SP Plus Corporation
SP Plus Corp (Form: 10-Q, Received: 11/03/2016 16:06:04)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
 
Commission file number: 000-50796
 
  SPLOGOA04.JPG
SP Plus Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
16-1171179
(State or Other Jurisdiction of
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 
 
200 E. Randolph Street, Suite 7700
Chicago, Illinois 60601-7702
(Address of Principal Executive Offices, Including Zip Code)
 
(312) 274-2000
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  ý   NO  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  ý   NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer  o
 
Accelerated filer  x
 
 
 
Non-accelerated filer  o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o   NO  ý

As of November 2, 2016 , there were 22,356,586 shares of common stock of the registrant outstanding.
 


Table of Contents

SP PLUS CORPORATION
 
TABLE OF CONTENTS
 
 
 
 
 


1

Table of Contents

PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements

SP Plus Corporation
Condensed Consolidated Balance Sheets
(millions, except for share and per share data)
September 30, 2016
 
December 31, 2015
 
(unaudited)
 
 

Assets
 

 
 

Cash and cash equivalents
$
19.3

 
$
18.7

Notes and accounts receivable, net
120.7

 
105.1

Prepaid expenses and other
11.2

 
13.9

Deferred taxes
12.3

 
12.3

Total current assets
163.5

 
150.0

Leasehold improvements, equipment, land and construction in progress, net
31.8

 
34.6

Other assets
 

 
 

Advances and deposits
4.6

 
5.0

Other intangible assets, net
64.5

 
75.9

Favorable acquired lease contracts, net
31.8

 
38.1

Equity investments in unconsolidated entities
18.5

 
19.0

Other assets, net
21.5

 
18.3

Cost of contracts, net
11.2

 
11.9

Goodwill
431.5

 
431.3

Total other assets
583.6

 
599.5

Total assets
$
778.9

 
$
784.1

Liabilities and stockholders’ equity
 

 
 

Accounts payable
$
97.0

 
$
95.1

Accrued rent
22.7

 
22.9

Compensation and payroll withholdings
21.1

 
21.0

Property, payroll and other taxes
9.2

 
8.6

Accrued insurance
18.1

 
19.4

Accrued expenses
25.1

 
25.4

Current portion of obligations under Restated Credit Facility and other long-term borrowings
19.1

 
15.2

Total current liabilities
212.3

 
207.6

Long-term borrowings, excluding current portion


 


Obligations under Restated Credit Facility
194.8

 
209.4

Other long-term borrowings
0.2

 
0.5

 
195.0

 
209.9

Unfavorable acquired lease contracts, net
42.6

 
50.3

Other long-term liabilities
68.7

 
66.2

Total noncurrent liabilities
306.3

 
326.4

Stockholders’ equity
 

 
 

Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of September 30, 2016 and December 31, 2015; no shares issued

 

Common stock, par value $0.001 per share; 50,000,000 shares authorized as of September 30, 2016 and December 31, 2015; 22,356,586 and 22,328,578 shares issued as of September 30, 2016 and December 31, 2015

 

Treasury stock, at cost; 219,519 shares at September 30, 2016 and nil shares at December 31, 2015
(5.4
)
 

Additional paid-in capital
250.5

 
247.9

Accumulated other comprehensive loss
(1.3
)
 
(1.1
)
Retained earnings
16.3

 
2.8

Total SP Plus Corporation stockholders’ equity
260.1

 
249.6

Noncontrolling interest
0.2

 
0.5

Total stockholders’ equity
260.3

 
250.1

Total liabilities and stockholders’ equity
$
778.9

 
$
784.1

 
See Notes to Condensed Consolidated Financial Statements.

2

Table of Contents


SP Plus Corporation
Condensed Consolidated Statements of Income  
 
Three Months Ended
 
Nine Months Ended
(millions, except for share and per share data) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Parking services revenue


 


 
 

 
 

Lease contracts
$
136.1

 
$
146.6

 
$
410.3

 
$
428.9

Management contracts
84.1

 
85.8

 
262.0

 
268.2


220.2

 
232.4

 
672.3

 
697.1

Reimbursed management contract revenue
188.9

 
168.3

 
537.0

 
513.4

Total revenue
409.1

 
400.7

 
1,209.3

 
1,210.5

Cost of parking services


 


 
 

 
 

Lease contracts
125.8

 
136.0

 
380.4

 
399.1

Management contracts
50.5

 
53.6

 
162.6

 
167.5


176.3

 
189.6

 
543.0

 
566.6

Reimbursed management contract expense
188.9

 
168.3

 
537.0

 
513.4

Total cost of parking services
365.2

 
357.9

 
1,080.0

 
1,080.0

Gross profit


 


 
 

 
 

Lease contracts
10.3

 
10.6

 
29.9

 
29.8

Management contracts
33.6

 
32.2

 
99.4

 
100.7

Total gross profit
43.9

 
42.8

 
129.3

 
130.5

General and administrative expenses
20.3

 
23.7

 
67.0

 
74.2

Depreciation and amortization
7.8

 
8.3

 
26.8

 
24.4

Operating income
15.8

 
10.8

 
35.5

 
31.9

Other expenses (income)


 


 
 

 
 

Interest expense
2.7

 
2.9

 
8.1

 
10.0

Interest income
(0.1
)
 

 
(0.4
)
 
(0.1
)
Gain on sale of a business

 
(0.5
)
 

 
(0.5
)
Equity in losses from investment in unconsolidated entity
0.4

 
0.4

 
1.2

 
1.2

Total other expenses
3.0

 
2.8

 
8.9

 
10.6

Earnings before income taxes
12.8

 
8.0

 
26.6

 
21.3

Income tax expense
5.1

 
3.5

 
10.9

 
4.5

Net income
7.7

 
4.5

 
15.7

 
16.8

Less: Net income attributable to noncontrolling interest
0.7

 
0.8

 
2.2

 
2.0

Net income attributable to SP Plus Corporation
$
7.0

 
$
3.7

 
$
13.5

 
$
14.8

Common stock data


 


 
 

 
 

Net income per share


 


 
 

 
 

Basic
$
0.31

 
$
0.17

 
$
0.60

 
$
0.67

Diluted
$
0.31

 
$
0.16

 
$
0.60

 
$
0.66

Weighted average shares outstanding


 


 


 


Basic
22,208,139

 
22,205,707

 
22,293,776

 
22,159,701

Diluted
22,497,111

 
22,548,166

 
22,571,933

 
22,519,818

 
See Notes to Condensed Consolidated Financial Statements.


3

Table of Contents

SP Plus Corporation
Condensed Consolidated Statements of Comprehensive Income
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Net income
$
7.7

 
$
4.5

 
$
15.7

 
$
16.8

Other comprehensive expense (income)
0.1

 
(0.5
)
 
(0.2
)
 
(1.1
)
Comprehensive income
7.8

 
4.0

 
15.5

 
15.7

Less: Comprehensive income attributable to noncontrolling interest
0.7

 
0.8

 
2.2

 
2.0

Comprehensive income attributable to SP Plus Corporation
$
7.1

 
$
3.2

 
$
13.3

 
$
13.7

 
See Notes to Condensed Consolidated Financial Statements.


4

Table of Contents

SP Plus Corporation
Condensed Consolidated Statements of Cash Flows
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
Operating activities
 

 
 

Net income
$
15.7

 
$
16.8

Adjustments to reconcile net income to net cash provided by operations:


 


Depreciation and amortization
27.0

 
24.8

Net accretion of acquired lease contracts
(1.4
)
 
(1.1
)
(Gain) loss on sale of equipment
(0.2
)
 
0.1

Net gain on sale of business

 
(0.5
)
Amortization of debt issuance costs
0.6

 
0.9

Amortization of original discount on borrowings
0.4

 
0.9

Non-cash stock-based compensation
2.8

 
3.1

Provisions for losses on accounts receivable
0.1

 
0.4

Excess tax benefit related to vesting on restricted stock units

 
(0.2
)
Deferred income taxes
2.3

 
(7.7
)
Changes in operating assets and liabilities


 


Notes and accounts receivable
(15.6
)
 
1.9

Prepaid assets
1.5

 
0.7

Other assets
(5.0
)
 
1.9

Accounts payable
2.0

 
(15.4
)
Accrued liabilities
0.4

 
(7.5
)
Net cash provided by operating activities
30.6

 
19.1

Investing activities
 

 
 

Purchase of leasehold improvements and equipment
(10.8
)
 
(6.6
)
Proceeds from sale of equipment and contract terminations
2.9

 
0.4

Proceeds from sale of business, net

 
1.0

Cost of contracts purchased
(2.0
)
 
(2.7
)
Net cash used in investing activities
(9.9
)
 
(7.9
)
Financing activities
 

 
 

Tax benefit from vesting of restricted stock units

 
0.2

Contingent payments for businesses acquired

 
(0.1
)
Payments on senior credit facility revolver (Senior Credit Facility and Restated Credit Facility)
(302.2
)
 
(353.3
)
Proceeds from senior credit facility revolver (Senior Credit Facility and Restated Credit Facility)
301.7

 
347.6

Proceeds from term loan (Restated Credit Facility)

 
10.4

Payments on term loan (Senior Credit Facility and Restated Credit Facility)
(11.2
)
 
(11.2
)
Payments on other long-term borrowings
(0.2
)
 
(0.3
)
Distribution to noncontrolling interest
(2.6
)
 
(1.7
)
Payments of debt issuance costs and original discount on borrowings
(0.1
)
 
(1.4
)
Repurchase of common stock
(5.4
)
 

Net cash used in financing activities
(20.0
)
 
(9.8
)
Effect of exchange rate changes on cash and cash equivalents
(0.1
)
 
(0.6
)
Increase in cash and cash equivalents
0.6

 
0.8

Cash and cash equivalents at beginning of year
18.7

 
18.2

Cash and cash equivalents at end of period
$
19.3

 
$
19.0

Supplemental disclosures
 

 
 

Cash paid during the period for
 

 
 

Interest
$
6.9

 
$
8.4

Income taxes, net
$
11.8

 
$
14.3

 
See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents

SP Plus Corporation
Notes to Condensed Consolidated Financial Statements
(millions, except for share and per share data) (unaudited)  

1. Significant Accounting Policies and Practices
 
The Company

SP Plus Corporation (the “Company”) provides parking management, ground transportation and other ancillary services to commercial, institutional and municipal clients in urban markets and airports across the United States, Puerto Rico and Canada. These services include a comprehensive set of on-site parking management and ground transportation services, which include facility maintenance, training, scheduling and supervising all service personnel as well as providing customer service, marketing, and accounting and revenue control functions necessary to facilitate the operation of clients’ facilities. The Company also provides a range of ancillary services such as airport shuttle operations, valet services, taxi and livery dispatch services and municipal meter revenue collection and enforcement services.
 
Basis of Presentation
 
The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the Condensed Consolidated Balance Sheets, Statements of Income, Comprehensive Income and Cash Flows prepared in conformity with U.S. GAAP have been condensed or omitted as permitted by such rules and regulations.
 
In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and nine periods ended September 30, 2016 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ended December 31, 2016 . The financial statements presented in this report should be read in conjunction with the Company’s annual consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed on March 1, 2016.
 
Cash and cash equivalents
 
Cash equivalents represent funds temporarily invested in money market instruments with maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements was $0.5 million and $0.9 million as of September 30, 2016 and December 31, 2015 , respectively, and are included within Cash and cash equivalents within the Condensed Consolidated Balance Sheets.
 
Financial Instruments
 
The carrying values of cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. Book overdrafts of $28.5 million and $25.8 million are included within Accounts payable within the Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 , respectively. Long-term debt has a carrying value that approximates fair value because these instruments bear interest at variable market rates.
 
Equity Investments in Unconsolidated Entities
 
The Company has ownership interests in 29 active partnerships, joint ventures or similar arrangements that operate parking facilities, of which 21 are consolidated under the VIE or voting interest models and 8 are unconsolidated where the Company’s ownership interests range from 30 - 50 percent and for which there are no indicators of control. The Company accounts for such investments under the equity method of accounting, and its underlying share of each investee’s equity is included in Equity investments in unconsolidated entities within the Condensed Consolidated Balance Sheets. As the operations of these entities are consistent with the Company’s underlying core business operations, the equity in earnings of these investments are included in Parking services revenue—Lease contracts within the Condensed Consolidated Statements of Income. The equity earnings in these related investments was $0.7 million and $1.8 million for the three and nine months ended September 30, 2016 , respectively. The equity earnings in these related investments was $0.6 million and $1.5 million for the three and nine months ended September 30, 2015 , respectively.
 
In October 2014, the Company entered into an agreement to establish a joint venture with Parkmobile USA, Inc. (“Parkmobile USA”) and contributed all of the assets and liabilities of its proprietary Click and Park parking prepayment business in exchange for a 30 percent interest in the newly formed legal entity called Parkmobile, LLC (“Parkmobile”). The joint venture of Parkmobile provides on-demand and prepaid transaction processing for on- and off-street parking and transportation services. The contribution of the Click and Park business in the joint venture resulted in a loss of control of the business, and therefore it was deconsolidated from the Company’s financial statements. The Company accounts for its investment in the joint venture with Parkmobile using the equity method of accounting, and its underlying share of equity in Parkmobile is included in Equity investments in unconsolidated entities

6


within the Condensed Consolidated Balance Sheets.  The equity earnings in the Parkmobile joint venture is included in Equity in losses from investment in unconsolidated entity within the Condensed Consolidated Statements of Income.

Non-Controlling Interests
 
Noncontrolling interests represent the noncontrolling holders’ percentage share of income or losses from the subsidiaries in which the Company holds a majority, but less than 100 percent, ownership interest and the results of which are consolidated and included within the Condensed Consolidated Financial Statements.
 
Sale of Business
 
During the third quarter 2015, the Company signed an agreement to sell and subsequently sold portions of the Company’s security business primarily operating in the Southern California market to a third-party for a gross sales price of $1.8 million which resulted in a gain on sale of business of $0.5 million , net of legal and other expenses. The assets under the sale agreement met the definition of a business as defined by ASU 805-10-55-4.  Cash consideration received during the third quarter 2015, net of legal and other expenses, was $1.0 million with the remaining consideration for the sale of the business being classified as contingent consideration, which per the sale agreement is based on the performance of the business and retention of current customers over an eighteen -month period, and due from the buyer in February 2017.  The contingent consideration was valued at fair value as of the date of sale of the business and resulted in the Company recognizing a contingent consideration receivable from the buyer in the amount of $0.5 million .  The pre-tax profit for the operations of the sold business was not significant to prior periods presented.  See Note 6. Fair Value Measurement for the fair value of the contingent consideration receivable as of September 30, 2016 and December 31, 2015.
 
Interest Rate Swap Transactions
 
In October 2012, the Company entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0 million (the “Notional Amount”). The Interest Rate Swaps have a termination date of September 30, 2017. The Interest Rate Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under the Company's credit agreements, originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the Company's credit agreements, determined based upon the Company’s consolidated total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the Company's credit agreements. These Interest Rate Swaps are classified as cash flow hedges, and the Company assesses the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase of interest expense. As of September 30, 2016 , no ineffectiveness of the hedge has been recognized in interest expense. See Note 6. Fair Value Measurement for the fair value of the interest rate swap as of September 30, 2016 and December 31, 2015 .
 
The Company does not enter into derivative instruments for any purpose other than for cash flow hedging purposes.

Recently Issued Accounting Pronouncements

Adopted Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board ("the FASB") issued Accounting Standards Update ("ASU") No. 2015-16,  Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments . ASU 2015-16 requires that an acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The amendment requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  The ASU also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  ASU No. 2015-16 is effective for interim and annual reporting periods beginning after December 15, 2015.  The Company adopted the standard as of March 2016 on a prospective basis, as required. The adoption of this standard did not have a material impact on the Company's financial position, results of operations, cash flows, and financial statement disclosures.
 
In February 2015, the FASB issued ASU No. 2015-2, Consolidation (Topic 810): Amendments to the Consolidation Analysis . ASU 2015-2 amends certain aspects of the consolidation guidance under U.S. GAAP. It modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities and also eliminates the presumption that a general partner should consolidate a limited partnership. The guidance also affects the consolidation analysis as it relates to interests in VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015 and retrospective adoption is required either through a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the year of adoption or retrospectively for all comparative periods. The Company adopted the standard as of March 2016. The Company evaluated the latest consolidation analysis under ASU 2015-02, which was performed as of December 2015. The Company also

7


evaluated updates to entity arrangements after December 2015. The adoption of this standard did not have an impact on the Company's financial position, results of operations, cash flows, and financial statement disclosures.

In January 2015, the FASB issued ASU No. 2015-1,  Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items . ASU 2015-1 eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted the standard as of March 2016. The adoption of this standard did not have an impact on the Company's financial position, results of operations, cash flows, and financial statement disclosures.
 
In June 2014, the FASB issued ASU No. 2014-12 Compensation - Stock Compensation (Topic 718): Accounting for Share Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period . A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company adopted the standard as of March 2016. The Company reviewed current stock compensation award programs and noted the adoption of ASU 2014-12 did not have an impact on the Company's financial position, results of operations, cash flows, and financial statement disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application and represents a change in accounting principle. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015 with early adoption being permitted for financial statements that have not been previously issued. The Company adopted ASU 2015-03 as of December 2015 on a retrospective basis and reclassified debt issuance costs from Other assets to a direct reduction from the carrying amount of the (i) Current portion of obligations under the Restated Senior Credit Facility borrowings and (ii) Long-term obligations under the Restated Credit Facility borrowings within the Condensed Consolidated Balance Sheets. See Note 11. Borrowing Arrangements for further detail on the Company's debt instruments.

Accounting Pronouncements to be Adopted

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230) . ASU 2016-15 amends the guidance in ASC 230 related to the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The amendment adds or clarifies several statement of cash flow classification issues including: (i) debt prepayment or debt extinguishment costs, (ii) settlement of certain zero-coupon debt instruments, (iii) contingent consideration payments, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, (vi) distributions received from equity method investments, (vii) beneficial interest in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326) . The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions and their presentation in the financial statements. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, eliminating APIC pools. The guidance will also require companies to elect whether to account for forfeitures of share-based payments by (1) recognizing forfeitures of awards as they occur (e.g., when an award does not vest because the employee leaves the company) or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. These and other requirements of ASU No. 2016-09 are effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted in any annual or interim period for which financial statements haven't been issued or made for issuance. However, all aspects of the guidance must be adopted in the same period. If an entity early adopts the guidance in an interim period, any

8


adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.

In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to Equity Method of Accounting , which eliminates the requirements to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Under ASU 2016-08, the equity method of accounting should be applied prospectively from the date significant influence is obtained. The new standard also provides specific guidance for available-for-sale securities that become eligible for the equity method of accounting. In those cases, any unrealized gain or loss recorded within accumulated other comprehensive income should be recognized in earnings at the date the investment initially qualifies for the use of the equity method. The new standard is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact of adopting the standard on the Company's financial reporting for impacted entities, cash flows and financial statement disclosures.

In March 2016, the FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815) : Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships . The new guidance clarifies that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. An entity will, however, still need to evaluate whether it is probable that the counterparty will perform under contract as part of its ongoing effectiveness assessment for hedge accounting. Therefore, a novation of a derivative to a counterparty with a sufficiently high credit risk could still result in the dedesignation of the hedging relationship. ASU 2016-05 is effective in fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted and entities have the option to adopt the new ASU on a prospective basis to new derivative contract novations or on a modified retrospective basis. The Company is currently assessing the impact of adopting the standard on the Company's financial reporting for impacted entities, cash flows and financial statement disclosures.

In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842) . ASU 2016-2 requires lessees to move most leases to the balance sheet and recognize expense, similar to current accounting guidance, on the income statement. Additionally, the classification criteria and the accounting for sales-type and direct financing leases is modified for lessors. Under ASU 2016-2, all entities will classify leases to determine: (i) lease-related revenue and expense and (ii) for lessors, amount recorded on the balance sheet. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with full retrospective application being prohibited. ASU 2016-2 is effective for interim and annual reporting periods beginning after December 15, 2018. These and other changes to accounting for leases under ASU 2016-2 are currently being evaluated by the Company for impacts to the Company's financial position, results of operations, cash flows and financial statement disclosures.

In January 2016, the FASB issued ASU No. 2016-1, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . ASU 2016-1 amends various areas of the accounting for financial instruments. Key provisions of the amendment currently being evaluated by the Company requires (i) equity investments to be measured at fair value (except those accounted for under the equity method), (ii) the simplification of equity investment impairment determination, (iii) certain changes to the fair value measurement of financial instruments measured at amortized cost, (iv) the separate presentation, in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (given certain conditions), and (v) the evaluation for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the Company's other deferred tax assets. ASU 2016-1 is effective for interim and annual reporting periods beginning after December 15, 2017. These provisions and others of ASU 2016-1 are currently being assessed by the Company for impacts on the Company's financial position, results of operations, cash flows and financial statement disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes . ASU 2015-17 requires entities to present deferred tax assets and liabilities as noncurrent on the balance sheet. This ASU simplifies current guidance which requires entities to separately classify deferred tax assets and liabilities as current or noncurrent on the balance sheet. The new guidance will be effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those years. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. ASU 2015-17 is currently being assessed by the Company for impacts on the Company's financial position, results of operations, cash flows and financial statement disclosures.

Accounting Pronouncements to be Adopted Related to Topic 606: Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-9,  Revenue from Contracts with Customers (Topic 606) . Since the release of ASU No. 2014-9, the FASB has issued several additional ASUs updating the topic. Below are the ASUs the Company is currently assessing the impact of adopting on the Company's financial position, results of operations, cash flows and financial statement disclosures relating to Topic 606. The effective date of each of these ASUs are the same as those of ASC 606 (i.e., fiscal years and interim periods within those fiscal years beginning on or after December 15, 2017).


9


In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients . The FASB amended guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The amendments clarify that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. The FASB also added a practical expedient to ease transition for contracts that were modified prior to adoption of the revenue standard under both the full and modified retrospective transition approaches. The amendments clarify how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. They also clarify that the fair value of noncash consideration should be measured at contract inception when determining the transaction price. The amendments also allow an entity to make an accounting policy election to exclude from the transaction price certain types of taxes collected from a customer if it discloses that policy. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing . The FASB amended guidance on identifying performance obligations to allow entities to disregard items that are immaterial in the context of the contract, clarify when a promised good or service is separately identifiable (i.e., distinct
within the context of the contract) and allow an entity to elect to account for the cost of shipping and handling performed after control of a good has been transferred to the customer as a fulfillment cost (i.e., an expense). The ASU also clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property (IP) and requires entities to classify IP in one of two categories: functional IP or symbolic IP, which will determine whether it recognizes revenue over time or at a point in time. The amendments also address how entities should consider license renewals and restrictions and apply the exception for sales- and usage-based royalties received in exchange for licenses of IP. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) . The ASU clarifies that the analysis must focus on whether a company has control of the goods or services before they are transferred to the customer. Specifically under the ASU, an entity determines the nature of the goods or services provided to the customer and whether it controls each specified good or service before it is transferred to the customer. An entity can be a principal for some goods or services and an agent for others within the same contract. In general, a company is a principal if it controls the goods or services before transferring them to the customer. If it is not certain the company has control, it would evaluate three indicators that control has been obtained before the entity transfers the goods or services to a customer: (1) the entity is primarily responsible for fulfillment, (2) the entity has inventory risk before or after the good or service is transferred to the customer, and (3) the entity has discretion to establish pricing. Credit risk does not indicate that an entity has obtained control. Companies will need to re-evaluate their principal-agent conclusions using the new guidance as they prepare to adopt the new revenue standard. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of ASU No. 2014-09, Revenue from Contracts with Customers . The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.

In May 2014, the FASB issued ASU No. 2014-9,  Revenue from Contracts with Customers (Topic 606) . The amendments in ASU No. 2014-9 create Topic 606,  Revenue from Contracts with Customers , and supersede the revenue recognition requirements in Topic 605,  Revenue Recognition , including most industry specific revenue recognition guidance. In addition, the amendments supersede the cost guidance in Subtopic 605-35,  Revenue Recognition—Construction-Type and Production-Type Contract , and create a new Subtopic 340-40,  Other Assets and Deferred Costs—Contracts with Customers . The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The amendments are effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2017. Early adoption is not permitted. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.
 
2. Commitments and Contingencies
 
The Company is subject to claims and litigation in the normal course of its business. The Company applies the provisions as defined in the guidance related to accounting for contingencies in determining the recognition and measurement of potential liabilities associated with legal claims against the Company. Management obtains input from internal and external legal counsel on the potential outcome of litigation in determining the need to record liabilities for potential losses and the disclosure of pending legal claims.
 
Contracts Acquired in the Central Merger

Certain lease contracts acquired in the Central Merger include provisions allocating to the Company responsibility for the cost of certain structural and other repairs required to be made to the leased property, including improvement and repair costs arising as a result of ordinary wear and tear. The Company recorded $0.1 million and $2.1 million during the three months ended September 30, 2016 and 2015 , respectively, and $0.4 million and $4.2 million during the nine months ended September 30, 2016 and 2015 , respectively, of costs in Cost of parking services—Lease contracts within the Condensed Consolidated Statements of Income for structural and other repair costs related to certain lease contracts acquired in the Central Merger, whereby the Company has

10


expensed repair costs for certain leases and engaged third-party general contractors to complete certain structural and other repair projects, and other indemnity related costs. The Company expects to incur additional costs for certain structural and other repair costs pursuant to the contractual requirements of certain lease contracts acquired in the Central Merger (“Structural and Repair Costs”). Based on information available at this time, the Company currently expects to incur additional Structural and Repair Costs of $0.1 million .  While the Company is unable to estimate with certainty when such remaining costs will be incurred, it is expected that a substantial majority of these costs will be incurred by December 2016. See Note 3. Acquisition for Structural Repair Costs incurred and related to certain lease contracts acquired in the Central Merger and the Company's settlement on certain costs incurred under the applicable indemnity that were previously determined to be recoverable.

Holten Settlement

In March 2010, John V. Holten, a former indirect controlling shareholder of the Company, filed a lawsuit against the Company in the United States District Court, District of Connecticut. Mr. Holten was terminated as the Company's chairman in October 2009. The lawsuit alleged breach of his employment agreement and claimed that the agreement entitled Mr. Holten to payments worth more than $3.8 million . The Company filed an answer and counterclaim to Mr. Holten's lawsuit in 2010.

In March 2016, the Company and Mr. Holten settled all claims in connection with the original lawsuits ("Holten Settlement"). Per the settlement, the Company will pay Mr. Holten $3.4 million of which $1.9 million will be recovered by the Company through the Company's directors and officers liability insurance policies. The Company recognized an expense, net of insurance recoveries, related to the Holten Settlement of $1.5 million for the nine months ended September 30, 2016 . This expense is included in General and administrative expense within the Condensed Consolidated Statement of Income.

3. Acquisition
 
On October 2, 2012 ("Closing Date"), the Company completed the acquisition (the "Central Merger" or "Merger") of 100% of the outstanding common shares of KCPC Holdings, Inc., which was the ultimate parent of Central Parking Corporation (collectively, "Central"), for 6,161,332 shares of Company common stock and the assumption of approximately $217.7 million of Central's debt, net of cash acquired. Additionally, the Agreement and Plan of Merger dated February 28, 2012 with respect to the Central Merger ("Merger Agreement") provides that Central's former stockholders are entitled to receive cash consideration (the "Cash Consideration") in the amount equal to $27.0 million plus, if and to the extent the Net Debt Working Capital (as defined below) was less than $275.0 million (the "Lower Threshold") as of September 30, 2012, the amount by which the Net Debt Working Capital was below such amount (such sum, the "Cash Consideration Amount") to be paid three years after closing, to the extent the $27.0 million is not used to satisfy indemnity obligations pursuant to the Merger Agreement.
Pursuant to the Merger Agreement, the Company is entitled to indemnification from Central's former stockholders (i) if and to the extent Central's combined net debt and the absolute value of Central's working capital (as determined in accordance with the Merger Agreement) (the "Net Debt Working Capital") exceeded $285.0 million (the "Upper Threshold") as of September 30, 2012 and (ii) for certain defined adverse consequences as set forth in the Merger Agreement (including with respect to Structural and Repair Costs). Pursuant to the Merger Agreement, Central's former stockholders are required to satisfy certain indemnity obligations, which are capped at the Cash Consideration Amount (the "Capped Items") only through a reduction of the Cash Consideration. For certain other indemnity obligations set forth in the Merger Agreement, which are not capped at the Cash Consideration Amount (the "Uncapped Items"), including the Net Debt Working Capital indemnity obligations described above, Central's former stockholders may satisfy any amount payable pursuant to such indemnity obligations as follows (provided that the Company reserves the right to reject the cash and stock alternatives available to the Company and choose to reduce the Cash Consideration):
Central's former stockholders can elect to pay such amount with cash;
Central's former stockholders can elect to pay such amount with the Company's common stock (valued at $23.64 per share, the market value as of the closing date of the Merger Agreement); or
Central's former stockholders can elect to reduce the $27.0 million cash consideration by such amount, subject to the condition that the cash consideration remains at least $17.0 million to cover Capped Items.

Under the Merger Agreement, all post-closing claims and disputes, including as to indemnification matters, are ultimately subject to resolution through binding arbitration or, in the case of a dispute as to the calculation of Net Debt Working Capital, resolution by an independent public accounting firm.

Since the Closing Date, the Company periodically provided Central’s former stockholders notice regarding indemnification matters, including with respect to the calculation of Net Debt Working Capital, and made adjustments for known matters as they arose. During such time, Central’s former stockholders continually requested additional documentation supporting the Company’s indemnification claims, including with respect to the Company’s calculation of Net Debt Working Capital. Furthermore, following the Company's notices of indemnification matters, the representative of Central's former stockholders indicated that they may make additional inquiries and raise issues with respect to the Company's indemnification claims (including, specifically, as to Structural and Repair Costs) and that they may assert various claims of their own relating to the Merger Agreement.

The Company previously determined and submitted notification to Central’s former stockholders, that (i) the Net Debt Working Capital was $296.3 million as of September 30, 2012 and that, accordingly, the Net Debt Working Capital exceeded the Upper

11


Threshold by $11.3 million ; and (ii) the Company had indemnity claims of $23.4 million for certain defined adverse consequences (including indemnity claims with respect to Structural and Repair Costs incurred through December 31, 2015) and as set forth in an October 1, 2015 notification letter to Central's former stockholders' that certain indemnification claims for Structural and Repair Costs yet to be incurred met the requirements of the indemnification provisions established in the Merger Agreement.

In early 2015, the Company and Central’s former stockholders engaged an independent public accounting firm for ultimate resolution, through binding arbitration, regarding its dispute as to the Company’s calculation of Net Debt Working Capital. On April 30, 2015, with respect to the Company's Net Debt Working Capital calculation, the representative of Central's former stockholders submitted specific objections to the Company's calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $270.8 million ( $4.2 million below the Lower Threshold) and on September 21, 2015 submitted a revised calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $278.0 million ( $3.0 million above the Lower Threshold) and therefore no amounts were due to the Company given calculated net Debt Working Capital is between the Lower Threshold and the Upper Threshold. On October 1, 2015, the Company provided notification to Central's former stockholders that the aggregate amount of the Company's (i) Net Debt Working Capital claim of $11.3 million as of September 30, 2012 and (ii) indemnity claims for certain defined adverse consequences as set forth in the Merger Agreement (including with respect to Structural and Repair Costs), exceeded the $27.0 million Cash Consideration and therefore the Company would not be making any Cash Consideration payment pursuant to Section 3.7 of the Merger Agreement. On October 20, 2015, Central's former stockholders provided notification that they deemed the Company's refusal to pay the $27.0 million Cash Consideration to be a violation of the terms of the Merger Agreement.

On February 19, 2016, the Company and Central’s former stockholders received a non-appealable and binding decision from the independent public accounting firm indicating that Net Debt Working Capital as of September 30, 2012 was $291.6 million , or $6.6 million above the Upper Threshold. Furthermore, as part of the independent public accounting firm’s decision over the calculation of Net Debt Working Capital as of September 30, 2012, it was determined by the independent public accounting firm and the Company that $1.5 million of Net Debt Working Capital claims were more appropriately claimable as an adverse consequence indemnification claim, as defined in the Merger Agreement. As such and in conjunction with the independent public accounting firm’s decision on Net Debt Working Capital, the Company (i) reclassified $1.5 million of indemnification claims from the Net Debt Working Capital calculation to indemnification claims for certain adverse consequences; and (ii) recognized an expense of $1.6 million ( $0.9 million , net of tax) in General and administrative expenses for certain of the other amounts disallowed under the Net Debt Working Capital calculation as of and for the year ended December 31, 2015. The independent public accounting firm also determined that an additional $1.6 million of Net Debt Working Capital claims were disallowed; however, these Net Debt Working Capital amounts claimed by the Company were not previously recognized by the Company as a cost recovery given their contingent nature and since these claims were not previously recognized as an expense by the Company, the independent public accounting firm’s decision to disallow these claims had no impact to the Company's consolidated financial statements as of and for the year ended December 31, 2015.

As a result of the independent public accounting firm’s decision on the calculation of Net Debt Working Capital, the Company revised its indemnity claims for certain defined adverse consequences from $23.4 million to $24.9 million . On March 11, 2016, the Company provided notification to Central's former stockholders of an additional indemnity claim for $1.6 million and provided further notification that its indemnity claims for certain defined adverse consequences aggregated $26.5 million . The $1.6 million of additional indemnity claim made by the Company in the March 11, 2016 letter was not recognized as a cost recovery given the contingent nature and since this claim was not previously recognized by the Company as an expense.

As previously discussed in Note 2. Commitments and Contingencies , certain lease contracts acquired in the Central Merger include provisions allocating to the Company responsibility for all or a defined portion of the costs of certain structural and other repair costs required on the property, including improvement and repair costs arising as a result of ordinary wear and tear. The Company reduced the Cash Consideration Amount by $6.6 million , representing the amount that Net Debt Working Capital exceeded the Upper Threshold, and $17.9 million , representing the amount of indemnified claims for certain adverse consequences (including but not limited to Structural and Repair Costs) recognized by the Company as of September 30, 2016. Additionally, the Company submitted $7.7 million of additional indemnity claims for certain adverse consequences (including but not limited to Structural and Repair Costs) to Central's former Stockholders, including claims as set forth in the March 11, 2016 letter, but did not recognize these indemnity claims as a receivable or offset to the Cash Consideration Amount with a corresponding gain or reduction of costs incurred by the Company, as these claims were contingent in nature or represent costs which the Company had not yet incurred but which met the requirements of the indemnification provisions established in the Merger Agreement.

On September 27, 2016, the Company and Central's former stockholders agreed-upon non-binding terms to settle all outstanding matters (including the Company's claims discussed above) between the parties relating to the Central Merger (the "Settlement Terms") and are currently drafting and negotiating a binding agreement to memorialize the Settlement Terms. Pursuant to the Settlement Terms, the Company would pay Central's former stockholders $2.5 million in the aggregate (which effectively reduces the $27.0 million of Cash Consideration that would have been payable by the Company by $24.5 million and which amount has been accrued for as of September 30, 2016 and is included within Accrued expenses in the Condensed Consolidated Balance Sheet) to settle all outstanding matters between the parties pursuant to the Central Merger and accordingly would have no further obligation to pay any of the Cash Consideration. As a result of the Settlement Terms, the Company recorded $0.8 million ( $0.5 million , net of tax) within General and administrative expense in the Condensed Consolidated Statements of Income.


12


The Central Merger has been accounted for using the acquisition method of accounting (in accordance with the provisions of Accounting Standards Codification ("ASC") 805, Business Combinations, prior to the adoption of ASU No. 2015-16), which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The purchase price has been allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the date of acquisition. The Company finalized the purchase price allocation during the third quarter of 2013.
The Company incurred certain restructuring, acquisition and integration costs associated with the transaction that were expensed as incurred and are reflected in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015 as shown in the table below:
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
General and administrative expenses
$
0.2

 
$
1.6

 
$
1.1

 
$
3.5

Depreciation and amortization

 

 
2.4

 

Total
$
0.2

 
$
1.6

 
$
3.5

 
$
3.5

4. Intangible Assets, net
 
The following table presents a summary of intangible assets, net:
 
 
 
September 30, 2016 (unaudited)
 
December 31, 2015
(millions)
Weighted
Average
Life (in
Years)
 
Acquired
Intangible
Assets,
Gross (1)
 
Accumulated
Amortization
 
Acquired
Intangible
Assets,
Net
 
Acquired
Intangible
Assets,
Gross (1)
 
Accumulated
Amortization
 
Acquired
Intangible
Assets,
Net
Covenant not to compete
2.3
 
$
0.9

 
$
(0.9
)
 
$

 
$
0.9

 
$
(0.9
)
 
$

Trade names and trademarks
2.8
 
9.8

 
(9.6
)
 
0.2

 
9.8

 
(7.8
)
 
2.0

Proprietary know how
0.6
 
34.7

 
(30.8
)
 
3.9

 
34.7

 
(25.0
)
 
9.7

Management contract rights
12.1
 
81.0

 
(20.6
)
 
60.4

 
81.0

 
(16.8
)
 
64.2

Acquired intangible assets, net (2)
11.4
 
$
126.4

 
$
(61.9
)
 
$
64.5

 
$
126.4

 
$
(50.5
)
 
$
75.9



(1)  Excludes the original cost and accumulated amortization of fully amortized intangible assets.
(2)  Intangible assets have estimated useful lives between one and nineteen years .

The following table presents the Company's amortization expense related to intangible assets included in depreciation and amortization expense:
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Amortization expense related to intangible assets included in depreciation and amortization expense
$
3.8

 
$
3.8

 
$
11.4

 
$
11.4


5. Goodwill
 
The amounts for goodwill and changes to carrying value by operating segment are as follows (unaudited):
(millions)
Region
One
 
Region
Two
 
Region
Three
 
Total
Balance as of December 31, 2015 (1)
$
337.5

 
$
62.7

 
$
31.1

 
$
431.3

Foreign currency translation
0.2

 

 

 
0.2

Balance as of September 30, 2016
$
337.7

 
$
62.7

 
$
31.1

 
$
431.5

(1) Due to the new segment reporting effective as of January 1, 2016, goodwill allocated to previous reporting units of Region One, Region Two, and Region Three have been aggregated into a single reporting unit, Region One. See also Note 13. Business Unit Segment Information for further discussion on certain organizational and executive leadership changes.
 
The Company tests goodwill at least annually for impairment (the Company has elected to annually test for potential impairment of goodwill on the first day of the fourth quarter) and tests more frequently if indicators are present or changes in circumstances suggest that impairment may exist.  The indicators include, among others, declines in sales, earnings or cash flows or the

13


development of a material adverse change in business climate.  The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit.
 
Due to a change in the Company’s segment reporting effective January 1, 2016, the goodwill allocated to certain previous reporting units have been aggregated into a single reporting unit. See also Note 13. Business Unit Segment Information for further disclosure on the Company’s change in reporting segments effective January 1, 2016.
 
As a result of the change in internal reporting segment information, the Company completed a quantitative impairment analysis (Step One) for goodwill as of January 1, 2016, which was completed during the first quarter 2016, and concluded that the estimated fair values of each of the Company's reporting units exceeded its carrying amount of net assets assigned to that reporting unit as of January 1, 2016 and immediately prior to the reorganization and therefore no further testing was required (Step Two). In conducting the January 1, 2016 goodwill Step One analysis, the Company analyzed actual and projected growth trends of the reporting units, gross margin, operating expenses and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") (which also includes forecasted five-year income statement and working capital projection, a market-based weighted average cost of capital and terminal values after five years). The Company also assesses critical areas that may impact its business including economic conditions, market related exposures, competition, changes in service offerings and changes in key personnel. As part of the January 1, 2016 goodwill assessment, the Company engaged a third-party to evaluate its reporting units' fair values. No impairment was recorded as a result of the goodwill impairment test performed.
 
The reporting units are reported as Region One (Urban), Region Two (Airport transportation) and Region Three (USA Parking reporting unit and event planning and transportation services reporting unit). For purposes of reportable segments, the goodwill in Region Three is attributable to USA Parking and event planning and transportation services reporting units.
 
6. Fair Value Measurement
 
Fair Value Measurements-Recurring Basis
 
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. Applicable accounting literature establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The fair value hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. Applicable accounting literature defines levels within the hierarchy based on the reliability of inputs as follows:
 
Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.
 
Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-corroborated inputs, which are derived principally from or corroborated by observable market data.

Level 3: Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and the basis of measurement at September 30, 2016 and December 31, 2015 :
 
Fair Value Measurement
 
September 30, 2016 (unaudited)
 
December 31, 2015
(millions)
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets
 

 
 

 
 

 
 

 
 

 
 

Prepaid expenses and other
 

 
 

 
 

 
 

 
 

 
 

Contingent consideration receivable
$

 
$

 
$
0.5

 
$

 
$

 
$
0.5

Interest Rate Swaps

 

 

 

 
0.2

 

Total
$

 
$

 
$
0.5

 
$

 
$
0.2

 
$
0.5

Liabilities
 

 
 

 
 

 
 

 
 

 
 

Accrued expenses
 

 
 

 
 

 
 

 
 

 
 

Interest Rate Swaps
$

 
$
0.1

 
$

 
$

 
$

 
$

Total
$

 
$
0.1

 
$

 
$

 
$

 
$

 

14


Interest Rate Swap
 
The Company seeks to minimize risks from interest rate fluctuations through the use of interest rate swap contracts and hedge only exposures in the ordinary course of business. Interest rate swaps are used to manage interest rate risk associated with our floating rate debt. The Company accounts for its derivative instruments at fair value provided it meets certain documentary and analytical requirements to qualify for hedge accounting treatment. Hedge accounting creates the potential for a Consolidated Statements of Income match between the changes in fair values of derivatives and the changes in cost of the associated underlying transactions, in this case interest expense. Derivatives held by us are designated as hedges of specific exposures at inception, with an expectation that changes in the fair value will essentially offset the change in the underlying exposure. Discontinuance of hedge accounting is required whenever it is subsequently determined that an underlying transaction is not going to occur, with any gains or losses recognized in the Consolidated Statements of Income at such time, with any subsequent changes in fair value recognized currently in earnings. Fair values of derivatives are determined based on quoted prices for similar contracts. The effective portion of the change in fair value of the interest rate swap is reported in Accumulated other comprehensive income, a component of Stockholders' equity, and is being recognized as an adjustment to interest expense or other (expense) income, respectively, over the same period the related expenses are recognized in earnings. Ineffectiveness would occur when changes in the market value of the hedged transactions are not completely offset by changes in the market value of the derivative and those related gains and losses on derivatives representing hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized currently in earnings when incurred. No ineffectiveness was recognized during the nine months ended September 30, 2016 and 2015 .
 
Contingent Consideration Receivable
 
During the third quarter 2015, certain assets, which met the definition of a business, were sold to a third-party in an arms-length transaction (see also Note 1. Significant Accounting Policies and Practices for further detail on the sale of the business).  Under the sales agreement, 40% of the sale proceeds from the buyer is contingent in nature and scheduled to be received by the Company in February 2017.  The contingent consideration amount expected to be received by the Company is based on the financial and operational performance of the business sold.  The significant inputs used to derive the Level 3 fair value contingent consideration receivable is the probability of reaching certain revenue growth of the business sold and retention of current customers over an eighteen month period.  The fair value of the contingent consideration receivable as of September 30, 2016 was $0.5 million , with the fair value of the contingent consideration receivable to be remeasured each subsequent reporting period.
 
Nonrecurring Fair Value Measurements

Certain assets are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). Non-financial assets such as goodwill, intangible assets, and leasehold improvements, equipment and construction in progress are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized. The Company assesses the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of its goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable. There were no impairment charges for the nine months ended September 30, 2016 and 2015 .
 
  Financial Instruments Not Measured at Fair Value
 
The following presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Condensed Consolidated Balance Sheet at September 30, 2016 and December 31, 2015: 
 
September 30, 2016 (unaudited)
 
December 31, 2015
(millions)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Cash and cash equivalents
$
19.3

 
$
19.3

 
$
18.7

 
$
18.7

Long-term borrowings
 

 
 

 
 

 
 

Restated Credit Facility, net of original discount on borrowings and deferred financing costs
$
212.3

 
$
212.3

 
$
223.1

 
$
223.1

Other obligations
$
1.8

 
$
1.8

 
$
2.0

 
$
2.0

 
The carrying value of Cash and cash equivalents approximates their fair value due to the short-term nature of these financial instruments and has been classified as a Level 1. The fair value of the Restated Credit Facility and Other obligations were estimated to not be materially different from the carrying amount and are generally measured using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and would be classified as a Level 2.

15


7. Borrowing Arrangements
 
Long-term borrowings, in order of preference, consist of:
 
 
 
Amount Outstanding
(millions)
Maturity Date
 
September 30, 2016 (unaudited)
 
December 31, 2015
Restated Credit Facility, net of original discount on borrowings and deferred financing costs
(1) / (2)
 
$
212.3

 
$
223.1

Other borrowings
Various
 
1.8

 
2.0

Total obligations under Restated Credit Facility and other borrowings
 
 
$
214.1

 
$
225.1

Less: Current portion of obligations under Restated Credit Facility and other borrowings
 
 
19.1

 
15.2

Total long-term obligations under Restated Credit Facility and other borrowings
 
 
$
195.0

 
$
209.9

(1) Credit Agreement was due to mature on October 2, 2017.
(2) Restated Credit Agreement matures on February 20, 2020.
 
Senior Credit Facility
 
On October 2, 2012, the Company entered into a credit agreement (“Credit Agreement”) with Bank of America, N.A. ("Bank of America"), as administrative agent, Wells Fargo Bank, N.A. ("Wells Fargo Bank") and JPMorgan Chase Bank, as co-syndication agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto.

Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders made available to the Company a secured senior credit facility (the “Senior Credit Facility”) that permitted aggregate borrowings of $450.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which included a letter of credit facility that was limited to $100.0 million at any time outstanding, and (ii) a term loan facility of $250.0 million . The Senior Credit Facility was due to mature on October 2, 2017.
  
Amended and Restated Credit Facility
 
On February 20, 2015 (“Restatement Date”), the Company entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with Bank of America, as administrative agent, an issuing lender and swing-line lender; Wells Fargo Bank, as an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO Harris Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint lead arrangers and joint book managers; and the lenders party thereto (the “Lenders”). The Restated Credit Agreement reflects modifications to, and an extension of, the Credit Agreement.
 
Pursuant to the terms, and subject to the conditions, of the Restated Credit Agreement, the Lenders have made available to the Company a senior secured credit facility (the “Restated Credit Facility”) that permits aggregate borrowings of $400.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which includes a $100.0 million sublimit for letters of credit and a $20.0 million sublimit for swing-line loans, and (ii) a term loan facility of $200.0 million (reduced from $250.0 million under the Senior Credit Facility). The Company may request increases of the revolving credit facility in an aggregate additional principal amount of $100.0 million . The Restated Credit Facility matures on February 20, 2020.
 
The entire amount of the term loan portion of the Restated Credit Facility had been drawn by the Company as of the Restatement Date (including approximately $10.4 million drawn on such date) and is subject to scheduled quarterly amortization of principal as follows: (i)  $15.0 million in the first year, (ii)  $15.0 million in the second year, (iii)  $20.0 million in the third year, (iv)  $20.0 million in the fourth year, (v)  $20.0 million in the fifth year and (vi)  $110.0 million in the sixth year. The Company also had outstanding borrowings of $147.3 million (including $53.4 million in letters of credit) under the revolving credit facility as of the Restatement Date.
 
Borrowings under the Restated Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s consolidated total debt to EBITDA ratio for the 12 -month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance with the pricing levels set forth in the Restated Credit Agreement (the “ Applicable Margin”), plus LIBOR or (ii) the Applicable Margin plus the highest of (x) the federal funds rate plus 0.5% , (y) the Bank of America prime rate and (z) a daily rate equal to LIBOR plus 1.0% (the highest of (x), (y) and (z), the “Base Rate”), except that all swing-line loans will bear interest at the Base Rate plus the Applicable Margin.
 
Under the terms of the Restated Credit Agreement, the Company is required to maintain a maximum consolidated total debt to EBITDA ratio of not greater than 4.0 to 1.0 as of the end of any fiscal quarter ending during the period from the Restatement Date through September 30, 2015, (ii)  3.75 to 1.0 as of the end of any fiscal quarter ending during the period from October 1, 2015

16


through September 30, 2016, and (iii)  3.5 to 1.0 as of the end of any fiscal quarter ending thereafter. In addition, the Company is required to maintain a minimum consolidated fixed charge coverage ratio of not less than 1.25 to1.0.
 
Events of default under the Restated Credit Agreement include failure to pay principal or interest when due, failure to comply with the financial and operational covenants, the occurrence of any cross default event, non-compliance with the other loan documents, the occurrence of a change of control event, and bankruptcy and other insolvency events. If an event of default occurs and is continuing, the Lenders holding a majority of the commitments and outstanding term loan under the Restated Credit Agreement have the right, among others, to (i) terminate the commitments under the Restated Credit Agreement, (ii) accelerate and require the Company to repay all the outstanding amounts owed under the Restated Credit Agreement and (iii) require the Company to cash collateralize any outstanding letters of credit.
 
Each wholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Restated Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Restated Credit Agreement. The Company’s obligations under the Restated Credit Agreement and such domestic subsidiaries’ guaranty obligations are secured by substantially all of their respective assets.
 
The Company was in compliance with all covenants as of September 30, 2016 .
 
As of September 30, 2016 , the Company had $98.1 million of borrowing availability under the Restated Credit Agreement, of which the Company could have borrowed $91.4 million on September 30, 2016 and remained in compliance with the above described covenants as of such date. The additional borrowing availability under the Restated Credit Agreement is limited only as of the Company’s fiscal quarter-end by the covenant restrictions described above. At September 30, 2016 , the Company had $60.1 million of letters of credit outstanding under the Restated Credit Facility, with aggregate borrowings against the Restated Credit Facility of $215.6 million (excluding debt discount of $1.4 million and deferred financing cost of $1.9 million ).

In connection with and effective upon the execution and delivery of the Restated Credit Agreement on February 20, 2015, the Company recorded losses on extinguishment of debt, relating to debt discount and debt issuance costs, of $0.6 million for the nine months ended September 30, 2015 .

8. Share Repurchase Plan

In May 2016, the Company's Board of Directors authorized the Company to repurchase, on the open market, shares of its outstanding common stock in an amount not to exceed $30 million in aggregate. Purchases of the Company's common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with Rule 10b-18 and 10b5-1under the Securities Exchange Act of 1934 ("Exchange Act"). The share repurchase program does not obligate the Company to repurchase any particular amount of common stock, and has no fixed termination date.

Under this program, the Company has repurchased 219,519 shares of common stock through September 30, 2016 . The table below summarizes share repurchase activity during the three and nine months ended September 30, 2016 .
 
Three Months Ended
 
Nine Months Ended
(millions, except for share and per share data) (unaudited)
September 30, 2016
 
September 30, 2016
Total number of shares repurchased
181,619

 
219,519

Average price paid per share
$
24.62

 
$
24.38

Total value of shares repurchased
$
4.5

 
$
5.4


 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2016
Total authorized repurchase amount
$
29.1

 
$
30.0

Total value of shares repurchased
4.5

 
5.4

Total remaining authorized repurchase amount
$
24.6

 
$
24.6



17


9. Bradley Agreement
 
The Company entered into a 25 -year agreement with the State of Connecticut (“State”) that expires on April 6, 2025, under which it operates the surface parking and 3,500 garage parking spaces at Bradley International Airport (“Bradley”) located in the Hartford, Connecticut metropolitan area.

The parking garage was financed through the issuance of State of Connecticut special facility revenue bonds and provides that the Company deposits, with the trustee for the bondholders, all gross revenues collected from operations of the surface and garage parking. From these gross revenues, the trustee pays debt service on the special facility revenue bonds outstanding, operating and capital maintenance expense of the surface and garage parking facilities, and specific annual guaranteed minimum payments to the state. Principal and interest on the Bradley special facility revenue bonds increase from approximately $3.6 million in contract year 2002 to approximately $4.5 million in contract year 2025. Annual guaranteed minimum payments to the State increase from approximately $8.3 million in contract year 2002 to approximately $13.2 million in contract year 2024. The annual minimum guaranteed payment to the State by the trustee for the twelve months ended December 31, 2016 and 2015 is $11.3 million and was $11.0 million , respectively. All of the cash flow from the parking facilities are pledged to the security of the special facility revenue bonds and are collected and deposited with the bond trustee. Each month the bond trustee makes certain required monthly distributions, which are characterized as “Guaranteed Payments.”  To the extent the monthly gross receipts generated by the parking facilities are not sufficient for the trustee to make the required Guaranteed Payments, the Company is obligated to deliver the deficiency amount to the trustee, with such deficiency payments representing interest bearing advances to the trustee. The Company does not directly guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.
 
The following is the list of Guaranteed Payments:
 
Garage and surface operating expenses,

Principal and interest on the special facility revenue bonds,

Trustee expenses,

Major maintenance and capital improvement deposits; and

State minimum guarantee.
 
To the extent sufficient funds are available, the trustee is then directed to reimburse the Company for deficiency payments up to the amount of the calculated surplus, with the Company having the right to be repaid the principal amount of any and all deficiency payments, together with actual interest and premium, not to exceed 10% of the initial deficiency payment. The Company calculates and records interest and premium income along with deficiency principal repayments as a reduction of cost of parking services in the period the associated deficiency repayment is received from the trustee. The Company believes these advances to be fully recoverable as the Bradley Agreement places no time restriction on the Company’s right to reimbursement. The reimbursement of principal, interest and premium will be recognized when received.
 
The total deficiency payments to the State, net of reimbursements, as of September 30, 2016 (unaudited) are as follows:
(millions)
2016
Balance at December 31, 2015
$
11.6

Deficiency payments made
0.2

Deficiency repayment received
(1.4
)
Balance at September 30, 2016
$
10.4

 
The total deficiency payments (net of payments made), interest and premium received and recorded for the three and nine months ended September 30, 2016 and 2015 are as follows:
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Deficiency repayments
$

 
$
0.2

 
$
1.2

 
$
1.0

Interest
$
0.2

 
$
0.1

 
$
0.3

 
$
0.3

Premiums
$

 
$

 
$
0.2

 
$
0.1


The net of these amounts are recorded as a reduction in Cost of parking services—Management contracts within the Condensed Consolidated Statements of Income. There were no amounts of estimated deficiency payments accrued as of September 30, 2016 and December 31, 2015 , as the Company concluded that the potential for future deficiency payments did not meet the criteria of both probable and estimable.

18


 
In addition to the recovery of certain general and administrative expenses incurred, the Bradley Agreement provides for an annual management fee payment, which is based on operating profit tiers. The annual management fee is further apportioned 60% to the Company and 40% to an un-affiliated entity and the annual management fee will be paid to the extent funds are available for the trustee to make a distribution, and are paid after Guaranteed Payments (as defined in the Bradley Agreement), and after the repayment of all deficiency payments, including interest and premium. Cumulative management fees of approximately $16.5 million and $15.7 million have not been recognized as of September 30, 2016 and December 31, 2015 , respectively, and no management fees were recognized as revenue for the nine months ended September 30, 2016 and 2015 .

10. Stock-Based Compensation

Stock Options and Grants
 
There were no stock options granted during the nine months ended September 30, 2016 and 2015 . The Company recognized no stock-based compensation expense related to stock options for the nine months ended September 30, 2016 and 2015 , as all stock options previously granted were fully vested. As of September 30, 2016 , there were no unrecognized compensation costs related to unvested stock options.

Below is a summary of Company authorized vested stock grants to certain directors for the nine months ended September 30, 2016 and 2015 . In 2016, vested stock grants were authorized on April 21. In 2015, vested stock grants were authorized on April 21 and September 29. Stock-based compensation expense related to vested stock grants are included in General and administrative expenses within the Condensed Consolidated Statements of Income.
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Vested stock grants

 
8,624

 
32,180

 
40,981

Stock-based compensation expense
$

 
$
0.2

 
$
0.7

 
$
0.9


Restricted Stock Units
 
During the nine months ended September 30, 2016 , 4,020 restricted stock units were authorized by the Company. During the nine months ended September 30, 2016 , 1,415 restricted stock units vested. During the nine months ended September 30, 2015 , 58,816 restricted stock units vested. During the nine months ended September 30, 2016 , 4,124 restricted stock units were forfeited under the amended and restated Long-Term Incentive Plan and became available for reissuance. 4,124 restricted stock units were forfeited during the nine months ended September 30, 2015 .
 
The table below shows the Company's stock-based compensation expense related to the restricted stock units for the three and nine months ended September 30, 2016 and 2015 respectively, and is included in General and administrative expenses within the Condensed Consolidated Statements of Income.
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Stock-based compensation expense
$
0.2

 
$
0.4

 
$
0.6

 
$
1.2


As of September 30, 2016 , there was $2.1 million of unrecognized stock-based compensation costs, net of estimated forfeitures, related to the restricted stock units that are expected to be recognized over a weighted average remaining period of approximately 3.1 years .

Performance Share Units
 
In September 2014, the Board of Directors authorized a performance-based incentive program under the Company’s Long-Term Incentive Plan (“Performance-Based Incentive Program”), whereby the Company will issue performance share units to certain executive management individuals that represent shares potentially issuable in the future. The objective of the Performance-Based Incentive Program is to link compensation to business performance, encourage ownership of Company stock, retain executive talent, and reward executive performance. The Performance-Based Incentive Program provides participating executive management individuals with the opportunity to earn vested common stock if certain performance targets for pre-tax free cash flow are achieved over a three year performance period and recipients satisfy service-based vesting requirements. The stock-based compensation expense associated with unvested performance share units are recognized on a straight-line basis over the shorter of the vesting period or minimum service period and dependent upon the probable outcome of the number of shares that will ultimately be issued based on the achievement of pre-tax free cash flow over the cumulative three year period.  During the nine months ended September 30, 2016 and 2015 , the Company granted 98,078 and 103,600 , respectively, of performance share units

19


to certain individuals within executive management.  During the nine months ended September 30, 2016 and 2015 , 4,493 and 4,009 , respectively, performance share units were forfeited under the amended and restated Long-Term Incentive Plan and became available for reissuance.  As of September 30, 2016 , 18,685 shares were vested related to certain participating executives being eligible for retirement.
 
The table below shows the Company's stock-based compensation expense related to the Performance-Based Incentive Program for the three and nine months ended September 30, 2016 and 2015 respectively, and is included in General and administrative expenses within the Condensed Consolidated Statements of Income.
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Stock-based compensation expense
$
0.5

 
$
0.3

 
$
1.5

 
$
0.9


Future compensation expense for currently outstanding awards under the Performance Based Incentive Program could reach a maximum of $8.4 million . Stock-based compensation for the Performance-Based Incentive Program is expected to be recognized over a weighted average period of 1.8 years.

11. Net Income per Common Share
 
Basic net income per share is computed by dividing net income by the weighted daily average number of shares of common stock outstanding during the period. Diluted net income per share is based upon the weighted daily average number of shares of common stock outstanding for the period plus dilutive potential common shares, including stock options and restricted stock units using the treasury-stock method.
 
A reconciliation of the weighted average basic common shares outstanding to the weighted average diluted common shares outstanding is as follows:
 
  Three Months Ended
 
Nine Months Ended
(millions, except for share and per share data) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Net income attributable to SP Plus Corporation
$
7.0

 
$
3.7

 
$
13.5

 
$
14.8

Basic weighted average common shares outstanding
22,208,139

 
22,205,707

 
22,293,776

 
22,159,701

Dilutive impact of share-based awards
288,972

 
342,459

 
278,157

 
360,117

Diluted weighted average common shares outstanding
22,497,111

 
22,548,166

 
22,571,933

 
22,519,818

Net income per common share
 

 
 

 
 
 
 
Basic
$
0.31

 
$
0.17

 
$
0.60

 
$
0.67

Diluted
$
0.31

 
$
0.16

 
$
0.60

 
$
0.66

 
For the three and nine months ended September 30, 2016 and 2015 , performance share units were excluded from the computation of weighted average diluted common share outstanding because the number of shares ultimately issuable is contingent on the Company's performance goals, which were not achieved as of the reporting date.
 
There are no additional securities that could dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share, other than those disclosed.
 

20


12. Comprehensive Income
 
Comprehensive income consists of the following components, net of tax:
 
Three Months Ended
 
Nine Months Ended
(millions) (unaudited)
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Net income
$
7.7

 
$
4.5

 
$
15.7

 
$
16.8

Effective portion of unrealized gain (loss) on cash flow hedge
0.2

 
(0.2
)
 
(0.1
)
 
(0.5
)
Foreign currency translation
(0.1
)
 
(0.3
)
 
(0.1
)
 
(0.6
)
Comprehensive income
7.8

 
4.0

 
15.5

 
15.7

Less: Comprehensive income attributable to noncontrolling interest
0.7

 
0.8

 
2.2

 
2.0

Comprehensive income attributable to SP Plus Corporation
$
7.1

 
$
3.2

 
$
13.3

 
$
13.7


Accumulated other comprehensive loss is comprised of unrealized gains (losses) on cash flow hedges and foreign currency translation adjustments. The components of changes in accumulated comprehensive loss, net of tax, for the nine months ended September 30, 2016 were as follows:
 (millions) (unaudited)
Foreign Currency
Translation
Adjustments
 
Effective Portion of
Unrealized Gain (Loss)
on Cash Flow Hedge
 
Total
Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2015
$
(1.2
)
 
$
0.1

 
$
(1.1
)
Change in other comprehensive income (loss)
(0.1
)
 
(0.1
)
 
(0.2
)
Balance at September 30, 2016
$
(1.3
)
 
$

 
$
(1.3
)
 

13. Income Taxes
 
For the three months ended September 30, 2016 , the Company recognized income tax expense of $5.1 million on earnings before income taxes of $12.8 million compared to income tax expense of $3.5 million on earnings before income taxes of $8.0 million for the three months ended September 30, 2015 . For the nine months ended September 30, 2016 , the Company recognized income tax expense of $10.9 million on earnings before income taxes of $26.6 million compared to income tax expense of $4.5 million on earnings before income taxes of $21.3 million for the nine months ended September 30, 2015 . The effective tax rate was approximately 41.0% for the nine months ended September 30, 2016 compared to approximately 21.0% for the nine months ended September 30, 2015 . The effective tax rate for the nine months ended September 30, 2015 was significantly lower than for the nine months ended September 30, 2016 primarily due to a discrete benefit for the reversal of a valuation allowance for historical net operating losses attributable to New York, New York (City of New York). The valuation allowance was reversed in the second quarter of 2015 due to the City of New York law changes enacted April 1, 2015, which resulted in the Company determining that the future benefit of net operating loss carryforwards was more likely than not to be recognized.

As of September 30, 2016 , the Company has not identified any uncertain tax positions that would have a material impact on the Company’s financial position. The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense.
 
The tax years that remain subject to examination for the Company’s major tax jurisdictions at September 30, 2016 are shown below:
 
2013 – 2015         United States — federal income tax
2007 – 2015         United States — state and local income tax
2012 – 2015         Canada and Puerto Rico
 

14. Business Unit Segment Information
 
Segment information is presented in accordance with a “management approach,” which designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s segments are organized in a manner consistent with which discrete financial information is available and evaluated regularly by the Company’s CODM in deciding how to allocate resources and in assessing performance.
 

21


An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by the Company’s CODM. The CODM is the Company’s chief executive officer.
 
Each of the operating segments is directly responsible for revenue and expenses related to their operations including direct regional administrative costs. Finance, information technology, human resources, and legal are shared functions that are not allocated back to the three operating segments. The CODM assesses the performance of each operating segment using information about its revenue and gross profit as its primary measure of performance, but does not evaluate segments using discrete asset information. There are no inter-segment transactions and the Company does not allocate interest and other income, interest expense, depreciation and amortization or taxes to operating segments. The accounting policies for segment reporting are the same as for the Company as a whole.

Effective January 1, 2016, the Company began certain organizational and executive leadership changes to align with how the CODM reviews performance and makes decisions in managing the Company and, therefore, changed certain internal operating segment information reported to the CODM. Specifically, the previous internally reported operating segments known as Region One (North), Region Two (South), and Region Three (New York Metropolitan tri-state area of New York, New Jersey, and Connecticut) were aggregated into a single operating segment now known as Region One (Urban). Region Two (Airport transportation operations nationwide) and Region Three (other operating segments of USA Parking and event planning and transportation services), previously known as Region Four and Region Five, respectively, will continue to be reported to the CODM unchanged. All prior periods presented have been restated to reflect the new internal reporting to the CODM.
Region One (Urban) encompasses operations in Alabama, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Puerto Rico, and three Canadian provinces of Alberta, Ontario and Quebec.
Region Two (Airport transportation) encompasses all major airport and transportation operations nationwide.
Region Three encompasses other reporting units of USA Parking and event planning and transportation services.
Other consists of ancillary revenue that is not specifically identifiable to a region and certain unallocated insurance reserve adjustments.
The business is managed based on regions administered by executive vice presidents. The following is a summary of revenues (excluding reimbursed management contract revenue) and gross profit by regions for the three and nine months ended September 30, 2016 and 2015 :

22


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(millions) (unaudited)
2016
 
Gross
Margin
%
 
2015
 
Gross
Margin
%
 
2016
 
Gross
Margin
%
 
2015
 
Gross
Margin
%
Parking Services Revenue
 

 
 

 
 

 
 

 

 

 

 

Region One
 

 
 

 
 

 
 

 


 


 


 


Lease contracts
$
103.1

 
 

 
$
113.8

 
 

 
$
312.3

 


 
$
330.9

 


Management contracts
51.2

 
 

 
47.7

 
 

 
147.3

 


 
142.6

 


Total Region One
154.3

 
 

 
161.5

 
 

 
459.6

 


 
473.5

 


Region Two
 

 
 

 
 

 
 

 


 


 


 


Lease contracts
31.3

 
 

 
31.8

 
 

 
93.7

 


 
94.4

 


Management contracts
20.7

 
 

 
26.6

 
 

 
69.2

 


 
78.2

 


Total Region Two
52.0

 
 

 
58.4

 
 

 
162.9

 


 
172.6

 


Region Three
 

 
 

 
 

 
 

 


 


 


 


Lease contracts
1.7

 
 

 
1.1

 
 

 
4.3

 


 
3.5

 


Management contracts
9.0

 
 

 
8.2

 
 

 
35.6

 


 
36.6

 


Total Region Three
10.7

 
 

 
9.3

 
 

 
39.9

 


 
40.1

 


Other
 

 
 

 
 

 
 

 


 


 


 


Lease contracts

 
 

 
(0.1
)
 
 

 

 


 
0.1

 


Management contracts
3.2

 
 

 
3.3

 
 

 
9.9

 


 
10.8

 


Total Other
3.2

 
 

 
3.2

 
 

 
9.9

 


 
10.9

 


Reimbursed management contract revenue
188.9

 
 

 
168.3

 
 

 
537.0

 


 
513.4

 


Total Revenues
409.1

 
 

 
400.7

 
 

 
1,209.3

 


 
1,210.5

 


Gross Profit
 

 
 

 
 

 
 

 


 


 


 


Region One
 

 
 

 
 

 
 

 


 


 


 


Lease contracts
8.1

 
7.9
%
 
10.9

 
9.6
 %
 
25.3

 
8.1
%
 
28.4

 
8.6
 %
Management contracts
21.3

 
41.6
%
 
21.5

 
45.1
 %
 
62.8

 
42.6
%
 
63.3

 
44.4
 %
Total Region One
29.4

 
 

 
32.4

 
 

 
88.1

 


 
91.7

 


Region Two
 

 
 

 
 

 
 

 


 


 


 


Lease contracts
1.5

 
4.8
%
 
1.7

 
5.3
 %
 
4.0

 
4.3
%
 
4.4

 
4.7
 %
Management contracts
6.1

 
29.5
%
 
5.7

 
21.4
 %
 
18.7

 
27.0
%
 
18.4

 
23.5
 %
Total Region Two
7.6

 
 

 
7.4

 
 

 
22.7

 


 
22.8

 


Region Three
 

 
 

 
 

 
 

 


 


 


 


Lease contracts
0.3

 
17.6
%
 
0.1

 
9.1
 %
 
0.5

 
11.6
%
 
0.3

 
8.6
 %
Management contracts
3.1

 
34.4
%
 
2.8

 
34.1
 %
 
9.4

 
26.4
%
 
9.3

 
25.4
 %
Total Region Three
3.4

 
 

 
2.9

 
 

 
9.9

 


 
9.6

 


Other
 

 
 

 
 

 
 

 


 


 


 


Lease contracts
0.4

 
%
 
(2.1
)
 
(2,100.0
)%
 
0.1

 
%
 
(3.3
)
 
(3,300.0
)%
Management contracts
3.1

 
96.9
%
 
2.2

 
66.7
 %
 
8.5

 
85.9
%
 
9.7

 
89.8
 %
Total Other
3.5

 
 

 
0.1

 
 

 
8.6

 


 
6.4

 


Total gross profit
43.9

 

 
42.8

 

 
129.3

 

 
130.5

 

General and administrative expenses
20.3

 

 
23.7

 

 
67.0

 

 
74.2

 

General and administrative expense percentage of gross profit
46.2
%
 

 
55.4
%
 

 
51.8
%
 

 
56.9
%
 

Depreciation and amortization
7.8

 

 
8.3

 

 
26.8

 

 
24.4

 

Operating income
15.8

 

 
10.8

 

 
35.5

 

 
31.9

 


23


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
Gross
Margin
%
 
2015
 
Gross
Margin
%
 
2016
 
Gross
Margin
%
 
2015
 
Gross
Margin
%
Other expenses (income)
 

 
 
 
 

 
 
 


 

 


 

Interest expense
2.7

 
 
 
2.9

 
 
 
8.1

 

 
10.0

 

Interest income
(0.1
)
 
 
 

 
 
 
(0.4
)