended decline in the Company’s share price and the uncertainties and deterioration in overall macroeconomic conditions through the current date have had a material impact on the impairment test for goodwill and other intangible assets.
The impact on the Company’s consolidated net loss for the fourth quarter and full year is $3.74 per share, net of tax benefits of $85.6 million. The Company will continue to monitor the valuation of intangibles and other long-lived assets on a quarterly basis in light of prevailing market conditions.
Near Term Outlook for Bulk Liquid Storage Terminal Business Revised
MIC expects its bulk liquid storage terminal business to generate growth in gross profit and EBITDA on contractual increases in storage rates, combined with full-year contributions from projects completed in 2008 and part-year contributions from those scheduled to be completed in 2009. The Company expects that the business will produce gross profit in a range of $165.0 million to $177.0 million and EBITDA in a range of $140.0 million to $152.0 million in 2009. MIC has a 50% interest in the bulk liquid storage business and does not consolidate its financial results with those of its other businesses.
Maintenance and environmental capital expenditures made by the business totaled $42.7 million in 2008. Due to an increase in the number and size of tanks to be inspected and repaired in 2009 as a part of the business’ extensive tank cleaning and inspection program, the deferral of some maintenance capital expenditure projects from 2008 to 2009 and the need to undertake repairs and upgrades to some infrastructure at the business’ Louisiana terminals, maintenance and environmental capital expenditures are forecast to increase to between $65.0 million and $67.0 million in 2009.
In 2009, the bulk liquid storage terminal business will seek external funding to complete previously approved growth projects and scheduled amortization of a term loan. If the business does not obtain sufficient external funding for the projects they will be funded out of operating cash flows.
In 2008, MIC received a fixed distribution of $7.0 million per quarter on its investment in the bulk liquid storage terminal business. Per the terms of MIC’s investment, the distribution will become a variable payment in 2009 based on the cash flows generated by the business.
CAD for the entire business in 2009 is estimated to be in a range of between $28.0 million and $36.0 million, including the expected increase in maintenance capital expenditures. MIC may agree to reduce the amount of distributions it receives based on factors including the outlook for bulk liquid storage market conditions, the level of debt at the business and the availability of external sources of funding for growth capital projects.
ESTIMATED CASH AVAILABLE FOR DISTRIBUTION
The Company believes that it can provide better insight into its ability to generate cash by making certain adjustments to its “as reported” results. Financial results under Generally Accepted Accounting Principles (“GAAP”) alone do not reflect all of the items that management considers in estimating the amount of cash available to reduce debt, make distributions to equity holders or reinvest in the growth of the Company.
With the focus of the Company on preserving cash and reducing debt, “estimated cash available for distribution” no longer provides an appropriate description of the sources and uses of cash generated by its businesses. In future periods the Company will disclose “cash available before debt reduction” and “CAD” will be replaced with “CADR”. The calculation will be unchanged but the definition will encompass the impact of cash sweeps and the redirection of cash to prepayment of debt principal.
The table below summarizes MIC’s estimated cash available before debt reduction beginning with cash from operations and adjusted for certain dividend income and cash expenditures for the quarter and year ended December 31, 2008 as well as revised CADR for the nine months ended September 30, 2008.
Revised*
Year to Date Quarter
Ended
Year to Date
($ Millions) 31-Dec-08 31-Dec-08 30-Sep-08
Cash from operations $ 93.7 $ 18.6 $ 75.1
Working capital $ (8.7 ) $ (13.0 ) $ 4.3
Cash from operations adjustments $ 0.7 $ (1.8 ) $ 2.5
Cash from investing and financing activities $ 20.4 $ 15.8 $ 4.6
Estimated Cash Available for Distribution $ 106.1 $ 19.6 $ 86.5
* The revised estimated cash available for distribution for the third quarter reflects the impact of a request by the MIC board of directors for the Manager to take base management fees in cash rather than in stock in recognition of the potentially substantial dilution that would have resulted for existing shareholders. The Manager agreed to this request and the revised CADR reflects a decrease of $2.5 million compared with the $89.0 million reported at the end of the third quarter.
MIC reported consolidated cash from operating activities of $93.7 million for the full-year 2008. Cash from operating activities decreased by 3% compared with 2007.
Cash from operating activities is reduced by an $8.7 million change in net working capital and increased interest payments on higher debt balances. Working capital decreased as a result of lower accounts receivable stemming from lower fuel prices. CADR is adjusted for the changes in working capital since these effects are believed to be temporary.
Full year cash from operations is adjusted to include:
$2.6 million of pre-funded (equity) integration expenses incurred in connection with acquisitions concluded by the airport services business in 2007;
$1.3 million of cash from an escrow established by the seller as a part of the acquisition of the gas production and distribution business in 2006; and
$0.12 million of miscellaneous adjustments including for income taxes and minority interests.
Full year cash from operations is adjusted to exclude:
$1.7 million of deferred revenue associated with new customer contracts entered into by the district energy business; and
$1.6 million of reimbursed acquisition costs, recognized in cash from operations and subtracted in order to neutralize their impact on CADR.
Estimated CADR for the full year includes a net $20.4 million in cash from investing and financing activities. The addition includes the $26.7 million portion of the dividend from the bulk liquid storage terminal business that is recorded in cash from investing activities, and subtracts primarily net cash capital expenditures of $4.9 million and capital lease pay downs of $2.0 million. $10.9 million of debt service reserve releases were applied to maintenance capital expenditures in 2008.
OPERATING BUSINESSES
MIC reports EBITDA and contribution margin, both non-GAAP financial measures, as it considers them to be important indicators of the overall performance of both its operating businesses individually and in consolidation. The Company believes that EBITDA, net of non-cash and non-recurring items, also provides insight into the performance of its operating companies and their ability to generate cash. The reporting of contribution margin by the gas production and distribution business provides additional insight into the performance of that business excluding changes in fuel prices that typically are recovered in revenue.
Airport Services - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 716,302 534,336 34.1 137,270 187,215 (26.7 )
Gross Profit 342,002 276,656 23.6 76,761 90,143 (14.8 )
EBITDA* 82,586 108,944 (24.2 ) (24,883 ) 26,119 (195.3 )
* See attached tables for a reconciliation of EBITDA to net income.
The increase in gross profit in 2008 compared with 2007 reflects the contribution from sites acquired in 2007 and early 2008. Gross profit for the fourth quarter declined in 2008 compared with 2007 as a result of the reduced level of general aviation flight activity associated with the economic slowdown. Reported EBITDA was negatively affected by the non-cash write-down of intangible and long-lived assets.
General aviation jet aircraft flight movements at the business’ 68 airports decreased by slightly more than 9% during 2008 compared with 2007. Industry analysts estimate that full-year declines for all airports exceeded 12%. The relative out performance reflects the popularity of the destinations at which the business operates as well as their ability to handle larger jets.
The volume of general aviation jet fuel sold at existing sites declined by less than 9% in 2008 compared with 2007. The decrease in the volume of fuel sold year over year was attributed to the overall decline in business activity related to the slowing of the economy. The decline in the use of larger jets has been somewhat less significant than the decline in the use of smaller jets. Smaller jets consume less fuel per plane, on average, and the impact of fewer flight movements on fuel volume has been less than the reduction in total activity.
The volume of fuel sold is a function of the number of aircraft in service and the number of hours those aircraft are flown. According to industry sources, new turbine powered aircraft deliveries increased the size of the U.S. fleet by approximately 4% in 2008, net of a historically normal level of aircraft retirements. The FAA has previously forecast growth in the size of the domestic fleet of between 6% and 7% per year. Updated forecasts, including the number of hours flown, are expected to be published in March and are likely to include slower growth rates.
Margins on retail general aviation jet fuel sales increased year over year by 1.2% on same store (excludes acquisitions in the prior twelve months) basis and decreased by 1.5% on a total stores (includes acquisitions) basis. The declines reflect an increase in the proportion of fuel sales to base tenants who typically have agreements to buy fuel at a discount compared to transient aircraft. Total average margins including into-plane sales decreased 5% at same store sites and by 8% across all sites.
Continued growth in non-fuel revenue, including hangar rental and ramp fees, and substantial reductions in selling, general and administrative expenses, partially offset the decline in fuel volume and margin. SG&A expenses were reduced by an annualized $22.0 million primarily as a result of staffing reductions and savings realized in connection with the integration of acquired sites.
Excluding non-cash losses on changes in the value of derivative instruments in 2008 and 2007, and the non-cash intangible and long-lived assets write-down in the fourth quarter of 2008, EBITDA would have decreased by 11% at existing locations and increased by 13% for all locations.
The Company expects operating income generated by the airport services business will stabilize in 2009 at amounts consistent with the overall level of economic activity. The Company expects that the lower level of gross profit compared with prior years will be partially offset by reductions in operating costs and reduced loan interest. The reductions in loan interest will accelerate as cash flows are swept to the repayment of a portion of the business’ primary debt facility.
Bulk Liquid Storage Terminal Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Terminal Revenue 306,103 250,733 22.1 82,918 69,268 19.7
Terminal Gross Profit 151,103 115,007 31.4 41,979 31,759 32.2
EBITDA* 89,716 67,076 33.8 (6,221 ) 14,238 (143.7 )
* See attached tables for a reconciliation of EBITDA to net income.
The Company received a dividend of $7.0 million in the fourth quarter from its investment in the bulk liquid storage terminal business. MIC accrued the dividend at quarter-end and received the cash on January 23. As an owner of 50% of the business, MIC does not consolidate the financial results of the bulk liquid storage terminal business with those of its other businesses.
Terminal revenue increased for both the fourth quarter and full year compared with 2007. The increase was the result of higher average storage rates, and an increase in rented storage capacity resulting from completion of tank construction projects, including the Geismar Logistics Center. Terminal gross profit also increased for the quarter and full-year versus the prior comparable period.
Included in the business’ EBITDA and $16.2 million net loss for the quarter was a non-cash loss of $41.8 million on changes in the value of derivative instruments (interest rate hedges). The loss was the result of falling long-term interest rates during the quarter. Beginning in December the business applied hedge accounting to its interest rate derivatives. Volatility in reported earnings and EBITDA based on fluctuations in interest rates should decrease substantially in future periods.
Cash flow from operating activities in 2008 increased to $94.1 million from $91.4 million in 2007, supported by higher average storage rates and an increase in the total amount of storage under contract. Excluding the impact of non-cash gains and losses on derivatives in 2008 and 2007, EBITDA would have increased by 54% year over year and by 31% fourth quarter over fourth quarter.
The gross profit and EBITDA of the bulk liquid storage terminal business is expected to continue to improve as inflation escalators generate revenue growth from existing contracts and storage tanks currently under construction are commissioned. The business expects an additional 3.2 million barrels of storage currently under construction or conversion to be in brought into service in 2009 and early 2010.
As provided for in the shareholder agreement between MIC and the other shareholders, the business will pay MIC a variable dividend each quarter beginning with the first quarter in 2009. MIC may agree to reduce the amount of distributions it receives based on factors including the outlook for bulk liquid storage market conditions, the level of debt at the business and the availability of external sources of funding for growth capital projects.
Management of the business expects that maintenance capital expenditures in 2009 will be in a range of between $65.0 million and $67.0 million. The higher expense in 2009 reflects an increase in the number and size of tanks to be cleaned and inspected compared with 2008 and reflects the deferral of approximately $8.0 million of costs associated with tank cleaning and inspection expenses from 2008 into 2009, as well as repairs and upgrades to some infrastructure at the business’ Louisiana terminals.
Gas Production and Distribution Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 213,014 170,372 25.0 45,520 47,359 (3.9 )
Contribution Margin 65,532 61,093 7.3 16,433 16,018 2.6
EBITDA* 26,456 23,887 10.8 5,556 6,158 (9.8 )
* See attached tables for a reconciliation of contribution margin to revenue and EBITDA to net income.
The Company’s gas production and distribution business increased total contribution margin (revenue less cost of revenue, excluding production and transmission / distribution) in both the quarter and full year. The total volume of gas products sold by the utility and non-utility segments combined declined by a weighted average of 3.2% during 2008. The decline was driven primarily by reduced demand related to a decline in tourism in Hawaii in 2008 compared with 2007.
Revenue and contribution margin increases in both utility and non-utility operations were partially offset by higher input/product costs (feedstock and LPG) and higher operating expenses including the cost of transporting LPG between the islands of Hawaii.
Excluding non-cash gains and losses on derivative instruments in both 2008 and 2007, EBITDA would have increased by approximately 10% year over year and declined by approximately 10% fourth quarter over fourth quarter.
The rate of population growth and the level of tourism in Hawaii drive growth in gas product sales. The state government forecasts population growth of about 1% over the medium term. Tourist landings in 2008 declined by approximately 11% compared with 2007 according to the Hawaii State Department of Business, Economic Development & Tourism. The Department forecasts a further 2% decline in tourist landings in 2009.
In spite of the deterioration in the level of economic activity in Hawaii, the Company believes that the essential services nature and market leading position of its gas production and distribution business will enable it to continue to generate stable cash flows.
District Energy Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 48,045 49,506 (3.0 ) 9,328 10,215 (8.7 )
Gross Profit 16,394 16,386 NM** 2,861 3,095 (7.6 )
EBITDA* 18,459 1,420 NM** 3,324 3,608 (7.9 )
* See attached tables for a reconciliation of EBITDA to net income.
** Not meaningful
Revenue generated by the district energy business is a combination of capacity revenue based on the number of tons of cooling under contract, and consumption revenue based on demand for cooling. Capacity revenue grew with the step-up in inflation-linked rate escalators in 2008. A cooler 2008 compared with 2007 resulted in a decrease in consumption revenue and contributed to a slight decline in total revenue for the full year.
The Company expects continued stable performance from its district energy business, assuming a historically normal level of demand for cooling in Chicago in 2009.
Excluding the effect of the debt refinancing costs incurred in the third quarter of 2007, EBITDA would have declined by less than 4% year over year.
Airport Parking Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 74,692 77,180 (3.2 ) 17,691 18,892 (6.4 )
Gross Profit (Loss) (4,752 ) 17,663 (126.9 ) (15,423 ) 2,983 NM**
EBITDA* (128,264 ) 15,519 NM** (136,207 ) 3,166 NM**
* See attached tables for a reconciliation of EBITDA to net income.
** Not Meaningful
Lot utilization, as measured by the number of cars exiting the airport parking business’ facilities, declined 5.9% compared with 2007. Price rationalization in certain markets offset a portion of the volume decline resulting in a decrease in revenue of 3.2%.
The year over year decline in gross profit was partially offset by $1.2 million decrease in rent expense and related reversal of previously booked non-cash rent in excess of lease expenses resulting from the purchase in the first quarter of a previously leased property.
Full year selling, general and administrative costs were higher primarily as a result of costs incurred in connection with a state tax settlement, outsourcing certain activities and relocation of the head office.
Excluding unrealized gains on derivative instruments in both years and the impairment in 2008, EBITDA would have declined by 33%.
The airport parking business does not have sufficient liquidity or capital resources to pay its maturing debt obligations and, based on current results and market conditions, we do not expect that the airport parking business will be able to refinance its debt as it matures. MIC has no intention of contributing any further capital to this business other than potentially obligations that it has guaranteed. As a result, it is likely that this business will default on its obligations without substantial concessions from lenders and there is doubt regarding the business’ ability to continue as a going concern. The Company is in discussions with lenders and is pursuing strategic alternatives for the business including asset sales, restructuring or filing for protection under bankruptcy laws.
C
Date : 02/26/2009 @ 7:30AM
Source : Business Wire
Stock : Macquarie Infrastructure Company (MIC)
Quote : 2.37 -0.04 (-1.66%) @ 8:00PM
Free Macquarie Infrastructure Company Annual Company Report
Macquarie Infrastructure Company Reports Fourth Quarter and Full Year 2008 Results
Macquarie Infrastructure Company (NYSE: MIC), a market leader in the ownership and operation of U.S. infrastructure businesses, today reported its fourth quarter and full year 2008 financial results. 2008 full year gross profit increased 13% to $398.5 million compared with $351.5 million in 2007.
Estimated cash available for distribution (“CAD”) increased 1% to $106.1 million in 2008 from $105.0 million in 2007. The Company reported CAD of $19.6 million or $0.44 per share for the fourth quarter compared with $25.6 million, or $0.57 per share, for the fourth quarter in 2007. MIC believes that CAD, a non-GAAP measure, provides additional insight into its operating performance and generation of cash available to reduce debt, make distributions to equity holders or reinvest in the growth of the Company. In future periods the Company will disclose "cash available before debt reduction" and "CAD" will be replaced with "CADR". The calculation will be unchanged but the definition will encompass the impact of cash sweeps and the redirection of cash to prepayment of debt principal.
MIC continued to reduce risks associated with its capital structure during the fourth quarter of 2008 and first quarter of 2009 in response to the overall decline in economic activity. The Company’s strategy has led to substantial reductions in the debt of the airport services business and significant modifications to the debt facility of that business. MIC continues to pursue opportunities to further reduce debt at both its holding company and operating company levels.
The modifications of the airport services debt included a prepayment of approximately $44.9 million and an easing of a leverage ratio (debt to adjusted EBITDA) covenant. As a part of the agreement, the Company will sweep 100% of available cash flows generated by the airport services business to the prepayment of debt until the debt to adjusted EBITDA ratio in the business falls below specified levels.
The analysis also resulted in a decision to pursue strategic alternatives with respect to MIC’s airport parking business including a possible sale, debt restructuring or filing for bankruptcy protection. The Company has advised lenders to the airport parking business that it does not intend to provide the business with additional capital contributions other than a maximum of $12.0 million in obligations that it has guaranteed. Implementation of any of the strategic alternatives would have no impact on the continued operation or cash generation of any other of MIC’s businesses.
“We have made considerable progress in terms of reducing our exposure to risks associated with the economic slowdown”, said Peter Stokes, Chief Executive Officer of MIC. “Our airport services business is in a much better position as a result of its reduced debt level, and we have provided investors with a clear statement on the alternatives we are pursuing with the airport parking business,” he added.
Along with its operating results, MIC announced that it has recorded a pre-tax non-cash charge of $253.5 million in the fourth quarter of 2008 to write-down the carrying value of a portion of the intangible and long-lived assets on its balance sheet. $166.0 million of the write-down was attributed to the Company’s airport parking business and $87.5 million was attributed to its airport services business.
The Company reported a net loss of $185.3 million and $178.5 million for the quarter and full year, respectively, largely as a result of the impairment charges in the fourth quarter. Excluding the impact of the impairment charges, the Company would have reported a net loss of $12.0 million for the year.
Although the Company’s operating entities continue to generate substantial levels of cash, MIC’s board of directors has decided to suspend the payment of quarterly cash distributions to shareholders. Cash accumulated as a result of the suspension will be used to accelerate the reduction of the Company’s debt. The Company believes that it will be able to resume the payment of distributions when debt levels at its airport services business and holding company have been reduced further.
MIC’s gas production and distribution business and its district energy business remained resilient in the face of the economic downturn and performed in line with expectations in the fourth quarter and for the full year. The Company’s bulk liquid storage terminal business generated solid growth in operating income on continued strong demand for storage and contributions from new capacity which was commissioned in 2008.
While operating cash flows of the bulk liquid storage business are expected to increase again in 2009, the business anticipates that maintenance capital expenditures will also rise over the near term. Reflecting the increased capital expenditures, total CAD generated by the business is expected to be between $28.0 million and $36.0 million in 2009. The amount of any dividends payable to MIC will be a function of, among other factors, the outlook for market conditions, the level of the business’ indebtedness and the availability of funding for growth projects.
Financial Highlights
Consolidated revenue for full year 2008 increased 27% to $1.05 billion compared with $831.4 million in 2007. The acquisition of 32 additional facilities by the Company’s airport services business in 2007 and 2008 drove the majority of the increase. Higher jet fuel prices resulting from the mid-year spike in crude oil prices also contributed to the increase. The higher fuel prices are passed through to customers and the recovery of the cost is reflected in revenue. Consolidated revenue for the fourth quarter decreased 20% to $209.8 million compared with $263.7 million in the fourth quarter of 2007. The decrease was primarily the result of reduced activity at the Company’s airport services business and the lower average cost of jet fuel in the fourth quarter of 2008 compared with the fourth quarter of 2007.
Consolidated gross profit for the full year increased 13% to $398.5 million on contributions from the recently acquired airport services facilities. Consolidated gross profit decreased 30% to $74.9 million in the fourth quarter compared with $106.4 million in the fourth quarter of 2007. The decrease reflects a decline in activity at the airport parking business and the impact of $19.1 million of impairment charges related to the write-down of intangible and other long-lived assets in the quarter. The Company believes that reporting gross profit, or revenue less costs of goods sold/sales, improves transparency regarding its financial performance. Analysis of gross profit removes the volatility in revenue associated with expenses that are effectively borne by customers of its businesses.
For the full year 2008, CADR increased 1% to $106.1 million from $105.0 million in 2007. CADR was $19.6 million, or $0.44 per share, for the fourth quarter compared with $25.6 million, or $0.57 per share, for the fourth quarter in 2007. The decline in CADR in the fourth quarter was attributable primarily to softer performance by the airport services business during that period. MIC believes that CADR, a non-GAAP measure, provides additional insight into its operating performance and generation of cash available to reduce debt, make distributions to equity holders or reinvest in the growth of the Company. A reconciliation of CADR to cash from operations is provided below.
The Company reported a net loss for the full year of $178.5 million or $3.97 per share including the effects of the write-down of intangible assets and long-lived assets. Excluding the write-down, the Company’s full year 2008 net loss was $12.0 million or $0.27 per share.
Amendment of Airport Services Debt Facility
MIC, in cooperation with its lenders, has amended certain terms of the debt facility at its airport services business. As a part of the amendment, the Company will sweep all excess cash from the airport services business to debt repayments until such time as the ratio of debt to adjusted EBITDA decreases to less than 6.0. When the debt to adjusted EBITDA ratio falls below 6.0, 50% of the cash flows from the business will be available to MIC until the ratio is reduced to less than 5.5. MIC will have access to 100% of the excess cash flows from the airport services business when the debt to adjusted EBITDA ratio is below 5.5, provided that the ratio remains below that level. At year-end 2008 the ratio was 6.68.
The amendments include a relaxation of the leverage covenant. For 2009, the maximum leverage ratio permitted is increased from 7.25 to 8.25. The maximum leverage ratio declines each year through the maturity of the debt.
In February 2009, the Company paid down approximately $44.9 million of airport services’ debt principal, net interest rate swap break fees of $5.1 million. The reduction in debt is expected to lower annualized interest expense by $3.0 million.
The interest margin on the debt and its scheduled maturity were not changed.
Airport Parking
It is unlikely that the Company’s airport parking business will be able to refinance its debt obligations that mature in 2009 as a result of the continued erosion of revenue caused by the decline in the level of commercial air travel. MIC has advised lenders to the airport parking business that it does not intend to provide the business with additional capital contributions other than a maximum of $12.0 million in obligations in connection with certain interest rate swap obligations, shuttle bus leases and one facility lease that it has guaranteed.
The primary debt facility of MIC’s airport parking business is a limited recourse facility without any other parent or cross guarantees. The average maturity of debt facilities other than in the airport parking business is 5.1 years.
Distributions to Shareholders Suspended to Accelerate Capital Restructure
MIC has suspended the payment of quarterly cash distributions to shareholders. The Company will further strengthen its balance sheet using internally generated cash to reduce debt levels. MIC also believes that it will avoid the need to raise new capital for debt repayment on unfavorable terms in the current environment.
Cash accumulated as a result of the suspension of distributions can be used to reduce debt at the airport services business or to reduce the drawn balance on MIC’s holding company revolving credit facility.
The Company has limited visibility into the timing of an economic recovery and increased stability in the capital markets and is therefore unlikely to make distributions to shareholders during 2009. However, MIC believes that it will be able to resume payment of cash distributions when it has successfully reduced its overall debt levels and has reasonable visibility into the functioning of the capital markets.
Intangible and Long-Lived Asset Non-Cash Write-down
MIC recorded a non-cash pre-tax impairment charge in the fourth quarter of 2008 of $253.5 million to write down the carrying value of intangible assets and long-lived assets on its balance sheet in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) and Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). These standards require the Company to evaluate intangible assets and long-lived assets for impairment whenever a triggering event exists. The decline in the Company’s stock price during the fourth quarter of 2008 caused its carrying value to exceed its market capitalization, which the Company determined to be a triggering event in accordance with SFAS No. 142 and SFAS No. 144. These standards require the Company to consider the fair value of its reporting units in its evaluation of impairment. Factors considered in determining fair value for purposes of SFAS 142 include, among other things, the Company’s market capitalization as determined by quoted market prices for its common stock, market values of the Company’s reporting units based on common market multiples for comparable companies, and discount rates that appropriately reflect not only the Company’s businesses, but also the current overall macroeconomic environment. The extended decline in the Company’s share price and the uncertainties and deterioration in overall macroeconomic conditions through the current date have had a material impact on the impairment test for goodwill and other intangible assets.
The impact on the Company’s consolidated net loss for the fourth quarter and full year is $3.74 per share, net of tax benefits of $85.6 million. The Company will continue to monitor the valuation of intangibles and other long-lived assets on a quarterly basis in light of prevailing market conditions.
Near Term Outlook for Bulk Liquid Storage Terminal Business Revised
MIC expects its bulk liquid storage terminal business to generate growth in gross profit and EBITDA on contractual increases in storage rates, combined with full-year contributions from projects completed in 2008 and part-year contributions from those scheduled to be completed in 2009. The Company expects that the business will produce gross profit in a range of $165.0 million to $177.0 million and EBITDA in a range of $140.0 million to $152.0 million in 2009. MIC has a 50% interest in the bulk liquid storage business and does not consolidate its financial results with those of its other businesses.
Maintenance and environmental capital expenditures made by the business totaled $42.7 million in 2008. Due to an increase in the number and size of tanks to be inspected and repaired in 2009 as a part of the business’ extensive tank cleaning and inspection program, the deferral of some maintenance capital expenditure projects from 2008 to 2009 and the need to undertake repairs and upgrades to some infrastructure at the business’ Louisiana terminals, maintenance and environmental capital expenditures are forecast to increase to between $65.0 million and $67.0 million in 2009.
In 2009, the bulk liquid storage terminal business will seek external funding to complete previously approved growth projects and scheduled amortization of a term loan. If the business does not obtain sufficient external funding for the projects they will be funded out of operating cash flows.
In 2008, MIC received a fixed distribution of $7.0 million per quarter on its investment in the bulk liquid storage terminal business. Per the terms of MIC’s investment, the distribution will become a variable payment in 2009 based on the cash flows generated by the business.
CAD for the entire business in 2009 is estimated to be in a range of between $28.0 million and $36.0 million, including the expected increase in maintenance capital expenditures. MIC may agree to reduce the amount of distributions it receives based on factors including the outlook for bulk liquid storage market conditions, the level of debt at the business and the availability of external sources of funding for growth capital projects.
ESTIMATED CASH AVAILABLE FOR DISTRIBUTION
The Company believes that it can provide better insight into its ability to generate cash by making certain adjustments to its “as reported” results. Financial results under Generally Accepted Accounting Principles (“GAAP”) alone do not reflect all of the items that management considers in estimating the amount of cash available to reduce debt, make distributions to equity holders or reinvest in the growth of the Company.
With the focus of the Company on preserving cash and reducing debt, “estimated cash available for distribution” no longer provides an appropriate description of the sources and uses of cash generated by its businesses. In future periods the Company will disclose “cash available before debt reduction” and “CAD” will be replaced with “CADR”. The calculation will be unchanged but the definition will encompass the impact of cash sweeps and the redirection of cash to prepayment of debt principal.
The table below summarizes MIC’s estimated cash available before debt reduction beginning with cash from operations and adjusted for certain dividend income and cash expenditures for the quarter and year ended December 31, 2008 as well as revised CADR for the nine months ended September 30, 2008.
Revised*
Year to Date Quarter
Ended
Year to Date
($ Millions) 31-Dec-08 31-Dec-08 30-Sep-08
Cash from operations $ 93.7 $ 18.6 $ 75.1
Working capital $ (8.7 ) $ (13.0 ) $ 4.3
Cash from operations adjustments $ 0.7 $ (1.8 ) $ 2.5
Cash from investing and financing activities $ 20.4 $ 15.8 $ 4.6
Estimated Cash Available for Distribution $ 106.1 $ 19.6 $ 86.5
* The revised estimated cash available for distribution for the third quarter reflects the impact of a request by the MIC board of directors for the Manager to take base management fees in cash rather than in stock in recognition of the potentially substantial dilution that would have resulted for existing shareholders. The Manager agreed to this request and the revised CADR reflects a decrease of $2.5 million compared with the $89.0 million reported at the end of the third quarter.
MIC reported consolidated cash from operating activities of $93.7 million for the full-year 2008. Cash from operating activities decreased by 3% compared with 2007.
Cash from operating activities is reduced by an $8.7 million change in net working capital and increased interest payments on higher debt balances. Working capital decreased as a result of lower accounts receivable stemming from lower fuel prices. CADR is adjusted for the changes in working capital since these effects are believed to be temporary.
Full year cash from operations is adjusted to include:
$2.6 million of pre-funded (equity) integration expenses incurred in connection with acquisitions concluded by the airport services business in 2007;
$1.3 million of cash from an escrow established by the seller as a part of the acquisition of the gas production and distribution business in 2006; and
$0.12 million of miscellaneous adjustments including for income taxes and minority interests.
Full year cash from operations is adjusted to exclude:
$1.7 million of deferred revenue associated with new customer contracts entered into by the district energy business; and
$1.6 million of reimbursed acquisition costs, recognized in cash from operations and subtracted in order to neutralize their impact on CADR.
Estimated CADR for the full year includes a net $20.4 million in cash from investing and financing activities. The addition includes the $26.7 million portion of the dividend from the bulk liquid storage terminal business that is recorded in cash from investing activities, and subtracts primarily net cash capital expenditures of $4.9 million and capital lease pay downs of $2.0 million. $10.9 million of debt service reserve releases were applied to maintenance capital expenditures in 2008.
OPERATING BUSINESSES
MIC reports EBITDA and contribution margin, both non-GAAP financial measures, as it considers them to be important indicators of the overall performance of both its operating businesses individually and in consolidation. The Company believes that EBITDA, net of non-cash and non-recurring items, also provides insight into the performance of its operating companies and their ability to generate cash. The reporting of contribution margin by the gas production and distribution business provides additional insight into the performance of that business excluding changes in fuel prices that typically are recovered in revenue.
Airport Services - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 716,302 534,336 34.1 137,270 187,215 (26.7 )
Gross Profit 342,002 276,656 23.6 76,761 90,143 (14.8 )
EBITDA* 82,586 108,944 (24.2 ) (24,883 ) 26,119 (195.3 )
* See attached tables for a reconciliation of EBITDA to net income.
The increase in gross profit in 2008 compared with 2007 reflects the contribution from sites acquired in 2007 and early 2008. Gross profit for the fourth quarter declined in 2008 compared with 2007 as a result of the reduced level of general aviation flight activity associated with the economic slowdown. Reported EBITDA was negatively affected by the non-cash write-down of intangible and long-lived assets.
General aviation jet aircraft flight movements at the business’ 68 airports decreased by slightly more than 9% during 2008 compared with 2007. Industry analysts estimate that full-year declines for all airports exceeded 12%. The relative out performance reflects the popularity of the destinations at which the business operates as well as their ability to handle larger jets.
The volume of general aviation jet fuel sold at existing sites declined by less than 9% in 2008 compared with 2007. The decrease in the volume of fuel sold year over year was attributed to the overall decline in business activity related to the slowing of the economy. The decline in the use of larger jets has been somewhat less significant than the decline in the use of smaller jets. Smaller jets consume less fuel per plane, on average, and the impact of fewer flight movements on fuel volume has been less than the reduction in total activity.
The volume of fuel sold is a function of the number of aircraft in service and the number of hours those aircraft are flown. According to industry sources, new turbine powered aircraft deliveries increased the size of the U.S. fleet by approximately 4% in 2008, net of a historically normal level of aircraft retirements. The FAA has previously forecast growth in the size of the domestic fleet of between 6% and 7% per year. Updated forecasts, including the number of hours flown, are expected to be published in March and are likely to include slower growth rates.
Margins on retail general aviation jet fuel sales increased year over year by 1.2% on same store (excludes acquisitions in the prior twelve months) basis and decreased by 1.5% on a total stores (includes acquisitions) basis. The declines reflect an increase in the proportion of fuel sales to base tenants who typically have agreements to buy fuel at a discount compared to transient aircraft. Total average margins including into-plane sales decreased 5% at same store sites and by 8% across all sites.
Continued growth in non-fuel revenue, including hangar rental and ramp fees, and substantial reductions in selling, general and administrative expenses, partially offset the decline in fuel volume and margin. SG&A expenses were reduced by an annualized $22.0 million primarily as a result of staffing reductions and savings realized in connection with the integration of acquired sites.
Excluding non-cash losses on changes in the value of derivative instruments in 2008 and 2007, and the non-cash intangible and long-lived assets write-down in the fourth quarter of 2008, EBITDA would have decreased by 11% at existing locations and increased by 13% for all locations.
The Company expects operating income generated by the airport services business will stabilize in 2009 at amounts consistent with the overall level of economic activity. The Company expects that the lower level of gross profit compared with prior years will be partially offset by reductions in operating costs and reduced loan interest. The reductions in loan interest will accelerate as cash flows are swept to the repayment of a portion of the business’ primary debt facility.
Bulk Liquid Storage Terminal Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Terminal Revenue 306,103 250,733 22.1 82,918 69,268 19.7
Terminal Gross Profit 151,103 115,007 31.4 41,979 31,759 32.2
EBITDA* 89,716 67,076 33.8 (6,221 ) 14,238 (143.7 )
* See attached tables for a reconciliation of EBITDA to net income.
The Company received a dividend of $7.0 million in the fourth quarter from its investment in the bulk liquid storage terminal business. MIC accrued the dividend at quarter-end and received the cash on January 23. As an owner of 50% of the business, MIC does not consolidate the financial results of the bulk liquid storage terminal business with those of its other businesses.
Terminal revenue increased for both the fourth quarter and full year compared with 2007. The increase was the result of higher average storage rates, and an increase in rented storage capacity resulting from completion of tank construction projects, including the Geismar Logistics Center. Terminal gross profit also increased for the quarter and full-year versus the prior comparable period.
Included in the business’ EBITDA and $16.2 million net loss for the quarter was a non-cash loss of $41.8 million on changes in the value of derivative instruments (interest rate hedges). The loss was the result of falling long-term interest rates during the quarter. Beginning in December the business applied hedge accounting to its interest rate derivatives. Volatility in reported earnings and EBITDA based on fluctuations in interest rates should decrease substantially in future periods.
Cash flow from operating activities in 2008 increased to $94.1 million from $91.4 million in 2007, supported by higher average storage rates and an increase in the total amount of storage under contract. Excluding the impact of non-cash gains and losses on derivatives in 2008 and 2007, EBITDA would have increased by 54% year over year and by 31% fourth quarter over fourth quarter.
The gross profit and EBITDA of the bulk liquid storage terminal business is expected to continue to improve as inflation escalators generate revenue growth from existing contracts and storage tanks currently under construction are commissioned. The business expects an additional 3.2 million barrels of storage currently under construction or conversion to be in brought into service in 2009 and early 2010.
As provided for in the shareholder agreement between MIC and the other shareholders, the business will pay MIC a variable dividend each quarter beginning with the first quarter in 2009. MIC may agree to reduce the amount of distributions it receives based on factors including the outlook for bulk liquid storage market conditions, the level of debt at the business and the availability of external sources of funding for growth capital projects.
Management of the business expects that maintenance capital expenditures in 2009 will be in a range of between $65.0 million and $67.0 million. The higher expense in 2009 reflects an increase in the number and size of tanks to be cleaned and inspected compared with 2008 and reflects the deferral of approximately $8.0 million of costs associated with tank cleaning and inspection expenses from 2008 into 2009, as well as repairs and upgrades to some infrastructure at the business’ Louisiana terminals.
Gas Production and Distribution Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 213,014 170,372 25.0 45,520 47,359 (3.9 )
Contribution Margin 65,532 61,093 7.3 16,433 16,018 2.6
EBITDA* 26,456 23,887 10.8 5,556 6,158 (9.8 )
* See attached tables for a reconciliation of contribution margin to revenue and EBITDA to net income.
The Company’s gas production and distribution business increased total contribution margin (revenue less cost of revenue, excluding production and transmission / distribution) in both the quarter and full year. The total volume of gas products sold by the utility and non-utility segments combined declined by a weighted average of 3.2% during 2008. The decline was driven primarily by reduced demand related to a decline in tourism in Hawaii in 2008 compared with 2007.
Revenue and contribution margin increases in both utility and non-utility operations were partially offset by higher input/product costs (feedstock and LPG) and higher operating expenses including the cost of transporting LPG between the islands of Hawaii.
Excluding non-cash gains and losses on derivative instruments in both 2008 and 2007, EBITDA would have increased by approximately 10% year over year and declined by approximately 10% fourth quarter over fourth quarter.
The rate of population growth and the level of tourism in Hawaii drive growth in gas product sales. The state government forecasts population growth of about 1% over the medium term. Tourist landings in 2008 declined by approximately 11% compared with 2007 according to the Hawaii State Department of Business, Economic Development & Tourism. The Department forecasts a further 2% decline in tourist landings in 2009.
In spite of the deterioration in the level of economic activity in Hawaii, the Company believes that the essential services nature and market leading position of its gas production and distribution business will enable it to continue to generate stable cash flows.
District Energy Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 48,045 49,506 (3.0 ) 9,328 10,215 (8.7 )
Gross Profit 16,394 16,386 NM** 2,861 3,095 (7.6 )
EBITDA* 18,459 1,420 NM** 3,324 3,608 (7.9 )
* See attached tables for a reconciliation of EBITDA to net income.
** Not meaningful
Revenue generated by the district energy business is a combination of capacity revenue based on the number of tons of cooling under contract, and consumption revenue based on demand for cooling. Capacity revenue grew with the step-up in inflation-linked rate escalators in 2008. A cooler 2008 compared with 2007 resulted in a decrease in consumption revenue and contributed to a slight decline in total revenue for the full year.
The Company expects continued stable performance from its district energy business, assuming a historically normal level of demand for cooling in Chicago in 2009.
Excluding the effect of the debt refinancing costs incurred in the third quarter of 2007, EBITDA would have declined by less than 4% year over year.
Airport Parking Business - Performance and Outlook
($000) 2008 2007 % Change 4Q’08 4Q’07 % Change
Revenue 74,692 77,180 (3.2 ) 17,691 18,892 (6.4 )
Gross Profit (Loss) (4,752 ) 17,663 (126.9 ) (15,423 ) 2,983 NM**
EBITDA* (128,264 ) 15,519 NM** (136,207 ) 3,166 NM**
* See attached tables for a reconciliation of EBITDA to net income.
** Not Meaningful
Lot utilization, as measured by the number of cars exiting the airport parking business’ facilities, declined 5.9% compared with 2007. Price rationalization in certain markets offset a portion of the volume decline resulting in a decrease in revenue of 3.2%.
The year over year decline in gross profit was partially offset by $1.2 million decrease in rent expense and related reversal of previously booked non-cash rent in excess of lease expenses resulting from the purchase in the first quarter of a previously leased property.
Full year selling, general and administrative costs were higher primarily as a result of costs incurred in connection with a state tax settlement, outsourcing certain activities and relocation of the head office.
Excluding unrealized gains on derivative instruments in both years and the impairment in 2008, EBITDA would have declined by 33%.
The airport parking business does not have sufficient liquidity or capital resources to pay its maturing debt obligations and, based on current results and market conditions, we do not expect that the airport parking business will be able to refinance its debt as it matures. MIC has no intention of contributing any further capital to this business other than potentially obligations that it has guaranteed. As a result, it is likely that this business will default on its obligations without substantial concessions from lenders and there is doubt regarding the business’ ability to continue as a going concern. The Company is in discussions with lenders and is pursuing strategic alternatives for the business including asset sales, restructuring or filing for protection under bankruptcy laws.
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