FTAI Infrastructure Inc. 10-Q

Item 1. Financial Statements FTAI INFRASTRUCTURE INC. CONSOLIDATED AND COMBINED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share data) (Unaudited) Notes September 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents 2 $ 69,465 $ 49,872 Restricted cash 2 127,166 251,983 Accounts receivable, net 2 78,136 50,301 Other current assets 2 77,769 60,828 Total current assets 352,536 412,984 Leasing equipment, net 4 35,183 36,012 Operating lease right-of-use assets, net 12 70,567 71,547 Property, plant, and equipment, net 5 1,641,373 1,517,594 Investments 6 74,528 54,408 Intangible assets, net 7 62,081 67,737 Goodwill 2 263,106 257,137 Other assets 2 26,094 24,882 Total assets $ 2,525,468 $ 2,442,301 Liabilities Current liabilities: Accounts payable and accrued liabilities 2 $ 150,857 $ 115,634 Operating lease liabilities 12 7,221 2,899 Other current liabilities 2 13,710 10,934 Total current liabilities 171,788 129,467 Debt, net 8 1,191,885 718,624 Operating lease liabilities 12 62,410 67,505 Other liabilities 291,579 64,659 Total liabilities 1,717,662 980,255 Commitments and contingencies 20 Redeemable preferred stock ($ 0.01 par value per share; 200,000,000 shares authorized; 300,000 shares issued and outstanding as of September 30, 2022; redemption amount of $ 450 million at September 30, 2022) 18 251,955 — Equity Net Former Parent investment — 1,617,601 Common shares ($ 0.01 par value per share; 2,000,000,000 shares authorized; 99,387,467 shares issued and outstanding as of September 30, 2022) 994 — Additional paid in capital 929,088 — Accumulated deficit ( 14,368 ) — Accumulated other comprehensive loss ( 342,125 ) ( 155,464 ) Stockholders' and Former Parent Company equity 573,589 1,462,137 Non-controlling interest in equity of consolidated subsidiaries ( 17,738 ) ( 91 ) Total equity 555,851 1,462,046 Total liabilities, redeemable preferred stock and equity $ 2,525,468 $ 2,442,301 See accompanying notes to Consolidated and Combined Consolidated Financial Statements. 5 FTAI INFRASTRUCTURE INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Dollars in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, Notes 2022 2021 2022 2021 Revenues Total revenues 11 $ 78,559 $ 36,788 $ 190,575 $ 72,674 Expenses Operating expenses 2 60,934 32,088 148,231 66,206 General and administrative 3,208 2,508 8,136 6,173 Acquisition and transaction expenses 2,754 5,342 15,862 8,860 Management fees and incentive allocation to affiliate 16 2,659 3,829 9,885 11,244 Depreciation and amortization 4, 5, 7 18,136 17,131 52,451 38,900 Total expenses 87,691 60,898 234,565 131,383 Other income (expense) Equity in losses of unconsolidated entities 6 ( 12,080 ) ( 1,545 ) ( 47,982 ) ( 8,810 ) (Loss) gain on sale of assets, net ( 134 ) — ( 134 ) 16 Interest expense ( 19,161 ) ( 4,384 ) ( 32,106 ) ( 9,396 ) Other expense ( 1,132 ) ( 6,244 ) ( 2,144 ) ( 6,855 ) Total other expense ( 32,507 ) ( 12,173 ) ( 82,366 ) ( 25,045 ) Loss before income taxes ( 41,639 ) ( 36,283 ) ( 126,356 ) ( 83,754 ) Provision for (benefit from) income taxes 15 1,555 ( 1,634 ) 5,086 ( 2,755 ) Net loss ( 43,194 ) ( 34,649 ) ( 131,442 ) ( 80,999 ) Less: Net loss attributable to non-controlling interests in consolidated subsidiaries ( 8,381 ) ( 7,363 ) ( 24,327 ) ( 18,949 ) Less: Dividends and accretion on redeemable preferred stock 9,263 — 9,263 — Net loss attributable to Stockholders and Former Parent $ ( 44,076 ) $ ( 27,286 ) $ ( 116,378 ) $ ( 62,050 ) Loss per share: 19 Basic $ ( 0.43 ) $ ( 0.27 ) $ ( 1.13 ) $ ( 0.62 ) Diluted $ ( 0.43 ) $ ( 0.27 ) $ ( 1.13 ) $ ( 0.62 ) Weighted average shares outstanding: Basic 102,730,033 99,387,467 102,730,033 99,387,467 Diluted 102,730,033 99,387,467 102,730,033 99,387,467 See accompanying notes to Consolidated and Combined Consolidated Financial Statements. 6 FTAI INFRASTRUCTURE INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) (Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net loss $ ( 43,194 ) $ ( 34,649 ) $ ( 131,442 ) $ ( 80,999 ) Other comprehensive loss: Other comprehensive loss related to equity method investees, net (1) ( 41,999 ) ( 57,373 ) ( 186,661 ) ( 78,921 ) Comprehensive loss ( 85,193 ) ( 92,022 ) ( 318,103 ) ( 159,920 ) Comprehensive loss attributable to non-controlling interest ( 8,381 ) ( 7,363 ) ( 24,327 ) ( 18,949 ) Comprehensive loss attributable to Stockholders and Former Parent $ ( 76,812 ) $ ( 84,659 ) $ ( 293,776 ) $ ( 140,971 ) ________________________________________________________ (1) Net of deferred tax expense (benefit) of $ — and $ 2,362 for the three months ended September 30, 2022 and 2021, respectively, and $ — and $( 1,271 ) for the nine months ended September 30, 2022 and 2021, respectively. See accompanying notes to Consolidated and Combined Consolidated Financial Statements. 7 FTAI INFRASTRUCTURE INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) (Dollars in thousands) Three and Nine Months Ended September 30, 2022 Common Shares Net Former Parent Investment Additional Paid In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Non-Controlling Interest in Equity of Consolidated Subsidiaries Total Equity Equity - December 31, 2021 $ — $ 1,617,601 $ — $ — $ ( 155,464 ) $ ( 91 ) $ 1,462,046 Net loss ( 72,302 ) ( 15,946 ) ( 88,248 ) Other comprehensive loss ( 144,662 ) ( 144,662 ) Total comprehensive loss — ( 72,302 ) — — ( 144,662 ) ( 15,946 ) ( 232,910 ) Acquisition of consolidated subsidiary 3,054 3,054 Contributions from non-controlling interest 562 562 Net transfers from Former Parent 111,396 111,396 Equity-based compensation 1,665 1,665 Equity - June 30, 2022 $ — $ 1,656,695 $ — $ — $ ( 300,126 ) $ ( 10,756 ) $ 1,345,813 Net loss ( 20,445 ) ( 14,368 ) ( 8,381 ) ( 43,194 ) Other comprehensive loss ( 41,999 ) ( 41,999 ) Total comprehensive loss — ( 20,445 ) — ( 14,368 ) ( 41,999 ) ( 8,381 ) ( 85,193 ) Net transfers to Former Parent ( 728,717 ) ( 728,717 ) Distribution by Former Parent 994 ( 907,533 ) 906,539 — Contributions from non-controlling interests 170 170 Settlement of equity-based compensation ( 148 ) ( 148 ) Issuance of warrants 13,764 13,764 Issuance of Manager options 18,127 18,127 Distribution to Manager ( 79 ) ( 79 ) Dividends and accretion on redeemable preferred stock ( 9,263 ) ( 9,263 ) Equity-based compensation 1,377 1,377 Equity - September 30, 2022 $ 994 $ — $ 929,088 $ ( 14,368 ) $ ( 342,125 ) $ ( 17,738 ) $ 555,851 8 FTAI INFRASTRUCTURE INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) (Dollars in thousands) Three and Nine Months Ended September 30, 2021 Net Former Parent Investment Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest in Equity of Consolidated Subsidiaries Total Equity Equity - December 31, 2020 $ 999,291 $ ( 26,237 ) $ 22,343 $ 995,397 Net loss ( 34,764 ) ( 11,586 ) ( 46,350 ) Other comprehensive income ( 21,548 ) ( 21,548 ) Total comprehensive (loss) income ( 34,764 ) ( 21,548 ) ( 11,586 ) ( 67,898 ) Net transfers from Former Parent 121,577 121,577 Equity-based compensation 2,553 2,553 Equity - June 30, 2021 $ 1,086,104 $ ( 47,785 ) $ 13,310 $ 1,051,629 Net loss ( 27,286 ) ( 7,363 ) ( 34,649 ) Other comprehensive loss ( 57,373 ) ( 57,373 ) Total comprehensive loss ( 27,286 ) ( 57,373 ) ( 7,363 ) ( 92,022 ) Net transfers from Former Parent 572,750 572,750 Equity-based compensation 728 728 Equity - September 30, 2021 $ 1,631,568 $ ( 105,158 ) $ 6,675 $ 1,533,085 See accompanying notes to Consolidated and Combined Consolidated Financial Statements. 9 FTAI INFRASTRUCTURE INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 131,442 ) $ ( 80,999 ) Adjustments to reconcile net loss to net cash used in operating activities: Equity in losses of unconsolidated entities 47,982 8,810 Loss (gain) on sale of assets, net 134 ( 16 ) Equity-based compensation 3,042 3,281 Depreciation and amortization 52,451 38,900 Change in deferred income taxes 4,851 ( 2,920 ) Change in fair value of non-hedge derivative ( 1,058 ) ( 1,979 ) Amortization of deferred financing costs 2,950 1,755 Provision for (benefit from) credit losses 418 ( 4 ) Other 899 — Change in: Accounts receivable ( 20,476 ) ( 62,265 ) Other assets ( 17,632 ) ( 25,237 ) Accounts payable and accrued liabilities 23,199 46,510 Management fees payable to affiliate 2,381 — Other liabilities ( 5,390 ) 4,368 Net cash used in operating activities ( 37,691 ) ( 69,796 ) Cash flows from investing activities: Investment in unconsolidated entities ( 4,481 ) ( 54,499 ) Investment in convertible promissory notes ( 20,000 ) — Acquisition of business, net of cash acquired ( 3,819 ) ( 627,399 ) Acquisition of property, plant and equipment ( 172,226 ) ( 97,505 ) Proceeds from sale of property, plant and equipment 5,656 — Net cash used in investing activities ( 194,870 ) ( 779,403 ) Cash flows from financing activities: Proceeds from debt 482,375 451,100 Payment of deferred financing costs ( 12,803 ) ( 13,007 ) Proceeds from issuance of redeemable preferred stock 291,000 — Redeemable preferred stock issuance costs ( 16,418 ) — Distribution to Manager ( 79 ) — Capital contribution from non-controlling interests 732 — Net transfers (to) from Former Parent, net ( 617,322 ) 694,327 Settlement of equity-based compensation ( 148 ) — Net cash provided by financing activities 127,337 1,132,420 Net (decrease) increase in cash and cash equivalents and restricted cash ( 105,224 ) 283,221 Cash and cash equivalents and restricted cash, beginning of period 301,855 55,421 Cash and cash equivalents and restricted cash, end of period $ 196,631 $ 338,642 Supplemental disclosure of non-cash investing and financing activities: Acquisition of property, plant and equipment $ ( 4,582 ) $ ( 1,062 ) Conversion of interests in unconsolidated subsidiaries ( 21,302 ) — Dividends and accretion on redeemable preferred stock ( 9,263 ) — Non-cash change in equity method investment ( 186,662 ) ( 78,921 ) See accompanying notes to Consolidated and Combined Consolidated Financial Statements. 10 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 1. ORGANIZATION FTAI Infrastructure Inc. (“we”, “us”, “our”, or the “Company”) is a Delaware corporation and was incorporated on December 13, 2021 in connection with the separation of the infrastructure business (“FTAI Infrastructure”) of Fortress Transportation and Infrastructure Investors LLC (the “Former Parent” or “FTAI”). The Company owns and operates (i) five freight railroads and one switching company that provide rail service to certain manufacturing and production facilities (“Transtar”), (ii) a multi-modal crude oil and refined products terminal in Beaumont, Texas (“Jefferson Terminal”), (iii) a deep-water port located along the Delaware River with an underground storage cavern, a multipurpose dock, a rail-to-ship transloading system and multiple industrial development opportunities (“Repauno”), (iv) an equity method investment in a multi-modal terminal located along the Ohio River with multiple industrial development opportunities, including a power plant (“Long Ridge”), and (v) an equity method investment in two ventures developing battery and metal recycling technology (“Aleon” and “Gladieux”). Additionally, we own and lease shipping containers (“Containers”) and operate a railcar cleaning business (“KRS”) as well as an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries (“FYX”). We have five reportable segments: (i) Railroad, (ii) Jefferson Terminal, (iii) Repauno, (iv) Power and Gas, and (v) Sustainability and Energy Transition, which all operate in the infrastructure sector (see Note 17). The Company is headquartered in New York, New York. FTAI Infrastructure Spin-off On July 11, 2022, the Former Parent announced that its Board of Directors unanimously approved the details and timing of the previously announced spin-off of its infrastructure business, which was contributed to or merged into the Company and resulted in the infrastructure business being considered as our predecessor. Prior to the spin-off, FTAI consisted of an equipment leasing business and an infrastructure business. On August 1, 2022 (the “Separation Date”), FTAI distributed to the holders of FTAI common shares as of July 21, 2022, one share of FTAI Infrastructure Inc. common stock for each FTAI common share and we became an independent, publicly-traded company trading on The Nasdaq Global Select Market under the symbol “FIP.” In connection with the spin-off, the Company made a payment to the Former Parent on the Separation Date from the proceeds of the issuance of new debt (see Note 8) and the Redeemable Preferred Stock raise (see Note 18). The Former Parent retained no ownership interest in the Company following the spin-off. The Company entered into several agreements with the Former Parent and FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”) that, among other things, effect the separation and govern the relationship of the parties following the separation. The Company also entered into a management agreement with the Manager (the “Management Agreement”), with substantially the same terms as the previously held management agreement between the Former Parent and the Manager. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: Unaudited Consolidated and Combined Consolidated Financial Statements The Company’s financial statements for the periods through the Separation Date are Combined Consolidated Financial Statements. The Company’s financial statements for the period after the Separation Date through September 30, 2022 are Consolidated Financial Statements based on the reported results of FTAI Infrastructure Inc. as a standalone company. The historical results of operations, financial position, and cash flows of FTAI Infrastructure represented in the Combined Consolidated Financial Statements may not be indicative of what they would have been had FTAI Infrastructure actually been a separate standalone entity during such periods, nor are they necessarily indicative of our future results of operations, financial position, and cash flows. Basis of Presentation: Prior to spin-off The Company’s financial statements for the periods through the Separation Date were prepared on a standalone basis as if the operations had been conducted independently from the Former Parent and have been derived from the consolidated financial statements and accounting records of the Former Parent. Accordingly, Former Parent’s net investment in our operations (Former Parent Company equity) was shown in lieu of stockholders’ equity in the accompanying Combined Consolidated Financial Statements, which include the historical operations, assets, and liabilities comprising the infrastructure business of FTAI. Prior to the Separation Date, the Combined Consolidated Financial Statements include certain assets and liabilities that have historically been held by the Former Parent but are specifically identifiable or otherwise attributable to FTAI Infrastructure. All significant intercompany transactions between Former Parent and FTAI Infrastructure have been included as components of Net Former Parent investment in the Combined Consolidated Financial Statements, as they are to be considered effectively settled upon effectiveness of the separation. 11 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The Combined Consolidated Financial Statements are presented as if our businesses had been combined for all periods presented. The assets and liabilities in the Combined Consolidated Financial Statements have been reflected on a historical cost basis, as immediately prior to the separation, all of the assets and liabilities presented are owned by the Former Parent and are being transferred to us at a carry-over basis. Principles of Combination —FTAI Infrastructure has elected the principles of Combined Consolidated Financial Statements as the basis of presentation for the periods through the Separation Date due to common ownership and management of the entities, which includes the financial results of the Railroad, Jefferson Terminal, Repauno, Power and Gas, and Sustainability and Energy Transition segments. Cash and Cash Equivalents —The Cash and Cash Equivalents reflected in the financial statements through the Separation Date are Cash and Cash Equivalents that were legally held by FTAI Infrastructure during the periods presented in the financial statements and are directly attributed to and used in the operations of FTAI Infrastructure. Debt and the Corresponding Interest Expense — The Debt reflected in the financial statements through the Separation Date is debt that is directly attributable to, and legally incurred by, FTAI Infrastructure. The corresponding interest expense presented in the financial statements is derived solely from the Debt directly attributed to FTAI Infrastructure. Corporate Function —For the periods through the Separation Date, the Combined Consolidated Financial Statements include all revenues and costs directly attributable to FTAI Infrastructure and an allocation of certain expenses. The Former Parent is externally managed by the Manager, which performs the Former Parent’s corporate function, and incurs a variety of expenses including, but not limited to, information technology, accounting, treasury, tax, legal, corporate finance and communications. For purposes of the Combined Consolidated Statements of Operations, an allocation of these expenses is included to reflect our portion of such corporate overhead from the Former Parent. The charges reflected have either been specifically identified or allocated based on an estimate of time spent on FTAI Infrastructure. These allocated costs are recorded in general and administrative, and acquisition and transaction expenses in the Combined Consolidated Statements of Operations. We believe the assumptions regarding allocations of the Former Parent’s Corporate expenses are reasonable. Nevertheless, the allocations may not be indicative of the actual expense that would have been incurred had FTAI Infrastructure operated as an independent, standalone public entity, nor are they indicative of the Company’s future expenses. Actual costs that may have been incurred if FTAI Infrastructure had been a standalone company would depend on a number of factors, including the organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. The Former Parent funded FTAI Infrastructure’s operating and investing activities as needed. Cash transfers to and from the Former Parent are reflected in the Combined Consolidated Statements of Cash Flows as “Net transfers from Former Parent”. Refer to Note 16 for additional discussion on corporate costs allocated from the Former Parent that are included in these Combined Consolidated Financial Statements . Subsequent to the Separation Date, the Company operated as a standalone company based on actual expenses incurred. Unaudited Interim Financial Information —The accompanying interim Consolidated Balance Sheet as of September 30, 2022, and the Consolidated and Combined Consolidated Statements of Operations, Comprehensive Loss, Changes in Equity and Cash Flows for the three and nine months ended September 30, 2022 and 2021 are unaudited. These unaudited interim Consolidated and Combined Consolidated Financial Statements have been prepared in accordance with U.S. GAAP. In the opinion of our management, the unaudited interim Consolidated and Combined Consolidated Financial Statements include all adjustments necessary for the fair presentation of our financial position as of September 30, 2022, the results of operations, comprehensive loss, changes in equity and cash flows for the three and nine months ended September 30, 2022 and 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other period. Principles of Consolidation — We consolidate all entities in which we have a controlling financial interest and control over significant operating decisions, as well as variable interest entities (“VIEs”) in which we are the primary beneficiary. All significant intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The ownership interest of other investors in consolidated subsidiaries is recorded as non-controlling interest. We use the equity method of accounting for investments in entities in which we exercise significant influence but which do not meet the requirements for consolidation. Under the equity method, we record our proportionate share of the underlying net income (loss) of these entities as well as the proportionate interest in adjustments to other comprehensive income (loss). Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated and Combined Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period, including allocations from the Former Parent during the period prior to the spin-off. Actual results could differ from those estimates. 12 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Risks and Uncertainties — In the normal course of business, we encounter several significant types of economic risk including credit, market, and capital market risks. Credit risk is the risk of the inability or unwillingness of a lessee, customer, or derivative counterparty to make contractually required payments or to fulfill its other contractual obligations. Market risk reflects the risk of a downturn or volatility in the underlying industry segments in which we operate, which could adversely impact the pricing of the services offered by us or a lessee’s or customer’s ability to make payments. Capital market risk is the risk that we are unable to obtain capital at reasonable rates to fund the growth of our business or to refinance existing debt facilities. We do not have significant exposure to foreign currency risk as all of our leasing and revenue arrangements are denominated in U.S. dollars. Variable Interest Entities (“VIE”) — The assessment of whether an entity is a VIE and the determination of whether to consolidate a VIE requires judgment. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Delaware River Partners LLC During 2016, through Delaware River Partners LLC (“DRP”), a consolidated subsidiary, we purchased the assets of Repauno, which consisted primarily of land, a storage cavern, and riparian rights for the acquired land, site improvements and rights. Upon acquisition there were no operational processes that could be applied to these assets that would result in outputs without significant green field development. We currently hold an approximately 98 % economic interest, and a 100 % voting interest in DRP. DRP is solely reliant on us to finance its activities and therefore is a VIE. We concluded that we were the primary beneficiary; and accordingly, DRP has been presented on a consolidated basis in the accompanying Consolidated and Combined Consolidated Financial Statements. Total VIE assets of DRP were $ 322.0 million and $ 316.5 million, and total VIE liabilities of DRP were $ 43.8 million and $ 32.6 million as of September 30, 2022 and December 31, 2021, respectively. Cash and Cash Equivalents — We consider all highly liquid short-term investments with a maturity of 90 days or less when purchased to be cash equivalents. Restricted Cash — Restricted cash consists of prepaid interest and principal pursuant to the requirements of certain of our debt agreements (see Note 8) and other qualifying construction projects at Jefferson Terminal. Other Current Assets —Other current assets is primarily comprised of commodities inventory of $ 4.6 million and $ 6.8 million, deposits of $ 28.6 million and $ 17.2 million, note receivable of $ 20.0 million and $ 7.5 million, prepaid expenses of $ 17.2 million and $ 17.4 million, and other assets of $ 7.4 million and $ 11.9 million as of September 30, 2022 and December 31, 2021, respectively. Property, Plant, and Equipment, Leasing Equipment and Depreciation — Property, plant and equipment and leasing equipment are stated at cost (inclusive of capitalized acquisition costs, where applicable) and depreciated using the straight-line method, over their estimated useful lives, to estimated residual values which are summarized as follows: Asset Range of Estimated Useful Lives Residual Value Estimates Railcars and locomotives 40 - 50 years from date of manufacture Scrap value at end of useful life Track and track related assets 15 - 50 years from date of manufacture Scrap value at end of useful life Land, site improvements and rights N/A N/A Bridges and tunnels 15 - 55 years Scrap value at end of useful life Buildings and site improvements 20 - 30 years Scrap value at end of useful life Railroad equipment 3 - 15 years from date of manufacture Scrap value at end of useful life Terminal machinery and equipment 15 - 25 years from date of manufacture Scrap value at end of useful life Vehicles 5 - 7 years from date of manufacture Scrap value at end of useful life Furniture and fixtures 3 - 6 years from date of purchase None Computer hardware and software 2 - 5 years from date of purchase None Construction in progress N/A N/A Major improvements and modifications incurred in connection with the acquisition of property, plant and equipment and leasing equipment that are required to get the asset ready for initial service are capitalized and depreciated over the remaining life of the asset. Project costs of major additions and betterments, including capitalizable engineering costs and other costs directly related to the development or construction of project, are capitalized and depreciation commences once it is placed into service. Interest costs directly related to and incurred during the construction period of property, plant and equipment are capitalized. Significant spare parts are depreciated in conjunction with the underlying property, plant and equipment asset when placed in service. 13 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) We review our depreciation policies on a regular basis to determine whether changes have taken place that would suggest that a change in our depreciation policies, useful lives of our equipment or the assigned residual values is warranted. We, through our equity method investment in Long Ridge, have a working interest in various natural gas reserves located in southeastern Ohio. Capitalized Interest —The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. Interest capitalization ceases once a project is substantially complete or no longer undergoing construction activities to prepare it for its intended use. We capitalized interest of $ 2.6 million, $ 6.9 million, $ 2.5 million, and $ 5.9 million during the three and nine months ended September 30, 2022 and 2021, respectively. Repairs and Maintenance —Repair and maintenance costs that do not extend the lives of the assets are expensed as incurred. Our repairs and maintenance expense were $ 3.9 million, $ 9.3 million, $ 1.6 million, and $ 3.3 million during the three and nine months ended September 30, 2022 and 2021, respectively, and are included in Operating expenses in the Consolidated and Combined Consolidated Statements of Operations. Impairment of Long-Lived Assets —We perform a recoverability assessment of each of our long-lived assets whenever events or changes in circumstances, or indicators, indicate that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant change in market conditions; or the introduction of newer technology. When performing a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the asset exceeds its net book value. The undiscounted cash flows consist of cash flows from currently contracted leases and terminal services contracts, future projected leases, terminal service and freight rail rates, transition costs, and estimated residual or scrap values. In the event that an asset does not meet the recoverability test, the carrying value of the asset will be adjusted to fair value resulting in an impairment charge. Management develops the assumptions used in the recoverability analysis based on its knowledge of active contracts, current and future expectations of the demand for a particular asset and historical experience, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in contracted lease rates, terminal service, and freight rail rates, residual values, economic conditions, technology, demand for a particular asset type and other factors. Goodwill —Goodwill includes the excess of the purchase price over the fair value of the net tangible and intangible assets associated with the acquisition of Jefferson Terminal, Transtar and FYX. The carrying amount of goodwill was approximately $ 263.1 million and $ 257.1 million as of September 30, 2022 and December 31, 2021, respectively. We review the carrying values of goodwill at least annually to assess impairment since these assets are not amortized. An annual impairment review is conducted as of October 1st of each year. Additionally, we review the carrying value of goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The determination of fair value involves significant management judgment. For an annual goodwill impairment assessment, an optional qualitative analysis may be performed. If the option is not elected or if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a goodwill impairment test is performed to identify potential goodwill impairment and measure an impairment loss. A qualitative analysis was not elected for the year ended December 31, 2021. We estimate the fair value of the reporting units using an income approach, specifically a discounted cash flow analysis. This analysis requires us to make significant assumptions and estimates about the forecasted revenue growth rates, EBITDA margins, capital expenditures, the timing of future cash flows, and discount rates. The estimates and assumptions used consider historical performance if indicative of future performance and are consistent with the assumptions used in determining future profit plans for the reporting units. In connection with our impairment analysis, although we believe the estimates of fair value are reasonable, the determination of certain valuation inputs is subject to management's judgment. Changes in these inputs, including as a result of events beyond our control, could materially affect the results of the impairment review. If the forecasted cash flows or other key inputs are negatively revised in the future, the estimated fair value of the reporting unit could be adversely impacted, potentially leading to an impairment in the future that could materially affect our operating results. The Jefferson Terminal reporting unit had an estimated fair value that exceeded its carrying value by more than 10% but less than 20% as of October 1, 2021. The Jefferson Terminal segment forecasted revenue is dependent on the ramp up of volumes under current and expected future contracts for storage and throughput of heavy and light crude and refined products and is subject to obtaining rail capacity for crude, expansion of refined product distribution to Mexico and movements in future oil spreads. At October 1, 2021, approximately 4.3 million barrels of storage was currently operational with 1.9 million barrels currently under construction for new contracts which will complete our storage development for our main terminal. Our discount rate for our 2021 goodwill impairment analysis was 9.0 % and our assumed terminal growth rate was 2.0 %. If our strategy changes from planned capacity downward due to an inability to source contracts or expand volumes, the fair value of the reporting unit would be negatively affected, which could lead to an impairment. The expansion of refineries in the Beaumont/Port Arthur area, as well as growing crude oil production in the U.S. and Canada, are expected to result in increased demand for storage on the U.S. Gulf Coast. Although we do not have 14 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) significant direct exposure to volatility of crude oil prices, changes in crude oil pricing that affect long term refining planned output could impact Jefferson Terminal operations. We expect the Jefferson Terminal segment to continue to generate positive Adjusted EBITDA in future years. Although certain of our anticipated contracts or expected volumes from existing contracts for Jefferson Terminal have been delayed, we continue to believe our projected revenues are achievable. Further delays in executing these contracts or achieving our projections could adversely affect the fair value of the reporting unit. The impact of the COVID-19 global pandemic during 2020 and 2021 negatively affected refining volumes and therefore Jefferson Terminal crude throughput but we have seen the activity starting to normalize and have ramped back up to pre-pandemic levels during 2022. Furthermore, we anticipate strengthening macroeconomic demand for storage and the increasing spread between Western Canadian Crude and Western Texas Intermediate as Canadian crude pipeline apportionment increases. Also, as our pipeline connections became fully operational during 2021, we remain positive for the outlook of Jefferson Terminal's earnings potential. There were no impairments of goodwill for the three and nine months ended September 30, 2022 and 2021. Intangibles and amortization —Intangible assets include the value of existing customer relationships acquired in connection with the acquisition of Jefferson Terminal and Transtar. Customer relationship intangible assets are amortized on a straight-line basis over their useful lives as the pattern in which the asset’s economic benefits are consumed cannot reliably be determined. Customer relationship intangible assets have useful lives ranging from 5 to 15 years, no estimated residual value, and amortization is recorded as a component of Depreciation and amortization in the Consolidated and Combined Consolidated Statements of Operations. The weighted-average remaining amortization period for customer relationships was 149 months and 154 months as of September 30, 2022 and December 31, 2021, respectively. Deferred Financing Costs —Costs incurred in connection with obtaining long-term financing are capitalized and amortized to interest expense over the term of the underlying loans . Unamortized deferred financing costs of $ 31.5 million and $ 21.5 million as of September 30, 2022 and December 31, 2021, respectively, are included in Debt, net in the Consolidated and Combined Consolidated Balance Sheets. Amortization expense was $ 1.3 million, $ 3.0 million, $ 0.7 million and $ 1.8 million for the three and nine months ended September 30, 2022 and 2021, respectively, and is included in Interest expense in the Consolidated and Combined Consolidated Statements of Operations. Other Assets —Other Assets primarily consists of $ 10.0 million of note receivable as of both September 30, 2022 and December 31, 2021 from CarbonFree, a business that develops technologies to capture carbon dioxide from industrial emissions sources. Additionally, the Other Assets balance included $ 5.1 million and $ 2.9 million of spare parts for the Railroad segment at September 30, 2022 and December 31, 2021, respectively. Accounts Payable and Accrued Liabilities —Accounts payable and accrued liabilities primarily include payables relating to construction projects, interline payables to other railroads, accrued compensation, interest and payables to Manager. Other Current Liabilities —Other current liabilities primarily include environmental liabilities of $ 4.1 million and $ 4.1 million, and insurance premium liabilities of $ 1.5 million and $ 1.7 million as of September 30, 2022 and December 31, 2021, respectively. Redeemable Preferred Stock —We classify the Series A Senior Preferred Stock ("Redeemable Preferred Stock") as temporary equity in the Consolidated and Combined Consolidated Balance Sheets due to certain contingent redemption clauses that are at the election of the holders. The carrying value of the Redeemable Preferred Stock is accreted to the redemption value at the earliest redemption date, which has been determined to be August 1, 2030. We use the interest method to accrete to the redemption value. Terminal Services Revenues —Terminal services are provided to customers for the receipt and redelivery of various commodities. These revenues relate to performance obligations that are recognized over time using the right to invoice practical expedient, i.e., invoiced as the services are rendered and the customer simultaneously receives and consumes the benefit over the contract term. The performance of service and right to invoice corresponds with the value delivered to our customers. Revenues are typically invoiced and paid on a monthly basis. Rail Revenues —Rail revenues generally consist of the following performance obligations: industrial switching, interline services, demurrage and storage. Switching revenues are derived from the performance of switching services, which involve the movement of cars from one point to another within the limits of an individual plant, industrial area, or a rail yard. Switching revenues are recognized as the services are performed, and the services are generally completed on the same day they are initiated. Interline revenues are derived from transportation services for railcars that originate or terminate at our railroads and involve one or more other carriers. For interline traffic, one railroad typically invoices a customer on behalf of all railroads participating in the route directed by the customer. The invoicing railroad then pays the other railroads its portion of the total amount invoiced on a monthly basis. We record revenue related to interline traffic for transportation service segments provided by carriers along 15 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) railroads that are not owned or controlled by us on a net basis. Interline revenues are recognized as the transportation movements occur. Our ancillary services revenue primarily relates to demurrage and storage services. Demurrage represents charges assessed by railroads for the detention of cars by shippers or receivers of freight beyond a specified free time and is recognized on a per day basis. Storage services revenue is earned for the provision of storage of shippers’ railcars and is generally recognized on a per day, per car basis, as the storage services are provided. Lease Income —Lease income consists of rental income from tenants for storage space. Lease income is recognized on a straight-line basis over the terms of the relevant lease agreement. Other Revenue —Other revenue primarily consists of revenue related to the handling, storage and sale of raw materials. Revenues for the handling and storage of raw materials relate to performance obligations that are recognized over time using the right to invoice practical expedient, i.e., invoiced as the services are rendered and the customer simultaneously receives and consumes the benefit over the contract term. Our performance of service and right to invoice corresponds with the value delivered to our customers. Revenues for the sale of raw materials relate to contracts that contain performance obligations to deliver the product over the term of the contract. The revenues are recognized when the control of the product is transferred to the customer, based on the volume delivered and the price within the contract. Other revenues are typically invoiced and paid on a monthly basis. Additionally, other revenue consists of revenue related to derivative trading activities. See Commodity Derivatives below for additional information. Other revenue also includes revenue related to providing roadside assistance services to customers in the intermodal and over-the-road trucking industries. Revenue is recognized when a performance obligation is satisfied by completing a repair service at a point in time. Revenues are typically invoiced for each repair and generally have 30-day payment terms. Payment terms for Revenues are generally short term in nature. Leasing Arrangements — At contract inception, we evaluate whether an arrangement is or contains a lease for which we are the lessee (that is, arrangements which provide us with the right to control a physical asset for a period of time). Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized in Operating lease right-of-use assets, net and Operating lease liabilities within current liabilities and non-current liabilities in our Consolidated and Combined Consolidated Balance Sheets, respectively. Finance lease ROU assets are recognized in Property, plant and equipment, net and lease liabilities are recognized in Other current liabilities and Other liabilities in our Consolidated and Combined Consolidated Balance Sheets. All lease liabilities are measured at the present value of the unpaid lease payments, discounted using our incremental borrowing rate based on the information available at commencement date of the lease. ROU assets , for both operating and finance leases , are initially measured based on the lease liability, adjusted for prepaid rent and lease incentives. ROU assets are subsequently measured at the carrying amount of the lease liability adjusted for prepaid or accrued lease payments and lease incentives. The finance lease ROU assets are subsequently amortized using the straight-line method. Operating lease expenses are recognized on a straight-line basis over the lease term. With respect to finance leases, amortization of the ROU asset is presented separately from interest expense related to the finance lease liability. Variable lease payments, which are primarily based on usage, are recognized when the associated activity occurs. We have elected to combine lease and non-lease components for all lease contracts where we are the lessee. Additionally, for arrangements with lease terms of 12 months or less, we do not recognize ROU assets, and lease liabilities and lease payments are recognized on a straight-line basis over the lease term with variable lease payments recognized in the period in which the obligation is incurred. Concentration of Credit Risk —We are subject to concentrations of credit risk with respect to amounts due from customers. We attempt to limit our credit risk by performing ongoing credit evaluations. During the three and nine months ended September 30, 2022, one customer in the Railroad segment accounted for approximately 44 % and 54 % of total revenue, respectively. Additionally, we earned approximately 10 % of our revenue for the nine months ended September 30, 2022 from one customer in the Jefferson Terminal segment. For the three and nine months ended September 30, 2021, we earned 13 % and 20 % of our revenues from one customer in the Jefferson Terminal segment, respectively. For the three and nine months ended September 30, 2021, we earned approximately 26 % and 10 % of our revenue from one customer in the Railroad segment, respectively. As of September 30, 2022 and December 31, 2021, accounts receivable from two customers from the Jefferson Terminal and Railroad segments represented 44 % and 48 % of total accounts receivable, net, respectively. We maintain cash and restricted cash balances, which generally exceed federally insured limits, and subject us to credit risk, in high credit quality financial institutions. We monitor the financial condition of these institutions and have not experienced any losses associated with these accounts. 16 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Allowance for Doubtful Accounts — We determine the allowance for doubtful accounts based on our assessment of the collectability of our receivables on a customer-by-customer basis. We also consider current and future economic conditions over the expected lives of the receivables, the amount of receivables in dispute, and the current receivables aging. Expense Recognition —Expenses are recognized on an accrual basis as incurred. Acquisition and Transaction expenses —Acquisition and transaction expense is comprised of costs related to business combinations, dispositions and terminated deal costs related to asset acquisitions, including advisory, legal, accounting, valuation and other professional or consulting fees. Comprehensive Income (Loss) — Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. Our comprehensive income (loss) represents net income (loss), as presented in the Consolidated and Combined Consolidated Statements of Operations, adjusted for fair value changes recorded in other comprehensive income (loss) related to cash flow hedges of our equity method investees and pension and other postretirement benefits. Derivative Financial Instruments Electricity Derivatives — Through our equity method investment in Long Ridge, we enter into derivative contracts as part of a risk management program to mitigate price risk associated with certain electricity price exposures. Long Ridge primarily uses swap derivative contracts, which are agreements to buy or sell a quantity of electricity at a predetermined future date and at a predetermined price. Cash Flow Hedges Certain of these derivative instruments are designated and qualify as cash flow hedges. Our share of the derivative's gain or loss is reported as Other comprehensive income (loss) related to equity method investees, net in our Consolidated and Combined Consolidated Statements of Comprehensive Loss and recorded in Accumulated other comprehensive income (loss) in our Consolidated and Combined Consolidated Balance Sheets. The change in our equity method investment balance related to derivative gains or losses on cash flow hedges is disclosed as a Non-cash change in equity method investment in our Consolidated and Combined Consolidated Statements of Cash Flows. Derivatives Not Designated As Hedging Instruments Certain of these derivative instruments are not designated as hedging instruments for accounting purposes. Our share of the change in fair value of these contracts is recognized in Equity in earnings (losses) in unconsolidated entities in the Consolidated and Combined Consolidated Statements of Operations. The cash flow impact of derivative contracts that are not designated as hedging instruments is recognized in Equity in earnings (losses) in unconsolidated entities in our Consolidated and Combined Consolidated Statements of Cash Flows. Commodity Derivatives — Depending on market conditions, we enter into short-term forward purchase and sales contracts for butane. Gains and losses related to our butane derivatives are recorded on a net basis and are included in Other revenue in our Consolidated and Combined Consolidated Statements of Operations, as these contracts are considered part of central operating activities. The cash flow impact of these derivatives is recognized in Change in fair value of non-hedge derivatives in our Consolidated and Combined Consolidated Statements of Cash Flows. We record all derivative assets on a gross basis at fair value, which are included in Other current assets, in our Consolidated and Combined Consolidated Balance Sheets. Income Taxes —Prior to the spin-off, we were taxed as a disregarded entity for U.S. federal income tax purposes and our taxable income or loss generated was the responsibility of our Former Parent, except as related to certain wholly owned corporate subsidiaries of the infrastructure business. The income tax provision included in the Consolidated and Combined Consolidated Financial Statements prior to the spin-off was prepared on a separate return method. Post spin-off, FTAI Infrastructure’s tax profile, certain return elections and assertions are different, including a single consolidated Federal tax filing in the U.S., and therefore the income taxes presented prior to the spin-off in the Consolidated and Combined Financial Statements are not expected to be indicative of the Company’s future income taxes. We account for these taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management believes it is more likely than not that a deferred tax asset will not be realized. Some of our entities file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in certain foreign jurisdictions. The income tax returns filed by us and our subsidiaries are subject to examination by the U.S. federal, state and foreign tax authorities. We recognize tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in the Consolidated and Combined Consolidated Statements of Operations. 17 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Pension and Other Postretirement Benefits —We have obligations for a pension and a postretirement benefit plan in connection with the acquisition of Transtar for certain eligible Transtar employees. The pension and other postretirement obligations and the related net periodic costs are based on, among other things, assumptions regarding the discount rate, salary increases, the projected mortality of participants and the current level and future escalation of health care costs. Actuarial gains and losses occur when actual experience differs from any of the many assumptions used to value the benefit plans, or when assumptions change. We will recognize into income on an annual basis a portion of unrecognized actuarial net gains or losses that exceed 10 percent of the greater of the projected benefit obligations or the market-related value of plan assets (the corridor). This excess is amortized over the average remaining service period of active employees expected to receive benefits under the plan. Refer to Note 14 for additional discussion on the pension and postretirement benefit plans. Recent Accounting Pronouncements — In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments . This ASU requires lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if (i) the lease would have been classified as a sales-type lease or a direct financing lease under Topic 842 and (ii) the lessor would have otherwise recognized a day-one loss. This standard is effective for all reporting periods beginning after December 15, 2021. We adopted this guidance in the first quarter of 2022, which did not have a material impact on our Consolidated or Combined Consolidated Financial Statements. 3. ACQUISITION OF TRANSTAR, LLC On July 28, 2021, we completed the acquisition for 100 % of the equity interests of Transtar, LLC (“Transtar”) from United States Steel Corporation (“USS”) for total cash consideration of $ 636.0 million. Transtar is comprised of five freight railroads and one switching company, of which two railroads are connected to USS’s largest production facilities. We also entered into an exclusive rail partnership with USS, under which we will provide rail service to USS for an initial term of 15 years with minimum volume commitments for the first five years . Transtar operates within the Railroad reportable segment. See Note 17 for additional information. The results of operations at Transtar have been included in the Consolidated and Combined Consolidated Statements of Operations as of the effective date of the acquisition. In connection with the acquisition, we recorded $ 4.0 million and $ 7.0 million of acquisition and transaction expense during the three and nine months ended September 30, 2021, respectively. The Former Parent funded the transaction with bridge loans in an aggregate principal amount of $ 650 million. In September 2021, the Former Parent issued new equity and debt and repaid in full the bridge loans. In accordance with ASC 805, Business Combinations , the following fair values assigned to assets acquired and liabilities assumed are based on management’s estimates and assumptions. The significant assumptions used to estimate the fair value of the property, plant and equipment included replacement cost estimates, salvage values and market data for similar assets where available. The significant assumptions used to estimate the value of the customer relationship intangible assets included discount rate and future revenues and operating expenses. The following table summarizes the allocation of the purchase price, as presented in our Combined Consolidated Balance Sheet: Fair value of assets acquired: Cash and cash equivalents $ 8,918 Accounts receivable 18,625 Operating lease right-of-use assets 12,231 Property, plant and equipment 487,946 Intangible assets 60,000 Other assets 17,052 Total assets 604,772 Fair value of liabilities assumed: Accounts payable and accrued liabilities 47,010 Operating lease liabilities 10,689 Pension and other postretirement benefits (1) 37,552 Other liabilities 8,487 Total liabilities 103,738 Goodwill (2) 134,975 Total purchase consideration $ 636,009 ________________________________________________________ (1) Included in Other liabilities in the Combined Consolidated Balance Sheet. 18 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) (2) Goodwill is primarily attributable to the assembled workforce of Transtar and the synergies expected to be achieved. This goodwill is assigned to the Railroad segment and is tax deductible for income tax purposes. The following table presents the identifiable intangible assets and their estimated useful lives: Estimated useful life in years Fair value Customer relationships 15 $ 60,000 Total $ 60,000 The following table presents the property, plant and equipment and their estimated remaining useful lives: Estimated remaining useful life in years Fair value Railcars and locomotives 1 - 40 $ 111,359 Track and track related assets 1 - 40 90,904 Land, site improvements and rights N/A 87,450 Bridges and tunnels 15 - 55 173,896 Buildings and improvements 3 - 25 12,448 Railroad equipment 2 - 15 2,725 Terminal machinery and equipment 2 - 15 3,325 Vehicles 2 - 5 3,740 Construction in progress N/A 1,928 Computer hardware and software 2 - 5 171 Total $ 487,946 The unaudited financial information in the table below summarizes the combined results of operations of FTAI Infrastructure and Transtar on a pro forma basis, as though the companies had been combined as of January 1, 2020. These pro forma results were based on estimates and assumptions which we believe are reasonable. The pro forma adjustments are primarily comprised of the following: • The allocation of the purchase price and related adjustments, including adjustments to depreciation and amortization expense related to the fair value of property, plant and equipment and intangible assets acquired; • Impacts of debt financing, including interest for debt issued and amortization of deferred financing costs; • The exclusion of acquisition-related costs incurred during the year ended December 31, 2021 and allocation of substantially all acquisition-related costs to the year ended December 31, 2020; and • Associated tax-related impacts of adjustments. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place as of January 1, 2020. Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Total revenue $ 47,059 $ 152,217 Net loss attributable to Former Parent ( 25,148 ) ( 37,634 ) 4. LEASING EQUIPMENT, NET Leasing equipment, net is summarized as follows: September 30, 2022 December 31, 2021 Leasing equipment $ 44,179 $ 44,179 Less: Accumulated depreciation ( 8,996 ) ( 8,167 ) Leasing equipment, net $ 35,183 $ 36,012 Depreciation expense for leasing equipment is summarized as follows: 19 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Depreciation expense for leasing equipment $ 276 $ 276 $ 828 $ 828 5. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net is summarized as follows: September 30, 2022 December 31, 2021 Land, site improvements and rights $ 175,121 $ 149,914 Construction in progress 254,246 118,081 Buildings and improvements 19,334 19,164 Bridges and Tunnels 173,868 174,889 Terminal machinery and equipment 974,517 962,552 Track and track related assets 100,068 100,014 Railroad equipment 8,433 8,331 Railcars and locomotives 102,795 111,574 Computer hardware and software 11,171 5,335 Furniture and fixtures 1,745 1,745 Other 10,014 10,016 1,831,312 1,661,615 Less: Accumulated depreciation ( 189,939 ) ( 144,021 ) Property, plant and equipment, net $ 1,641,373 $ 1,517,594 During the nine months ended September 30, 2022, we added property, plant and equipment of $ 169.7 million, which primarily consisted of terminal machinery and equipment placed in service or land under development at Jefferson Terminal. Depreciation expense for property, plant and equipment is summarized as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Depreciation expense $ 15,963 $ 15,184 $ 45,966 $ 34,624 6. INVESTMENTS The following table presents the ownership interests and carrying values of our investments: Carrying Value Investment Ownership Percentage September 30, 2022 December 31, 2021 Intermodal Finance I, Ltd. Equity method 51 % $ — $ — Long Ridge Terminal LLC (1) Equity method 50 % — — FYX Trust Holdco LLC (2) Equity at December 31, 2021 65 % and 14 % as of September 30, 2022 and December 31, 2021, respectively (2) — 1,255 GM-FTAI Holdco LLC Equity method See below 70,083 52,295 Clean Planet Energy USA LLC Equity method 50 % 4,445 858 $ 74,528 $ 54,408 ________________________________________________________ (1) The carrying value of $ 235.2 million and $ 17.5 million as of September 30, 2022 and December 31, 2021 is included in Other liabilities in the Consolidated and Combined Consolidated Balance Sheets. (2) See “Equity Investments - FYX Holdco LLC” below for additional information regarding the FYX Trust Holdco LLC acquisition in May 2022. We did not recognize any other-than-temporary impairments for the three and nine months ended September 30, 2022 and 2021. 20 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table presents our proportionate share of equity in (losses) income: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Intermodal Finance I, Ltd. $ 33 $ 77 $ 121 $ 452 Long Ridge Terminal LLC ( 9,222 ) ( 1,622 ) ( 43,574 ) ( 9,262 ) GM-FTAI Holdco LLC ( 2,399 ) — ( 3,520 ) — Clean Planet Energy USA LLC ( 492 ) — ( 1,009 ) — Total $ ( 12,080 ) $ ( 1,545 ) $ ( 47,982 ) $ ( 8,810 ) Equity Method Investments Intermodal Finance I, Ltd. In 2012, we acquired a 51 % non-controlling interest in Intermodal Finance I, Ltd. (“Intermodal”). Intermodal is governed by a board of directors, and its shareholders have voting rights through their equity interests. As such, Intermodal is not within the scope of ASC 810-20 and should be evaluated for consolidation under the voting interest model. Due to the existence of substantive participating rights of the 49 % equity investor, including the joint approval of material operating and capital decisions, such as material contracts and capital expenditures consistent with ASC 810-10-25-11, we do not have unilateral rights over this investment and, therefore, we do not consolidate Intermodal but account for this investment in accordance with the equity method. We do not have a variable interest in this investment as none of the criteria of ASC 810-10-15-14 were met. As of September 30, 2022, Intermodal owns a portfolio of approximately 500 shipping containers subject to multiple operating leases. Long Ridge Terminal LLC In December 2019, Ohio River Shareholder LLC (“ORP”), a wholly owned subsidiary, contributed its equity interests in Long Ridge into Long Ridge Terminal LLC and sold a 49.9 % interest (the “Long Ridge Transaction”) for $ 150 million in cash, plus an earn out. We no longer have a controlling interest in Long Ridge but still maintain significant influence through our retained interest and, therefore, now account for this investment in accordance with the equity method. Following the sale, we deconsolidated ORP, which held the assets of Long Ridge. 21 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The tables below present summarized financial information for Long Ridge Terminal LLC: September 30, 2022 December 31, 2021 Balance Sheet Assets Current assets: Cash and cash equivalents $ 2,672 $ 2,932 Restricted cash 20,712 32,469 Accounts receivable 24,987 17,896 Other current assets 1,528 8,857 Total current assets 49,899 62,154 Property plant & equipment 814,090 764,607 Intangible assets 4,655 4,940 Goodwill 89,390 89,390 Other assets 8,678 5,584 Total assets 966,712 926,675 Liabilities Current liabilities: Accounts payable and accrued liabilities 53,800 16,121 Debt, net 4,422 — Derivative liabilities 195,775 47,369 Other current liabilities 943 257 Total current liabilities 254,940 63,747 Debt, net 600,639 604,261 Derivative liabilities 573,929 291,664 Other liabilities 6,742 1,989 Total liabilities 1,436,250 961,661 Members' Equity Shareholders' equity ( 348,614 ) ( 1,035 ) Accumulated deficit ( 120,924 ) ( 33,951 ) Total members' equity ( 469,538 ) ( 34,986 ) Total liabilities and members' equity $ 966,712 $ 926,675 Three Months Ended September 30, Nine Months Ended September 30, Income Statement 2022 2021 2022 2021 Total revenue $ 27,277 $ 21,071 $ 42,320 $ 38,341 Expenses Operating expenses 19,057 5,581 51,413 16,568 Depreciation and amortization 13,226 5,891 38,223 13,327 Interest expense 13,413 547 39,455 1,493 Total expenses 45,696 12,019 129,091 31,388 Total other income (expense) 11 ( 16,614 ) ( 202 ) ( 25,440 ) Net loss $ ( 18,408 ) $ ( 7,562 ) $ ( 86,973 ) $ ( 18,487 ) 22 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) GM-FTAI Holdco LLC In September 2021, we acquired 1 % of the Class A shares and 50 % of the Class B shares of GM-FTAI Holdco LLC for $ 52.5 million. GM-FTAI Holdco LLC owns 100 % interest in Gladieux Metals Recycling (“GMR”) and Aleon Renewable Metals LLC (“Aleon”). GMR specializes in recycling spent catalyst produced in the petroleum refining industry. Aleon plans to develop a lithium-ion battery recycling business across the United States. Each planned location will collect, discharge and disassemble lithium-ion batteries to extract various metals in high-purity form for resale into the lithium-ion battery production market. Aleon and GMR are governed by separate boards of directors. Our ownership of Class A and B shares in GM-FTAI Holdco LLC provides us with 1 % and 50 % economic interest in GMR and Aleon, respectively. We account for our investment in GM-FTAI Holdco LLC as an equity method investment as we have significant influence through our ownership of Class A and Class B shares of GM-FTAI Holdco LLC. On June 15, 2022, we exchanged our Class B shares which gave us economic interest in Aleon for an additional 20 % interest in Class A shares. In addition, we also terminated our credit agreements with GMR and Aleon in exchange for an approximate 8.5 % of additional interest in Class A shares. As a result of these exchange transactions, we own approximately 27 % of GM-FTAI Holdco LLC, which owns 100 % of both GMR and Aleon. Clean Planet Energy USA LLC In November 2021, we acquired 50 % of the Class A shares of Clean Planet Energy USA LLC (“Clean Planet”) with an initial investment of $ 1.0 million. CPE intends on building waste plastic-to-fuel plants in the United States. The plants will convert various grades of non-recyclable waste plastic to renewable diesel in the form of jet fuel, diesel, naphtha, and low sulfur fuel oil. We account for our investment in CPE as an equity method investment as we have significant influence through our ownership of Class A shares. Equity Investments FYX Trust Holdco LLC In July 2020, we invested $ 1.3 million for a 14 % interest in an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries. FYX Trust Holdco LLC (“FYX”) has developed a mobile and web-based application that connects fleet managers, owner-operators, and drivers with repair vendors to efficiently and reliably quote, dispatch, monitor, and bill roadside repair services. In May 2022, we purchased an additional 51 % interest in FYX from an unrelated third party for a purchase price of $ 4.6 million, which resulted in our ownership of a majority stake in the entity. From the purchase date in May 2022 through and as of September 30, 2022, FYX is presented on a consolidated basis in the Consolidated and Combined Consolidated Statements of Operations and the Consolidated and Combined Consolidated Balance Sheets. At September 30, 2022, $ 4.2 million is recorded as non-controlling interest for interest held by other parties. At the purchase date, assets of FYX were $ 13.7 million, liabilities were $ 10.1 million, and goodwill of $ 5.4 million was recorded. Since purchase, we have recorded total revenue from FYX of $ 30.4 million and net loss from FYX of $ 0.7 million. 7. INTANGIBLE ASSETS, NET Intangible assets, net are summarized as follows: September 30, 2022 Jefferson Terminal Railroad Total Intangible assets Customer relationships $ 35,513 $ 60,000 $ 95,513 Less: Accumulated amortization ( 28,702 ) ( 4,730 ) ( 33,432 ) Intangible assets, net $ 6,811 $ 55,270 $ 62,081 December 31, 2021 Jefferson Terminal Railroad Total Intangible assets Customer relationships $ 35,513 $ 60,000 $ 95,513 Less: Accumulated amortization ( 26,038 ) ( 1,738 ) ( 27,776 ) Intangible assets, net $ 9,475 $ 58,262 $ 67,737 23 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Amortization of intangible assets is as follows: Classification in Consolidated and Combined Consolidated Statements of Operations Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Customer relationships Depreciation and amortization $ 1,897 $ 1,671 $ 5,657 $ 3,448 As of September 30, 2022, estimated net annual amortization of intangibles is as follows: Remainder of 2022 $ 1,888 2023 7,551 2024 6,371 2025 4,000 2026 4,000 Thereafter 38,271 Total $ 62,081 8. DEBT, NET Our debt, net is summarized as follows: September 30, 2022 December 31, 2021 Outstanding Borrowings Stated Interest Rate Maturity Date Outstanding Borrowings Loans payable DRP Revolver (1) $ 25,000 (i) Base Rate + 2.75 %; or (ii) Base Rate + 3.75 % (Eurodollar) 11/5/24 $ 25,000 EB-5 Loan Agreement 35,550 5.75 % 1/25/26 26,100 Total loans payable 60,550 51,100 Bonds payable Series 2020 Bonds 263,980 (i) Tax Exempt Series 2020A Bonds: 3.625 % (ii) Tax Exempt Series 2020A Bonds: 4.00 % (iii) Taxable Series 2020B Bonds: 6.00 % (i) 1/1/35 (ii) 1/1/50 (iii) 1/1/25 263,980 Series 2021 Bonds 425,000 (i) Series 2021A Bonds: 1.875 % to 3.000 % (ii) Series 2021B Bonds: 4.100 % (i) 1/1/26 to 1/1/50 (ii) 1/1/28 425,000 Senior Notes due 2027 (2) 473,822 10.500 % 6/1/27 — Total bonds payable 1,162,802 688,980 Debt 1,223,352 740,080 Less: Debt issuance costs ( 31,467 ) ( 21,456 ) Total debt, net $ 1,191,885 $ 718,624 Total debt due within one year $ — $ — ________________________________________________________ (1) Requires a quarterly commitment fee at a rate of 1.00 % on the average daily unused portion, as well as customary letter of credit fees and agency fees. (2) Includes an unamortized discount of $ 26,178 and $ — at September 30, 2022 and December 31, 2021, respectively. Senior Notes due 2027 —In connection with the spin-off, we issued $ 500 million aggregate principal amount of Senior Notes due 2027 (the “2027 Notes”). The 2027 Notes bear interest at a rate of 10.500 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2022. The 2027 Notes were issued at an issue price equal to 94.585 %. We were in compliance with all debt covenants as of September 30, 2022. 24 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 9. FAIR VALUE MEASUREMENTS Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows: • Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs. • Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability. The valuation techniques that may be used to measure fair value are as follows: • Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. • Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts. • Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). The following tables set forth our financial assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, by level within the fair value hierarchy. Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Fair Value as of Fair Value Measurements Using Fair Value Hierarchy as of September 30, 2022 September 30, 2022 Total Level 1 Level 2 Level 3 Valuation Technique Assets Cash and cash equivalents $ 69,465 $ 69,465 $ — $ — Market Restricted cash 127,166 127,166 — — Market Derivative assets 1,058 — 1,058 — Income Total assets $ 197,689 $ 196,631 $ 1,058 $ — Fair Value as of Fair Value Measurements Using Fair Value Hierarchy as of December 31, 2021 December 31, 2021 Total Level 1 Level 2 Level 3 Valuation Technique Assets Cash and cash equivalents $ 49,872 $ 49,872 $ — $ — Market Restricted cash 251,983 251,983 — — Market Derivative assets 2,220 — 2,220 — Income Total $ 304,075 $ 301,855 $ 2,220 $ — Our cash and cash equivalents and restricted cash consist largely of demand deposit accounts with maturities of 90 days or less when purchased that are considered to be highly liquid. These instruments are valued using inputs observable in active markets for identical instruments and are therefore classified as Level 1 within the fair value hierarchy. The fair value of our commodity derivative assets that are classified as Level 2 measurements are estimated by applying the income and market approaches, based on quotes of observable market transactions, and adjusted for estimated differential factors based on quality and delivery locations. Except as discussed below, our financial instruments other than cash and cash equivalents and restricted cash consist principally of accounts receivable, notes receivable, accounts payable and accrued liabilities, loans payable, and management fees payable, whose fair values approximate their carrying values based on an evaluation of pricing data, vendor quotes, and historical trading activity or due to their short maturity profiles. 25 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The fair value of our bonds and notes payable reported as debt, net in the Consolidated and Combined Consolidated Balance Sheets are presented in the table below: September 30, 2022 December 31, 2021 Series 2020 A Bonds (1) $ 137,769 $ 189,773 Series 2020 B Bonds (1) 73,619 81,637 Series 2021 A Bonds (1) 151,503 222,023 Series 2021 B Bonds (1) 156,846 194,278 2027 Notes 501,605 — ________________________________________________________ (1) Fair value is based upon market prices for similar municipal securities. The fair value of all other items reported as debt, net in the Consolidated and Combined Consolidated Balance Sheets approximate their carrying values due to their bearing market rates of interest and are classified as Level 2 within the fair value hierarchy. We measure the fair value of certain assets on a non-recurring basis when U.S. GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include goodwill, intangible assets, property, plant and equipment and leasing equipment. We record such assets at fair value when it is determined the carrying value may not be recoverable. Fair value measurements for assets subject to impairment tests are based on an income approach which uses Level 3 inputs, which include our assumptions as to future cash flows from operation of the underlying businesses. 10. DERIVATIVE FINANCIAL INSTRUMENTS Commodity Derivatives Depending on market conditions, Repauno enters into forward purchase and sales contracts for butane. These derivatives are short-term in nature and are used for trading purposes and classified as Level 2 derivatives. The following table presents information related to our butane derivative contracts: September 30, 2022 December 31, 2021 Notional Amount (BBL in thousands) 364 244 Fair Value of Assets (1) $ 1,058 $ 2,220 Remaining term 1 to 6 months 1 to 3 months ________________________________________________________ (1) Included in Other assets in the Consolidated and Combined Consolidated Balance Sheets. 11. REVENUES We disaggregate our revenue from contracts with customers by products and services provided for each of our segments, as we believe it best depicts the nature, amount, timing and uncertainty of our revenue. Revenues are within the scope of ASC 606, Revenue from Contracts with Customers , unless otherwise noted. We have elected to exclude sales and other similar taxes from revenues. Three Months Ended September 30, 2022 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Lease income $ 449 $ 309 $ — $ — $ — $ — $ 758 Rail revenues 38,737 — — — — — 38,737 Terminal services revenues — 16,868 96 — — — 16,964 Other revenue — — 1,783 — — 20,317 22,100 Total revenues $ 39,186 $ 17,177 $ 1,879 $ — $ — $ 20,317 $ 78,559 26 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Three Months Ended September 30, 2021 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Lease income $ 358 $ 433 $ — $ — $ — $ — $ 791 Rail revenues 24,986 — — — — — 24,986 Terminal services revenues — 11,469 — — — — 11,469 Other revenue — — ( 458 ) — — — ( 458 ) Total revenues $ 25,344 $ 11,902 $ ( 458 ) $ — $ — $ — $ 36,788 Nine Months Ended September 30, 2022 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Lease income $ 1,490 $ 975 $ — $ — $ — $ — $ 2,465 Rail revenues 112,397 — 86 — — — 112,483 Terminal services revenues — 43,776 199 — — — 43,975 Other revenue — — 1,248 — — 30,404 31,652 Total revenues $ 113,887 $ 44,751 $ 1,533 $ — $ — $ 30,404 $ 190,575 Nine Months Ended September 30, 2021 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Lease income $ 358 $ 1,295 $ — $ — $ — $ — $ 1,653 Rail revenues 28,186 — — — — — 28,186 Terminal services revenues — 32,853 157 — — — 33,010 Other revenue — — 9,825 — — — 9,825 Total revenues $ 28,544 $ 34,148 $ 9,982 $ — $ — $ — $ 72,674 Presented below are the contracted minimum future annual revenues to be received under existing operating leases within the Jefferson Terminal segment as of September 30, 2022: Operating Leases Remainder of 2022 $ 3,062 2023 11,500 2024 4,125 2025 459 2026 421 Thereafter — Total $ 19,567 12. LEASES We have commitments as lessees under lease arrangements primarily for real estate, equipment and vehicles. Our leases have remaining lease terms ranging from approximately one month to 40 years. 27 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table presents lease related costs: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Finance leases Amortization of right-of-use assets $ 273 $ 161 $ 704 $ 161 Interest on lease liabilities 12 11 41 11 Finance lease expense 285 172 745 172 Operating lease expense 2,016 1,471 5,436 3,868 Short-term lease expense 319 42 1,431 417 Variable lease expense 543 540 2,125 1,177 Total lease expense $ 3,163 $ 2,225 $ 9,737 $ 5,634 The following table presents information related to our operating leases as of and for the nine months ended September 30, 2022 and the year ended December 31, 2021: September 30, 2022 December 31, 2021 Right-of-use assets, net $ 70,567 $ 71,547 Lease liabilities 69,631 70,404 Weighted average remaining lease term 34.3 years 34.8 years Weighted average incremental borrowing rate 5.7 % 5.7 % The following table presents supplemental cash flow information for the nine months ended September 30, 2022 and 2021: September 30, 2022 September 30, 2021 Cash paid for amounts included in the measurement of operating lease liabilities $ 5,300 $ 3,849 Noncash - ROU assets recorded for new and modified leases 1,284 10,831 The following table presents future minimum lease payments under non-cancellable operating leases as of September 30, 2022: Remainder of 2022 $ 1,719 2023 6,747 2024 6,286 2025 5,966 2026 5,371 Thereafter 143,033 Total undiscounted lease payments 169,122 Less: Imputed interest 99,491 Total lease liabilities $ 69,631 13. EQUITY-BASED COMPENSATION Effective August 1, 2022, we established a Nonqualified Stock Option and Incentive Award Plan (“Incentive Plan”) which provides for the issuance of up to 30 million shares at inception. The Incentive Plan provides us the ability to grant equity compensation awards in the form of stock options, stock appreciation rights, restricted stock, and performance awards to eligible employees, consultants, directors, and other individuals who provide services to us, each as determined by the Compensation Committee of the Board of Directors. We account for equity-based compensation expense in accordance with ASC 718 Compensation-Stock Compensation and it is reported within operating expenses and general and administrative in the Consolidated and Combined Consolidated Statements of Operations. 28 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table presents our stock-based compensation expense recognized in the Consolidated and Combined Consolidated Statements of Operations: Three Months Ended September 30, Nine Months Ended September 30, Remaining Expense To Be Recognized, If All Vesting Conditions Are Met Weighted Average Remaining Contractual Term (in years) 2022 2021 2022 2021 Restricted Shares $ 430 $ 553 $ 1,506 $ 2,664 $ 2,025 0.6 Common Units 947 175 1,536 617 3,277 1.0 Total $ 1,377 $ 728 $ 3,042 $ 3,281 $ 5,302 Common Units During the nine months ended September 30, 2022, we issued common units of our subsidiary that had a grant date fair value of $ 1.9 million and vest over three years . These awards are subject to continued employment, and the compensation expense is recognized ratably over the vesting periods. The fair value of these awards was based on the fair value of the operating subsidiary on the grant date, which was estimated using a discounted cash flow analysis that requires the application of discount factors and terminal multiples to projected cash flows. Discount factors and terminal multiples were based on market-based inputs and transactions, as available at the measurement date. Additionally, during the nine months ended September 30, 2022, we issued separate common units of our subsidiary that had a grant date fair value of $ 1.9 million and vest over three years . These awards are subject to performance targets based on EBITDA as defined in the agreements, and the total expected compensation expense is recognized ratably over the vesting periods if it is probable that the performance conditions will be met. The fair value of these awards was based on the fair value of the operating subsidiary on the grant date, which was estimated using a discounted cash flow analysis that requires the application of discount factors and terminal multiples to projected cash flows. Discount factors and terminal multiples were based on market-based inputs and transactions, as available at the measurement date. Stock Options In connection with our Redeemable Preferred Stock raise (see Note 18 for details), we granted to the Manager 10.9 million options to purchase common shares. These options had a grant date fair value of $ 18.1 million, which was recorded in stockholders’ equity and treated as an issuance cost of the Redeemable Preferred Stock. The fair value of these options was based on a Binomial Lattice Model and inputs were based on information available at the measurement date. The assumptions used in valuing the options were: a 2.58 % risk-free rate, a 3.6 % dividend yield, a 60 % volatility, an early exercise multiple of 2.5 x and a ten-year term. 14. RETIREMENT BENEFIT PLANS In connection with the acquisition of Transtar, we established a defined benefit pension plan as well as a postretirement benefit plan to assume certain retirement benefit obligations related to eligible Transtar employees. Defined Benefit Pensions Our partially funded pension plan is a tax qualified plan. Our pension plan covers certain eligible Transtar employees. These plans are noncontributory. Pension benefits earned are generally based on years of service and compensation during active employment. Postretirement Benefits Our unfunded postretirement plan provides healthcare and life insurance benefits for eligible retirees and dependents of Transtar. Depending on retirement date and employee classification, certain healthcare plans contain contribution and cost-sharing features such as deductibles and co-insurance. The remaining healthcare and life insurance plans are non-contributory. The following table summarizes our retirement benefit plan costs for the three and nine months ended September 30, 2022. Service costs and interest costs are recorded in Operating expenses and Other (expense) income, respectively, in the Consolidated and Combined Consolidated Statements of Operations. Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Pension Benefits Postretirement Benefits Pension Benefits Postretirement Benefits Service costs $ 438 $ 538 $ 1,314 $ 1,613 Interest costs 74 225 221 675 Total $ 512 $ 763 $ 1,535 $ 2,288 29 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The total amount of employer contributions paid for the three and nine months ended September 30, 2022 was $ 1.1 million and $ 1.4 million, respectively, and the expected remaining scheduled employer contributions for the year ending December 31, 2022 is $ 0.3 million. 15. INCOME TAXES The current and deferred components of the income tax provision (benefit) included in the Consolidated and Combined Consolidated Statements of Operations are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Current: Federal $ ( 62 ) $ 3 $ — $ 4 State and local 93 44 235 161 Foreign — — — — Total current provision 31 47 235 165 Deferred: Federal 1,225 ( 1,583 ) 3,832 ( 2,820 ) State and local 299 ( 98 ) 1,019 ( 98 ) Foreign — — — ( 2 ) Total deferred provision 1,524 ( 1,681 ) 4,851 ( 2,920 ) Provision for income taxes $ 1,555 $ ( 1,634 ) $ 5,086 $ ( 2,755 ) Prior to the spin-off, we were taxed as a disregarded entity for U.S. federal income tax purposes and our taxable income or loss generated was the responsibility of our Former Parent, except as related to certain wholly owned corporate subsidiaries of the infrastructure business. Taxable income or loss generated by us following the spin-off and by our corporate subsidiaries is subject to U.S. federal, state and foreign corporate income tax in locations where they conduct business. A valuation allowance has been established against our net U.S. federal and state deferred tax assets, including net operating loss carryforwards. As a result, our income tax provision is primarily related to separate company state taxes, deferred taxes for tax deductible goodwill, and deferred taxes for certain long-lived assets. Our effective tax rate differs from the U.S. federal tax rate of 21% primarily due to state taxes and the valuation allowances against a significant portion of the deferred tax assets of our corporate subsidiaries. As of and for the nine months ended September 30, 2022, we had not established a liability for uncertain tax positions as no such positions existed. In general, our tax returns and the tax returns of our corporate subsidiaries are subject to U.S. federal, state, local and foreign income tax examinations by tax authorities. Generally, we are not subject to examination by taxing authorities for tax years prior to 2018. We do not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date of September 30, 2022. 16. MANAGEMENT AGREEMENT AND AFFILIATE TRANSACTIONS We are externally managed by the Manager. The Manager is paid annual fees and incentive fees in exchange for advising us on various aspects of our business, formulating our investment strategies, arranging for the acquisition and disposition of assets, arranging for financing, monitoring performance, and managing our day-to-day operations, inclusive of all costs incidental thereto. In addition, the Manager may be reimbursed for various expenses incurred by the Manager on our behalf, including the costs of legal, accounting and other administrative activities. On July 31, 2022, in connection with the spin-off, we and the Manager entered into the Management Agreement with an initial term of six years . The Manager is entitled to a management fee, incentive fees (comprised of an Income Incentive Fee and a Capital Gains Incentive Fee described below) and reimbursement of certain expenses. The management fee is determined by taking the average value of total equity (including redeemable preferred stock and excluding non-controlling interests) of the Company determined on a consolidated basis in accordance with U.S. GAAP at the end of the two most recently completed months multiplied by an annual rate of 1.50 %, and is payable monthly in arrears in cash. The income incentive fee is calculated and distributable quarterly in arrears based on the pre-incentive fee net income for the immediately preceding calendar quarter (the “Income Incentive Fee”). For this purpose, pre-incentive fee net income means, with respect to a calendar quarter, net income attributable to stockholders during such quarter calculated in accordance with U.S. GAAP excluding our pro rata share of (1) realized or unrealized gains and losses, and (2) certain non-cash or one-time items, and (3) any other adjustments as may be approved by the independent directors. Pre-incentive allocation net income does not include any Income Incentive Fee or Capital Gains Incentive Fee (described below) paid to the Manager during the relevant quarter. 30 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The Manager is entitled to an Income Incentive Fee with respect to its pre-incentive fee net income in each calendar quarter as follows: (1) no Income Incentive Fee in any calendar quarter in which pre-incentive fee net income, expressed as a rate of return on the average value of the Company’s net equity capital (excluding non-controlling interests) at the end of the two most recently completed calendar quarters, does not exceed 2 % for such quarter ( 8 % annualized); (2) 100 % of pre-incentive fee net income of the Company with respect to that portion of such pre-incentive fee net income, if any, that equals or exceeds 2 % but does not exceed 2.2223 % for such quarter; and (3) 10 % of pre-incentive fee net income of the Company, if any, that exceeds 2.2223 % for portions of such quarter. These calculations will be prorated for any periods of less than three months. Capital Gains Incentive Fee is calculated and paid in arrears as of the end of each calendar year and is equal to 10 % of our pro rata share of cumulative realized gains from the date of the spin-off through the end of the applicable calendar year, net of our pro rata share of cumulative realized or unrealized losses, the cumulative non-cash portion of equity-based compensation expenses and all realized gains upon which prior performance-based Capital Gains Incentive Fee payments were made to the Manager. The management fee, income incentive allocation, and capital gains incentive allocation that are attributable to the operations of FTAI Infrastructure is recorded in the Management fees and incentive allocation to affiliate on the Consolidated and Combined Consolidated Statements of Operations. These amounts are allocated on the following basis: Management fee —Management fee is allocated to FTAI Infrastructure by applying the calculation methodology described above to the equity of FTAI Infrastructure included in these Consolidated and Combined Consolidated Financial Statements. Income Incentive Allocation and Capital Gains Incentive Allocation —The Income Incentive Allocation and Capital Gains Incentive Allocation are allocated to FTAI Infrastructure by applying the allocation calculation methodology described above to FTAI Infrastructure’s financial results in each respective period. The following table summarizes the management fees, income incentive allocation and capital gains incentive allocation included in these Consolidated and Combined Consolidated Financial Statements: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Management fees $ 2,659 $ 3,829 $ 9,885 $ 11,244 Income Incentive Fee — — — — Capital Gains Incentive Fee — — — — Total $ 2,659 $ 3,829 $ 9,885 $ 11,244 For periods post-spin, we pay all of our operating expenses, except those specifically required to be borne by the Manager under the Management Agreement. For periods pre-spin, the Former Parent paid all of its operating expenses, except those specifically required to be borne by the Manager under the management agreement between the Former Parent and the Manager. The expenses required to be paid by the Company include, but are not limited to, issuance and transaction costs incident to the acquisition, disposition and financing of its assets, legal and auditing fees and expenses, the compensation and expenses of the Company’s independent directors, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness (including commitment fees, legal fees, closing costs, etc.), expenses associated with other securities offerings, costs and expenses incurred in contracting with third parties (including affiliates of the Manager), the costs of printing and mailing proxies and reports to the stockholders, costs incurred by the Manager or its affiliates for travel on our behalf, costs associated with any computer software or hardware that is used by the Company, costs to obtain liability insurance to indemnify the Company’s directors and officers and the compensation and expenses of the transfer agent. We pay or reimburse the Manager and its affiliates for performing certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, provided that such costs and reimbursements are no greater than those which would be paid to outside professionals or consultants. The Manager is responsible for all of its other costs incident to the performance of its duties under the Management Agreement, including compensation of the Manager’s employees, rent for facilities and other “overhead” expenses; we do not reimburse the Manager for these expenses. 31 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table summarizes our reimbursements to the Manager: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Classification in the Consolidated and Combined Consolidated Statements of Operations: General and administrative $ 581 $ 962 $ 2,809 $ 2,712 Acquisition and transaction expenses 49 240 899 720 Total $ 630 $ 1,202 $ 3,708 $ 3,432 If we terminate the Management Agreement, we will generally be required to pay the Manager a termination fee. The termination fee is equal to the amount of the management fee during the 12 months immediately preceding such termination and an amount equal to the Income Incentive Fee and the Capital Gains Incentive Fee that would be paid to the Manager if the Company’s assets were sold for cash at their then current fair market value (as determined by an appraisal, taking into account, among other things, the expected future value of the underlying investments). Upon the successful completion of an offering of our common shares or other equity securities (including securities issued as consideration in an acquisition), we grant the Manager options to purchase common shares in an amount equal to 10 % of the number of common shares being sold in the offering (or if the issuance relates to equity securities other than our common shares, options to purchase a number of common shares equal to 10 % of the gross capital raised in the equity issuance divided by the fair market value of a common share as of the date of issuance), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser or attributed to such securities in connection with an acquisition (or the fair market value of a common share as of the date of the equity issuance if it relates to equity securities other than our common shares). Any ultimate purchaser of common shares for which such options are granted may be an affiliate of Fortress. In connection with the spin-off, we issued 10.9 million options to purchase common shares to the Manager, with a term of 10 years and strike price of $ 2.76 as compensation to the Manager for services rendered in connection with the Redeemable Preferred Stock raise, as discussed in Note 18. The following table summarizes amounts due to the Manager, which are included within Accounts payable and accrued liabilities in the Consolidated and Combined Consolidated Balance Sheets: September 30, 2022 December 31, 2021 Accrued management fees $ 1,751 $ 1,495 Other payables 630 1,075 As of September 30, 2022 and December 31, 2021, there were no receivables from the Manager. Other Affiliate Transactions As of September 30, 2022 and December 31, 2021, affiliates of our Manager and their related parties collectively own an approximately 20 % interest in Jefferson Terminal which has been accounted for as a component of non-controlling interest in consolidated subsidiaries in the Consolidated and Combined Consolidated Financial Statements. The carrying amount of this non-controlling interest at September 30, 2022 and December 31, 2021 was $( 32.3 ) million and $( 9.1 ) million, respectively. The following table presents the amount of this non-controlling interest share of net loss: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Non-controlling interest share of net loss $ ( 8,002 ) $ ( 7,395 ) $ ( 23,273 ) $ ( 18,949 ) In July 2020, we purchased a 14 % interest in FYX from an affiliate of our Manager, which retained a non-controlling interest in FYX subsequent to the transaction. In May 2022, we purchased an additional 51 % interest in FYX from an unrelated third party for a purchase price of $ 4.6 million, which resulted in our ownership of a majority stake in the entity. From the purchase date in May 2022 through and as of September 30, 2022, FYX is presented on a consolidated basis in the Consolidated and Combined Consolidated Statements of Operations and the Consolidated and Combined Consolidated Balance Sheets. Additionally, other investors in FYX are also affiliates of our Manager. 17. SEGMENT INFORMATION During the third quarter of 2022, we reorganized our historical operating segments into five operating segments as described below. Additionally, during the third quarter of 2022, we modified our definition of Adjusted EBITDA to exclude the impact of interest costs on pension and other post-employment benefit (“OPEB”) liabilities and dividends and accretion expense of redeemable preferred stock. All segment data and related disclosures for earlier periods presented herein have been recast to reflect the new segment reporting structure. 32 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) Our reportable segments represent strategic business units comprised of investments in different types of infrastructure assets. We have five reportable segments which operate in infrastructure businesses across several market sectors, all in North America. Our reportable segments are (i) Railroad, (ii) Jefferson Terminal, (iii) Repauno, (iv) Power and Gas and (v) Sustainability and Energy Transition. The Railroad segment is comprised of five freight railroads and one switching company that provide rail service to certain manufacturing and production facilities, in addition to KRS, a railcar cleaning operation. The Jefferson Terminal segment consists of a multi-modal crude oil and refined products terminal and other related assets. The Repauno segment consists of a 1,630 -acre deep-water port located along the Delaware River with an underground storage cavern, a new multipurpose dock, a rail-to-ship transloading system and multiple industrial development opportunities. The Power and Gas segment is comprised of an equity method investment in Long Ridge, which is a 1,660 -acre multi-modal port located along the Ohio River with rail, dock, and multiple industrial development opportunities, including a power plant in operation. The Sustainability and Energy Transition segment is comprised of Aleon/Gladieux, Clean Planet, and CarbonFree, and all three investments are development stage businesses focused on sustainability and recycling. Corporate and Other primarily consists of unallocated corporate general and administrative expenses, management fees, debt and redeemable preferred stock. Additionally, Corporate and Other includes an investment in an unconsolidated entity engaged in the acquisition and leasing of shipping containers and an investment in the majority stake of an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The chief operating decision maker (“CODM”) evaluates investment performance for each reportable segment primarily based on Adjusted EBITDA. Adjusted EBITDA is defined as net income (loss) attributable to stockholders and Former Parent, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, depreciation and amortization expense, interest expense, interest costs on pension and OPEB liabilities, and dividends and accretion expense related to redeemable preferred stock, (b) to include the impact of our pro-rata share of Adjusted EBITDA from unconsolidated entities, and (c) to exclude the impact of equity in earnings (losses) of unconsolidated entities and the non-controlling share of Adjusted EBITDA. We believe that net income (loss) attributable to stockholders and Former Parent, as defined by U.S. GAAP, is the most appropriate earnings measurement with which to reconcile Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to net income (loss) attributable to stockholders and Former Parent as determined in accordance with U.S. GAAP. 33 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following tables set forth certain information for each reportable segment: I. For the Three Months Ended September 30, 2022 Three Months Ended September 30, 2022 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Revenues Total revenues $ 39,186 $ 17,177 $ 1,879 $ — $ — $ 20,317 $ 78,559 Expenses Operating expenses 22,003 14,194 4,266 298 — 20,173 60,934 General and administrative — — — — — 3,208 3,208 Acquisition and transaction expenses 224 — — 358 — 2,172 2,754 Management fees and incentive allocation to affiliate — — — — — 2,659 2,659 Depreciation and amortization 5,337 9,748 2,310 — — 741 18,136 Total expenses 27,564 23,942 6,576 656 — 28,953 87,691 Other (expense) income Equity in (losses) earnings of unconsolidated entities — — — ( 9,222 ) ( 2,891 ) 33 ( 12,080 ) Loss on sale of assets, net ( 134 ) — — — — — ( 134 ) Interest expense ( 64 ) ( 5,983 ) ( 432 ) — — ( 12,682 ) ( 19,161 ) Other (expense) income ( 311 ) ( 1,401 ) — ( 25 ) 473 132 ( 1,132 ) Total other (expense) income ( 509 ) ( 7,384 ) ( 432 ) ( 9,247 ) ( 2,418 ) ( 12,517 ) ( 32,507 ) Income (loss) before income taxes 11,113 ( 14,149 ) ( 5,129 ) ( 9,903 ) ( 2,418 ) ( 21,153 ) ( 41,639 ) (Provision for) benefit from income taxes ( 942 ) 2,114 — — ( 61 ) 444 1,555 Net income (loss) 12,055 ( 16,263 ) ( 5,129 ) ( 9,903 ) ( 2,357 ) ( 21,597 ) ( 43,194 ) Less: Net income (loss) attributable to non-controlling interests in consolidated subsidiaries 6 ( 8,002 ) ( 212 ) — — ( 173 ) ( 8,381 ) Less: Dividends and accretion on redeemable preferred stock — — — — — 9,263 9,263 Net income (loss) attributable to stockholders and Former Parent $ 12,049 $ ( 8,261 ) $ ( 4,917 ) $ ( 9,903 ) $ ( 2,357 ) $ ( 30,687 ) $ ( 44,076 ) 34 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net loss attributable to stockholders and Former Parent: Three Months Ended September 30, 2022 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Adjusted EBITDA $ 18,419 $ 6,023 $ ( 2,471 ) $ 11,253 $ ( 1,340 ) $ ( 5,780 ) $ 26,104 Add: Non-controlling share of Adjusted EBITDA 4,502 Add: Equity in losses of unconsolidated entities ( 12,080 ) Less: Interest costs on pension and OPEB liabilities ( 896 ) Less: Dividends and accretion expense on redeemable preferred stock ( 9,263 ) Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities ( 9,770 ) Less: Interest expense ( 19,161 ) Less: Depreciation and amortization expense ( 18,136 ) Less: Incentive allocations — Less: Asset impairment charges — Less: Changes in fair value of non-hedge derivative instruments 310 Less: Losses on the modification or extinguishment of debt and capital lease obligations — Less: Acquisition and transaction expenses ( 2,754 ) Less: Equity-based compensation expense ( 1,377 ) Less: Provision for income taxes ( 1,555 ) Net loss attributable to stockholders and Former Parent $ ( 44,076 ) 35 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) II. For the Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Revenues Total revenues $ 113,887 $ 44,751 $ 1,533 $ — $ — $ 30,404 $ 190,575 Expenses Operating expenses 63,933 41,578 12,264 466 10 29,980 148,231 General and administrative — — — — — 8,136 8,136 Acquisition and transaction expenses 579 — — 358 29 14,896 15,862 Management fees and incentive allocation to affiliate — — — — — 9,885 9,885 Depreciation and amortization 15,128 29,187 7,055 — — 1,081 52,451 Total expenses 79,640 70,765 19,319 824 39 63,978 234,565 Other expense Equity in losses of unconsolidated entities — — — ( 43,574 ) ( 4,529 ) 121 ( 47,982 ) Loss on sale of assets, net ( 134 ) — — — — — ( 134 ) Interest expense ( 143 ) ( 18,220 ) ( 1,060 ) — — ( 12,683 ) ( 32,106 ) Other (expense) income ( 976 ) ( 2,791 ) — ( 25 ) 1,553 95 ( 2,144 ) Total other expense ( 1,253 ) ( 21,011 ) ( 1,060 ) ( 43,599 ) ( 2,976 ) ( 12,467 ) ( 82,366 ) Income (loss) before income taxes 32,994 ( 47,025 ) ( 18,846 ) ( 44,423 ) ( 3,015 ) ( 46,041 ) ( 126,356 ) Provision for income taxes 2,391 2,251 — — — 444 5,086 Net income (loss) 30,603 ( 49,276 ) ( 18,846 ) ( 44,423 ) ( 3,015 ) ( 46,485 ) ( 131,442 ) Less: Net income (loss) attributable to non-controlling interests in consolidated subsidiaries 6 ( 23,273 ) ( 862 ) — ( 198 ) ( 24,327 ) Less: Dividends and accretion on redeemable preferred stock — — — — — 9,263 9,263 Net income (loss) attributable to stockholders and Former Parent $ 30,597 $ ( 26,003 ) $ ( 17,984 ) $ ( 44,423 ) $ ( 3,015 ) $ ( 55,550 ) $ ( 116,378 ) 36 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net loss attributable to stockholders and Former Parent: Nine Months Ended September 30, 2022 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Adjusted EBITDA $ 50,793 $ 13,987 $ ( 10,826 ) $ 24,652 $ ( 1,643 ) $ ( 17,743 ) $ 59,220 Add: Non-controlling share of Adjusted EBITDA 12,034 Add: Equity in losses of unconsolidated entities ( 47,982 ) Less: Interest costs on pension and OPEB liabilities ( 896 ) Less: Dividends and accretion expense on redeemable preferred stock ( 9,263 ) Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities ( 22,002 ) Less: Interest expense ( 32,106 ) Less: Depreciation and amortization expense ( 52,451 ) Less: Incentive allocations — Less: Asset impairment charges — Less: Changes in fair value of non-hedge derivative instruments 1,058 Less: Losses on the modification or extinguishment of debt and capital lease obligations — Less: Acquisition and transaction expenses ( 15,862 ) Less: Equity-based compensation expense ( 3,042 ) Less: Benefit from income taxes ( 5,086 ) Net loss attributable to stockholders and Former Parent $ ( 116,378 ) 37 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) III. For the Three Months Ended September 30, 2021 Three Months Ended September 30, 2021 Port and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Revenues Total revenues $ 25,344 $ 11,902 $ ( 458 ) $ — $ — $ — $ 36,788 Expenses Operating expenses 14,374 12,441 5,254 19 — — 32,088 General and administrative — — — — — 2,508 2,508 Acquisition and transaction expenses 851 — — — — 4,491 5,342 Management fees and incentive allocation to affiliate — — — — — 3,829 3,829 Depreciation and amortization 5,426 9,405 2,300 — — — 17,131 Total expenses 20,651 21,846 7,554 19 — 10,828 60,898 Other (expense) income Equity in (losses) earnings of unconsolidated entities — — — ( 1,620 ) — 75 ( 1,545 ) Interest expense ( 20 ) ( 4,080 ) ( 284 ) — — ( 4,384 ) Other expense ( 197 ) ( 2,091 ) — ( 3,955 ) — ( 1 ) ( 6,244 ) Total other (expense) income ( 217 ) ( 6,171 ) ( 284 ) ( 5,575 ) — 74 ( 12,173 ) Income (loss) before income taxes 4,476 ( 16,115 ) ( 8,296 ) ( 5,594 ) — ( 10,754 ) ( 36,283 ) Provision for (benefit from) income taxes 681 48 — ( 2,363 ) — — ( 1,634 ) Net income (loss) 3,795 ( 16,163 ) ( 8,296 ) ( 3,231 ) — ( 10,754 ) ( 34,649 ) Less: Net loss attributable to non-controlling interests in consolidated subsidiaries — ( 7,189 ) ( 174 ) — — — ( 7,363 ) Net income (loss) attributable to Former Parent $ 3,795 $ ( 8,974 ) $ ( 8,122 ) $ ( 3,231 ) $ — $ ( 10,754 ) $ ( 27,286 ) 38 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net loss attributable to Former Parent: Three Months Ended September 30, 2021 Port and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Adjusted EBITDA $ 10,773 $ 1,945 $ ( 1,022 ) $ 3,787 $ — $ ( 6,317 ) $ 9,166 Add: Non-controlling share of Adjusted EBITDA 3,420 Add: Equity in income of unconsolidated entities ( 1,545 ) Less: Interest costs on pension and OPEB liabilities — Less: Dividends and accretion expense on redeemable preferred stock — Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities ( 7,782 ) Less: Interest expense ( 4,384 ) Less: Depreciation and amortization expense ( 17,131 ) Less: Incentive allocations — Less: Asset impairment charges — Less: Changes in fair value of non-hedge derivative instruments ( 4,594 ) Less: Losses on the modification or extinguishment of debt and capital lease obligations — Less: Acquisition and transaction expenses ( 5,342 ) Less: Equity-based compensation expense ( 728 ) Less: Provision for income taxes 1,634 Net loss attributable to Former Parent $ ( 27,286 ) 39 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) IV. For the Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Revenues Total revenues $ 28,544 $ 34,148 $ 9,982 $ — $ — $ — $ 72,674 Expenses Operating expenses 18,065 35,939 12,141 61 — — 66,206 General and administrative — — — — — 6,173 6,173 Acquisition and transaction expenses 851 — — — — 8,009 8,860 Management fees and incentive allocation to affiliate — — — — — 11,244 11,244 Depreciation and amortization 5,736 26,438 6,726 — — — 38,900 Total expenses 24,652 62,377 18,867 61 — 25,426 131,383 Other (expense) income Equity in (losses) earnings of unconsolidated entities — — — ( 9,262 ) — 452 ( 8,810 ) Gain on sale of assets, net — — 16 — — — 16 Interest expense ( 42 ) ( 8,496 ) ( 858 ) — — — ( 9,396 ) Other expense ( 195 ) ( 2,795 ) — ( 3,864 ) — ( 1 ) ( 6,855 ) Total other (expense) income ( 237 ) ( 11,291 ) ( 842 ) ( 13,126 ) — 451 ( 25,045 ) Income (loss) before income taxes 3,655 ( 39,520 ) ( 9,727 ) ( 13,187 ) — ( 24,975 ) ( 83,754 ) Provision for (benefit from) income taxes 681 163 — ( 3,599 ) — — ( 2,755 ) Net income (loss) 2,974 ( 39,683 ) ( 9,727 ) ( 9,588 ) — ( 24,975 ) ( 80,999 ) Less: Net loss attributable to non-controlling interests in consolidated subsidiaries — ( 18,742 ) ( 207 ) — — — ( 18,949 ) Net income (loss) attributable to Former Parent $ 2,974 $ ( 20,941 ) $ ( 9,520 ) $ ( 9,588 ) $ — $ ( 24,975 ) $ ( 62,050 ) 40 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) The following table sets forth a reconciliation of Adjusted EBITDA to net loss attributable to Former Parent: Nine Months Ended September 30, 2021 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Adjusted EBITDA $ 10,284 $ 8,328 $ ( 3,512 ) $ 6,787 $ — $ ( 17,363 ) $ 4,524 Add: Non-controlling share of Adjusted EBITDA 8,706 Add: Equity in losses of unconsolidated entities ( 8,810 ) Less: Interest costs on pension and OPEB liabilities — Less: Dividends and accretion expense on redeemable preferred stock — Less: Pro-rata share of Adjusted EBITDA from unconsolidated entities ( 10,767 ) Less: Interest expense ( 9,396 ) Less: Depreciation and amortization expense ( 38,900 ) Less: Incentive allocations — Less: Asset impairment charges — Less: Changes in fair value of non-hedge derivative instruments 1,979 Less: Losses on the modification or extinguishment of debt and capital lease obligations — Less: Acquisition and transaction expenses ( 8,860 ) Less: Equity-based compensation expense ( 3,281 ) Less: Benefit from income taxes 2,755 Net loss attributable to Former Parent $ ( 62,050 ) 41 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) V. Balance Sheet The following tables sets forth the summarized balance sheet. All property, plant and equipment and leasing equipment are located in North America. September 30, 2022 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Current assets $ 94,213 $ 182,054 $ 35,156 $ 13 $ 20,302 $ 20,798 $ 352,536 Non-current assets 679,787 1,103,898 286,860 7,401 74,528 20,458 2,172,932 Total assets 774,000 1,285,952 322,016 7,414 94,830 41,256 2,525,468 Debt, net — 705,192 25,000 — — 461,693 1,191,885 Current liabilities 58,542 63,908 15,742 1,703 — 31,893 171,788 Non-current liabilities 57,060 762,980 28,028 235,241 — 462,565 1,545,874 Total liabilities 115,602 826,888 43,770 236,944 — 494,458 1,717,662 Redeemable preferred stock — — — — — 251,955 251,955 Non-controlling interests in equity of consolidated subsidiaries 1,086 ( 24,371 ) 1,336 — — 4,211 ( 17,738 ) Total equity 658,398 459,064 278,246 ( 229,530 ) 94,830 ( 705,157 ) 555,851 Total liabilities, redeemable preferred stock and equity $ 774,000 $ 1,285,952 $ 322,016 $ 7,414 $ 94,830 $ 41,256 $ 2,525,468 December 31, 2021 Ports and Terminals Railroad Jefferson Terminal Repauno Power and Gas Sustainability and Energy Transition Corporate and Other Total Current assets $ 72,965 $ 296,753 $ 34,944 $ 357 $ 7,680 $ 285 $ 412,984 Non-current assets 695,631 987,678 281,599 — 53,153 11,256 2,029,317 Total assets 768,596 1,284,431 316,543 357 60,833 11,541 2,442,301 Debt, net — 693,624 25,000 — — — 718,624 Current liabilities 56,690 67,612 5,135 20 — 10 129,467 Non-current liabilities 52,179 753,113 27,966 17,530 — — 850,788 Total liabilities 108,869 820,725 33,101 17,550 — 10 980,255 Non-controlling interests in equity of consolidated subsidiaries — ( 2,604 ) 1,888 — — 625 ( 91 ) Total equity 659,727 463,706 283,442 ( 17,193 ) 60,833 11,531 1,462,046 Total liabilities and equity $ 768,596 $ 1,284,431 $ 316,543 $ 357 $ 60,833 $ 11,541 $ 2,442,301 42 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 18. REDEEMABLE PREFERRED STOCK On August 1, 2022, the Company issued and sold 300,000 shares of Redeemable Preferred Stock at a price of $ 1,000 per share and $ 0.01 par value. The shares were issued at a 3 % discount for net proceeds of $ 291.0 million. The Company also issued two classes of warrants to the preferred stockholders (see Note 19). The fair value of the Redeemable Preferred Stock and the warrants at issuance were determined to be $ 242.7 million and $ 13.8 million, respectively . The Company incurred $ 16.4 million of issuance costs related to the Redeemable Preferred Stock and warrants. Additionally, the Company issued options to the Manager with a total fair value of $ 18.1 million (see Note 16). The Redeemable Preferred Stock has the following rights, preferences and restrictions: Voting Each holder of the Redeemable Preferred Stock will have one vote per share on any matter on which holders of the Redeemable Preferred Stock are entitled to vote separately as a class, whether at a meeting or by written consent. The holders of shares of the Redeemable Preferred Stock do not otherwise have any voting rights. Liquidation Preference The Redeemable Preferred Stock ranks senior to the common stock with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. Upon a liquidation, dissolution or winding up of the affairs of the Company, each share of Redeemable Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price paid by the purchaser, plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the purchase price, plus $ 150.0 million of cash Dividends (the ”Base Preferred Return Amount”). Dividends Dividends on the Redeemable Preferred Stock are payable at a rate equal to 14.0 % per annum subject to increase in accordance with the terms of the Redeemable Preferred Stock. Specifically, the rate will be increased by 2.0 % per annum for any periods during the first two years following closing of the issuance of the Redeemable Preferred Stock, where the dividend is not paid in cash. Prior to the second anniversary of the issuance date, such dividends will automatically accrue and accumulate on each share of Redeemable Preferred Stock, whether or not declared and paid, or they may be paid in cash at our discretion. After the second anniversary of the issuance date, we are required to pay such dividends in cash. Failure to pay such dividends will result in a dividend rate equal to 18.0 % per annum, and a failure to pay cash dividends for 12 monthly dividend periods (whether or not consecutive) following the second anniversary of the issuance date will constitute an event of noncompliance. The dividend rate on the Preferred Stock will increase by 1.0 % per annum beginning on the fifth anniversary of the issuance date of the Redeemable Preferred Stock. As of September 30, 2022, the Company has $ 8.2 million of dividends paid-in-kind increasing our Redeemable Preferred Stock balance. The Company has presented the Redeemable Preferred Stock in temporary equity and is accreting the discount and debt issuance costs using the interest method to the earliest redemption date of August 1, 2030. Such accretion, recorded in dividends and accretion on redeemable preferred stock on the Consolidated Statement of Operations, totaled $ 1.1 million for the three and nine months ended September 30, 2022. Redemption Mandatory Redemption : The Redeemable Preferred Stock is not mandatorily redeemable at the option of the holders, except upon the occurrence of any (i) bankruptcy event, (ii) any change of control event, or (iii) any debt acceleration event (together with any bankruptcy event and change of control event) (each a “Mandatory Redemption Event”). Upon the occurrence of a Mandatory Redemption Event, to the extent not prohibited by law, we will be required to redeem all preferred stock in cash at the greater of the (i) Liquidation Preference, and (ii) the Base Preferred Return Amount at the date of redemption. Optional Redemption: The Redeemable Preferred Stock is optionally redeemable at the option of the Company, at any time, at the greater of the (i) Liquidation Preference, and (ii) the Base Preferred Return Amount at the date of redemption. Upon certain contingent events or events of noncompliance, the preferred stockholders have the right to a majority of the board seats of the Company. If the Redeemable Preferred Stock were redeemed as of September 30, 2022, it would be redeemable for $ 450.0 million. 43 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) 19. EARNINGS PER SHARE AND EQUITY Basic earnings (loss) per common share (“EPS”) is calculated by dividing net income (loss) attributable to stockholders by the weighted average number of common shares outstanding, plus any participating securities. Diluted EPS is calculated by dividing net income attributable to stockholders by the weighted average number of common shares outstanding, plus any participating securities and potentially dilutive securities. Potentially dilutive securities are calculated using the treasury stock method. The calculation of basic and diluted EPS is presented below: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2022 2021 2022 2021 Net loss $ ( 43,194 ) $ ( 34,649 ) $ ( 131,442 ) $ ( 80,999 ) Less: Net loss attributable to non-controlling interests in consolidated subsidiaries ( 8,381 ) ( 7,363 ) ( 24,327 ) ( 18,949 ) Less: Dividends and accretion on redeemable preferred stock 9,263 — 9,263 — Net loss attributable to stockholders $ ( 44,076 ) $ ( 27,286 ) $ ( 116,378 ) $ ( 62,050 ) Weighted Average Common Shares Outstanding - Basic (1) 102,730,033 99,387,467 102,730,033 99,387,467 Weighted Average Common Shares Outstanding - Diluted (1) 102,730,033 99,387,467 102,730,033 99,387,467 Loss per share: Basic $ ( 0.43 ) $ ( 0.27 ) $ ( 1.13 ) $ ( 0.62 ) Diluted $ ( 0.43 ) $ ( 0.27 ) $ ( 1.13 ) $ ( 0.62 ) ________________________________________________________ (1) Three and nine months ended September 30, 2022 include penny warrants which can be converted into a fixed amount of our shares. For the three and nine months ended September 30, 2022, 904,796 and 904,796 shares, respectively, have been excluded from the calculation of Diluted EPS because the impact would be anti-dilutive. On the Separation Date, FTAI distributed one share of FTAI Infrastructure, Inc. common stock for each FTAI common share held by FTAI’s shareholders of record as of the record date. As of that date, 99,387,467 shares were distributed. This number of shares is utilized for the calculation of basic and diluted loss per share for all periods presented prior to the spin-off. For the three and nine months ended September 30, 2021, these shares are treated as issued and outstanding for purposes of calculating historical earnings per share. For periods prior to the spin-off, it is assumed that there are no dilutive equity instruments as there were no equity awards of FTAI Infrastructure, Inc. outstanding prior to the spin-off. In addition, as of the Separation Date, each FTAI option held by the Manager or by the directors, officers, employees, service providers, consultants and advisors of the Manager was converted into an adjusted FTAI option and a new FTAI Infrastructure option. The exercise price of each adjusted FTAI Infrastructure option was set to collectively maintain the intrinsic value of the FTAI option immediately prior to the spin-off and to maintain the ratio of the exercise price of the adjusted FTAI option and the FTAI Infrastructure option, respectively, to the fair market value of the underlying shares. The terms and conditions applicable to each FTAI Infrastructure option are substantially similar to the terms and conditions otherwise applicable to the FTAI option. Common Stock Warrants On August 1, 2022, in connection with the Redeemable Preferred Stock raise, the Company issued two classes of warrants to the redeemable preferred stockholders. The Series I Warrants represent the right to purchase 3,342,566 shares of common stock, at an exercise price of $ 10.00 per share, and the Series II Warrants represent the right to purchase 3,342,566 shares of common stock at an exercise price of $ 0.01 per share. Both classes of warrants expire on the earlier of August 1, 2030 or a change in control. The Series II Warrants will participate on an as-converted basis in any dividends with respect to the common stock. 44 FTAI INFRASTRUCTURE INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in tables in thousands, unless otherwise noted) A summary of the status of the Company’s outstanding stock warrants and changes during the nine months ended September 30, 2022 is as follows: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Outstanding as of December 31, 2021 — $ — — Issued 6,685,132 5.01 7.8 Expired — — — Exercised — — — Outstanding as of September 30, 2022 6,685,132 $ 5.01 7.8 Warrants exercisable as of September 30, 2022 6,685,132 $ 5.01 7.8 20. COMMITMENTS AND CONTINGENCIES In the normal course of business we, and our subsidiaries, may be involved in various claims, legal proceedings, or may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. We have entered into an arrangement with our non-controlling interest holder of Repauno, as part of the initial acquisition, whereby the non-controlling interest holder may receive additional payments contingent upon the achievement of certain conditions, not to exceed $ 15.0 million. We will account for such amounts when and if such conditions are achieved. The contingency related to $ 5.0 million of the total $ 15.0 million was resolved during the year ended December 31, 2021, and the contingency related to an additional $ 5.0 million of the total $ 15.0 million was resolved during the quarter ended September 30, 2022. Jefferson Terminal entered into a two-year pipeline capacity agreement for a recently completed pipeline. Under the agreement, which took effect in the second quarter of 2021, Jefferson Terminal is obligated to pay fixed marketing fees over the two-year agreement, which totals a minimum of $ 6.4 million for the next twelve months. 21. SUBSEQUENT EVENTS Dividends On October 31, 2022, our Board of Directors declared a cash dividend on our common shares of $ 0.03 per share for the quarter ended September 30, 2022, payable on November 28, 2022 to the holders of record on November 14, 2022. Director Options On October 31, 2022, the Company issued an aggregate of 15,000 stock options ( 5,000 options each) to its three independent directors pursuant to the Incentive Plan with a term of 10 years and strike price of $ 2.75 . 45