Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand FTAI Infrastructure Inc. (“we”, “us”, “our”, or the “Company”). Our MD&A should be read in conjunction with our consolidated and combined consolidated financial statements and the accompanying notes, and with Part I, Item 1A, “Risk Factors” and “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K.
Overview
We are in the business of acquiring, developing and operating assets and businesses that represent critical infrastructure for customers in the transportation and energy industries. We were formed on December 13, 2021 as FTAI Infrastructure LLC, a Delaware limited liability company and subsidiary of Fortress Transportation and Infrastructure Investors LLC (“Former Parent”). Former Parent became a subsidiary of FTAI Aviation Ltd., a Cayman Islands exempted company and the surviving parent company (“FTAI Aviation”), upon completion of the transactions contemplated in that certain Agreement and Plan of Merger (the “Merger”) on November 10, 2022, between Former Parent and FTAI Aviation and certain other parties thereto. Except as otherwise specified, prior to the Merger, “FTAI” refers to Former Parent and, following the Merger, “FTAI” refers to FTAI Aviation, in each case including their consolidated subsidiaries. In connection with the spin-off, as described below, FTAI Infrastructure LLC converted into FTAI Infrastructure Inc., a Delaware corporation, and acquired all of the material assets and investments that comprised FTAI's infrastructure business (“FTAI Infrastructure”). Prior to the spin-off, we were a subsidiary of FTAI, a Nasdaq-listed company that is externally managed and advised by FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”).
Our operations consist of four primary business lines: (i) Railroad, (ii) Ports and Terminals, (iii) Power and Gas and (iv) Sustainability and Energy Transition. Our Railroad business primarily invests in and operates short line and regional railroads in North America. Our Ports and Terminals business, consisting of our Jefferson Terminal and Repauno segments, develops or acquires industrial properties in strategic locations that store and handle for third parties a variety of energy products, including crude oil, refined products and clean fuels. Through an equity method investment, our Power and Gas business develops and operates facilities, such as a 485 megawatt power plant at the Long Ridge terminal in Ohio, that leverage the property’s location and key attributes to generate incremental value. Our Sustainability and Energy Transition business focuses on investments in companies and assets that utilize green technology, produce sustainable fuels and products or enable customers to reduce their carbon footprint. For the year ended December 31, 2022, our Railroad business accounted for 57% of our total revenue and our Ports and Terminals business accounted for 25% of our total revenue. Corporate and other sources accounted for the remaining 18% of our total revenue.
We expect to continue to invest in such market sectors, and pursue additional investment opportunities in other infrastructure businesses and assets we believe to be attractive and meet our investment objectives. Our team focuses on acquiring a diverse group of long-lived assets or operating businesses that provide mission-critical services or functions to infrastructure networks and typically have high barriers to entry, strong margins, stable cash flows and upside from earnings growth and asset appreciation driven by increased use and inflation. We believe that there are a large number of acquisition opportunities in our markets and that our Manager’s expertise and business and financing relationships, together with our access to capital and generally available capital for infrastructure projects in today’s marketplace, will allow us to take advantage of these opportunities. As of December 31, 2022, we had total consolidated assets of $2.5 billion and total redeemable preferred stock and equity of $789.4 million.
Spin-Off of FTAI Infrastructure
On August 1, 2022, FTAI distributed to the holders of FTAI common shares one share of FTAI Infrastructure Inc. common stock for each FTAI common share held by such shareholder at the close of business on July 21, 2022.
FTAI Infrastructure Inc. was spun out as an entity taxed as a corporation for U.S. federal income tax purposes and holds FTAI’s (i) Transtar business, (ii) Jefferson Terminal business, (iii) Repauno business, (iv) Long Ridge investment, (v) Aleon and Gladieux investment, (vi) KRS business, (vii) Clean Planet USA investment, (viii) FYX business, (ix) CarbonFree business, and (x) Containers business. FTAI Infrastructure Inc. retained all related project-level debt of those entities. In connection with the spin-off, FTAI Infrastructure Inc. entered into subscription agreements to issue $300.0 million of redeemable preferred stock and warrants and sold $500.0 million of 10.500% senior secured notes due 2027 (the “2027 Notes”), the net proceeds of which were remitted to FTAI in connection with the spin-off.
FTAI Infrastructure Inc. is externally managed by the Manager. In connection with the spin-off, FTAI Infrastructure Inc. 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. The Management Agreement has an initial term of six years. The Manager is entitled to a management fee, incentive fees (comprised of income incentive fees and capital gains incentive fees) and reimbursement of certain expenses on substantially similar terms as the previously held agreements with the Manager, except that all fees are paid pursuant to the Management Agreement rather than by one of FTAI Infrastructure Inc.’s subsidiaries.
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Operating Segments
Prior to the third quarter of 2022, we operated as three reportable segments. 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 benefits (“OPEB”) liabilities and dividends and accretion 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.
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 terminal 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.
Results of Operations
Adjusted EBITDA (non-GAAP)
The chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as the key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“U.S.GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance, as well as make resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance.
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 of 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.
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The following table presents our consolidated and combined consolidated results of operations:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Revenues
Lease income $ 3,221 $ 2,424 $ 1,186 $ 797 $ 1,238
Rail revenues 147,804 61,514 4,424 86,290 57,090
Terminal services revenues 59,574 45,038 50,887 14,536 (5,849)
Crude marketing revenues — — 8,210 — (8,210)
Roadside services revenue 47,899 — — 47,899 —
Other revenue 3,468 11,243 3,855 (7,775) 7,388
Total revenues 261,966 120,219 68,562 141,747 51,657
Expenses
Operating expenses 208,157 98,541 69,391 109,616 29,150
General and administrative 10,891 8,737 8,522 2,154 215
Acquisition and transaction expenses 16,844 14,826 1,658 2,018 13,168
Management fees and incentive allocation to affiliate 12,964 15,638 13,073 (2,674) 2,565
Depreciation and amortization 70,749 54,016 31,114 16,733 22,902
Total expenses 319,605 191,758 123,758 127,847 68,000
Other (expense) income
Equity in losses of unconsolidated entities (67,399) (13,499) (3,107) (53,900) (10,392)
(Loss) gain on sale of assets, net (1,603) 16 (8) (1,619) 24
Loss on extinguishment of debt — — (4,724) — 4,724
Interest expense (53,239) (16,019) (10,764) (37,220) (5,255)
Other (expense) income (3,169) (8,930) 92 5,761 (9,022)
Total other expense (125,410) (38,432) (18,511) (86,978) (19,921)
Loss before income taxes (183,049) (109,971) (73,707) (73,078) (36,264)
Provision for (benefit from) income taxes 4,468 (3,630) (1,984) 8,098 (1,646)
Net loss (187,517) (106,341) (71,723) (81,176) (34,618)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (33,933) (26,472) (16,522) (7,461) (9,950)
Less: Dividends and accretion of redeemable preferred stock 23,657 — — 23,657 —
Net loss attributable to stockholders and Former Parent $ (177,241) $ (79,869) $ (55,201) $ (97,372) $ (24,668)
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The following table sets forth a reconciliation of net loss attributable to stockholders and Former Parent to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Net loss attributable to stockholders and Former Parent $ (177,241) $ (79,869) $ (55,201) $ (97,372) $ (24,668)
Add: Provision for (benefit from) income taxes 4,468 (3,630) (1,984) 8,098 (1,646)
Add: Equity-based compensation expense 4,146 4,038 2,325 108 1,713
Add: Acquisition and transaction expenses 16,844 14,826 1,658 2,018 13,168
Add: Losses on the modification or extinguishment of debt and capital lease obligations — — 4,724 — (4,724)
Add: Changes in fair value of non-hedge derivative instruments (1,125) (2,220) 181 1,095 (2,401)
Add: Asset impairment charges — — — — —
Add: Incentive allocations — — — — —
Add: Depreciation & amortization expense 70,749 54,016 31,114 16,733 22,902
Add: Interest expense 53,239 16,019 10,764 37,220 5,255
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1)
13,939 29,095 3,140 (15,156) 25,955
Add: Dividends and accretion of redeemable preferred stock 23,657 — — 23,657 —
Add: Interest costs on pension and OPEB liabilities 1,232 445 — 787 445
Less: Equity in losses of unconsolidated entities 67,399 13,499 3,107 53,900 10,392
Less: Non-controlling share of Adjusted EBITDA (2)
(16,279) (12,508) (9,637) (3,771) (2,871)
Adjusted EBITDA (non-GAAP) $ 61,028 $ 33,711 $ (9,809) $ 27,317 $ 43,520
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(1) Includes the following items for the years ended December 31, 2022, 2021 and 2020: (i) net loss of $(67,658), $(11,838) and $(3,503), (ii) interest expense of $28,702, $5,611 and $1,138, (iii) depreciation and amortization expense of $28,399, $12,443 and $5,513, (iv) acquisition and transaction expense of $616, $104 and $581, (v) changes in fair value of non-hedge derivative instruments of $21,218, $19,850 and $(589), (vi) asset impairment of $2,280, $2,146 and $— and (vii) equity-based compensation of $382, $779 and $—, respectively.
(2) Includes the following items for the years ended December 31, 2022, 2021 and 2020: (i) equity-based compensation of $470, $751 and $374, (ii) provision for income taxes of $670, $52 and $59, (iii) interest expense of $5,491, $3,370 and $2,025, (iv) depreciation and amortization expense of $9,699, $8,411 and $6,149, (v) changes in fair value of non-hedge derivative instruments of $(53), $(76) and $38 (vi) loss on extinguishment of debt of $—, $— and $992, (vii) acquisition and transaction expenses of $1, $— and $—, and (vii) interest costs on pension and OPEB liabilities of $1, $—, and $—, respectively.
Comparison of the years ended December 31, 2022 and 2021
Revenues
Total revenues increased $141.7 million primarily due to higher revenues in the Railroad, Jefferson Terminal, and Corporate and Other segments.
• Rail revenue increased $86.3 million due to the acquisition of Transtar in July 2021;
• Terminal services revenue increased $14.5 million due to higher volumes at Jefferson Terminal;
• Roadside services revenue increased $47.9 million due to the acquisition of a majority stake and consolidation of FYX in May 2022; and
• Other revenue decreased $7.8 million primarily due to a loss on butane forward purchase contracts and margin compression at Repauno.
Expenses
Total expenses increased $127.8 million primarily due to increases in operating expenses and depreciation and amortization.
Operating expenses increased $109.6 million primarily due to:
• an increase of $48.9 million in the Corporate and Other segment primarily due to the acquisition of a majority stake and consolidation of FYX in May 2022;
• an increase of $49.0 million in the Railroad segment due to the acquisition of Transtar, which primarily consists of compensation and benefits and facility operating expenses;
• an increase of $2.8 million at Repauno which primarily reflects increased activity;
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• an increase of $8.2 million at Jefferson Terminal which primarily reflects additional labor costs due to increased activity as well as higher insurance for the new Jefferson Terminal South property.
Depreciation and amortization increased $16.7 million which primarily reflects (i) additional assets placed into service at Jefferson Terminal and (ii) the acquisition of Transtar in July 2021.
Other (expense) income
Total other expense increased $87.0 million which primarily reflects:
• an increase in equity in losses of unconsolidated entities of $53.9 million which primarily reflects unrealized losses on power swaps at Long Ridge;
• an increase in interest expense of $37.2 million which reflects an increase in the average outstanding debt of approximately $198.0 million from the 2027 Notes issued in July 2022 as well as the new EB-5.3 Loan Agreement taken out at Jefferson Terminal;
• a decrease in other expense of $5.8 million primarily due to (i) a write-off of an earn-out receivable in 2021 related to the sale of a portion of our Long Ridge investment and (ii) an increase in interest income within the Sustainability and Energy Transition segment in 2022.
Provision for income taxes
The provision for income taxes increased $8.1 million which primarily reflects provisions booked in the Railroad and Jefferson Terminal segments.
Dividends and accretion of redeemable preferred stock
Dividends and accretion of redeemable preferred stock increased $23.7 million due to the redeemable preferred stock raise completed in August 2022.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $27.3 million primarily due to the changes noted above.
Comparison of the years ended December 31, 2021 and 2020
Revenues
Rail revenue increased $57.1 million due to the acquisition of Transtar in July 2021.
Crude marketing revenues decreased $8.2 million. In 2019, Jefferson Terminal directly sourced crude from producers in Canada, arranging logistics to its terminal and then marketing crude to third parties to take advantage of favorable spreads. The resulting crude sales and corresponding costs of sale, including logistical costs, are reflected in crude marketing revenues and operating expenses, respectively. Jefferson Terminal exited this crude marketing strategy in the fourth quarter of 2019 as a result of unfavorable oil spreads and as certain logistical commitments expired. All activities related to crude marketing revenues were terminated in 2019. All crude marketing revenues in 2020 include contracts executed in 2019 but delivered in 2020.
Other revenue increased $7.4 million primarily due to (i) an increase in butane sales of $5.2 million at Repauno, (ii) a gain of $2.2 million on butane forward purchase contracts at Repauno and (iii) an increase of $0.4 million due to the commencement of transloading at Repauno.
Terminal services revenue decreased $5.8 million at Jefferson Terminal which reflects lower volumes in the first half of 2021 due to lower global oil demand related to COVID-19.
Expenses
Total expenses increased $68.0 million primarily due to increases in (i) operating expenses, (ii) acquisition and transaction expenses, (iii) management fees and incentive allocation to affiliate and (iv) depreciation and amortization.
Operating expenses increased $29.2 million primarily due to:
• an increase of $29.8 million in the Railroad segment due to the acquisition of Transtar, which primarily consists of compensation and benefits and facility operating expenses;
• an increase of $5.3 million at Repauno which primarily reflects increases in (i) property taxes due to new assets, (ii) facility operating expenses due to higher butane volumes, (iii) compensation and benefits due to additional headcount and (iv) professional fees; and
• a decrease of $4.8 million at Jefferson Terminal which primarily reflects (i) a decrease in cost of sales due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019, partially offset by (ii) higher insurance and other facility operating expenses.
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Acquisition and transaction expenses increased $13.2 million primarily due to an increase in professional fees related to the acquisition of Transtar and other strategic initiatives.
Management fees and incentive allocation to affiliate increased $2.6 million which reflects an increase in the base management fee as our average total equity was higher in 2021, primarily due to the acquisition of Transtar.
Depreciation and amortization increased $22.9 million which primarily reflects (i) additional assets placed into service at Jefferson Terminal and Repauno and (ii) the acquisition of Transtar.
Other (expense) income
Total other expense increased $19.9 million which primarily reflects:
• an increase in other expense of $9.0 million primarily due to (i) losses related to crude oil forward transactions at Jefferson Terminal and (ii) a write-off of an earn-out receivable related to the sale of a portion of our Long Ridge investment;
• an increase in equity in losses of unconsolidated entities of $10.4 million which primarily reflects unrealized losses on power swaps at Long Ridge;
• an increase in interest expense of $5.3 million due to the issuance of the Series 2021 Bonds for $425 million and the commencement of the EB-5 Loan Agreement; and
• a decrease in loss on extinguishment of debt of $4.7 million due to a debt refinancing at Jefferson Terminal in 2020.
Benefit from income taxes
The benefit from income taxes increased $1.6 million which primarily reflects higher pre-tax losses in the Power and Gas segment and Corporate and other, partially offset by a provision in the Railroad segment.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $43.5 million primarily due to (i) the changes noted above and (ii) an increase in the Pro-rata share of Adjusted EBITDA from unconsolidated entities.
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Railroad Segment
The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Revenues
Lease income $ 1,943 $ 736 $ — $ 1,207 $ 736
Rail revenues 147,718 61,514 4,424 86,204 57,090
Total revenues 149,661 62,250 4,424 87,411 57,826
Expenses
Operating expenses 84,863 35,824 5,992 49,039 29,832
Acquisition and transaction expenses 763 2,841 — (2,078) 2,841
Depreciation and amortization 20,164 8,951 583 11,213 8,368
Total expenses 105,790 47,616 6,575 58,174 41,041
Other expense
Loss on sale of assets, net (1,603) — — (1,603) —
Interest expense (212) (60) (3) (152) (57)
Other expense (1,632) (422) — (1,210) (422)
Total other expense (3,447) (482) (3) (2,965) (479)
Income (loss) before income taxes 40,424 14,152 (2,154) 26,272 16,306
Provision for income taxes 1,287 64 — 1,223 64
Net income (loss) 39,137 14,088 (2,154) 25,049 16,242
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries 15 — — 15 —
Net income (loss) attributable to stockholders and Former Parent $ 39,122 $ 14,088 $ (2,154) $ 25,034 $ 16,242
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The following table sets forth a reconciliation of net income (loss) attributable to stockholders and Former Parent to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Net income (loss) attributable to stockholders and Former Parent $ 39,122 $ 14,088 $ (2,154) $ 25,034 $ 16,242
Add: Provision for income taxes 1,287 64 — 1,223 64
Add: Equity-based compensation expense 1,531 — — 1,531 —
Add: Acquisition and transaction expenses 763 2,841 — (2,078) 2,841
Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — —
Add: Changes in fair value of non-hedge derivative instruments — — — — —
Add: Asset impairment charges — — — — —
Add: Incentive allocations — — — — —
Add: Depreciation & amortization expense 20,164 8,951 583 11,213 8,368
Add: Interest expense 212 60 3 152 57
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — —
Add: Dividends and accretion of redeemable preferred stock — — — — —
Add: Interest costs on pension and OPEB liabilities 1,232 445 — 787 445
Less: Equity in losses of unconsolidated entities — — — — —
Less: Non-controlling share of Adjusted EBITDA (1)
(25) — — (25) —
Adjusted EBITDA (non-GAAP) $ 64,286 $ 26,449 $ (1,568) $ 37,837 $ 28,017
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(1) Includes the following items for the year ended December 31, 2022: (i) equity-based compensation of $2, (ii) provision for income taxes of $2, (iii) acquisition and transaction expenses of $1, (iv) interest costs on pension and OPEB liabilities of $1, and (v) depreciation and amortization expense of $19.
Comparison of the years ended December 31, 2022 and 2021
Revenues
Total revenues increased $87.4 million which is primarily due to the acquisition of Transtar on July 28, 2021.
Expenses
Total expenses increased $58.2 million which is primarily due to the acquisition of Transtar on July 28, 2021.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $37.8 million due to the changes noted above.
Comparison of the years ended December 31, 2021 and 2020
Revenues
Total revenues increased $57.8 million which is primarily due to the acquisition of Transtar on July 28, 2021.
Expenses
Total expenses increased $41.0 million which is primarily due to the acquisition of Transtar on July 28, 2021.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $28.0 million due to the changes noted above.
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Jefferson Terminal Segment
The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Revenues
Lease income $ 1,278 $ 1,688 $ 1,186 $ (410) $ 502
Terminal services revenues 59,011 44,664 50,887 14,347 (6,223)
Crude marketing revenues — — 8,210 — (8,210)
Total revenues 60,289 46,352 60,283 13,937 (13,931)
Expenses
Operating expenses 56,417 48,255 53,072 8,162 (4,817)
Acquisition and transaction expenses 64 — — 64 —
Depreciation and amortization 39,318 36,013 29,034 3,305 6,979
Total expenses 95,799 84,268 82,106 11,531 2,162
Other (expense) income
Loss on sale of assets, net — — (8) — 8
Loss on extinguishment of debt — — (4,724) — 4,724
Interest expense (24,798) (14,812) (9,426) (9,986) (5,386)
Other (expense) income (4,317) (4,726) 92 409 (4,818)
Total other expense (29,115) (19,538) (14,066) (9,577) (5,472)
Loss before income taxes (64,625) (57,454) (35,889) (7,171) (21,565)
Provision for income taxes 3,016 229 278 2,787 (49)
Net loss (67,641) (57,683) (36,167) (9,958) (21,516)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (32,018) (26,250) (16,483) (5,768) (9,767)
Net loss attributable to stockholders and Former Parent $ (35,623) $ (31,433) $ (19,684) $ (4,190) $ (11,749)
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The following table sets forth a reconciliation of net loss attributable to stockholders and Former Parent to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Net loss attributable to stockholders and Former Parent $ (35,623) $ (31,433) $ (19,684) $ (4,190) $ (11,749)
Add: Provision for income taxes 3,016 229 278 2,787 (49)
Add: Equity-based compensation expense 2,020 3,215 1,676 (1,195) 1,539
Add: Acquisition and transaction expenses 64 — — 64 —
Add: Losses on the modification or extinguishment of debt and capital lease obligations — — 4,724 — (4,724)
Add: Changes in fair value of non-hedge derivative instruments — — 181 — (181)
Add: Asset impairment charges — — — — —
Add: Incentive allocations — — — — —
Add: Depreciation and amortization expense 39,318 36,013 29,034 3,305 6,979
Add: Interest expense 24,798 14,812 9,426 9,986 5,386
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — —
Add: Dividends and accretion of redeemable preferred stock — — — — —
Add: Interest costs on pension and OPEB liabilities — — — — —
Less: Equity in losses of unconsolidated entities — — — — —
Less: Non-controlling share of Adjusted EBITDA (1)
(15,103) (12,205) (9,517) (2,898) (2,688)
Adjusted EBITDA (non-GAAP) $ 18,490 $ 10,631 $ 16,118 $ 7,859 $ (5,487)
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(1) Includes the following items for the years ended December 31, 2022, 2021, and 2020: (i) equity-based compensation of $440, $723 and $352, (ii) provision for income taxes of $660, $52 and $59, (iii) interest expense of $5,416, $3,331 and $1,979, (iv) loss on extinguishment of debt of $—, $— and $992, (v) depreciation and amortization expense of $8,587, $8,099 and $6,097, and (vi) changes in fair value of non-hedge derivative instruments of $—, $— and $38 respectively.
Comparison of the years ended December 31, 2022 and 2021
Revenues
Total revenues increased $13.9 million during the year ended December 31, 2022 primarily due to an increase in terminal services revenues of $14.3 million due to higher volumes. This increase was partially offset by a decrease in lease income of $0.4 million.
Expenses
Total expenses increased $11.5 million which reflects:
• an increase in operating expenses of $8.2 million which primarily reflects additional labor costs due to increased activity as well as higher insurance for the new Jefferson Terminal South property.
• an increase in depreciation and amortization of $3.3 million due to additional assets placed into service.
Other expense
Total other expense increased $9.6 million which primarily reflects an increase in interest expense driven by incurred interest on outstanding borrowings and additional borrowings made under the new EB-5.3 Loan Agreement.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $7.9 million primarily due to the changes noted above.
Comparison of the years ended December 31, 2021 and 2020
Revenues
Total revenues decreased $13.9 million which primarily reflects (i) a decrease in crude marketing revenue of $8.2 million due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019 and (ii) a decrease in terminal services
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revenues of $6.2 million which reflects lower volumes in the first half of 2021 due to lower global oil demand related to COVID-19.
Expenses
Total expenses increased $2.2 million which reflects (i) an increase in depreciation and amortization of $7.0 million due to additional assets placed into service, partially offset by (ii) a decrease in operating expenses of $4.8 million which primarily reflects (i) a decrease in cost of sales due to Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019, partially offset by (ii) higher insurance and other facility operating expenses.
Other (expense) income
Total other (expense) income increased $5.5 million which reflects:
• an increase in interest expense of $5.4 million due to the issuance of the Series 2021 Bonds for $425 million and the commencement of the EB-5 Loan Agreement;
• an increase in other expense of $4.8 million due to losses related to crude oil forward transactions; and
• a decrease in loss on extinguishment of debt of $4.7 million due to a debt refinancing in 2020.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $5.5 million primarily due to the changes noted above.
Repauno Segment
The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Revenues
Rail revenues $ 86 $ — $ — $ 86 $ —
Terminal services revenues 563 374 — 189 374
Other revenue 3,468 11,243 3,855 (7,775) 7,388
Total revenues 4,117 11,617 3,855 (7,500) 7,762
Expenses
Operating expenses 17,072 14,304 8,971 2,768 5,333
Depreciation and amortization 9,322 9,052 1,497 270 7,555
Total expenses 26,394 23,356 10,468 3,038 12,888
Other (expense) income
Gain on sale of assets, net — 16 — (16) 16
Interest expense (1,590) (1,147) (1,335) (443) 188
Total other expense (1,590) (1,131) (1,335) (459) 204
Loss before income taxes (23,867) (12,870) (7,948) (10,997) (4,922)
Provision for income taxes 165 — — 165 —
Net loss (24,032) (12,870) (7,948) (11,162) (4,922)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (1,242) (222) (39) (1,020) (183)
Net loss attributable to stockholders and Former Parent $ (22,790) $ (12,648) $ (7,909) $ (10,142) $ (4,739)
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The following table sets forth a reconciliation of net loss attributable to stockholders and Former Parent to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Net loss attributable to stockholders and Former Parent $ (22,790) $ (12,648) $ (7,909) $ (10,142) $ (4,739)
Add: Provision for income taxes 165 — — 165 —
Add: Equity-based compensation expense 595 823 649 (228) 174
Add: Acquisition and transaction expenses — — — — —
Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — —
Add: Changes in fair value of non-hedge derivative instruments (1,125) (2,220) — 1,095 (2,220)
Add: Asset impairment charges — — — — —
Add: Incentive allocations — — — — —
Add: Depreciation and amortization expense 9,322 9,052 1,497 270 7,555
Add: Interest expense 1,590 1,147 1,335 443 (188)
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities — — — — —
Add: Dividends and accretion of redeemable preferred stock — — — — —
Add: Interest costs on pension and OPEB liabilities — — — — —
Less: Equity in losses of unconsolidated entities — — — — —
Less: Non-controlling share of Adjusted EBITDA (1)
(500) (303) (120) (197) (183)
Adjusted EBITDA (non-GAAP) $ (12,743) $ (4,149) $ (4,548) $ (8,594) $ 399
__________________________________________________
(1) Includes the following items for the years ended December 31, 2022, 2021 and 2020: (i) equity-based compensation of $28, $28 and $22, (ii) provision for income taxes of $8, $— and $—, (iii) interest expense of $75, $39 and $46, (iv) depreciation and amortization expense of $442, $312 and $52, and (v) changes in fair value of non-hedge derivative instruments of $(53), $(76) and $— respectively.
Comparison of the years ended December 31, 2022 and 2021
Revenues
Total revenues decreased $7.5 million , primarily due to a $3.7 million loss on butane forward purchase contracts as well as overall margin compression.
Expenses
Total expenses increased $3.0 million primarily due to:
• an increase in operating expenses of $2.8 million due to increased terminal activity; and
• an increase in depreciation expense of $0.3 million due to assets being placed into service.
Other (expense) income
Total other expense increased $0.5 million primarily due to an increase in interest expense for the period relating to the revolver loan.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $8.6 million due to the changes noted above.
Comparison of the years ended December 31, 2021 and 2020
Revenues
Total revenues increased $7.8 million, primarily due to (i) an increase in butane sales of $5.2 million, (ii) a gain of $2.2 million on butane forward purchase contracts and (iii) an increase of $0.4 million due to the commencement of transloading.
Expenses
Total expenses increased $12.9 million primarily due to:
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• an increase in operating expenses of $5.3 million which primarily reflects increases in (i) property taxes due to new assets, (ii) facility operating expenses due to higher butane volumes, (iii) compensation and benefits due to additional headcount and (iv) professional fees; and
• an increase in depreciation expense of $7.6 million due to assets being placed into service.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $0.4 million due to the changes noted above.
Power and Gas Segment
The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Revenues
Other revenue $ — $ — $ — $ — $ —
Total revenues — — — — —
Expenses
Operating expenses 826 99 1,356 727 (1,257)
Acquisition and transaction expenses 458 — 907 458 (907)
Total expenses 1,284 99 2,263 1,185 (2,164)
Other (expense) income
Equity in losses of unconsolidated entities (60,538) (13,597) (3,222) (46,941) (10,375)
Other income (expense) 524 (3,782) — 4,306 (3,782)
Total other expense (60,014) (17,379) (3,222) (42,635) (14,157)
Loss before income taxes (61,298) (17,478) (5,485) (43,820) (11,993)
Benefit from income taxes — (3,930) (2,265) 3,930 (1,665)
Net loss (61,298) (13,548) (3,220) (47,750) (10,328)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — — —
Net loss attributable to stockholders and Former Parent $ (61,298) $ (13,548) $ (3,220) $ (47,750) $ (10,328)
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The following table sets forth a reconciliation of net loss attributable to stockholders and Former Parent to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Net loss attributable to stockholders and Former Parent $ (61,298) $ (13,548) $ (3,220) $ (47,750) $ (10,328)
Add: Benefit from income taxes — (3,930) (2,265) 3,930 (1,665)
Add: Equity-based compensation expense — — — — —
Add: Acquisition and transaction expenses 458 — 907 458 (907)
Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — —
Add: Changes in fair value of non-hedge derivative instruments — — — — —
Add: Asset impairment charges — — — — —
Add: Incentive allocations — — — — —
Add: Depreciation and amortization expense — — — — —
Add: Interest expense — — — — —
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1)
18,341 29,405 3,304 (11,064) 26,101
Add: Dividends and accretion of redeemable preferred stock — — — — —
Add: Interest costs on pension and OPEB liabilities — — — — —
Less: Equity in losses of unconsolidated entities 60,538 13,597 3,222 46,941 10,375
Less: Non-controlling share of Adjusted EBITDA
— — — — —
Adjusted EBITDA (non-GAAP) $ 18,039 $ 25,524 $ 1,948 $ (7,485) $ 23,576
__________________________________________________
(1) Includes the following items for the years ended December 31, 2022, 2021 and 2020: (i) net loss of $(60,538), $(11,430) and $(3,222), (ii) depreciation expense of $27,625, $12,443 and $5,513, (iii) interest expense of $26,758, $5,513 and $1,021, (iv) acquisition and transaction expense of $616, $104 and $581, (v) changes in fair value of non-hedge derivative instruments of $21,218, $19,850 and $(589), (vi) asset impairment of $2,280, $2,146 and $— and (vii) equity-based compensation of $382, $779, and $—, respectively.
Comparison of the years ended December 31, 2022 and 2021
Expenses
Total expenses increased $1.2 million primarily due to the acquisition and development of natural gas reserves.
Other (expense) income
Total other expense increased $42.6 million primarily due to increases in equity in losses in unconsolidated entities primarily due to realized and unrealized losses on power swaps at Long Ridge, as well as an unexpected power plant outage at the end of 2022.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $7.5 million due to the changes noted above.
Comparison of the years ended December 31, 2021 and 2020
Expenses
Total expenses decreased $2.2 million which primarily reflects a decrease in acquisition and transaction expense due to no acquisitions in 2021.
Other (expense) income
Total other expenses increased $14.2 million primarily due to increases in equity in losses in unconsolidated entities primarily due to unrealized losses on power swaps at Long Ridge.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA increased $23.6 million due to an increase in the pro rata share of adjusted EBITDA from unconsolidated entities of $26.1 million and the changes noted above.
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Sustainability and Energy Transition Segment
The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Revenues
Other revenue $ — $ — $ — $ — $ —
Total revenues — — — — —
Expenses
Operating expenses 10 — — 10 —
Acquisition and transaction expenses 280 — — 280 —
Total expenses 290 — — 290 —
Other (expense) income
Equity in losses of unconsolidated entities (7,012) (372) — (6,640) (372)
Other income 2,123 — — 2,123 —
Total other expense (4,889) (372) — (4,517) (372)
Net loss attributable to stockholders and Former Parent $ (5,179) $ (372) $ — $ (4,807) $ (372)
The following table sets forth a reconciliation of net loss attributable to stockholders and Former Parent to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Net loss attributable to stockholders and Former Parent $ (5,179) $ (372) $ — $ (4,807) $ (372)
Add: Provision for income taxes — — — — —
Add: Equity-based compensation expense — — — — —
Add: Acquisition and transaction expenses 280 — — 280 —
Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — —
Add: Changes in fair value of non-hedge derivative instruments — — — — —
Add: Asset impairment charges — — — — —
Add: Incentive allocations — — — — —
Add: Depreciation and amortization expense — — — — —
Add: Interest expense — — — — —
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1)
(4,447) (372) — (4,075) (372)
Add: Dividends and accretion of redeemable preferred stock — — — — —
Add: Interest costs on pension and OPEB liabilities — — — — —
Less: Equity in losses of unconsolidated entities 7,012 372 — 6,640 372
Less: Non-controlling share of Adjusted EBITDA — — — — —
Adjusted EBITDA (non-GAAP) $ (2,334) $ (372) $ — $ (1,962) $ (372)
__________________________________________________
(1) Includes the following items for the years ended December 31, 2022 and 2021: (i) net loss of $(7,069) and $(372), (ii) depreciation expense of $774 and $—, and (iii) interest expense of $1,848 and $—, respectively.
Comparison of the years ended December 31, 2022 and 2021
Other (expense) income
Total other expense decreased $4.5 million which reflects an increase of $6.6 million in equity method losses in unconsolidated entities primarily due to increased losses at GM-FTAI Holdco LLC and Clean Planet Energy USA, as well as an increase in other income of $2.1 million due to interest income earned on outstanding notes.
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Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $2.0 million primarily due to the changes noted above.
Comparison of the years ended December 31, 2021 and 2020
Other expense
Other expense decreased $0.4 million primarily due to the investment in unconsolidated entities in the sustainability and energy transition sectors in the second half of 2021.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $0.4 million due to the changes noted above.
Corporate and Other
The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Revenues
Roadside services revenues $ 47,899 $ — $ — $ 47,899 $ —
Total revenues 47,899 — — 47,899 —
Expenses
Operating expenses 48,969 59 — 48,910 59
General and administrative 10,891 8,737 8,522 2,154 215
Acquisition and transaction expenses 15,279 11,985 751 3,294 11,234
Management fees and incentive allocation to affiliate 12,964 15,638 13,073 (2,674) 2,565
Depreciation and amortization 1,945 — — 1,945 —
Total expenses 90,048 36,419 22,346 53,629 14,073
Other (expense) income
Equity in earnings of unconsolidated entities 151 470 115 (319) 355
Interest expense (26,639) — — (26,639) —
Other income 133 — — 133 —
Total other (expense) income (26,355) 470 115 (26,825) 355
Loss before income taxes (68,504) (35,949) (22,231) (32,555) (13,718)
Provision for income taxes — 7 3 (7) 4
Net loss (68,504) (35,956) (22,234) (32,548) (13,722)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries: (688) — — (688) —
Less: Dividends and accretion of redeemable preferred stock 23,657 — — 23,657 —
Net loss attributable to stockholders and Former Parent $ (91,473) $ (35,956) $ (22,234) $ (31,860) $ (13,722)
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The following table sets forth a reconciliation of net loss attributable to stockholders and Former Parent to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2022 2021 2020 '22 vs ‘21 '21 vs '20
Net loss attributable to stockholders and Former Parent $ (91,473) $ (35,956) $ (22,234) $ (55,517) $ (13,722)
Add: Provision for income taxes — 7 3 (7) 4
Add: Equity-based compensation expense — — — — —
Add: Acquisition and transaction expenses 15,279 11,985 751 3,294 11,234
Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — — —
Add: Changes in fair value of non-hedge derivative instruments — — — — —
Add: Asset impairment charges — — — — —
Add: Incentive allocations — — — — —
Add: Depreciation and amortization expense 1,945 — — 1,945 —
Add: Interest expense 26,639 — — 26,639 —
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1)
45 62 (164) (17) 226
Add: Dividends and accretion of redeemable preferred stock 23,657 — — 23,657 —
Add: Interest costs on pension and OPEB liabilities — — — — —
Less: Equity in (earnings) losses of unconsolidated entities (151) (470) (115) 319 (355)
Less: Non-controlling share of Adjusted EBITDA (2)
(651) — — (651) —
Adjusted EBITDA (non-GAAP) $ (24,710) $ (24,372) $ (21,759) $ (338) $ (2,613)
__________________________________________________
(1) Includes the following items for the years ended December 31, 2022, 2021 and 2020: (i) net loss of $(51), $(36) and $(281) and (ii) interest expense of $96, $98 and $117, respectively.
(2) Includes the following items for the year ended December 31, 2022: (i) depreciation expense of $651.
Comparison of the years ended December 31, 2022 and 2021
Revenues
Total revenues increased $47.9 million due to the acquisition of a majority stake and consolidation of FYX in May 2022.
Expenses
Total expenses increased $53.6 million primarily due to the acquisition of a majority stake and consolidation of FYX in May 2022.
Other (expense) income
Total other expense increased $26.8 million due to an increase in interest expense of $26.6 million which reflects an increase in the average outstanding debt from the 2027 Notes issued in July 2022.
Dividends and accretion of redeemable preferred stock
Dividends and accretion of redeemable preferred stock increased $23.7 million due to the redeemable preferred stock raise completed in August 2022.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA decreased $0.3 million primarily due to the changes noted above.
Comparison of the years ended December 31, 2021 and 2020
Expenses
Acquisition and transaction expenses increased $11.2 million primarily due to an increase in professional fees related to the acquisition of Transtar and other strategic initiatives.
Management fees and incentive allocation to affiliate increased $2.6 million which reflects an increase in the base management fee as our average total equity was higher in 2021, primarily due to the acquisition of Transtar.
Adjusted EBITDA (non-GAAP)
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Adjusted EBITDA decreased $2.6 million primarily due to the changes noted above.
Transactions with Affiliates and Affiliated Entities
We are managed by the Manager, an affiliate of Fortress, pursuant to our Management Agreement, which provides for us to bear obligations for management fees and expense reimbursements payable to the Manager. Pursuant to the terms of the Management Agreement, the Manager provides a management team and other professionals who are responsible for implementing our business strategy and performing certain services for us, subject to oversight by our board of directors. Our Management Agreement has an initial six-year term and is automatically renewed for one-year terms thereafter unless terminated either by us or our Manager. For its services, our Manager is entitled to receive a management fee from us, payable monthly, that is based on the average value of our total equity (including redeemable preferred stock, but excluding non-controlling interests) determined on a consolidated basis in accordance with GAAP as of the last day of the two most recently completed months multiplied by an annual rate of 1.50%. In addition, we are obligated to reimburse certain expenses incurred by our Manager on our behalf.
Geographic Information
Please refer to Note 17 of our consolidated and combined consolidated financial statements for information by geographic area for each segment, all located in North America, of revenues from our external customers, for the years ended December 31, 2022, 2021 and 2020, as well as the geographic area for each segment of our total property, plant and equipment as of December 31, 2022 and 2021.
Liquidity and Capital Resources
The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt financing.
In July 2022, we issued $500 million aggregate principal amount of 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. Additionally, in November 2022, Jefferson Terminal entered into a new EB-5 loan agreement maximum aggregate principal amount available of $28.0 million (the “EB5.3 Loan Agreement”). In December 2022, Transtar entered into a $25.0 million revolver agreement (the “Transtar Revolver”). Refer to Note 8 to the consolidated and combined consolidated financial statements for more information on our debt obligations.
We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. This includes limiting discretionary spending across the organization and re-prioritizing our capital projects.
Our principal uses of liquidity have been and continue to be (i) acquisitions of and investments in infrastructure assets, (ii) expenses associated with our operating activities and (iii) debt service obligations associated with our investments.
• Cash used for the purpose of making investments was $267.3 million, $828.7 million and $252.2 million during the years ended December 31, 2022, 2021 and 2020, respectively.
• Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities. Uses of liquidity associated with our debt obligations are captured in our cash flows from financing activities.
Our principal sources of liquidity to fund these uses have been and continue to be (i) cash and restricted cash on hand as of December 31, 2022 (ii) revenues from our infrastructure businesses net of operating expenses, (iii) proceeds from borrowings and (iv) proceeds from asset sales.
• During the year ended December 31, 2022, additional borrowings were obtained in connection with the (i) 2027 Notes (as defined in Note 8 of the consolidated and combined consolidated financial statements) of $473.8 million; (ii) Transtar Revolver of $10.0 million and (iii) EB-5.3 Loan Agreement of $26.4 million. We did not make any principal repayments of debt during the year ended December 31, 2022.
• During the year ended December 31, 2021, additional borrowings were obtained in connection with the (i) Series 2021 Bonds (as defined in Note 8 of the consolidated and combined consolidated financial statements) of $425.0 million and (ii) EB-5 Loan Agreement of $26.1 million.
• During the year ended December 31, 2020, additional borrowings were obtained in connection with the Series 2020 Bonds (as defined in Note 8 of the consolidated and combined consolidated financial statements) of $264.0 million. We made principal payments of $240.0 million related to the Jefferson Terminal Revolver and the Series 2016 and 2012 Bonds.
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Historical Cash Flow
The following table presents our historical cash flow:
Year Ended December 31,
(in thousands) 2022 2021 2020
Cash flow data:
Net cash used in operating activities $ (42,690) $ (61,716) $ (46,860)
Net cash used in investing activities (267,266) (828,716) (252,216)
Net cash provided by financing activities 157,743 1,136,866 337,628
Comparison of the years ended December 31, 2022 and 2021
Net cash used in operating activities decreased $19.0 million, which primarily reflects (i) an increase in net loss of $81.2 million, partially offset by (ii) changes in accounts receivable, accounts payable and accrued liabilities, other assets and other liabilities of $14.7 million, (iii) an increase in depreciation and amortization of $16.7 million, (iv) a change in equity in losses of unconsolidated entities of $53.9 million, and (v) an increase in deferred income taxes of $7.8 million.
Net cash used in investing activities decreased $561.5 million primarily due to a (i) decrease in the acquisition of business, net of cash acquired for $623.3 million and (ii) a decrease in the investment in unconsolidated entities of $49.2 million, partially offset by (iii) an increase in acquisitions of property, plant and equipment of $76.2 million and (iv) an increase in investment in convertible promissory notes of $37.5 million.
Net cash provided by financing activities decreased $979.1 million primarily due to (i) a decrease in net transfers from Former Parent of $1.3 billion partially offset by (ii) an increase in the proceeds from the issuance of Redeemable Preferred Stock of $274.6 million and (iii) an increase in proceeds from debt of $67.9 million.
Comparison of the years ended December 31, 2021 and 2020
Net cash used in operating activities increased $14.9 million, which primarily reflects (i) an increase in net loss of $34.6 million and (ii) changes in management fees payable to affiliate, accounts receivable, accounts payable and accrued liabilities, other assets and other liabilities of $7.6 million, partially offset by (iii) an increase in depreciation and amortization of $22.9 million, and (iv) a change in equity in losses of unconsolidated entities of $10.4 million.
Net cash used in investing activities increased $576.5 million primarily due to (i) an increase in the acquisition of business, net of cash acquired for $627.1 million, (ii) an increase in the investment in unconsolidated entities of $50.5 million, and (iii) an increase in investment in convertible promissory notes of $10.0 million partially offset by (iv) an increase in proceeds from sale of property, plant and equipment of $4.5 million, and (v) a decrease in acquisitions of property, plant and equipment of $106.6 million.
Net cash provided by financing activities increased $799.2 million primarily due to (i) an increase in net transfers from Former Parent of $372.7 million, (ii) a decrease in repayment of debt of $240.0 million and (iii) an increase in proceeds from debt of $187.1 million.
Debt Covenants
We are in compliance with all of our debt covenants as of December 31, 2022 and 2021. See Note 8 to the consolidated and combined consolidated financial statements for information related to our debt obligations and respective covenants.
Contractual Obligations and Cash Requirements
Our material cash requirements include the following contractual and other obligations:
Debt Obligations — As of December 31, 2022, we have outstanding principal and interest payment obligations of $1.3 billion and $569.6 million, respectively, of which, there is no principal payment due and $83.6 million of interest payments due within the next twelve months. See Note 8 of the consolidated and combined consolidated financial statements for additional information about our debt obligations.
Lease Obligations — As of December 31, 2022, we had operating and finance lease obligations of $171.8 million, of which $8.2 million is due within the next twelve months.
Redeemable Preferred Stock Obligations —We are required to make a $1.8 million cash dividend payment on our redeemable preferred stock by December 31, 2023.
Other Obligations — As of December 31, 2022, in connection with a pipeline capacity agreement at Jefferson Terminal, we had an obligation to pay a minimum of $3.6 million in marketing fees in the next twelve months.
Other Cash Requirements —In addition to our contractual obligations, we intend to pay quarterly cash dividends on our common stock, which are subject to change at the discretion of our board of directors.
We expect to meet our future short-term liquidity requirements through cash on hand, unused borrowing capacity or future financings and net cash provided by our current operations. We expect that our operating subsidiaries will generate sufficient
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cash flow to cover operating expenses and the payment of principal and interest on our indebtedness as they become due. We may elect to meet certain long-term liquidity requirements or to continue to pursue strategic opportunities through utilizing cash on hand, cash generated from our current operations and the issuance of securities in the future. Management believes adequate capital and borrowings are available from various sources to fund our commitments to the extent required.
Application of Critical Accounting Policies
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 3 - 5 years from date of purchase
None
Construction in progress N/A N/A
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 lease restructuring or early lease termination; 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. As of December 31, 2022, the carrying amount of goodwill within the Jefferson Terminal, Railroad and Corporate and Other segments was $122.7 million, $132.1 million, and $5.4 million, respectively. As of December 31, 2021, the carrying amount of goodwill within the Jefferson Terminal, Railroad and Corporate and Other segments was $122.7 million, $134.4 million, and $—, 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 goodwill impairment assessment compares the fair value of a respective reporting unit with its carrying amount, including goodwill. The estimate of fair value of the respective reporting unit is based on the best information available as of the date of assessment, which primarily incorporates certain factors including our assumptions about operating results, business plans, income projections, anticipated future cash flows and market data. If the estimated fair value of the reporting unit is less than the carrying amount, a goodwill impairment is recorded to the extent that the carrying value of the reporting unit exceeds the fair value.
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As of October 1, 2022, we elected to complete a qualitative impairment assessment of the goodwill related to our Railroad reporting unit and concluded that it was more likely than not that the fair value of the Railroad reporting unit exceeded its carrying value. Therefore, no quantitative impairment evaluation was completed. As part of our assessment, we considered numerous factors, including:
• macroeconomic conditions and their potential impact on reporting unit fair value;
• industry and market conditions;
• cost factors such as increases in raw materials, labor or other costs;
• actual financial performance compared with budget and prior projections; and
• events that may change the composition or carrying value of its net assets.
For our Jefferson Terminal reporting unit, we completed a quantitative analysis. We estimate the fair value of Jefferson Terminal 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 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, 2022. The Jefferson Terminal reporting unit 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, expansion of refined product distribution to Mexico and movements in future oil spreads. At October 1, 2022, approximately 4.3 million barrels of storage was operational with 1.9 million barrels under construction for new contracts that came online in December 2022 and completed our storage development for our main terminal. Our discount rate for our 2022 goodwill impairment analysis was 9.5% 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 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 reporting unit to continue to generate positive Adjusted EBITDA in future years. In December 2022, our multi-year refined products contract with Exxon Mobil Oil Corporation began. Although certain of our anticipated contracts or expected volumes from existing contracts for Jefferson Terminal have been delayed, we continue to believe our projections are achievable. Further delays in executing anticipated contracts or achieving our projected volumes could adversely affect the fair value of the reporting unit.
There were no impairments of goodwill for the years ended December 31, 2022, 2021, and 2020.
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 allocated to investors by our Former Parent, which was treated as a partnership for U.S. federal income tax purposes. In addition, certain of our subsidiaries were taxed as separate corporations for U.S. federal income tax purposes. 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 consolidated 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.
Recent Accounting Pronouncements
Please see Note 2 to our consolidated and combined consolidated financial statements included elsewhere in this filing for recent accounting pronouncements.
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