SP Plus Corporation
STANDARD PARKING CORP (Form: 10-Q/A, Received: 11/19/2013 06:12:09)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q/A

 

(Amendment No. 1)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2013

 

Commission file number: 000-50796

 


 

STANDARD PARKING 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)

 

900 N Michigan Avenue, Suite 1600

Chicago, Illinois 60611-1542

(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  x   NO  o

 

Indicate by check mark whether the registrant 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  x   NO  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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  x

 

As of May 3, 2013, there were 21,888,750 shares of common stock of the registrant outstanding.

 

 

 



Table of Contents

 

STANDARD PARKING CORPORATION

 

FORM 10-Q/A INDEX

 

Part I. Financial Information

 

 

Item 1. Financial Statements:

 

 

Condensed Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012

 

4

Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2013 and 2012

 

5

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2013 and 2012

 

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2013 and 2012

 

7

Notes to Condensed Consolidated Interim Financial Statements

 

8

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

 

25

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

36

Item 4. Controls and Procedures

 

37

Part II. Other Information

 

 

Item 1. Legal Proceedings

 

39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 6. Exhibits

 

40

Signatures

 

41

 

2



Table of Contents

 

Explanatory Note

 

This Quarterly Report on Form 10-Q/A of Standard Parking Corporation (the “Company,” “Standard,” “we,” or “us”) for the quarterly period ended March 31, 2013 includes restated consolidated balance sheets as of December 31, 2012 and March 30, 2013 and consolidated statements of income, consolidated statements of comprehensive income and consolidated statements of cash flows for the three months ended March 31, 2013 and 2012. We will not file an amended Quarterly Report on Form 10-Q/A for the quarterly period ended March 31, 2012. This restatement is to reflect a correction in the manner in which the Company has accounted for deficiency payments under the Company’s agreement with the State of Connecticut (the “State”) under which the Company operates the surface parking and 3,500 garage parking spaces at Bradley International Airport located in the Hartford, Connecticut metropolitan area (the “Bradley Agreement”).  Cumulative deficiency payments under the Bradley Agreement, net of reimbursements, had previously been recorded as a receivable by the Company.

 

At the time of the Company’s initial accounting for the Bradley Agreement in 2000, the Company’s revenue projections, as well as the projections included in the Bradley Agreement and in the feasibility study prepared by the State’s parking consultant showed that the State would be able to repay deficiency payments, if any, over the term of the Bradley Agreement.  The Company continues to believe that there would be sufficient funds available and the State will be able to repay and expects that the State will ultimately repay the deficiency payments made by the Company under the Bradley Agreement. However it has now been determined that the recovery of the deficiency payments represents a contingency and, accordingly, (i) the deficiency payments made by the Company under the Bradley Agreement should have been, and should continue to be, recorded as cost of parking services in the reporting periods in which such payments were made, and (ii) the payments to the Company of the principal, interest and premium related to deficiency payments should have been, and should continue to be, recognized as a reduction of cost of parking services in the reporting periods in which such repayments were received. This approach is different from the Company’s historical practice of reporting such deficiency payments as accounts receivable and interest and premium received as interest income.   The restatement of the Company’s historical consolidated financial statements to reflect its correction in accounting for deficiency payments under the Bradley Agreement is referred to herein as the “Restatement.”

 

In addition, during September 2013, the Company finalized the purchase price allocation for its acquisition of KCPC Holdings, Inc. (“KCPC”), the ultimate parent company of Central Parking Corporation, on October 2, 2012.  As required by generally accepted accounting principles, the Company has recast the previously issued consolidated financial statements for the three months ended March 31, 2013 included in this Quarterly Report on Form 10-Q/A to reflect the impact of the final purchase allocation as if it were completed at the date of acquisition (referred to herein as the “Purchase Allocation Recast”).

 

For further information regarding the Restatement, see the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) dated November 13, 2013 (the “Restatement 8-K”), and for detailed financial information with respect to the Restatement and the Purchase Allocation Recast, see Note 2 of the notes to consolidated financial statements included in this Quarterly Report on Form 10-Q/A.

 

The following items of the Form 10 - Q have been modified or revised in this Form 10-Q/A to reflect the Restatement and the Purchase Allocation Recast:

 

Part I.  Item 1.  Financial Statements;

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

Part I.  Item 4.  Controls and Procedures.

 

The Company’s principal executive officer, principal financial officer and principal accounting officer have provided currently dated certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 in connection with this Amendment on Form 10-Q/A; the certifications are filed as Exhibits 31.1, 31.2, 31.3 and 32.

 

This amended Quarterly Report on Form 10 - Q/A sets forth the original Quarterly Report on Form 10 - Q in its entirety, except as required to reflect the effects of the Restatement and the Purchase Allocation Recast. Except for disclosures affected by the Restatement and the Purchase Allocation Recast, this amended Quarterly Report on Form 10 - Q/A speaks as of the original filing date of May 10, 2013 and does not modify or update disclosures in the Form 10 - Q, including the nature and character of such disclosures, to reflect events occurring or items discovered after the original filing date of the Form 10 - Q.

 

This amended Quarterly Report on Form 10 - Q/A should be read in conjunction with the Company’s other filings, as amended, made with the Securities and Exchange Commission subsequent to December 31, 2012, including the Restatement 8-K and the Company’s amended Annual Report on Form 10-K/A for the year ended December 31, 2012.

 

3



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share data)

 

 

 

March 31,
2013

 

December 31,
2012

 

 

 

(Unaudited)

 

(See Note)

 

 

 

(Restated Note 2)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

26,796

 

$

28,450

 

Notes and accounts receivable, net

 

117,105

 

111,498

 

Prepaid expenses and supplies

 

21,084

 

27,823

 

Deferred taxes

 

15,265

 

15,265

 

Total current assets

 

180,250

 

183,036

 

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

 

40,839

 

40,402

 

Other assets:

 

 

 

 

 

Advances and deposits

 

8,545

 

8,540

 

Intangible assets, net

 

188,752

 

197,344

 

Other assets, net

 

22,867

 

22,260

 

Cost of contracts, net

 

12,874

 

14,215

 

Goodwill

 

439,359

 

439,486

 

 

 

672,397

 

681,845

 

Total assets

 

$

893,486

 

$

905,283

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

118,520

 

$

129,034

 

Accrued and other current liabilities

 

97,835

 

109,300

 

Current portion of unfavorable lease contracts

 

15,522

 

17,467

 

Current portion of long-term debt obligations

 

21,680

 

21,837

 

Total current liabilities

 

253,557

 

277,638

 

Deferred taxes

 

18,819

 

19,079

 

Long-term borrowings, excluding current portion:

 

 

 

 

 

Obligations under senior credit facility

 

298,951

 

286,727

 

Other long-term debt obligations

 

1,955

 

1,995

 

 

 

300,906

 

288,722

 

Unfavorable lease contracts

 

71,366

 

74,758

 

Other long-term liabilities

 

61,138

 

58,086

 

Stockholders’ equity:

 

 

 

 

 

Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of March 31, 2013 and December 31, 2012; no shares issued

 

 

 

Common stock, par value $.001 per share; 50,000,000 shares authorized as of March 31, 2013 and December 31, 2012; 21,870,770 shares issued and outstanding as of March 31, 2013 and December 31, 2012

 

22

 

22

 

Additional paid-in capital

 

237,417

 

236,375

 

Accumulated other comprehensive (loss) income

 

(363

)

(381

)

Accumulated deficit

 

(50,028

)

(49,768

)

Total Standard Parking Corporation stockholders’ equity

 

187,048

 

186,248

 

Noncontrolling interest

 

652

 

752

 

Total equity

 

187,700

 

187,000

 

Total liabilities and stockholders’ equity

 

$

893,486

 

$

905,283

 

 


Note:              The balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

 

See Notes to Condensed Consolidated Interim Financial Statements.

 

4



Table of Contents

 

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for share and per share data, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

(Restated Note 2)

 

Parking services revenue:

 

 

 

 

 

Lease contracts

 

$

121,085

 

$

37,544

 

Management contracts

 

90,095

 

47,964

 

 

 

211,180

 

85,508

 

Reimbursed management contract revenue

 

159,477

 

103,937

 

Total revenue

 

370,657

 

189,445

 

Cost of parking services:

 

 

 

 

 

Lease contracts

 

112,118

 

35,387

 

Management contracts

 

58,737

 

29,271

 

 

 

170,855

 

64,658

 

Reimbursed management contract expense

 

159,477

 

103,937

 

Total cost of parking services

 

330,332

 

168,595

 

Gross profit:

 

 

 

 

 

Lease contracts

 

8,967

 

2,157

 

Management contracts

 

31,358

 

18,693

 

Total gross profit

 

40,325

 

20,850

 

General and administrative expenses

 

27,948

 

15,045

 

Depreciation and amortization

 

7,493

 

1,728

 

Operating income

 

4,884

 

4,077

 

Other expenses (income):

 

 

 

 

 

Interest expense

 

4,840

 

1,130

 

Interest income

 

(111

)

(70

)

 

 

4,729

 

1,060

 

Income before income taxes

 

155

 

3,017

 

Income tax (benefit) expense

 

(154

)

1,215

 

Net income

 

309

 

1,802

 

Less: Net income attributable to noncontrolling interest

 

569

 

72

 

Net (loss) income attributable to Standard Parking Corporation

 

$

(260

)

$

1,730

 

Common stock data:

 

 

 

 

 

Net income per share:

 

 

 

 

 

Basic

 

$

(0.01

)

$

0.11

 

Diluted

 

$

(0.01

)

$

0.11

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

21,870,771

 

15,563,914

 

Diluted

 

21,870,771

 

15,820,118

 

 

See Notes to Condensed Consolidated Interim Financial Statements.

 

5



Table of Contents

 

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

(Restated Note 2)

 

Net income

 

$

309

 

$

1,802

 

Other comprehensive (expense) income

 

18

 

86

 

Comprehensive income

 

327

 

1,888

 

Less: comprehensive income attributable to noncontrolling interest

 

569

 

72

 

Comprehensive income attributable to Standard Parking Corporation

 

$

(242

)

$

1,816

 

 

See Notes to Condensed Consolidated Interim Financial Statements.

 

6



Table of Contents

 

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except for share and per share data, unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

(Restated Note 2)

 

Operating activities:

 

 

 

 

 

Net income

 

$

309

 

$

1,802

 

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

 

 

 

 

 

Depreciation and amortization

 

7,537

 

1,723

 

Net accretion of acquired lease contracts

 

(1,873

)

 

(Gain) loss on sale and abandonment of assets

 

(54

)

4

 

Amortization of debt issuance costs and original discount on borrowings

 

788

 

159

 

Non-cash stock-based compensation

 

1,042

 

361

 

Excess tax benefit related to stock option exercises

 

 

(181

)

Provisions for losses on accounts receivable

 

130

 

23

 

Deferred income taxes

 

(289

)

202

 

Net change in operating assets and liabilities

 

(17,106

)

(13,202

)

Net cash used in operating activities

 

(9,516

)

(9,109

)

Investing activities:

 

 

 

 

 

Purchase of leasehold improvements and equipment

 

(3,059

)

(597

)

Cost of contracts purchased

 

(54

)

(237

)

Proceeds from sale of assets

 

51

 

9

 

Contingent payments for businesses acquired

 

(6

)

 

Net cash used in investing activities

 

(3,068

)

(825

)

Financing activities:

 

 

 

 

 

Proceeds from exercise of stock options

 

 

154

 

Earn-out payments made

 

 

(1,080

)

Tax benefit related to stock option exercises

 

 

181

 

Proceeds from senior credit facility

 

11,925

 

6,700

 

Distribution to noncontrolling interest

 

(669

)

(73

)

Payments on long-term borrowings

 

(191

)

(171

)

Net cash provided by financing activities

 

11,065

 

5,711

 

Effect of exchange rate changes on cash and cash equivalents

 

(135

)

50

 

(Decrease) increase in cash and cash equivalents

 

(1,654

)

(4,173

)

Cash and cash equivalents at beginning of period

 

28,450

 

13,220

 

Cash and cash equivalents at end of period

 

$

26,796

 

$

9,047

 

Supplemental disclosures:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

4,101

 

$

895

 

Income taxes

 

277

 

426

 

 

See Notes to Condensed Consolidated Interim Financial Statements.

 

7



Table of Contents

 

STANDARD PARKING CORPORATION

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In thousands except for share and per share data, unaudited)

 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Standard Parking Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q/A and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

 

In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results for the three month period ended March 31, 2013 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ended December 31, 2013. The financial statements presented in this report should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K/A filed on November 18, 2013.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and variable interest entities in which the Company is the primary beneficiary. Noncontrolling interest recorded in the consolidated statement of income is the interest in consolidated variable interest entities not controlled by the Company. The Company has ownership interests in thirty-eight partnerships, joint ventures or similar arrangements that operate parking facilities. Twenty-nine are Variable Interest Entities (VIE) and nine are voting interest model entities where the company ownership ranges from 20-50% and it does not control the entities. The Company consolidates those VIEs where it is the primary beneficiary and accounts for voting interest entities that it does not control using the equity method of accounting. The assets and liabilities of the VIEs are not material to the Company’s Consolidated Balance Sheets. All significant intercompany profits, transactions and balances have been eliminated in consolidation.

 

Financial Instruments

 

The carrying values of cash and cash equivalents, notes and accounts receivable and accounts payable are reasonable estimates of their fair value due to the short-term nature of these financial instruments. Long-term debt has a carrying value that approximates fair value because these instruments bear interest at market rates.

 

Interest Rate Swaps

 

We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.

 

October 25, 2012, the Company entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A. (“JPMorgan Chase Bank”), Bank of America, N.A. (“Bank of America”) and PNC Bank, N.A. in an initial aggregate Notional Amount of $150,000 (the “Notional Amount”). The Interest Rate Swaps have an effective date of October 31, 2012 and 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 Credit Agreement (“the Credit Agreement”), originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the Credit Agreement 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 Credit Agreement. These Interest Rate Swaps are classified as cash flow hedges, and we calculate 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 March 31, 2013, no ineffectiveness of the hedge has been recognized. The fair value of the Interest Rate Swaps at March 31, 2013 and December 31, 2012 was $538 and $794, respectively, and is included in other long-term liabilities.

 

8



Table of Contents

 

2. Revisions to Previously Issued Consolidated Financial Statements

 

We have revised our previously issued consolidated financial statements to reflect (a) the finalization of purchase accounting, (b) a correction in our accounting for our contract related to the Bradley Airport as described in Note 11 (the “Bradley Agreement”) and (c) certain other immaterial adjustments.

 

Purchase Accounting Finalization

 

As described in Note 3 of these consolidated financial statements, we purchased KCPC Holdings, Inc. (“KCPC”), the ultimate parent company of Central Parking Corporation on October 2, 2012.  During September 2013 we finalized the purchase price allocation (“PPA”) for this acquisition.  We have recast our previously issued consolidated financial statements to reflect the impact of the final purchase allocation as if it was completed at the date of acquisition.  The impact of the finalization of the purchase price allocation is reflected in the table shown below.

 

Restatement of Accounting

 

We have restated our consolidated financial statements to correct the accounting for certain transactions.  The restatement is primarily related to the accounting for the agreement under which we operate the Bradley International Airport.

 

We account for the Bradley Agreement, which is described in detail in Note 11 of these consolidated financial statements, as a management agreement.  We have historically recognized an account receivable for deficiency payments that we have made under the Bradley Agreement as we believed, based on the Bradley Agreement, that we will ultimately receive these amounts.  However, while we continue to believe that these amounts are ultimately collectible, we have concluded that the collection of these amounts represent a contingency related to the contract and should be recorded when received. The impact of the restatement is reflected in the table shown below.

 

Impact of the Revisions

 

The following tables summarize the key financial statement line items that were modified as a result of the changes described above.

 

 

 

As originally
reported

 

Impact of
Purchase Price
Accounting
Finalization

 

As Recast for Purchase

Price  Accounting
Finalization

 

Impact of
Restatement

 

As Revised

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

177,701

 

2,108

 

179,809

 

441

 

180,250

 

Long-term receivables, net

 

15,749

 

 

15,749

 

(15,749

)

 

Intangible assets, net

 

167,293

 

21,459

 

188,752

 

 

188,752

 

Good will

 

434,343

 

5,016

 

439,359

 

 

439,359

 

Total assets

 

879,939

 

28,826

 

908,765

 

(15,279

)

893,486

 

Total current liabilities

 

250,604

 

2,953

 

253,557

 

 

253,557

 

Deferred tax liabilities

 

27,462

 

(2,805

)

24,657

 

5,838

 

18,819

 

Accumulated deficit

 

(39,459

)

(1,128

)

(40,587

)

(9,441

)

(50,028

)

Total Shareholder’s equity of Company

 

197,617

 

(1,128

)

196,489

 

(9,441

)

187,048

 

Total liabilities and shareholder’s equity

 

879,939

 

28,826

 

908,765

 

(15,279

)

893,486

 

 

9



Table of Contents

 

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Total cost of parking services

 

329,311

 

618

 

329,929

 

403

 

330,332

 

Total gross profit

 

40,697

 

31

 

40,728

 

(403

)

40,325

 

Operating income

 

5,564

 

(154

)

5,410

 

(526

)

4,884

 

Income before income taxes

 

668

 

(154

)

514

 

(359

)

155

 

Income tax (benefit) expense

 

46

 

(65

)

(19

)

(135

)

(154

)

Net income

 

622

 

(89

)

533

 

(224

)

309

 

For the three months ended March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Total cost of parking services

 

167,816

 

 

167,816

 

779

 

168,595

 

Total gross profit

 

21,629

 

 

21,629

 

(779

)

20,850

 

Operating income

 

4,856

 

 

4,856

 

(779

)

4,077

 

Income before income taxes

 

3,796

 

 

3,796

 

(779

)

3,017

 

Income tax (benefit) expense

 

1,528

 

 

1,528

 

(313

)

1,215

 

Net income

 

2,268

 

 

2,268

 

(466

)

1,802

 

 

We had a $0.01 reduction to our net income per share-basic and diluted as a result of the restatement of accounting for the Bradley Agreement and no effect to our net income per share-basic and diluted for the purchase price finalization for KCPC for the three months ended March 31, 2013.  Our net income per share-basic and diluted for the same period, after giving effect to the restatement of accounting for the Bradley Agreement, was $(0.01), compared to $0.00, as originally reported.

 

We had a $0.03 reduction to our net income per share-basic and diluted as a result of our restatement of accounting for the Bradley Agreement for the three months ended March 31, 2012.  Our net income per share-basic and diluted for the same period, after giving effect to the restatement of accounting for the Bradley Agreement was $0.11, compared to $0.14, as originally reported.

 

Net income attributable to Standard Parking Corporation, within the Consolidated Statements of Income, and other comprehensive income and comprehensive income attributable to Standard Parking Corporation, within the Consolidated Statements of Comprehensive Income, was only effected by the change in net income as a result of the purchase price finalization for KCPC and the restatement of accounting for the Bradley Agreement for the three months ended March 31, 2013 and the restatement of accounting for the Bradley Agreement for the three months ended March 31, 2012.

 

The effect of the restatement had no impact to our net cash provided by operating activities, net cash provided by (used in) investing activities or net cash used in financing activities, within the Consolidated Statements of Cash Flows, for the three months ended March 31, 2013 and 2012.

 

The notes to these consolidated financial statements have been revised, as needed, to reflect the impact of the purchase price finalization for KCPC and the restatement of accounting for the Bradley Agreement, as previously discussed above.

 

10



Table of Contents

 

3. Acquisition

 

On October 2, 2012 (“Closing Date”), we completed our acquisition (the “Central Merger”) of 100% of the outstanding common shares of KCPC Holdings, Inc. (“KCPC”), which was the ultimate parent of Central Parking Corporation (“Central”) for 6,161,332 shares of our common stock and the assumption of $217,675 of Central’s debt net of cash acquired. Additionally, Central’s former stockholders will be entitled to receive cash consideration of $27,000, subject to adjustment, to be paid three years after closing to the extent it is not used to satisfy certain obligations that the Company has been indemnified for, by or from the former Central shareholders. The Company financed the acquisition through additional borrowings under the Senior Credit Facility (defined in Note 11).

 

Pursuant to the Central Merger agreement, we are entitled to indemnification from the former stockholders of KCPC 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 $285,000 as of September 30, 2012, the Net Debt Working Capital was $300,546 as of September 30, 2012 and, accordingly, the Net Debt Working Capital exceeded $285,000 by $15,546. We have made a formal indemnity claim under the Merger Agreement relating to Net Debt Working Capital.

 

Central Net Debt Working Capital at September 30, 2012 as defined in the Merger Agreement 

 

$

(300,546

)

Threshold

 

285,000

 

Excess over the threshold

 

(15,546

)

Cash consideration payable in three years

 

27,000

 

Cash consideration

 

$

11,454

 

Present value of cash consideration at the acquisition date

 

$

8,943

 

 

Accordingly, the fair value of the final consideration transferred to acquire all of Central’s outstanding stock at the acquisition date is as follows:

 

Stock consideration

 

$

140,726

 

Present value of cash consideration to be issued

 

8,943

 

Total consideration transferred

 

$

149,669

 

 

The Company incurred certain acquisition and integration related costs associated with the transaction that were expensed as incurred and are reflected in the Consolidated Statements of Income. The Company recognized $4,224 of these costs in its Consolidated Statement of Income for the three months ended March 31, 2012 in general and administrative expenses.

 

The acquisition has been accounted for using the acquisition method of accounting (in accordance with the provisions of ASC 805, Business Combinations ) 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 acquisition.  We have previously reported our preliminary purchase price allocation.  We have subsequently finalized the purchase price allocation, which resulted in revision to the previously reported preliminary amounts.  The revisions to the purchase price allocation were applied retrospectively back to the date of the acquisition as reflected in the Company’s restated consolidated financial statements included in our Form 10K-A filed on November 18, 2013.

 

The following table summarizes the fair values of the assets acquired and liabilities assumed in the acquisition as previously reported based on the preliminary allocation and as finalized:

 

11



Table of Contents

 

 

 

Preliminary
amounts (a)

 

Amounts as
Finalized

 

Net current liabilities

 

$

(28,041

)

$

(25,444

)

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

 

24,154

 

24,781

 

Identified intangible assets:

 

 

 

 

 

Management contracts

 

81,000

 

81,000

 

Favorable lease contracts

 

51,650

 

80,235

 

Trade name / trademarks

 

14,900

 

9,100

 

Existing technology

 

34,000

 

34,000

 

Non-competition agreements

 

2,600

 

2,600

 

Other noncurrent assets

 

17,748

 

17,748

 

Long-term debt

 

(237,223

)

(237,223

)

Unfavorable lease contracts

 

(69,316

)

(101,676

)

Other noncurrent liabilities

 

(19,523

)

(19,523

)

Net long-term deferred tax liability

 

(24,516

)

(22,528

)

Net liabilities assumed

 

(152,567

)

(156,930

)

Goodwill

 

302,236

 

306,599

 

Total consideration transferred

 

$

149,669

 

$

149,669

 

 


(a)  These amounts reflect the reclassification of net long-term deferred tax liabilities of $24,434 from net current liabilities to net long term deferred tax liability.

 

The acquired management contracts are being amortized over a weighted average life of 16 years. The favorable and unfavorable lease contracts are being amortized over their contractual lives which results in a weighted average life of 10 and 7 years, respectively. The trade names and trademarks are being amortized over 4 years. The non-compete agreements are being amortized over 1 year. The existing technology is being amortized over 4.5 years. See Note 8 for further disclosure regarding the amortization of the intangible assets.

 

Goodwill is calculated as the excess of the consideration transferred over the fair value of net assets acquired. Goodwill is not amortized and is not deductible for tax purposes. Goodwill represents expected synergies with the Company’s existing operations, which include growth of new and existing customers, elimination of corporate overhead redundancies, and logistical improvements.

 

A single estimate of fair value results from a complex series of the Company’s judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations.

 

4. Stock-Based Compensation

 

We measure share-based compensation expense at the grant date, based on the fair value of the award, and the expense is recognized over the requisite employee service period (the vesting period) for awards expected to vest (considering estimated forfeitures).

 

The Company has an amended and restated Long-Term Incentive Plan that was adopted in conjunction with our initial public offering. On April 22, 2008, our shareholders approved an amendment to our Long-Term Incentive Plan that increased the maximum number of shares of common stock available for awards under the Long-Term Incentive Plan from 2,000,000 to 2,175,000 and extended the Plan’s termination date. The Plan now terminates twenty years from the date of such approval, or April 22, 2028. Forfeited and expired options under the Plan become generally available for reissuance. At March 31, 2013, no shares remained available for award under the Plan. See Note 19 on subsequent events regarding the amendment to the Plan.

 

Stock Options and Grants

 

We use the Black-Scholes option-pricing model to estimate the fair value of each option grant as of the date of grant. The volatilities are based on the 90-day historical volatility of our common stock as of the grant date. The risk free interest rate is based on zero-coupon U.S. government issues with a remaining term equal to the expected life of the option.

 

12



Table of Contents

 

There were no options granted during the three months ended March 31, 2013 and 2012. The Company recognized no stock-based compensation expense related to stock options for the three months ended March 31, 2013 and 2012, as all options previously granted were fully vested. As of March 31, 2013, there were no unrecognized compensation costs related to unvested options.

 

Restricted Stock Units

 

In March 2008, the Company’s Compensation Committee and the Board of Directors authorized a grant of 750,000 restricted stock units that subsequently were awarded to members of our senior management team on July 1, 2008. In November 2008, an additional 5,000 restricted stock units were awarded. The restricted stock units vest primarily in one-third installments on each of the tenth, eleventh and twelfth year anniversaries of the grant date. The restricted stock unit agreements provide for accelerated vesting upon the recipient reaching their retirement age.

 

In October 2012, the Company’s Board of Directors authorized a grant of 191,895 restricted stock units that were awarded to our senior management team. The restricted stock units vest in one-third installments on each of the first, second and third anniversaries of the grant date. The restricted stock unit agreements were awarded to members of the executive team who played a key role in the due diligence and subsequent planning that led to the successful closing of the Central Merger as well as retention of the team through the integration period. The restricted stock units vest over a three-year period. Additionally in October 2012, as part of employment agreements, 30,529 restricted stock units were awarded and shall become vested on the third anniversary of the Grant Date.

 

The fair value of restricted stock units is determined using the fair value of our common stock on the date of the grant, and compensation expense is recognized over the vesting period. In accordance with the guidance related to share-based payments, we estimated forfeitures at the time of the grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

 

During the three months ended March 31, 2013 and 2012, 5,000 and 104,000 restricted stock units vested, respectively.  No restricted stock units were forfeited.

 

The Company recognized $1,042 and $361 of stock-based compensation expense related to the restricted stock units for the three months ended March 31, 2013 and 2012, respectively, which is included in general and administrative expenses. As of March 31, 2013, there was $7,978 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 4.0 years.

 

5. Net Income Per Common Share

 

Companies are required to present basic and diluted earnings per 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 (unaudited):

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Weighted average common basic shares outstanding

 

21,870,771

 

15,563,914

 

Effect of dilutive stock options and restricted stock units

 

 

256,204

 

Weighted average common diluted shares outstanding

 

21,870,771

 

15,820,118

 

Net income per share:

 

 

 

 

 

Basic

 

$

(0.01

)

$

0.11

 

Diluted

 

$

(0.01

)

$

0.11

 

 

13



Table of Contents

 

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.

 

6. Recently Issued Accounting Pronouncements

 

Accounting Standards Adopted

 

In July 2012, the FASB issued ASU 2012-2, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This update provides an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired and then determine whether it should perform a quantitative impairment test. The amendment is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption permitted. Although the Company has not performed its annual impairment test, we adopted the guidance in 2013 and do not expect the adoption to have a material effect on the Company’s financial position, results of operations or cash flows.

 

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220), which deferred the effective date for applying ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, in respect of certain provisions relating to the presentation of separate line items on the income statement for reclassifications of items out of accumulated other comprehensive income into income, in order for the FASB to further evaluate this change in standard before implementation. The deferral is temporary and other provisions of ASU 2011-05 were effective for the Company beginning January 1, 2012. The adoption of this update impacted the presentation and disclosure of the Company’s financial statements but did not impact the Company’s results of operations, financial position, or cash flows.

 

In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This update requires additional disclosures about offsetting and related arrangements on assets and liabilities to enable users of financial statements to understand the effect of such arrangements on an entity’s financial position as reported. This amendment is effective for fiscal 2013. We adopted the guidance in the first quarter of 2013 and it did not have a material effect on the Company’s financial position, results of operations or cash flows.

 

14



Table of Contents

 

7. Leasehold Improvements, Equipment, Construction in Progress and Land, Net

 

A summary of leasehold improvements, equipment, and construction in progress and related accumulated depreciation and amortization is as follows:

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Ranges of Estimated Useful Life

 

(Unaudited)

 

 

 

Equipment

 

2 - 5 Years

 

$

29,157

 

$

28,498

 

Software

 

3 - 10 Years

 

15,610

 

15,031

 

Vehicles

 

4 Years

 

9,322

 

9,353

 

Other

 

10 Years

 

367

 

367

 

Leasehold improvements

 

Shorter of lease term or economic life up to 10 years

 

18,308

 

17,920

 

Construction in progress

 

 

 

3,358

 

2,086

 

 

 

 

 

76,122

 

73,255

 

Less accumulated depreciation and amortization

 

 

 

(37,582

)

(35,152

)

 

 

 

 

38,540

 

38,103

 

Land

 

 

 

2,299

 

2,299

 

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

 

 

 

$

40,839

 

$

40,402

 

 

Depreciation expense was $2,860 and $1,042 for the three months ended March 31, 2013 and 2012, respectively. Depreciation includes gains on sale and abandonment of leasehold improvements and equipment of $31 and losses on sale and abandonment of leasehold improvements and equipment of $4 for the three months ended March 31, 2013 and 2012, respectively.

 

8. Cost of Contracts, Net

 

Cost of contracts represents the contractual rights associated with providing parking services at a managed or leased facility. Cost consists of capitalized payments made to third parties, amortized over the estimated life of the contracts, including anticipated renewals and terminations.

 

The balance of cost of contracts is comprised of the following:

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

(Unaudited)

 

(Restated)

 

Cost of contracts

 

$

25,879

 

$

26,599

 

Accumulated amortization

 

(13,005

)

(12,384

)

Cost of contracts, net

 

$

12,874

 

$

14,215

 

 

Amortization expense related to cost of contracts was $690 and $608 for the three months ended March 31, 2013 and 2012, respectively. The weighted average useful life is 9.5 years for 2013 and 2012.

 

15



Table of Contents

 

9. Intangible Assets, Net

 

The balance of intangible assets is comprised of the following:

 

 

 

March 31,
2013

 

December
31, 2012

 

 

 

(Unaudited)

 

(Restated)

 

Covenant not to compete

 

$

3,533

 

$

3,533

 

Trade names

 

9,820

 

9,820

 

Proprietary know how

 

34,650

 

34,650

 

Lease contract rights

 

80,235

 

80,235

 

Management contract rights

 

81,000

 

81,000

 

Accumulated amortization

 

(20,486

)

(11,894

)

Intangible assets, net

 

$

188,752

 

$

197,344

 

 

Amortization expense related to intangible assets included in depreciation and amortization was $3,957 and $78 for the three months ended March 31, 2013 and 2012, respectively. Amortization for lease contracts rights was $3,745 for the three months ended March 31, 2013 and is included in cost of parking services of lease contract. There was no amortization for lease contracts included in cost of parking services for lease contracts for the three months ended March 31, 2012.

 

10. Goodwill

 

Goodwill is assigned to reporting units based upon the specific region where the assets are acquired and associated goodwill resided.

 

The following table reflects the changes in the carrying amounts of goodwill by reportable segment for the three months ended March 31, 2013 (unaudited restated):

 

 

 

Region
One

 

Region
Two

 

Region
Three

 

Region
Four

 

Region
Five

 

Total

 

Balance as of December 31, 2012

 

$

193,758

 

$

32,245

 

$

66,181

 

$

62,621

 

$

84,681

 

$

439,486

 

Contingent payments related to acquisitions

 

 

 

 

 

(6

)

 

 

 

 

(6

)

Foreign currency translation

 

 

 

(121

)

 

 

 

 

 

 

(121

)

Balance as of March 31, 2013

 

$

193,758

 

$

32,124

 

$

66,175

 

$

62,621

 

$

84,681

 

$

439,359

 

 

16



Table of Contents

 

11. Bradley Agreement

 

We entered into a 25-year agreement (the “Bradley Agreement”) with the State of Connecticut that expires on April 6, 2025, under which we operate the surface parking and 3,500 garage parking spaces at Bradley International Airport (“Bradley”) located in the Hartford, Connecticut metropolitan area. The Company manages the facility for which it is expected to receive a contingent management fee.

 

The parking garage was financed on April 6, 2000 through the issuance of $53,800 of State of Connecticut (“State”) special facility revenue bonds, representing $47,700 non-taxable Series A bonds and a separate taxable issuance of $6,100 Series B bonds. The Series B bonds were retired on July 1, 2006 according to the terms of the indenture. The Bradley Agreement provides that we deposit with a trustee for the bondholders all gross revenues collected from operations of the surface and garage parking, and from these gross revenues, the trustee pays debt service on the special facility revenue bonds outstanding, operating and capital maintenance expenses of the surface and garage parking facilities excluding our management fee discussed below, and specific annual guaranteed minimum payments to the State. Principal and interest on the Bradley special facility revenue bonds increase from approximately $3,600 in contract year 2002 to approximately $4,500 in contract year 2025. Annual guaranteed minimum payments to the State will increase from approximately $8,300 in contract year 2002 to approximately $13,200 in contract year 2024. The annual minimum guaranteed payment to the State by the trustee for the three months ended March 31, 2013 and 2012 was $2,621 and $2,567, respectively.

 

All of the cash flow from the parking facilities is pledged to the security of the special facility revenue bonds and is 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, we are obligated to deliver the deficiency amount to the trustee. Additionally, the Guaranteed Payments are required to be paid before we are reimbursed for deficiency payments or management fees. We record deficiency payments made as additional cost of parking services.

 

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.

 

However, to the extent there is a cash surplus in any month during the term of the Bradley Agreement, we have the right to be repaid the principal amount of any and all deficiency payments previously made, together with actual interest expenses and a premium, not to exceed 10% of the initial deficiency payment. We calculate and record interest income and premium income along with deficiency principal repayments as a reduction of cost of parking services in the period the associated deficiency payment is received from the trustee.

 

Deficiency Payments

 

To the extent that monthly gross receipts are not sufficient for the trustee to make the required payments, we are obligated pursuant to our agreement to deliver the deficiency amount to the trustee within three business days of being notified. We are responsible for these deficiency payments regardless of the amount of utilization for the Bradley parking facilities. The deficiency payments represent contingent interest bearing advances to the trustee to cover operating cash flow requirements. To the extent sufficient funds are available in the appropriate fund, the trustee is then directed by the State to reimburse us for deficiency payments up to the amount of the calculated surplus.

 

The total deficiency payments we have made, net of reimbursements, as of March 31, 2013 and December 31, 2012 are as follows:

 

 

 

March 31,
2013

 

December 31,
2012

 

 

 

(Unaudited)

 

 

 

Balance at beginning of year

 

$

14,598

 

$

13,407

 

Deficiency payments made

 

403

 

1,658

 

Deficiency repayment received

 

 

(467

)

Balance at end of period

 

$

15,001

 

$

14,598

 

 

In the three months ended March 31, 2013, we made deficiency payments of $403. We did not record or receive any premium income related to deficiency repayments from the trustee.  In the three months ended March 31, 2012, we made deficiency payments of $779 and we did not record or receive any interest and premium income related to deficiency repayments from the trustee.

 

17



Table of Contents

 

We believe these advances to be fully recoverable as the Construction, Financing and Operating Special Facility Lease Agreement, which governs reimbursement of Guarantor Payments, places no time restriction on the Company’s right to reimbursement. The payment of principal, interest and premium will be recorded when received. We do not directly guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.

 

Compensation

 

In addition to the recovery of certain general and administrative expenses incurred, the Bradley Agreement provides for an annual management fee payment that is based on three operating profit tiers calculated for each year during the term of the agreement. The management fee is further apportioned 60% to us and 40% to an un-affiliated entity. To the extent that funds are available for the trustee to make a distribution, the annual management fee is paid when sufficient cash is available after the Guaranteed Payments (as defined in our agreement) are paid, and after the repayment of all deficiency payments, including accrued interest and premium. However, our right to the management fee accrues each year during the term of the agreement and is paid when sufficient cash is available for the trustee to make a distribution.

 

The annual management fee is paid after the repayment of all deficiency payments, including accrued interest and premium. Cumulative management fees of approximately $9,000 had not been recognized as of March 31, 2013, and no management fee income was recognized during the three months ended March 31, 2013 and 2012.

 

12. Borrowing Arrangements

 

Long-term borrowings, in order of preference, consist of:

 

 

 

 

 

Amount Outstanding

 

 

 

Maturity Date

 

March 31,
2013

 

December 31,
2012

 

 

 

(Unaudited)

 

Senior Credit Facility

 

October 2, 2017

 

$

320,198

 

$

307,939

 

Other obligations

 

Various

 

2,388

 

2,620

 

Total debt

 

 

 

322,586

 

310,559

 

Less current portion

 

 

 

21,680

 

21,837

 

Total long-term debt

 

 

 

$

300,906

 

$

288,722

 

 

Senior Credit Facility

 

In connection with the Central Merger, on the Closing Date, the Company entered into a Credit Agreement with 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 (the “Lenders”).

 

Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders have made available to the Company a new secured Senior Credit Facility (the “Senior Credit Facility”) that permits aggregate borrowings of $450,000 consisting of (i) a revolving credit facility of up to $200,000 at any time outstanding, which includes a letter of credit facility that is limited to $100,000 at any time outstanding, and (ii) a term loan facility of $250,000. The Senior Credit Facility matures on October 2, 2017.

 

18



Table of Contents

 

The entire amount of the term loan portion of the Senior Credit Facility was drawn by the Company on the Closing Date and is subject to scheduled quarterly payments of principal based on the following annualized amounts: (i) $22,500 in the first year, (ii) $22,500 in the second year, (iii) $30,000 in the third year, (iv) $30,000 in the fourth year and (v) $37,500 in the fifth year. The Company also borrowed $72,800 under the revolving credit facility on the Closing Date. The proceeds from these borrowings were used by the Company to repay outstanding indebtedness of the Company and Central, and will also be used to pay costs and expenses related to the Central Merger and the related financing and fund ongoing working capital and other general corporate purposes. At March 31, 2013, the Company had $320,198 outstanding on the Senior Credit Facility.

 

Borrowings under the Senior 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 applicable pricing levels set forth in the Credit Agreement (the “Applicable Margin”) for LIBOR loans, plus the applicable LIBOR rate or (ii) the Applicable Margin for base rate loans 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 the applicable LIBOR rate plus 1.0%.

 

Under the terms of the Credit Agreement, the Company is required to maintain a maximum consolidated total debt to EBITDA ratio of not greater than 4.5:1.0 (with certain step-downs described in the Credit Agreement). In addition, the Company is required to maintain a minimum consolidated fixed charge coverage ratio of not less than 1:25:1.0 (with certain step-ups described in the Credit Agreement).

 

Events of default under the 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 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 Credit Agreement have the right, among others, to (i) terminate the commitments under the Credit Agreement, (ii) accelerate and require the Company to repay all the outstanding amounts owed under the 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 Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Credit Agreement.

 

In connection with and effective upon the execution and delivery of the Credit Agreement on October 2, 2012, the Company terminated its then-existing Amended and Restated Credit Agreement (the “Former Credit Agreement”), dated as of July 15, 2008. There were no termination penalties incurred by the Company in connection with the termination of the Former Credit Agreement.

 

We are in compliance with all of our covenants as of March 31, 2013.

 

The weighted average interest rate on our Senior Credit Facility at March 31, 2013 and December 31, 2012 was 3.5% and 3.7%, respectively. The rate includes all outstanding LIBOR contracts, cash flow hedge effectiveness effect and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 3.6% and 3.9% at March 31, 2013 and December 31, 2012, respectively.

 

At March 31, 2013, we had $60,486 of letters of credit outstanding under the Senior Credit Facility, borrowings against the Senior Credit Facility aggregated $320,198, and we had $53,564 available under the Senior Credit Facility.

 

The Company acquired Subordinated Convertible Debentures (“Convertible Debentures”) that prior to the acquisition of Central, were convertible at the option of the holder thereof into shares of Central common stock. As a result of the acquisition, the subordinated debenture holders no longer have the right to convert the Convertible Debentures to common stock of the Company, but do have the right to redeem the Convertible Debentures for $19.18 cash per share upon their stated maturity (April 1, 2028) or upon acceleration or earlier repayment of the Convertible Debentures. There were no redemptions during the three months ended March 31, 2013. Approximately 65,308 Convertible Debentures or $1,254 (redemption value) remain outstanding at March 31, 2013.

 

The remaining $1,134 of other obligations at March 31, 2013 relates to various financing arrangements.

 

19



Table of Contents

 

13. 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 separate financial information is available and evaluated regularly by our CODM in deciding how to allocate resources and in assessing performance.

 

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 our CODM. Our CODM is the Company’s president and 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 four operating segments. The CODM assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest, taxes, and depreciation and amortization, 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.

 

Our business is managed based on regions administered by executive vice presidents. The following is summary of revenues (excluding reimbursed management contract revenue) and gross profit by regions for the three months ended March 31, 2013 and 2012 with information related to prior periods recast to conform to the current regional alignment (unaudited):

 

 

 

Three Months
Ended March 31,
2013

 

Gross
Margin %

 

Three Months
Ended March 31,
2012

 

Gross
Margin %

 

 

 

(Restated)

 

 

 

(Restated)

 

 

 

Revenues(a):

 

 

 

 

 

 

 

 

 

Region One

 

 

 

 

 

 

 

 

 

Lease contracts

 

$

75,040

 

 

 

$

17,142

 

 

 

Management contracts (b)

 

25,886

 

 

 

12,065

 

 

 

Total Region One

 

100,926

 

 

 

29,207

 

 

 

Region Two

 

 

 

 

 

 

 

 

 

Lease contracts

 

1,326

 

 

 

 

 

 

Management contracts

 

10,226

 

 

 

7,102

 

 

 

Total Region Two

 

11,552

 

 

 

7,102

 

 

 

Region Three

 

 

 

 

 

 

 

 

 

Lease contracts

 

12,289

 

 

 

5,417

 

 

 

Management contracts

 

18,141

 

 

 

13,535

 

 

 

Total Region Three

 

30,430

 

 

 

18,952

 

 

 

Region Four

 

 

 

 

 

 

 

 

 

Lease contracts

 

9,214

 

 

 

10,837

 

 

 

Management contracts

 

27,410

 

 

 

12,011

 

 

 

Total Region Four

 

36,642

 

 

 

22,848

 

 

 

Region Five

 

 

 

 

 

 

 

 

 

Lease contracts

 

23,267

 

 

 

4,148

 

 

 

Management contracts

 

9,057

 

 

 

3,067

 

 

 

Total Region Five

 

32,324

 

 

 

7,215

 

 

 

Other

 

 

 

 

 

 

 

 

 

Lease contracts

 

(51

)

 

 

 

 

 

Management contracts

 

(643

)

 

 

184

 

 

 

Total Other

 

(694

)

 

 

184

 

 

 

Reimbursed management contract revenue

 

159,477

 

 

 

103,937

 

 

 

Total revenues

 

370,657

 

 

 

189,445

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

Region One

 

 

 

 

 

 

 

 

 

Lease contracts

 

5,154

 

7

%

629

 

4

%

Management contracts

 

11,243

 

43

%

6,490

 

54

%

Total Region One

 

16,397

 

 

 

7,119

 

 

 

Region Two

 

 

 

 

 

 

 

 

 

Lease contracts

 

266

 

20

%

 

 

Management contracts

 

2,287

 

22

%

1,198

 

17

%

Total Region Two

 

2,553

 

 

 

1,198

 

 

 

Region Three

 

 

 

 

 

 

 

 

 

Lease contracts

 

781

 

6

%

436

 

8

%

Management contracts

 

6,851

 

38

%

5,636

 

42

%

Total Region Three

 

7,632

 

 

 

6,072

 

 

 

Region Four

 

 

 

 

 

 

 

 

 

Lease contracts

 

(1,918

)

(21

)%

760

 

7

%

Management contracts

 

8,200

 

30

%

3,182

 

26

%

Total Region Four

 

6,282

 

 

 

3,942

 

 

 

Region Five

 

 

 

 

 

 

 

 

 

Lease contracts

 

4,668

 

20

%

357

 

9

%

Management contracts

 

3,779

 

42

%

1,449

 

47

%

Total Region Five

 

8,447

 

 

 

1,806

 

 

 

Other

 

 

 

 

 

 

 

 

 

Lease contracts

 

16

 

31

%

(25

)

 

Management contracts

 

(1,002

)

(156

)%

738

 

401

%

Total Other

 

(986

)

 

 

713

 

 

 

Total gross profit

 

40,325

 

 

 

20,850

 

 

 

General and administrative expenses

 

27,948

 

 

 

15,045

 

 

 

General and administrative expense percentage of gross profit

 

69

%

 

 

72

%

 

 

Depreciation and amortization

 

7,493

 

 

 

1,728

 

 

 

Operating income

 

4,884

 

 

 

4,077

 

 

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

Interest expense

 

4,840

 

 

 

1,130

 

 

 

Interest income

 

(111

)

 

 

(70

)

 

 

 

 

4,729

 

 

 

1,060

 

 

 

Income before income taxes

 

155

 

 

 

3,017

 

 

 

Income tax expense

 

(154

)

 

 

1,215

 

 

 

Net income

 

309

 

 

 

1,802

 

 

 

Less: Net income attributable to noncontrolling interest

 

569

 

 

 

72

 

 

 

Net income (loss) attributable to Standard Parking Corporation

 

$

(260

)

 

 

$

1,730

 

 

 

 

20



Table of Contents

 


(a)                                  Excludes reimbursed management contract revenue.

 

(b)                                  Includes a net gain of $2,700 related to the sale of rights associated with certain contracts.  There were no similar payments received in 2012.

 

Region One encompasses operations in Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Virginia, West Virginia and Wisconsin.

 

Region Two encompasses event planning and transportation, our acquired valet business and our technology-based parking and traffic management systems.

 

Region Three encompasses operations in Canada, Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

 

Region Four encompasses all major airport and transportation operations nationwide.

 

Region Five encompasses Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Puerto Rico, Tennessee, and Texas.

 

Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years.

 

21



Table of Contents

 

Our CODM does not evaluate segments using discrete asset information.

 

14. Comprehensive Income

 

Comprehensive income consists of the following components, net of tax (unaudited):

 

 

 

For the three months ended

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

(Restated)

 

(Restated)

 

Net income

 

$

309

 

$

1,802

 

Effective portion of cash flow hedge

 

153

 

36

 

Effect of foreign currency translation

 

(135

)

50

 

Comprehensive income

 

327

 

1,888

 

Less: comprehensive income attributable to noncontrolling interest

 

569

 

72

 

Comprehensive income attributable to Standard Parking Corporation

 

$

(242

)

$

1,816

 

 

15.  Accumulated Other Comprehensive Income

 

Changes in accumulated other comprehensive income consists of the following components, net of tax (unaudited):

 

 

 

For the three months ended March 31, 2013

 

 

 

Cash flow hedge

 

Foreign Currency

 

Total

 

Balance at December 31, 2012

 

$

(476

)

$

95

 

$

(381

)

Other comprehensive income before reclassifications

 

153

 

(135

)

18

 

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

Net current period other comprehensive income

 

153

 

(135

)

18

 

Balance at March 31, 2013

 

$

(323

)

$

(40

)

$

(363

)

 

16. Income Taxes

 

For the three months ended March 31, 2013, the Company recognized income tax benefit of $154 on pre-tax earnings of $155 compared to $1,215 income tax expense on pre-tax earnings of $3,017 for the three months ended March 31, 2012. The effective tax rate is approximately (99.4)% for the three months ended March 31, 2013 compared to approximately 40.3% for the three months ended March 31, 2012. The effective tax rate for the three months ended March 31, 2013 was decreased to (99.4)% from 37.6% for a discrete benefit of approximately $206 for the retroactive extension of the Work Opportunity Tax Credit (“WOTC”) and other similar federal income tax credit programs that were enacted as part of the American Taxpayer Relief Act in January of 2013.

 

As of March 31, 2013, 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 March 31, 2013 are shown below:

 

2007 - 2012

 

United States—federal income tax

2007 - 2012

 

United States—state and local income tax

2009 - 2012

 

Canada

 

22



Table of Contents

 

17. Legal Proceedings

 

We are subject to litigation in the normal course of our business. The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. We accrue a charge against income when our management determines that it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we accrue for the authoritative judgments or assertions made against us by government agencies at the time of their rendering regardless of our intent to appeal. In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss. We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment. In addition, the Company is subject to various legal proceedings, claims and other matters that arise in the ordinary course of business. In the opinion of management, the amount of the liability, if any, with respect to these matters will not materially affect the Company’s consolidated financial statements. We maintain liability insurance coverage to assist in protecting our assets from losses arising from or related to activities associated with business operations.

 

18. Fair Value Measurement

 

The Company applies ASC 820 for fair value measurements and disclosures for its financial assets and financial liabilities. The standard requires disclosures about assets and liabilities measured at fair value. As of March 31, 2013, the Company’s financial liabilities relate to Interest Rate Swaps of $538 and the Company’s financial liabilities relate to contingent acquisition consideration payments of $3,016.

 

The accounting guidance for fair value measurements and disclosures includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. 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. The fair value hierarchy consists of the following three levels:

 

·              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 significant inputs used to derive the fair value of the amounts due to seller include financial forecasts of future operating results, the probability of reaching the forecast and the associated discount rate. The probability of the contingent consideration ranges from 10% to 95%, with a weighted average discount rate of 11%. The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and the basis of measurement at March 31, 2013 and December 31, 2012 (unaudited):

 

 

 

Total Fair Value
Measurement at March 31,
2013

 

Level 1

 

Level 2

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

$

(538

)

 

(538

)

 

Contingent acquisition consideration

 

$

(3,016

)

 

 

(3,016

)

 

23



Table of Contents

 

 

 

Total Fair Value
Measurement at
December 31, 2012

 

Level 1

 

Level 2

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

$

(794

)

 

(794

)

 

Contingent acquisition consideration

 

$

(3,324

)

 

 

(3,324

)

 

The following table provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3, unaudited):

 

 

 

Contingent
acquisition
consideration

 

Balance at December 31, 2012

 

$

(3,324

)

Contingent earn-out payments-payments made to seller

 

0

 

Contingent earn-out payments-change in fair value

 

308

 

Balance at March 31, 2013

 

$

(3,016

)

 

For the three months ended March 31, 2013, the Company recorded adjustments to the original contingent consideration obligation recorded upon the acquisition of Gameday Management Group U.S. and Expert Parking. The adjustments were the result of using revised forecasts and updated fair value measurements that adjusted the Company’s potential earn-out payments related to the purchase of these businesses.

 

For the three months ended March 31, 2013, the Company recognized a benefit of $308, which is included in general and administrative expenses in the statement of income due to the change in fair value measurements using level three valuation techniques.

 

Nonrecurring Fair Value Measurements

 

The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value. Non-financial assets such as goodwill, intangible assets, and leasehold improvements, equipment land and construction in progress are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess 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 our 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. We have not recorded impairment charges related to our business acquisitions.

 

19. Subsequent Events

 

On April 24, 2013, the Company’s shareholders approved the Long-Term Incentive Plan amendment which increased the number of shares of common stock available for awards under the Plan from 2,175,000 to 2,875,000, an increase of 700,000 shares.

 

24



Table of Contents

 

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

 

The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the notes thereto contained in this Quarterly Report on Form 10-Q/A and the consolidated financial statements and the notes thereto included in our Annual Report on our Form 10-K/A for the year ended December 31, 2012.

 

Important Information Regarding Forward-Looking Statements

 

This Form 10-Q/A contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding our merger with the parent of Central Parking Corporation (“Central”), and the other expectations, beliefs, plans, intentions and strategies of the Company.  We have tried to identify these statements by using words such as “expect,” “anticipate,” “believe, “could,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” and “will” and similar terms and phrases, but such words, terms and phrases are not the exclusive means of identifying such statements.  These forward-looking statements are made based on management’s expectations and beliefs concerning future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict and many of which are beyond management’s control.  Actual results, performance and achievements could differ materially from those expressed in, or implied by, these forward-looking statements due to a variety of risks, uncertainties and other factors, including, but not limited to, the following: risks related to the restatement; our ability to integrate Central into the business of the Company successfully and the amount of time and expense spent and incurred in connection with the integration; the risk that the economic benefits, cost savings and other synergies that we anticipate as a result of the Central Merger (defined below) are not fully realized or take longer to realize than expected; our substantially increased indebtedness incurred in connection with the Central Merger, which may reduce available cash flow, increase vulnerability to adverse economic conditions, and limit flexibility in planning for, or reacting to, changes in or challenges related to our business; unanticipated Central Merger and integration expenses; other losses, or renewals on less favorable terms, of management contracts and leases; adverse litigation judgments or settlements; the economic impact to areas damaged by Hurricane Sandy; changes in general economic and business conditions or demographic trends; the loss of customers, clients or strategic alliances as a result of the Central Merger; the effect on our strategy and operations due to changes to the Board of Directors that occurred upon the completion of the Central Merger; the impact of the divestitures of management contracts and leases required by the agreement entered into by the Company with the Department of Justice in connection with the Central Merger; the impact of public and private regulations; financial difficulties or bankruptcy of major clients; intense competition; insurance losses that are worse than expected or adverse events not covered by insurance; labor disputes; extraordinary events affecting parking at facilities that we manage, including emergency safety measures, military or terrorist attacks, cyber terrorism and natural disasters; the risk that state and municipal government clients sell or enter into long-term leases of parking-related assets to competitors or clients of our competitors; uncertainty in the credit markets; availability, terms and deployment of capital; our ability to obtain performance bonds on acceptable terms; and the impact of Federal health care reform.

 

For a detailed discussion of factors that could affect our future operating results, please see our filings with the Securities and Exchange Commission, including the disclosures under “Risk Factors” in those filings.  Except as expressly required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances, future events or for any other reason.

 

Explanatory Note

 

The discussion and analysis below gives effect to the Restatement, which is to reflect a correction in the manner in which the Company has accounted for deficiency payments under the Bradley Agreement.  Cumulative deficiency payments under the Bradley Agreement, net of reimbursements, had previously been recorded as an account receivable by the Company.

 

At the time of the Company’s initial accounting for the Bradley Agreement in 2000, the Company’s revenue projections as well as the projections included in the Bradley Agreement and in the feasibility study prepared by the State’s parking consultant showed that the State would be able to repay deficiency payments, if any, over the term of the Bradley Agreement.  The Company continues to believe that the State will be able to repay and expects that the State will ultimately repay the deficiency payments made by the Company under the Bradley Agreement.  However, it has now been determined that the recovery of the deficiency payments represents a contingency and, accordingly, (i) the deficiency payments made by the Company under the Bradley Agreement should have been, and should continue to be, recorded as cost of parking services in the reporting periods in which such payments were made, and (ii) the repayments to the Company of the principal, interest and premium related to deficiency payments should have been, and should continue to be, recognized as a reduction to the cost of parking services in the reporting periods in which such repayments were received. This approach is different from the Company’s historical practice of reporting such deficiency payments as accounts receivable.

 

On October 2, 2012, we completed our acquisition (the “Central Merger”) of Central Parking Corporation. Central, together with its affiliates, was a leading provider of parking and related services, which operated parking facilities in 38 states, the District of Columbia and Puerto Rico and provided ancillary products and services, including parking consulting, shuttle, valet, on-street and parking meter enforcement and billing and collection services. Our consolidated results of operations for the twelve months ended December 31, 2012 include Central’s results of operations for the period October 2, 2012 through December 31, 2012. Our consolidated results of operations for the three months ended March 31, 2012 do not include any of Central’s results of operations for that quarter.

 

During September 2013, the Company finalized the purchase price allocation for the Central Merger.  As required by generally accepted accounting principles, the Company has recast the previously issued consolidated financial statements for the three months ended March 31, 2013 included in this Quarterly Report on Form 10-Q/A to reflect the impact of the final purchase allocation as if it were completed at the date of acquisition.  The discussion and analysis below gives effect to the Purchase Allocation Recast.

 

For further information regarding the Restatement, see the Restatement 8-K, and for detailed financial information with respect to the Restatement and the Purchase Allocation Recast, see Note 2 of the notes to consolidated financial statements included in this Quarterly Report on Form 10-Q/A.

 

25



Table of Contents

 

Overview

 

Our Business

 

We manage parking facilities in urban markets and at airports across the United States and in four Canadian provinces. We do not own any facilities, but instead enter into contractual relationships with property owners or managers.

 

We operate our clients’ properties through two types of arrangements: management contracts and leases. Under a management contract, we typically receive a base monthly fee for managing the facility, and we may also receive an incentive fee based on the achievement of facility performance objectives. We also receive fees for ancillary services. Typically, all of the underlying revenue and expenses under a standard management contract flow through to our clients rather than to us. However, some management contracts, which are referred to as “reverse” management contracts, usually provide for larger management fees and require us to pay various costs. Under lease arrangements, we generally pay to the property owner either a fixed annual rent, a percentage of gross customer collections or a combination thereof. We collect all revenue under lease arrangements and we are responsible for most operating expenses, but we are typically not responsible for major maintenance, capital expenditures or real estate taxes. Margins for lease contracts vary significantly, not only due to operating performance, but also due to variability of parking rates in different cities and varying space utilization by parking facility type and location. As of March 31, 2013, we operated approximately 80% of our locations under management contracts and approximately 20% of our locations under leases. For the three months ended March 31, 2013, we derived approximately 71% of our gross profit under management contracts and approximately 29% of our gross profit under leases.

 

In evaluating our financial condition and operating performance, management’s primary focus is on our gross profit, total general and administrative expenses and general and administrative expenses as a percentage of our gross profit. Although the underlying economics to us of management contracts and leases are similar, the manner in which we are required to account for them differs. Revenue from leases includes all gross customer collections derived from our leased locations (net of parking tax), whereas revenue from management contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management contracts, therefore, are not included in our revenue. Accordingly, while a change in the proportion of our operating agreements that are structured as leases versus management contracts may cause significant fluctuations in reported revenue and expense of parking services, that change will not artificially affect our gross profit. For example, as of March 31, 2013, we operated approximately 80% of our locations under management contracts, and for the three months ended March 31, 2013, we derived approximately 71% of our gross profit under management contracts. Only approximately 42% of total revenue (excluding reimbursed management contract revenue), however, was from management contracts because under those contracts the revenue collected from parking customers belongs to our clients. Therefore, gross profit and total general and administrative expenses, rather than revenue, are management’s primary focus.

 

General Business Trends

 

We believe that sophisticated commercial real estate developers and property managers and owners recognize the opportunity for parking and related services to be a profit generator rather than a cost center. Often, the parking experience makes both the first and the last impressions on their properties’ tenants and visitors. By outsourcing these services, they are able to capture additional profit by leveraging the unique operational skills and controls that an experienced parking management company can offer. Our ability to consistently deliver a uniformly high level of parking and related services and maximize the profit to our clients improves our ability to win contracts and retain existing locations. Our location retention, excluding Central, rate for the twelve-month period ended March 31, 2013 was approximately 89%, compared to approximately 91% for the twelve-month period ended March 31, 2012, which also reflects our decision not to renew, or to terminate, unprofitable contracts and divestitures required to be made by the Department of Justice in connection with the Central Merger.

 

Excluding Central, for the three months ended March 31, 2013 compared to the three months ended March 31, 2012, average gross profit per location decreased from $10.0 thousand in 2012 compared to $9.1 thousand in 2013 primarily due to a negative fluctuation in prior year insurance reserve adjustments.

 

26



Table of Contents

 

Summary of Operating Facilities

 

We focus our operations in core markets where a concentration of locations improves customer service levels and operating margins. The following table reflects our facilities operated at the end of the periods indicated:

 

 

 

March 31, 2013

 

December 31, 2012

 

March 31, 2012

 

Managed facilities

 

3,516

 

3,325

 

1,973

 

Leased facilities

 

904

 

939

 

199

 

Total facilities

 

4,420

 

4,264

 

2,172

 

 

Revenue

 

We recognize parking services revenue from lease and management contracts as the related services are provided. Substantially all of our revenue comes from the following two sources:

 

·              Parking services revenue—lease contracts . Parking services revenue related to lease contracts consist of all revenue received at a leased facility, including parking receipts (net of parking tax), consulting and real estate development fees, gains on sales of contracts and payments for exercising termination rights.

 

·              Parking services revenue—management contracts. Management contract revenue consists of management fees, including both fixed and performance-based fees, and amounts attributable to ancillary services such as accounting, equipment leasing, payments received for exercising termination rights, consulting, developmental fees, gains on sales of contracts, as well as insurance and other value-added services with respect to managed locations. We believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker’s compensation claims by maintaining a large per-claim deductible. As a result, we have generated operating income on the insurance provided under our management contracts by focusing on our risk management efforts and controlling losses. Management contract revenue does not include gross customer collections at the managed locations as this revenue belongs to the property owner rather than to us. Management contracts generally provide us with a management fee regardless of the operating performance of the underlying facility.

 

Conversions between types of contracts (lease or management) are typically determined by our client and not us. Although the underlying economics to us of management contracts and leases are similar, the manner in which we account for them differs substantially.

 

Reimbursed Management Contract Revenue

 

Reimbursed management contract revenue consists of the direct reimbursement from the property owner for operating expenses incurred under a management contract, which is reflected in our revenue.

 

Cost of Parking Services

 

Our cost of parking services consists of the following:

 

·              Cost of parking services—lease contracts. The cost of parking services under a lease arrangement consists of contractual rental fees paid to the facility owner and all operating expenses incurred in connection with operating the leased facility. Contractual fees paid to the facility owner are generally based on either a fixed contractual amount or a percentage of gross revenue or a combination thereof. Generally, under a lease arrangement we are not responsible for major capital expenditures or real estate taxes.

 

27



Table of Contents

 

·              Cost of parking services—management contracts. The cost of parking services under a management contract is generally the responsibility of the facility owner. As a result, these costs are not included in our results of operations. However, our reverse management contracts, which typically provide for larger management fees, do require us to pay for certain costs, which are included in cost of parking services.

 

Reimbursed Management Contract Expense

 

Reimbursed management contract expense consists of direct reimbursed costs incurred on behalf of property owners under a management contract, which is reflected in our cost of parking services.

 

Gross Profit

 

Gross profit equals our revenue less the cost of generating such revenue. This is the key metric we use to examine our performance because it captures the underlying economic benefit to us of both lease contracts and management contracts.

 

General and Administrative Expenses

 

General and administrative expenses include salaries, wages, payroll taxes, insurance, travel and office related expenses for our headquarters, field offices, supervisory employees, and board of directors.

 

Depreciation and Amortization

 

Depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes or in the case of leasehold improvements, over the initial term of the operating lease or its useful life, whichever is shorter. Intangible assets determined to have finite lives are amortized over their remaining useful life.

 

Results of Operations

 

Segments

 

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 our Chief Operating Decision Maker (“CODM”), in deciding how to allocate resources. Our CODM is our president and chief executive officer.

 

Region One encompasses operations in Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Virginia, West Virginia and Wisconsin.

 

Region Two encompasses event planning and transportation, our acquired valet business and our technology-based parking and traffic management systems.

 

Region Three encompasses operations in Canada, Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

 

Region Four encompasses all major airport and transportation operations nationwide.

 

Region Five encompasses Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Puerto Rico, Tennessee, and Texas.

 

Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years.

 

Our 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 months ended March 31, 2013 and 2012 with information related to prior periods recast to conform to the current regional alignment:

 

28



Table of Contents

 

Three Months ended March 31, 2013 Compared to Three Months ended March 31, 2012

 

As noted previously, the financial results for the three months ended March 31, 2012 do not include any of Central’s results of operations for that quarter due to the timing of the closing of the Central Merger on October 2, 2012.  The financial results for the three months ended March 31, 2013 include Central’s results of operations for that quarter.  To help understand the operating results for these quarters, the term “Central Operations” refers to the results of Central on a stand-alone basis for the period from January 1, 2013 to March 31, 2013 and the term “Standard Operations” refers to the results of Standard on a stand-alone basis and not inclusive of results from the acquired operations of Central for the three months ended March 31, 2013.

 

Segment revenue information is summarized as follows (unaudited restated):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

Region One

 

Region Two

 

Region
Three

 

Region
Four

 

Region Five

 

Other

 

Total

 

Variance

 

 

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Amount

 

%

 

 

 

(In millions)

 

Lease contract revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New location

 

$

0.4

 

$

 

$

 

$

 

$

0.9

 

$

0.2

 

$

0.2

 

$

 

$

3.7

 

$

 

$

 

$

 

$

5.2

 

$

0.2

 

$

5.0

 

2500.0

 

Contract expirations

 

0.1

 

1.1

 

 

 

 

0.2

 

 

0.1

 

 

0.6

 

 

 

 

0.1

 

2.0

 

(1.9

)

(95.0

)

Same location

 

17.7

 

15.8

 

 

 

5.2

 

5.0

 

9.1

 

10.5

 

3.7

 

3.5

 

 

 

 

35.7

 

34.8

 

0.9

 

2.6

 

Conversions

 

0.3

 

0.2

 

 

 

 

 

 

 

 

0.3

 

 

 

 

 

 

 

0.3

 

0.5

 

(0.2

)

(40.0

)

Acquisitions

 

56.5

 

 

1.3

 

 

6.2

 

 

 

 

15.8

 

 

 

 

79.8

 

 

79.8

 

 

Total lease contract revenue

 

$

75.0

 

$

17.1

 

$

1.3

 

$

 

$

12.3

 

$

5.4

 

$

9.3

 

$

10.9

 

$

23.2

 

$

4.1

 

$

 

$

 

$

121.1

 

$

37.5

 

$

83.6

 

222.9

 

Management contract revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New location

 

$

1.3

 

$

 

$

0.5

 

$

 

$

1.1

 

$

 

$

1.0

 

$

0.1

 

$

0.4

 

$

 

$

 

$

 

$

4.3

 

$

0.1

 

$

4.2

 

4200.0

 

Contract expirations

 

0.1

 

1.7

 

 

0.4

 

0.2

 

2.4

 

 

0.5

 

 

0.3

 

 

 

0.3

 

5.3

 

(5.0

)

(94.3

)

Same location

 

11.3

 

10.2

 

4.4

 

6.7

 

11.4

 

11.1

 

13.9

 

11.5

 

2.7

 

2.7

 

0.3

 

0.2

 

44.0

 

42.4

 

1.6

 

3.8

 

Conversions

 

0.2

 

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

0.2

 

0.2

 

 

 

Acquisitions

 

13.0

 

 

5.3

 

 

5.5