UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

FORM 10-Q



 

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

For the Quarterly Period Ended September 30, 2008

OR

 
o   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 COMPANY LLC

(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



 

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 x No o

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

     
Large Accelerated Filer x   Accelerated Filer o   Non-accelerated Filer o   Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

There were 44,948,694 limited liability company interests without par value outstanding at November 5, 2008.

 

 


TABLE OF CONTENTS

MACQUARIE INFRASTRUCTURE COMPANY LLC

TABLE OF CONTENTS

 
  Page
PART I. FINANCIAL INFORMATION
 

Item 1.

Financial Statements

    1  
Consolidated Condensed Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007     1  
Consolidated Condensed Statements of Operations for the Quarters and
Nine Months Ended September 30, 2008 and 2007 (Unaudited)
    3  
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (Unaudited)     4  
Notes to Consolidated Condensed Financial Statements (Unaudited)     6  

Item 2.

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

    24  

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

    54  

Item 4.

Controls and Procedures

    54  
PART II. OTHER INFORMATION
 

Item 1.

Legal Proceedings

    55  

Item 1A.

Risk Factors

    55  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    56  

Item 3.

Defaults Upon Senior Securities

    56  

Item 4.

Submission of Matters to a Vote of Security Holders

    56  

Item 5.

Other Information

    56  

Item 6.

Exhibits

    56  


 

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

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TABLE OF CONTENTS

PART I
  
FINANCIAL INFORMATION

Item 1. Financial Statements

MACQUARIE INFRASTRUCTURE COMPANY LLC
  
CONSOLIDATED CONDENSED BALANCE SHEETS
($ In Thousands)

   
  September 30,
2008
  December 31,
2007
     (Unaudited)     
ASSETS
                 
Current assets:
                 
Cash and cash equivalents   $ 40,884     $ 57,473  
Restricted cash     1,311       1,335  
Accounts receivable, less allowance for doubtful accounts of $2,093 and $2,380, respectively     90,659       94,541  
Dividends receivable     7,000       7,000  
Other receivables     106       445  
Inventories     20,694       18,219  
Prepaid expenses     8,793       10,418  
Deferred income taxes     9,330       9,330  
Land – available for sale     11,931        
Other     11,790       11,706  
Total current assets     202,498       210,467  
                 
Property, equipment, land and leasehold improvements, net     703,842       674,952  
                 
Restricted cash     19,863       19,363  
Equipment lease receivables     36,839       38,834  
Investment in unconsolidated business     201,209       211,606  
Goodwill     781,253       770,108  
Intangible assets, net     853,775       857,345  
Deferred costs on acquisitions           278  
Deferred financing costs, net of accumulated amortization     24,969       28,040  
Other     3,789       2,036  
Total assets   $ 2,828,037     $ 2,813,029  
LIABILITIES AND MEMBERS’ EQUITY
                 
Current liabilities:
                 
Due to manager – related party   $ 2,779     $ 5,737  
Accounts payable     62,532       59,303  
Accrued expenses     30,828       31,184  
Current portion of notes payable and capital leases     1,762       5,094  
Current portion of long-term debt     201,385       162  
Fair value of derivative instruments     24,921       14,224  
Customer deposits     5,592       9,481  
Other     10,423       8,330  
Total current liabilities     340,222       133,515  
                 
Notes payable and capital leases, net of current portion     2,434       2,964  
Long-term debt, net of current portion     1,320,950       1,426,494  
Deferred income taxes     204,314       202,683  
Fair value of derivative instruments     34,557       42,832  

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
CONSOLIDATED CONDENSED BALANCE SHEETS – (continued)
($ In Thousands)

   
  September 30,
2008
  December 31,
2007
     (Unaudited)     
Other   $ 32,542     $ 30,817  
Total liabilities     1,935,019       1,839,305  
Minority interests     6,234       7,172  
Commitments and contingencies            
                 
Members’ equity:
                 
LLC interests, no par value; 500,000,000 authorized; 44,948,694 LLC interests issued and outstanding at September 30, 2008 and 44,938,380 LLC interests issued and outstanding at December 31, 2007     965,946       1,052,062  
Accumulated other comprehensive loss     (33,553 )      (33,055 ) 
Accumulated deficit     (45,609 )      (52,455 ) 
Total members’ equity     886,784       966,552  
Total liabilities and members’ equity   $ 2,828,037     $ 2,813,029  

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
($ In Thousands, Except Share and per Share Data)

       
  Quarter Ended   Nine Months Ended
     September 30,
2008
  September 30,
2007
  September 30,
2008
  September 30,
2007
Revenue
                                   
Revenue from product sales   $ 152,060     $ 121,734     $ 478,219     $ 302,080  
Revenue from product sales – utility     36,060       23,871       97,317       68,982  
Service revenue     87,714       74,700       263,171       192,947  
Financing and equipment lease income     1,164       1,221       3,537       3,704  
Total revenue     276,998       221,526       842,244       567,713  
Costs and expenses
                                   
Cost of product sales     109,801       77,069       337,819       188,467  
Cost of product sales – utility     31,161       19,151       82,175       53,358  
Cost of services     33,070       31,075       98,615       80,740  
Selling, general and administrative     57,426       50,632       182,928       128,174  
Fees to manager – related party     2,737       5,437       11,872       59,962  
Depreciation     7,101       5,035       20,139       13,088  
Amortization of intangibles     10,563       9,219       32,206       23,151  
Total operating expenses     251,859       197,618       765,754       546,940  
Operating income     25,139       23,908       76,490       20,773  
Other income (expense)
                                   
Interest income     268       2,062       1,038       4,986  
Interest expense     (26,114 )      (21,779 )      (77,616 )      (57,050 ) 
Loss on extinguishment of debt           (17,708 )            (17,708 ) 
Equity in earnings (losses) and amortization charges of investee     4,051       (1,659 )      10,603       661  
Loss on derivative instruments     (765 )      (2,227 )      (1,651 )      (1,566 ) 
Other income (expense), net     6       296       661       (348 ) 
Net income (loss) before income taxes and minority interests     2,585       (17,107 )      9,525       (50,252 ) 
(Provision) benefit for income taxes     (2,254 )      (971 )      (3,254 )      14,907  
Net income (loss) before minority interests     331       (18,078 )      6,271       (35,345 ) 
Minority interests     (167 )      (86 )      (575 )      (183 ) 
Net income (loss)   $ 498     $ (17,992 )    $ 6,846     $ (35,162 ) 
Basic earnings (loss) per share:   $ 0.01     $ (0.41 )    $ 0.15     $ (0.89 ) 
Weighted average number of shares outstanding: basic     44,948,694       43,357,300       44,942,859       39,515,104  
Diluted earnings (loss) per share:   $ 0.01     $ (0.41 )    $ 0.15     $ (0.89 ) 
Weighted average number of shares outstanding: diluted     44,962,809       43,357,300       44,955,236       39,515,104  
Cash distributions declared per share   $ 0.645     $ 0.605     $ 1.925     $ 1.765  

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ In Thousands)

   
  Nine Months Ended
     September 30,
2008
  September 30,
2007
Operating activities
                 
Net income (loss)   $ 6,846     $ (35,162 ) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                 
Depreciation and amortization of property and equipment     28,359       20,694  
Amortization of intangible assets     32,206       23,151  
Equity in earnings and amortization charges of investee     (10,603 )      (661 ) 
Equity distributions from investee     10,603       661  
Amortization of debt financing costs     4,941       4,505  
Non-cash derivative loss (gain), net of non-cash interest expense     1,897       (276 ) 
Base and performance fees settled, and to be settled, in LLC interests     2,737       43,962  
Equipment lease receivable, net     1,621       1,838  
Deferred rent     1,535       1,864  
Deferred taxes     1,904       (19,771 ) 
Other non-cash expenses, net     83       1,141  
Non-operating losses relating to foreign investments           2,847  
Loss on extinguishment of debt           17,708  
Changes in other assets and liabilities, net of acquisitions:
                 
Restricted cash     24       (399 ) 
Accounts receivable     (3,436 )      (9,556 ) 
Inventories     (2,027 )      (348 ) 
Prepaid expenses and other current assets     4,944       1,623  
Due to manager – related party     (5,695 )      1,201  
Accounts payable and accrued expenses     (110 )      18,194  
Income taxes payable     (1,530 )      5,177  
Other, net     828       1,250  
Net cash provided by operating activities     75,127       79,643  
Investing activities
                 
Acquisitions of businesses and investments, net of cash acquired     (53,338 )      (658,939 ) 
Costs of dispositions           (322 ) 
Proceeds from sale of equity investment           84,977  
Proceeds from sale of investment, net of cash divested     1,861        
Settlements of non-hedging derivative instruments           (2,013 ) 
Purchases of property, equipment, land and leasehold improvements     (52,587 )      (33,097 ) 
Return of investment in unconsolidated business     10,397       20,339  
Other     223        
Net cash used in investing activities     (93,444 )      (589,055 ) 

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS – (continued)
(Unaudited)
($ In Thousands)

   
  Nine Months Ended
     September 30,
2008
  September 30,
2007
Financing activities
                 
Proceeds from issuance of shares           252,739  
Proceeds from long-term debt     5,000       456,625  
Proceeds from line of credit facilities     87,800       64,603  
Offering and equity raise costs paid     (65 )      (11,150 ) 
Distributions paid to holders of LLC interests     (86,520 )      (70,051 ) 
Distributions paid to minority shareholders     (363 )      (464 ) 
Payment of long-term debt     (120 )      (120,115 ) 
Debt financing costs paid     (1,874 )      (8,057 ) 
Make-whole payment under refinancing           (14,695 ) 
Change in restricted cash     (501 )      (2,863 ) 
Payment of notes and capital lease obligations     (1,629 )      (1,792 ) 
Net cash provided by financing activities     1,728       544,780  
Net change in cash and cash equivalents     (16,589 )      35,368  
Cash and cash equivalents, beginning of period     57,473       37,388  
Cash and cash equivalents, end of period   $ 40,884     $ 72,756  
Supplemental disclosures of cash flow information:
                 
Non-cash investing and financing activities:
                 
Accrued acquisition and equity offering costs   $     $ 683  
Accrued purchases of property and equipment   $ 1,226     $ 2,695  
Acquisition of equipment through capital leases   $ 490     $ 30  
Issuance of LLC interests to manager for payment of performance fees   $     $ 957  
Issuance of LLC interests to independent directors   $ 450     $ 450  
Taxes paid   $ 3,044     $ 2,525  
Interest paid (including make-whole payment under refinancing)   $ 73,148     $ 66,244  

 
 
See accompanying notes to the consolidated condensed financial statements.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Description of Business

Macquarie Infrastructure Company LLC, a Delaware limited liability company, was formed on April 13, 2004. Macquarie Infrastructure Company LLC, both on an individual entity basis and together with its wholly-owned subsidiaries, is referred to in these financial statements as the Company. The Company owns, operates and invests in a diversified group of infrastructure businesses in the United States. Macquarie Infrastructure Management (USA) Inc. is the Company’s manager and is referred to in these financial statements as the Manager. The Manager is a subsidiary of the Macquarie Group of companies, which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange.

Macquarie Infrastructure Company Trust, or the Trust, a Delaware statutory trust, was also formed on April 13, 2004. Prior to December 21, 2004, the Trust was a wholly-owned subsidiary of the Manager. On June 25, 2007, all of the outstanding shares of trust stock issued by the Trust were exchanged for an equal number of limited liability company, or LLC, interests in the Company, and the Trust was dissolved. Prior to this exchange of trust stock for LLC interests and the dissolution of the Trust, all interests in the Company were held by the Trust. The Company continues to be an operating entity with a Board of Directors and other corporate governance responsibilities generally consistent with that of a Delaware corporation.

The Company owns its businesses through its wholly-owned subsidiary Macquarie Infrastructure Company Inc., or MIC Inc. The Company’s businesses operate predominantly in the United States, and comprise the following:

(i) an airport services business — operates a network of fixed base operations, or FBOs, in the U.S. FBOs provide products and services like fuel and aircraft parking for owners and operators of private jets;
(ii) a 50% interest in a bulk liquid storage terminal business — provides bulk liquid storage and handling services in North America and is one of the largest participants in this industry in the U.S., based on capacity;
(iii) a gas production and distribution business — a full-service gas energy company, making gas products and services available in Hawaii;
(iv) a district energy business — operates the largest district cooling system in the U.S. and serves various customers in Chicago, Illinois and Las Vegas, Nevada; and
(v) an airport parking business — a provider of off-airport parking services in the U.S., with 31 facilities in 20 major airport markets.

During the year ended December 31, 2007, the Company completed the following acquisitions:

On May 30, 2007, the Company completed the acquisition of 100% of the interests in entities that own and operate two FBOs at Stewart International Airport in New York and Santa Monica Municipal Airport in California, together referred to as “Supermarine.”
On August 9, 2007, the Company completed the acquisition of approximately 89% of the equity of Mercury Air Center, Inc., or Mercury, which owns and operates 24 FBOs in the United States. On October 2, 2007, the Company acquired the remaining 11% of equity.
On August 17, 2007, the Company completed the acquisition of 100% of the membership interests in SJJC Aviation Services, LLC, or San Jose, which owns and operates the two FBOs at San Jose Mineta International Airport, located in San Jose, California.
On November 30, 2007, the Company completed the acquisition of 100% of the membership interests in Rifle Jet Center, LLC and Rifle Jet Center Maintenance, LLC, which own and operate an FBO at Garfield County Regional Airport in Rifle, Colorado.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Description of Business  – (continued)

During the nine months ended September 30, 2008, the Company completed the following acquisitions:

On March 4, 2008, the Company completed the acquisition of 100% of the equity in entities that own and operate three FBOs in Farmington and Albuquerque, New Mexico and Sun Valley, Idaho, collectively referred to as “Seven Bar.”
On July 31, 2008, the Company completed the acquisition of the Newark SkyPark airport parking facility, an off-airport parking facility at Newark Liberty International Airport in New Jersey.

2. Basis of Presentation

The unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States 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 preparation of consolidated financial statements in conformity with GAAP requires estimates and assumptions. Management evaluates these estimates and judgments on an ongoing basis. Actual results may differ from the estimates and assumptions used in the financial statements and notes. Operating results for the quarter and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

The consolidated balance sheet at December 31, 2007 has been derived from audited financial statements but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. Certain reclassifications were made to the 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, 2007 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2008.

3. New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, or FASB No. 157, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FASB No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, FASB No. 157 does not require any new fair value measurements. FASB No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 inputs), second priority to other observable information such as quoted prices in markets that are not active or other directly or indirectly observable inputs (level 2 inputs) and the lowest priority to unobservable data (level 3 inputs). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The provisions of FASB No. 157 were effective as of the beginning of the Company’s 2008 fiscal year. The Company adopted FASB No. 157 on January 1, 2008 and the required disclosures are included in these financial statements, except as noted below. The impact of the adoption did not have a material impact on the Company’s financial results of operations and financial condition. In accordance with FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157”, which was issued in February 2008, the Company has deferred the adoption of FASB No. 157 for all non-financial assets

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

3. New Accounting Pronouncements  – (continued)

and liabilities. Major categories of non-financial assets and liabilities to which this deferral applies include, but is not limited to, the Company’s property, equipment, land and leasehold improvements; intangible assets; and goodwill.

In December 2007, the FASB revised Statement of Financial Accounting Standards No. 141, “Business Combinations”, or FASB No. 141(R). The revised standard includes various changes to the business combination rules. Some of the changes include immediate expensing of acquisition-related costs rather than capitalization, and 100% of the fair value of assets and liabilities acquired being recorded, even if less than 100% of a controlled business is acquired. FASB No. 141(R) is effective for business combinations consummated in periods beginning on or after December 15, 2008. The Company expects the revised standard to have the following significant impacts on its financial statements compared with existing business combination rules: (1) increased selling, general and administrative costs due to immediate expensing of acquisition costs, resulting in lower net income; (2) lower cash provided by operating activities and lower cash used in investing activities in the statements of cash flows due to the immediate expensing of acquisition costs, which under existing rules are included as cash out flows in investing activities as part of the purchase price of the business; and (3) 100% of fair values recorded for assets and liabilities on the balance sheet even where a noncontrolling interest exists resulting in larger assets and liability balances compared with existing business combination rules.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51”, or FASB No. 160, which requires noncontrolling interests (previously referred to as minority interests) to be treated as a separate component of equity; not as a liability or other item outside of permanent equity. FASB No. 160 is effective for periods beginning on or after December 15, 2008 and will be applied prospectively to all noncontrolling interests with comparative period information reclassified. While the Company’s district energy and airport parking businesses each have noncontrolling interests, the Company does not expect the adoption of FASB No. 160 to have a material impact on the Company’s financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133”, or FASB No. 161, which requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments; how derivative instruments and related hedged items are accounted for under FASB No. 133, “Accounting for Derivative Instruments and Hedging Activities”, or FASB No. 133; and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. FASB No. 161 is effective for periods beginning on or after November 15, 2008. The Company does not expect the adoption of FASB No. 161 to have a material impact on the Company’s financial statements.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

4. Earnings (Loss) Per Share

The following is a reconciliation of the basic and diluted number of shares used in computing earnings (loss) per share:

       
  Quarter Ended
September 30,
  Nine Months Ended September 30,
     2008   2007   2008   2007
Weighted average number of shares outstanding: basic     44,948,694       43,357,300       44,942,859       39,515,104  
Dilutive effect of restricted stock unit grants     14,115             12,377        
Weighted average number of shares outstanding: diluted     44,962,809       43,357,300       44,955,236       39,515,104  

The effect of potentially dilutive shares for the quarter and nine months ended September 30, 2008 is calculated by assuming that the 14,115 restricted stock unit grants provided to the independent directors on May 27, 2008 and the 10,314 restricted stock unit grants provided to the independent directors on May 24, 2007 had been fully converted to shares on those dates. However, the restricted stock unit grants were anti-dilutive for the quarter and nine months ended September 30, 2007, due to the Company’s net loss for those periods.

5. Acquisitions

Seven Bar FBOs

On March 4, 2008, the Company’s airport services business completed the acquisition of 100% of the interests in Sun Valley Aviation, Inc., SB Aviation Group, Inc. and Seven Bar Aviation Inc. (collectively referred to as “Seven Bar”). Seven Bar owns and operates three FBOs located in Farmington and Albuquerque, New Mexico and Sun Valley, Idaho.

The cost of the acquisition, including transaction costs, was $41.8 million and the Company has pre-funded integration costs of $300,000. The Company financed the acquisition with borrowings under the MIC Inc. revolving acquisition credit facility.

For a description of related party transactions associated with the Company’s acquisition, see Note 13, Related Party Transactions. The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of Seven Bar are included in the consolidated condensed statements of operations and as a component of the Company’s airport services business segment since March 4, 2008.

The preliminary allocation of the purchase price, including transaction costs, was as follows ($ in thousands):

 
Current assets   $ 1,147  
Property, equipment and leasehold improvements     10,353  
Intangible assets:
        
Customer relationships     750  
Contract rights     26,050  
Non-compete agreements     50  
Goodwill     5,155  
Total assets acquired     43,505  
Current liabilities     1,296  
Other liabilities     370  
Net assets acquired   $ 41,839  

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

5. Acquisitions  – (continued)

The Company paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be acquired or developed separately. The value of the acquired intangible assets was determined by taking into account risks related to the characteristics and applications of the assets, existing and future markets and analysis of expected future cash flows to be generated by the business.

The Company allocated $750,000 of the purchase price to customer relationships in accordance with EITF 02-17, “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination”, or EITF 02-17. The Company will amortize the amount allocated to customer relationships over a nine-year period.

Newark SkyPark Airport Parking Facility

On July 31, 2008, the Company’s airport parking business completed the acquisition of the Newark SkyPark airport parking facility, or SkyPark, an off-airport parking facility at Newark Liberty International Airport in New Jersey.

The cost of the acquisition, including transaction costs, was $11.4 million. The Company financed the acquisition with borrowings under the MIC Inc. revolving acquisition credit facility.

The acquisition has been accounted for under the purchase method of accounting. Accordingly, the results of operations of SkyPark are included in the consolidated condensed statements of operations and as a component of the Company’s airport parking business segment since July 31, 2008.

The preliminary allocation of the purchase price, including transaction costs, was as follows ($ in thousands):

 
Property, equipment, land and leasehold improvements   $ 6,150  
Intangible assets:
        
Customer relationships     53  
Trade name     233  
Goodwill     4,950  
Total assets acquired   $ 11,386  

The Company paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be acquired or developed separately. The value of the acquired intangible assets was determined by taking into account risks related to the characteristics and applications of the assets, existing and future markets and analysis of expected future cash flows to be generated by the business.

The Company allocated $53,000 of the purchase price to customer relationships in accordance with EITF 02-17. The Company will amortize the amount allocated to customer relationships over a twenty-year period.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

5. Acquisitions  – (continued)

Pro Forma Information

The following unaudited pro forma information summarizes the results of operations for the quarter and nine months ended September 30, 2008 and 2007 as if the acquisition of Seven Bar and SkyPark had been completed at the beginning of the prior comparative period, January 1, 2007. The pro forma data combine the Company’s consolidated results with those of the acquired entities (prior to acquisition) for the periods shown. The results are adjusted for amortization, depreciation, interest expense and income taxes relating to the acquisitions. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been achieved if the acquisitions had occurred as of the beginning of the periods presented or that may be achieved in the future. The pro forma amounts are as follows ($ in thousands, except per share data):

       
  Quarter Ended
September 30,
  Nine Months Ended
September 30,
     2008   2007   2008   2007
Pro forma consolidated revenue   $ 277,155     $ 227,979     $ 846,576     $ 582,166  
Pro forma consolidated net income (loss)   $ 458     $ (18,183 )    $ 6,563     $ (36,378 ) 
Basic and diluted earnings (loss) per share   $ 0.01     $ (0.42 )    $ 0.15     $ (0.92 ) 

6. Property, Equipment, Land and Leasehold Improvements

Property, equipment, land and leasehold improvements consist of the following ($ in thousands):

   
  September 30,
2008
  December 31,
2007
Land(1)   $ 68,071     $ 63,275  
Easements     5,624       5,624  
Buildings     36,214       36,202  
Leasehold and land improvements     297,666       270,662  
Machinery and equipment     314,801       302,408  
Furniture and fixtures     10,412       9,006  
Construction in progress     69,866       59,292  
Property held for future use     1,541       1,503  
       804,195       747,972  
Less: Accumulated depreciation     (100,353 )      (73,020 ) 
Property, equipment, land and leasehold improvements, net(2)   $ 703,842     $ 674,952  

(1) In April 2008, the airport parking business acquired land, that was previously leased, for $13.5 million. The business also reversed the $1.5 million accrued rent liability in relation to this land, resulting in a net book value of approximately $12.0 million. The business has taken steps to effect the sale of the land, and the Company has disclosed the land acquired as land-available for sale, in the consolidated condensed balance sheets and not in property, equipment, land and leasehold improvements. The business expects to complete the sale within the next year.
(2) Includes $1.6 million and $1.5 million of capitalized interest for the nine months ended September 30, 2008 and the year ended December 31, 2007, respectively.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

7. Intangible Assets

Intangible assets consist of the following ($ in thousands):

     
  Weighted
Average
Life (Years)
  September 30,
2008
  December 31, 2007
Contractual arrangements     30.5     $ 829,822     $ 802,272  
Non-compete agreements     2.5       9,515       9,465  
Customer relationships     10.1       86,103       85,300  
Leasehold rights     14.5       8,359       8,359  
Trade names     Indefinite (1)      17,730       17,497  
Domain names     Indefinite (2)      2,108       2,108  
Technology     5.0       460       460  
                954,097       925,461  
Less: Accumulated amortization           (100,322 )      (68,116 ) 
Intangible assets, net         $ 853,775     $ 857,345  

(1) Trade names of $2.1 million and $233,000 have a weighted average life of less than 1.5 years and 20.5 years, respectively.
(2) Domain names of $334,000 and $440,000 have a weighted average life of 4 years and 1.5 years, respectively.

8. Long-Term Debt

Long-term debt consists of the following ($ in thousands):

   
  September 30,
2008
  December 31,
2007
MIC Inc. acquisition facility   $ 69,000     $  
Airport services     932,950       911,150  
Gas production and distribution     169,000       164,000  
District energy     150,000       150,000  
Airport parking(1)     201,385       201,506  
       1,522,335       1,426,656  
Less: Current portion(2)     (201,385 )      (162 ) 
Long-term portion   $ 1,320,950     $ 1,426,494  

(1) Under the terms of its debt arrangement, the airport parking business is required to undertake certain capital improvements and environmental remediation. The due date for completion was June 2008. The airport parking business has made progress on these projects but has not completed them. The airport parking business sought, and obtained, a waiver on this covenant from the lender extending the due date until June 2009, to allow the business additional time to fulfill the requirements.
(2) The airport parking business' debt facilities are due for repayment within one year. The Company has classified the debt as current, due to uncertainty regarding the business' ability to extend or refinance the facility.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

9. Derivative Instruments

The Company and its businesses have in place variable-rate debt. Management believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, the Company enters into interest rate swap and cap agreements to manage fluctuations in cash flows resulting from interest rate risk on a majority of its variable-rate debt.

In accordance with FASB No. 133, the Company has concluded that all of its interest rate swaps and caps qualify as cash flow hedges, and the Company applies hedge accounting for these instruments. Changes in the fair value of interest rate derivatives designated as hedging instruments that effectively offset the variability of cash flows associated with variable-rate debt obligations are reported in other comprehensive income or loss. Any ineffective portion on the change in the valuation of derivatives is taken through earnings, and reported in the gain or loss on derivative instruments line in the consolidated condensed statements of operations.

At September 30, 2008, the Company had $1.5 billion of debt, $1.3 billion of which was hedged with interest rate swaps, $58.7 million of which was hedged with interest rate caps, $111.0 million of which was unhedged and $6.4 million of which incurred interest at fixed rates.

For the nine months ended September 30, 2008, the Company recorded the following movements in the value of its derivative instruments ($ in thousands):

   
  Assets
(Included in
Other)
  Liabilities
Opening balance, December 31, 2007 (includes current and non-current portions)   $ 47     $ 57,056  
Unrealized loss on derivative instruments included in other comprehensive loss     (47 )      19,882  
Ineffective portion of the changes in the valuation of the derivative instruments, representing unrealized gains, included in loss on derivative instruments           (51 ) 
Reclassification of realized losses on derivative instruments into interest expense           (17,409 ) 
Closing balance, September 30, 2008 (includes current and non-current portions)   $     $ 59,478  

Also included within loss on derivative instruments for the nine month period is a $1.7 million expense, representing a reclassification of realized losses from other comprehensive loss into earnings.

In accordance with FASB No. 133, the Company’s derivative instruments are recorded on the balance sheet at fair value. The Company measures derivative instruments at fair value using the income approach, which converts future amounts (being the future net cash settlements expected under the derivative contracts) to a discounted present value. These valuations primarily utilize observable (“level 2”) inputs including contractual terms, interest rates and yield curves observable at commonly quoted intervals.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

9. Derivative Instruments  – (continued)

The Company’s fair value measurements of its derivative instruments at September 30, 2008 were as follows ($ in thousands):

       
    Fair Value Measurements at
Reporting Date Using
Description   Total at
September 30,
2008
  Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
Derivative Instruments:
                                   
Current liabilities   $ 24,921     $     $ 24,921     $  
Non-current liabilities     34,557             34,557        
Total   $ 59,478     $     $ 59,478     $  

10. Comprehensive Income (Loss)

Total comprehensive loss for the quarter and total comprehensive income for the nine months ended September 30, 2008 was $3.1 million and $6.4 million, respectively. These amounts are included in the accumulated other comprehensive loss on the Company’s consolidated condensed balance sheet. The difference between net income of $498,000 for the quarter and comprehensive loss was attributable to an unrealized loss on derivative instruments of $8.8 million (net of taxes), offset by a $5.2 million (net of taxes) reclassification of realized losses into earnings. The difference between net income of $6.8 million for the nine month period and comprehensive income was attributable to an unrealized loss on derivative instruments of $12.2 million (net of taxes), offset by an $11.8 million (net of taxes) reclassification of realized losses into earnings.

Total comprehensive loss for the quarter and nine months ended September 30, 2007 was $31.2 million and $42.5 million, respectively. The difference between net loss of $18.0 million for the quarter and comprehensive loss was attributable to an unrealized loss on derivative instruments of $13.2 million (net of taxes). The difference between net loss of $35.2 million for the nine month period and comprehensive loss was attributable to an unrealized loss on derivative instruments of $7.3 million (net of taxes).

11. Members’ Equity

The Company is authorized to issue 500,000,000 LLC interests. Each outstanding LLC interest of the Company is entitled to one vote on any matter with respect to which holders of LLC interests are entitled to vote.

12. Reportable Segments

The Company’s consolidated businesses are classified into the following reportable business segments: airport services business, gas production and distribution business, district energy business and airport parking business. All of the business segments are managed separately.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

12. Reportable Segments  – (continued)

The Company also has a 50% investment in a bulk liquid storage terminal business, which is accounted for under the equity method. Financial information for this business is presented below ($ in thousands):

       
  As of, and for the
Quarter Ended
September 30,
  As of, and for the
Nine Months Ended
September 30,
     2008   2007   2008   2007
Revenue   $ 104,494     $ 66,348     $ 261,118     $ 199,955  
EBITDA(1)     36,090       11,581       95,937       52,838  
Interest expense, net     6,909       3,244       16,801       10,612  
Depreciation and amortization expense     11,303       8,912       31,960       26,474  
Capital expenditures paid     48,160       50,183       161,340       128,305  
Property, plant and equipment balance     869,474       645,553       869,474       645,553  
Total assets balance     950,889       790,685       950,889       790,685  

(1) EBITDA refers to earnings before interest, taxes, depreciation and amortization.

The airport services business reportable segment principally derives income from fuel sales and from other airport services. Airport services revenue includes fuel-related services, de-icing, aircraft hangarage, airport management and other aviation services. All of the revenue of the airport services business is generated in the United States. The airport services business operated 72 FBOs and managed six airports under management contracts as of September 30, 2008. In January 2008, the airport services business entered an agreement to sell its airport management business, and expects to complete the sale in the second half of 2008. During the third quarter of 2008, the airport services business completed the sale of its charter management business which it had purchased as part of the San Jose acquisition in 2007 and received net proceeds of $1.9 million. The charter management business’ operations, and the sale of the business, did not have a material impact on the Company’s consolidated results.

The revenue from the gas production and distribution business reportable segment is included in revenue from product sales and includes distribution and sales of synthetic natural gas, or SNG, and liquefied petroleum gas, or LPG. Revenue is primarily a function of the volume of SNG and LPG consumed by customers and the price per thermal unit or gallon charged to customers. Because both SNG and LPG are derived from petroleum, revenue levels, without organic operating growth, will generally track global oil prices. The utility revenue of the gas production and distribution business includes fuel adjustment charges, or FACs, through which changes in fuel costs are passed through to customers.

The revenue from the district energy business reportable segment is included in service revenue and financing and equipment lease income. Included in service revenue is capacity charge revenue, which relates to monthly fixed contract charges, and consumption revenue, which relates to contractual rates applied to actual usage. Financing and equipment lease income relates to direct financing lease transactions and equipment leases to the business’ various customers. The district energy business provides its services to buildings throughout the downtown Chicago area and to a casino and shopping mall located in Las Vegas, Nevada.

The revenue from the airport parking business reportable segment is included in service revenue and primarily consists of fees from off-airport parking and ground transportation to and from the parking facilities and the airport terminals. The airport parking business operates 31 off-airport parking facilities located in 20 major airport markets across the United States.

Selected information by reportable segment is presented in the following tables. The tables do not include financial data for equity and cost investments.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

12. Reportable Segments  – (continued)

Revenue from external customers for the Company's reportable segments was as follows ($ in thousands):

         
  Quarter Ended September 30, 2008
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Revenue from Product Sales
                                            
Product sales   $ 128,565     $ 23,495     $     $     $ 152,060  
Product sales – utility           36,060                   36,060  
       128,565       59,555                   188,120  
Service Revenue
                                            
Other services     52,772             752             53,524  
Cooling capacity revenue                 4,850             4,850  
Cooling consumption revenue                 10,654             10,654  
Parking services                       18,686       18,686  
       52,772             16,256       18,686       87,714  
Financing and Lease Income
                                            
Financing and equipment lease                 1,164             1,164  
                   1,164             1,164  
Total Revenue   $ 181,337     $ 59,555     $ 17,420     $ 18,686     $ 276,998  

         
  Quarter Ended September 30, 2007
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Revenue from Product Sales
                                            
Product sales   $ 104,513     $ 17,221     $     $     $ 121,734  
Product sales – utility           23,871                   23,871  
       104,513       41,092                   145,605  
Service Revenue
                                            
Other services     39,072             671             39,743  
Cooling capacity revenue                 4,788             4,788  
Cooling consumption revenue                 10,760             10,760  
Parking services                       19,409       19,409  
       39,072             16,219       19,409       74,700  
Financing and Lease Income
                                            
Financing and equipment lease                 1,221             1,221  
                   1,221             1,221  
Total Revenue   $ 143,585     $ 41,092     $ 17,440     $ 19,409     $ 221,526  

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

12. Reportable Segments  – (continued)

         
  Nine Months Ended September 30, 2008
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Revenue from Product Sales
                                            
Product sales   $ 408,042     $ 70,177     $     $     $ 478,219  
Product sales – utility           97,317                   97,317  
       408,042       167,494                   575,536  
Service Revenue
                                            
Other services     170,990             2,201             173,191  
Cooling capacity revenue                 14,484             14,484  
Cooling consumption revenue                 18,495             18,495  
Parking services                       57,001       57,001  
       170,990             35,180       57,001       263,171  
Financing and Lease Income
                                            
Financing and equipment lease                 3,537             3,537  
                   3,537             3,537  
Total Revenue   $ 579,032     $ 167,494     $ 38,717     $ 57,001     $ 842,244  

         
  Nine Months Ended September 30, 2007
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Revenue from Product Sales
                                            
Product sales   $ 248,049     $ 54,031     $     $     $ 302,080  
Product sales – utility           68,982                   68,982  
       248,049       123,013                   371,062  
Service Revenue
                                            
Other services     99,072             2,088             101,160  
Cooling capacity revenue                 14,077             14,077  
Cooling consumption revenue                 19,422             19,422  
Parking services                       58,288       58,288  
       99,072             35,587       58,288       192,947  
Financing and Lease Income
                                            
Financing and equipment lease                 3,704             3,704  
                   3,704             3,704  
Total Revenue   $ 347,121     $ 123,013     $ 39,291     $ 58,288     $ 567,713  

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

12. Reportable Segments  – (continued)

EBITDA for the Company's reportable segments is shown in the below tables ($ in thousands). Allocation of corporate expenses, and the federal tax effect, have been excluded from the tables as they are eliminated on consolidation:

         
  Quarter Ended September 30, 2008
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Reportable
Segments
Net income (loss)   $ 253     $ 1,813     $ 1,782     $ (1,583 )    $ 2,265  
Interest income     (143 )      (9 )      (9 )      (28 )      (189 ) 
Interest expense     15,894       2,363       2,618       3,769       24,644  
Provision (benefit) for income taxes     170       1,166       623       (1,185 )      774  
Depreciation     5,638       1,463       1,402       1,307       9,810  
Amortization of intangibles     9,604       214       345       400       10,563  
EBITDA   $ 31,416     $ 7,010     $ 6,761     $ 2,680     $ 47,867  

         
  Quarter Ended September 30, 2007
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Reportable
Segments
Net income (loss)   $ 4,205     $ 555     $ (15,767 )    $ (1,045 )    $ (12,052 ) 
Interest income     (349 )      (47 )      (107 )      (61 )      (564 ) 
Interest expense     11,992       2,326       2,350       4,093       20,761  
Provision (benefit) for income taxes     2,761       358       1,151       (828 )      3,442  
Depreciation     3,601       1,434       1,446       1,184       7,665  
Amortization of intangibles     7,955       214       345       705       9,219  
EBITDA   $ 30,165     $ 4,840     $ (10,582 )    $ 4,048     $ 28,471  

         
  Nine Months Ended September 30, 2008
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Reportable
Segments
Net income (loss)   $ 9,595     $ 5,395     $ 1,477     $ (5,287 )    $ 11,180  
Interest income     (475 )      (33 )      (34 )      (91 )      (633 ) 
Interest expense     47,507       7,058       7,795       11,468       73,828  
Provision (benefit) for income taxes     6,476       3,471       516       (3,956 )      6,507  
Depreciation     15,772       4,367       4,354       3,866       28,359  
Amortization of intangibles     28,594       642       1,027       1,943       32,206  
EBITDA   $ 107,469     $ 20,900     $ 15,135     $ 7,943     $ 151,447  

         
  Nine Months Ended September 30, 2007
     Airport
Services
  Gas
Production
and
Distribution
  District
Energy
  Airport
Parking
  Total
Reportable
Segments
Net income (loss)   $ 16,104     $ 3,573     $ (15,399 )    $ (2,873 )    $ 1,405  
Interest income     (986 )      (122 )      (280 )      (208 )      (1,596 ) 
Interest expense     29,158       6,933       6,782       12,227       55,100  
Provision (benefit) for income taxes     10,576       2,300       1,369       (2,280 )      11,965  
Depreciation     8,685       4,403       4,317       3,289       20,694  
Amortization of intangibles     19,288       642       1,023       2,198       23,151  
EBITDA   $ 82,825     $ 17,729     $ (2,188 )    $ 12,353     $ 110,719  

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

12. Reportable Segments  – (continued)

Reconciliation of reportable segments EBITDA to consolidated net income (loss) before income taxes and minority interests ($ in thousands):

       
  Quarter Ended
September 30,
  Nine Months Ended
September 30,
     2008   2007   2008   2007
Total reportable segments EBITDA   $ 47,867     $ 28,471     $ 151,447     $ 110,719  
Interest income     268       2,062       1,038       4,986  
Interest expense     (26,114 )      (21,779 )      (77,616 )      (57,050 ) 
Depreciation(1)     (9,810 )      (7,665 )      (28,359 )      (20,694 ) 
Amortization of intangibles     (10,563 )      (9,219 )      (32,206 )      (23,151 ) 
Selling, general and administrative – corporate     55       (1,773 )      (2,314 )      (5,491 ) 
Fees to manager     (2,737 )      (5,437 )      (11,872 )      (59,962 ) 
Equity in earnings (losses) and amortization charges of investee     4,051       (1,659 )      10,603       661  
Other income (expense), net     (432 )      (108 )      (1,196 )      (270 ) 
Total consolidated net income (loss) before income taxes and minority interests   $ 2,585     $ (17,107 )    $ 9,525     $ (50,252 ) 

(1) Depreciation includes depreciation expense for the Company’s district energy business and airport parking business, which are reported in cost of services in the consolidated condensed statements of operations.

Capital expenditures for the Company's reportable segments were as follows ($ in thousands):

       
  Quarter Ended
September 30,
  Nine Months Ended
September 30,
     2008   2007   2008   2007
Airport services   $ 7,728     $ 8,317     $ 27,310     $ 13,342  
Gas production and distribution     2,753       1,839       7,182       6,061  
District energy     1,356       2,890       3,323       9,051  
Airport parking(1)     775       1,805       14,772       4,643  
Total   $ 12,612     $ 14,851     $ 52,587     $ 33,097  

(1) Capital expenditures for the airport parking business during the nine months ended September 30, 2008 includes approximately $13.5 million for the acquisition of land that was previously leased. See Note 6, Property, Equipment, Land and Leasehold Improvements for further details.

Property, equipment, land and leasehold improvements and total assets for the Company's reportable segments as of September 30 were as follows ($ in thousands):

       
  Property, Equipment, Land
and Leasehold Improvements
  Total Assets
     2008   2007   2008   2007
Airport services   $ 315,997     $ 279,685     $ 1,775,287     $ 1,757,355  
Gas production and distribution     140,408       134,388       327,835       310,106  
District energy     145,885       147,988       231,382       237,585  
Airport parking     101,552       98,975       299,828       283,565  
Total   $ 703,842     $ 661,036     $ 2,634,332     $ 2,588,611  

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

12. Reportable Segments  – (continued)

The following table comprises a reconciliation of reportable segments total assets to consolidated total assets ($ in thousands):

   
  As of September 30,
     2008   2007
Total assets of reportable segments   $ 2,634,332     $ 2,588,611  
Investment in IMTT     201,209       219,300  
Corporate and other     (7,504 )      14,222  
Total consolidated assets   $ 2,828,037     $ 2,822,133  

13. Related Party Transactions

Management Services Agreement with Macquarie Infrastructure Management (USA) Inc. (The Manager)

As of September 30, 2008, the Manager held 3,173,123 LLC interests of the Company, which were acquired concurrently with the closing of the initial public offering in December 2004 and also by reinvesting performance fees in the Company. In addition, the Macquarie Group held LLC interests acquired in open market purchases.

The Company entered into a management services agreement, or Management Agreement, with the Manager pursuant to which the Manager manages the Company’s day-to-day operations and oversees the management teams of the Company’s operating businesses. In addition, the Manager has the right to appoint the Chairman of the Board of the Company, and an alternate, subject to minimum equity ownership, and to assign, or second, to the Company, on a permanent and wholly-dedicated basis, employees to assume the role of Chief Executive Officer and Chief Financial Officer and second or make other personnel available as required.

In accordance with the Management Agreement, the Manager is entitled to a quarterly base management fee based primarily on the Company’s market capitalization, and a performance fee, based on the performance of the Company’s stock relative to the U.S. utilities index. Base management and performance fees payable to the Manager, and the Manager’s reinvestment of the performance fees in the Company’s LLC interests during the periods presented, were as follows ($ in thousands):

       
  Quarter Ended
September 30,
  Nine Months Ended
September 30,
     2008   2007   2008   2007
Base management fees   $ 2,737     $ 5,437     $ 11,872     $ 16,000  
Performance fees                     $ 43,962  
Reinvestment of performance fees in LLC interests:
                                   
March 2007 quarter fee
(LLC interests issued July 13, 2007)
                      21,972
shares
 
June 2007 quarter fee
(LLC interests issued October 1, 2007)
                      1,171,503
shares
 

The Manager has offered to reinvest its base management fees for the third quarter of 2008 in additional LLC interests of the Company. Consistent with its efforts to maintain a strong cash position, the Company’s independent directors have accepted the Manager's offer. The Company will issue these additional LLC interests to the Manager in the fourth quarter of 2008. The Manager has indicated that it intends to reinvest quarterly base fees in LLC interests potentially through the quarter ending December 31, 2011, although it has no obligation to do so. Any future reinvest will remain subject to the discretion of the Manager based on circumstances existing at the time.

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Related Party Transactions  – (continued)

The unpaid portion of the fees at the end of each reporting period is included in due to manager-related party in the consolidated condensed balance sheets. 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 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 and investments, income taxes, audit and legal fees, and acquisitions and dispositions and its compliance with applicable laws and regulations. During the nine months ended September 30, 2008 and September 30, 2007, the Manager charged the Company $186,000 and $244,000, respectively, for reimbursement of out-of-pocket expenses. 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.

Advisory and Other Services from the Macquarie Group

The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Capital (USA) Inc., or MCUSA (formerly Macquarie Securities (USA) Inc.), provide various advisory and other services and incur 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 members’ equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are capitalized as a cost of the related acquisitions. Debt arranging fees are deferred and amortized over the term of the debt facility. Amounts relating to these transactions for the nine months ended September 30, 2008 comprise the following ($ in thousands):

Nine Months Ended September 30, 2008

 
Acquisition of Seven Bar FBOs
        
- advisory services from MCUSA   $ 819  
- reimbursement of out-of-pocket expenses to MCUSA     3  

In the third quarter of 2008, the Company received a reimbursement of $1.4 million for due diligence expenses incurred during 2007 and the first half of 2008 from Macquarie Global Opportunities Partners, or MGOP, a private equity fund managed by the Macquarie Group, in relation to an acquisition that the Company did not complete, but which was acquired by the private equity fund.

Long-Term Debt

MIC Inc. has a $300.0 million revolving credit facility with various financial institutions, including Macquarie Group companies such as Macquarie Bank Limited, or MBL, or Macquarie Finance Americas Inc. Amounts paid to or received from the Macquarie Group that relate to this facility comprise the following ($ in thousands):

Nine Months Ended September 30, 2008

 
Revolving credit facility commitment provided by the Macquarie Group during the period January 1, 2008 through February 11, 2008   $ 50,000  
Revolving credit facility commitment provided by the Macquarie Group during the period February 12, 2008 through September 30, 2008     66,667  
Portion of credit facility commitment from Macquarie Group drawn down, as of September 30, 2008     15,333  
Interest expense on Macquarie Group portion of the drawn down commitment, nine months ended September 30, 2008     475  
Commitment fees to the Macquarie Group, nine months ended September 30, 2008     187  
Upfront fee to the Macquarie Group upon renewal of facility in February 2008     333  

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

13. Related Party Transactions  – (continued)

Derivative Instruments and Hedging Activities

The Company has derivative instruments in place to fix the interest rate on outstanding term loan facilities. MBL has provided interest rate swaps for the airport services business and the gas production and distribution business. At September 30, 2008, the airport services business had $900.0 million of its term loans hedged, of which MBL was providing the interest rate swaps for a notional amount of $343.3 million. The remainder of the swaps are from an external party. During the nine months ended September 30, 2008, the airport services business made net payments to MBL of $4.6 million in relation to these swaps.

At September 30, 2008, the gas production and distribution business had $160.0 million of its term loans hedged, of which MBL was providing the interest rate swaps for a notional amount of $48.0 million. The remainder of the swaps are from an external party. During the nine months ended September 30, 2008, the gas production and distribution business made net payments to MBL of $446,000 in relation to these swaps.

Other Transactions

On August 29, 2008, MGOP completed the acquisition of the jet membership, retail charter and fuel management business units previously owned by Sentient Jet Holdings, LLC. The new company is called Sentient Flight Group (referred to hereafter as “Sentient”). Sentient is an existing customer of the Company’s airport services business. For the period August 29, 2008 through September 30, 2008, the airport services business recorded $1.1 million in revenue from Sentient. As of September 30, 2008, the airport services business had a $56,000 receivable from Sentient, which is included in accounts receivable in the consolidated condensed balance sheets.

14. Income Taxes

The Company expects to incur a net operating loss for federal consolidated tax return purposes for the year ending December 31, 2008. The Company believes that it will be able to utilize the projected federal and certain state consolidated 2008 and prior year losses. Accordingly, the Company has not provided a valuation allowance against any deferred tax assets generated in 2008, except as noted below.

The Company and its subsidiaries file separate and combined state income tax returns. In calculating its consolidated projected effective state tax rate for 2008, the Company has taken into consideration an expected need to provide a valuation allowance for certain state income tax net operating loss carryforwards, the utilization of which is not assured beyond a reasonable doubt. In addition, the Company and its subsidiaries expect to incur certain expenses that will not be deductible in determining state taxable income. Accordingly, these expenses have also been excluded in projecting the Company’s effective state tax rate.

Uncertain Tax Positions

At December 31, 2007, the Company and its subsidiaries had a reserve of approximately $1.0 million for benefits taken during 2007 and prior tax periods attributable to tax positions for which the probability of recognition is not considered to be more likely than not. There was no material change in that reserve as of September 30, 2008.

15. Legal Proceedings and Contingencies

There are no material legal proceedings other than as disclosed in Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the SEC on February 28, 2008.

16. Distributions

On February 25, 2008, the board of directors declared a distribution of $0.635 per share for the quarter ended December 31, 2007, which was paid on March 10, 2008 to holders of record on March 5, 2008. On

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MACQUARIE INFRASTRUCTURE COMPANY LLC
  
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

16. Distributions  – (continued)

May 5, 2008, the board of directors declared a distribution of $0.645 per share for the quarter ended March 31, 2008, which was paid on June 10, 2008 to holders of record on June 4, 2008. On August 4, 2008, the board of directors declared a distribution of $0.645 per share for the quarter ended June 30, 2008, which was paid on September 11, 2008 to holders of record on September 4, 2008.

These distributions were recorded as a reduction to LLC interests in the members’ equity section of the consolidated condensed balance sheets.

17. Subsequent Events

Distributions

On November 4, 2008, the board of directors declared a distribution of $0.20 per share for the quarter ended September 30, 2008, payable on December 10, 2008 to holders of record on December 3, 2008.

Base Management Fees

As discussed in Note 13, Related Party Transactions, the Manager has offered to reinvest the base fees for the third quarter of 2008 in additional LLC interests of the Company. The Company will issue these additional LLC interests to the Manager in the fourth quarter of 2008.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

We own, operate and invest in a diversified group of infrastructure businesses that provide basic, everyday services, such as utilities, parking and gas, to businesses and individuals primarily in the U.S. The businesses we own and operate are an airport services business, a bulk liquid storage terminal business, a gas production and distribution business, a district energy business and an airport parking business. These infrastructure businesses generally operate in sectors with limited competition and barriers to entry resulting from a variety of factors including high initial development and construction costs, the existence of long-term contracts or the requirement to obtain government approvals and lack of immediate cost-efficient alternatives to the services provided. Overall they tend to generate sustainable and growing long-term cash flows. We operate and finance our businesses in a manner that maximizes these cash flows.

We are dependent upon cash distributions from our businesses to meet our corporate overhead, to pay management fees and to pay distributions to shareholders. Distributions received from our businesses, net of taxes, are available typically to meet management fees and corporate overhead expenses, then to fund distribution payments to our shareholders. Base and performance management fees payable to our Manager are allocated among the Company and its operating company subsidiaries based on the Company’s internal allocation policy.

To date, we have distributed to our shareholders substantially all of the cash from operating activities generated by our consolidated businesses as well as the cash dividend we receive from our investment in an unconsolidated business. Since our initial public offering through the third quarter of 2008, our businesses overall continued to generate a stable level of distributable cash.

The challenges posed by the current economic slowdown in the U.S. have reduced access to capital and there is a significant amount of uncertainty regarding when capital markets conditions may improve. The economic slowdown has also caused some volatility in volume-sensitive businesses, like our airport services and airport parking businesses, making it difficult to forecast their near-term operating results with precision. A further decline in the level of economic activity that results in fewer people traveling via either commercial or general aviation could have an adverse impact on the value of these businesses, the cash they generate or their ability to refinance existing debt facilities.

Management has implemented a number of cost saving initiatives at these volume-sensitive businesses that have resulted in a substantial reduction in selling, general and administrative expenses. For example, as of the month of September, we have reduced run-rate cost and expenses in our airport services business by approximately $1.8 million per month, primarily through synergies realized in the integration of acquired sites and rationalization of staffing levels. As discussed below, we have also implemented a number of cost saving initiatives in our airport parking business. We will continue to evaluate other cost saving measures and opportunities for performance improvement.

While we would generally expect these cost saving measures to be reflected in improved performance in our business, in light of the current level of uncertainty in the financial markets, including the difficulties many borrowers are currently facing when seeking to refinance bank credit lines, our management and board of directors have decided to retain a portion of the cash generated by our businesses to provide additional liquidity. The retained cash provides us with the flexibility to pay down debt or provide a buffer against further economic slowdown.

The Company’s manager, Macquarie Infrastructure Management (USA) Inc., or the Manager, has offered to reinvest its base management fees for the third quarter of 2008 in additional LLC interests to be issued by us in the fourth quarter of 2008. Consistent with its efforts to maintain a strong cash position, our independent directors have accepted the Manager's offer. The Manager has indicated that it intends to reinvest quarterly base fees in our LLC interests potentially through the quarter ending December 31, 2011, although it has no obligation to do so. Any future reinvest will remain subject to the discretion of our Manager based on circumstances existing at the time. The decision by our Manager more closely aligns the interests of the Macquarie Group with our shareholders broadly. The Manager’s decision will result in the retention of an additional $2.7 million in cash for the third quarter of 2008.

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On November 4, 2008, the board of directors declared a distribution of $0.20 per share for the quarter ended September 30, 2008, payable on December 10, 2008 to holders of record on December 3, 2008. During 2007, we paid distributions of $0.57 per share in April 2007, $0.59 per share in June 2007, $0.605 per share in September 2007 and $0.62 per share in December 2007. During 2008, we paid a distribution of $0.635 per share in March 2008, $0.645 per share in June 2008 and $0.645 per share in September 2008.

Refer to “Other Matters” at the end of this Item 2 for discussion of forward-looking statements and certain defined terms.

Acquisitions

During 2007, we acquired 29 fixed base operations, or FBOs, and in the first quarter of 2008 we acquired an additional three FBOs. With these acquisitions, our airport services business owns and operates a network of 72 FBOs in the United States, the largest such network in the industry. In the third quarter of 2008, we acquired an off-airport parking facility at Newark Liberty International Airport in New Jersey. Results of operations for acquisitions are included in our consolidated results from the respective dates of each acquisition.

Tax Treatment of Distributions

Shareholders include in taxable income the portion of our distributions that are characterized as a dividend. Based on the tax position of the Company through three quarters of the year, it is likely that substantially all of our 2008 distributions will be characterized as return of capital for tax purposes and result in an adjustment to the shareholder’s basis rather than taxable income.

We currently anticipate that to the extent our regular distributions are treated as dividends for U.S. federal income tax purposes, they will be eligible for treatment as qualified dividend income, subject to the shareholder having met the holding period requirements as defined by the Internal Revenue Service.

Adoption of New Accounting Pronouncement — FASB 157, “Fair Value Measurements”

On January 1, 2008, we partially adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, or FASB No. 157. See Note 3, New Accounting Pronouncements, to our consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference, for more details about FASB No. 157.

We measure our derivative instruments at fair value on a recurring (quarterly) basis, utilizing mostly level 2 inputs such as contractual terms, market prices, interest rates (for example, LIBOR) and yield curves observable at commonly quoted intervals. Recent market conditions, including interest rate decreases, have resulted in the fair value of our derivative instruments being liability positions, based on the present value of estimated future cash flows. We do not believe the increase in these liabilities will have an adverse impact on our ability to meet our ongoing cash flow requirements, including the funding of our distributions. We base our assessment on our business’ demonstrated ability overall to generate, and to continue to generate, significant operating cash flow.

Results of Operations

All discussion of our consolidated results and the results for each of our businesses relate to both the quarter and nine month periods presented, unless stated otherwise.

Key Factors Affecting Operating Results

positive contributions to our results arising from the acquisitions of 29 FBOs during 2007 and three FBOs in the first quarter of 2008;
performance fees to our Manager of $44.0 million for the first half of 2007 due to the out-performance of our stock price versus the benchmark index, that did not recur in 2008;
higher equity in earnings from our 50% interest in our bulk liquid storage terminal business (also referred to as IMTT); and
increased interest expense due to higher levels of debt from acquisition financing and debt refinancings completed in 2007.

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Our consolidated results of operations are summarized below:

               
               
  Quarter Ended
September 30,
  Change
Favorable/
(Unfavorable)
  Nine Months Ended
September 30,
  Change
Favorable/
(Unfavorable)
     2008   2007   $   %   2008   2007   $   %
     ($ in Thousands) (Unaudited)
Revenue
                                                                       
Revenue from product sales   $ 152,060     $ 121,734       30,326       24.9     $ 478,219     $ 302,080       176,139       58.3  
Revenue from product sales – utility     36,060       23,871       12,189       51.1       97,317       68,982       28,335       41.1  
Service revenue     87,714       74,700       13,014       17.4       263,171       192,947       70,224       36.4  
Financing and equipment lease income     1,164       1,221       (57 )      (4.7 )      3,537       3,704       (167 )      (4.5 ) 
Total revenue     276,998       221,526       55,472       25.0       842,244       567,713       274,531       48.4  
Costs and expenses
                                                                       
Cost of product sales     109,801       77,069       (32,732 )      (42.5 )      337,819       188,467       (149,352 )      (79.2 ) 
Cost of product sales – utility     31,161       19,151       (12,010 )      (62.7 )      82,175       53,358       (28,817 )      (54.0 ) 
Cost of services     33,070       31,075       (1,995 )      (6.4 )      98,615       80,740       (17,875 )      (22.1 ) 
Gross profit     102,966       94,231       8,735       9.3       323,635       245,148       78,487       32.0  
Selling, general and administrative     57,426       50,632       (6,794 )      (13.4 )      182,928       128,174       (54,754 )      (42.7 ) 
Fees to manager – related party     2,737       5,437       2,700       49.7       11,872       59,962       48,090       80.2  
Depreciation     7,101       5,035       (2,066 )      (41.0 )      20,139       13,088       (7,051 )      (53.9 ) 
Amortization of intangibles     10,563       9,219       (1,344 )      (14.6 )      32,206       23,151       (9,055 )      (39.1 ) 
Total operating expenses     77,827       70,323       (7,504 )      (10.7 )      247,145       224,375       (22,770 )      (10.1 ) 
Operating income     25,139       23,908       1,231       5.1       76,490       20,773       55,717       NM  
Other income (expense)
                                                                       
Interest income     268       2,062       (1,794 )      (87.0 )      1,038       4,986       (3,948 )      (79.2 ) 
Interest expense     (26,114 )      (21,779 )      (4,335 )      (19.9 )      (77,616 )      (57,050 )      (20,566 )      (36.0 ) 
Loss on extinguishment of debt           (17,708 )      17,708       NM             (17,708 )      17,708       NM  
Equity in earnings (losses) and amortization charges of investee     4,051       (1,659 )      5,710       NM       10,603       661       9,942       NM  
Loss on derivative instruments     (765 )      (2,227 )      1,462       65.6       (1,651 )      (1,566 )      (85 )      (5.4 ) 
Other income (expense), net     6       296       (290 )      (98.0 )      661       (348 )      1,009       NM  
Net income (loss) before income taxes and minority interests     2,585       (17,107 )      19,692       115.1       9,525       (50,252 )      59,777       119.0  
(Provision) benefit for income taxes     (2,254 )      (971 )      (1,283 )      (132.1 )      (3,254 )      14,907       (18,161 )      (121.8 ) 
Net income (loss) before minority interests     331       (18,078 )      18,409       101.8       6,271       (35,345 )      41,616       117.7  
Minority interests     (167 )      (86 )      81       94.2       (575 )      (183 )      392       NM  
Net income (loss)   $ 498     $ (17,992 )      18,490       102.8     $ 6,846     $ (35,162 )      42,008       119.5  

NM — Not meaningful

The increase in our consolidated gross profit and operating expenses, including selling, general and administrative expenses, depreciation and amortization and interest expense, was primarily due to acquisitions made by our airport services business in 2007 and the first quarter of 2008. The ratio of selling, general and administrative expenses to gross profit increased due to declining activity levels, primarily in our airport services business, offset by the cost saving initiatives discussed above. Depreciation expense increased due to

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these acquisitions as well as capital expenditures in existing businesses resulting in higher asset balances. The increase in interest expense was due to a higher average level of debt outstanding, resulting from additional debt drawn to fund acquisitions and refinancings in the second half of 2007.

Fees to Manager

The fees to our Manager for 2008 were lower primarily due to 2007 performance fees of $957,000 in the first quarter and $43.0 million in the second quarter that did not recur in 2008. Our Manager elected to reinvest these performance fees in additional LLC interests. Our Manager has also offered to reinvest the base fees for the third quarter of 2008 in our LLC interests. Base fees to our Manager in 2008 decreased by $2.7 million for the quarter and $4.1 million for the nine month period due to our lower market capitalization.

Equity in Earnings (Losses) and Amortization Charges of Investee

Our equity in the earnings of IMTT increased due to improved operating results from that business, a $12.3 million make-whole payment from a refinancing in 2007 that did not recur in 2008 and non-cash derivative-related losses of $4.5 million for the nine months ended September 30, 2008 compared with $8.0 million for the same period of 2007. For the periods presented, IMTT has elected not to apply hedge accounting; therefore, changes in the fair value of its derivative instruments are recorded in IMTT’s earnings. IMTT will be adopting hedge accounting in the fourth quarter of 2008. From the date of adoption, only the ineffective portion (if any) of the movement in the valuation of IMTT’s derivatives will be recorded in earnings, with the effective portion being reflected in other comprehensive income.

Under our shareholders agreement, cash distributions to us from IMTT after December 31, 2008, will generally be based on IMTT’s cash flow from operating activities less maintenance and environmental capital expenditures, subject to prudent reserves and legal net asset requirements. Changes in the fair value of derivatives are unlikely to have a material impact on net assets and do not impact the distributions under the shareholders agreement as they are non-cash in nature.

We have received $7.0 million in cash distributions from IMTT each quarter since completing our investment in May 2006. These distributions are not recorded in earnings, but are recorded against our investment in the business on our balance sheet and are shown as cash provided by operating activities in our statements of cash flows for the portion up to our 50% share of IMTT’s positive earnings. Distributions when IMTT records a net loss, or the amount of the distribution in excess of our share of its earnings, are reflected in our consolidated cash flow from investing activities. For the first nine months of 2008, $10.6 million of the $21.0 million dividends received was included in cash from operating activities and $10.4 million was included in investing activities. For the first nine months of 2007, $661,000 was included in cash from operating activities and $20.3 million was included in cash from investing activities.

Income Taxes

For the 2007 year, we reported a consolidated net loss before income taxes, for which we recorded a deferred tax benefit, net of certain state net operating losses from our airport parking business.

For the year ending December 31, 2008, we expect to have consolidated taxable loss for federal and for certain state income tax purposes. We expect to utilize the projected federal and state tax losses, except as noted below, and any prior year losses.

In calculating our consolidated projected effective state tax rate for 2008, we have taken into consideration an expected need to provide a valuation allowance for certain state income tax net operating loss carryforwards, the utilization of which is not assured beyond a reasonable doubt. In addition, we expect to incur certain expenses that will not be deductible in determining state taxable income. Accordingly, these expenses have also been excluded in projecting our effective state tax rate.

Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA

We have included EBITDA, a non-GAAP financial measure, on a consolidated basis as well as for each of our businesses as we consider it to be an important measure of our overall performance. We believe EBITDA provides additional insight into the performance of our operating companies and our ability to service our obligations and to pay distributions.

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A reconciliation of net income (loss) to EBITDA, on a consolidated basis, is provided below ($ in thousands):

               
               
  Quarter Ended
September 30,
  Change
Favorable/
(Unfavorable)
  Nine Months Ended
September 30,
  Change
Favorable/
(Unfavorable)
     2008   2007   $   %   2008   2007   $   %
Net income (loss)   $ 498     $ (17,992 )                      $ 6,846     $ (35,162 )                   
Interest expense, net     25,846       19,717                         76,578       52,064                    
Provision (benefit) for income taxes     2,254       971                         3,254       (14,907 )                   
Depreciation(1)     7,101       5,035                         20,139       13,088                    
Depreciation – cost of services(1)     2,709       2,630                         8,220       7,606                    
Amortization(2)     10,563       9,219                      32,206       23,151                 
EBITDA   $ 48,971     $ 19,580       29,391       150.1     $ 147,243