SP Plus Corporation
STANDARD PARKING CORP (Form: 10-Q, Received: 05/07/2010 15:16:12)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
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 Incorporation or Organization)   (I.R.S. Employer Identification No.)
900 N. Michigan Avenue, Suite 1600
Chicago, Illinois 60611-1542

(Address of Principal Executive Offices, Including Zip Code)
(312) 274-2000
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ 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 o 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 þ   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 þ
As of April 30, 2010, there were 15,509,130 shares of common stock of the registrant outstanding.
 
 

 

 


 

STANDARD PARKING CORPORATION
FORM 10-Q INDEX
         
       
 
       
       
 
       
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  Exhibit 31.1
  Exhibit 31.2
  Exhibit 31.3
  Exhibit 32.1

 

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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, 2010     December 31, 2009  
    (Unaudited)     (see Note)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 8,758     $ 8,256  
Notes and accounts receivable, net
    48,529       44,490  
Prepaid expenses and supplies
    4,014       5,401  
Deferred taxes
    3,457       3,457  
 
           
Total current assets
    64,758       61,604  
Leasehold improvements, equipment and construction in progress, net
    17,015       17,175  
Advances and deposits
    4,468       4,904  
Long-term receivables, net
    11,699       10,325  
Intangible and other assets, net
    7,776       6,765  
Cost of contracts, net
    10,832       12,879  
Goodwill
    129,464       126,853  
 
           
Total assets
  $ 246,012     $ 240,505  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 50,849     $ 48,502  
Accrued and other current liabilities
    29,803       33,156  
Current portion of long-term borrowings
    654       662  
 
           
Total current liabilities
    81,306       82,320  
Deferred taxes
    8,667       8,151  
Long-term borrowings, excluding current portion
    111,435       112,549  
Other long-term liabilities
    26,379       22,808  
Standard Parking Corporation’s stockholders’ equity:
               
Common stock, par value $.001 per share; 21,300,000 shares authorized; 15,425,744 and 15,385,428 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively
    15       15  
Additional paid-in capital
    92,512       91,793  
Accumulated other comprehensive income
    297       313  
Accumulated deficit
    (74,527 )     (77,372 )
 
           
Total Standard Parking Corporation stockholders’ equity
    18,297       14,749  
Noncontrolling interest
    (72 )     (72 )
 
           
Total equity
    18,225       14,677  
 
           
Total liabilities and stockholders’ equity
  $ 246,012     $ 240,505  
 
           
 
     
Note:  
The balance sheet at December 31, 2009 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.

 

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STANDARD PARKING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share and per share data, unaudited)
                 
    Three Months Ended  
    March 31, 2010     March 31, 2009  
Parking services revenue:
               
Lease contracts
  $ 33,116     $ 34,700  
Management contracts
    40,075       38,293  
 
           
 
    73,191       72,993  
Reimbursed management contract expense
    106,055       102,558  
 
           
Total revenue
    179,246       175,551  
Cost of parking services:
               
Lease contracts
    31,771       32,949  
Management contracts
    22,264       20,391  
 
           
 
    54,035       53,340  
Reimbursed management contract expense
    106,055       102,558  
 
           
Total cost of parking services
    160,090       155,898  
Gross profit:
               
Lease contracts
    1,345       1,751  
Management contracts
    17,811       17,902  
 
           
Total gross profit
    19,156       19,653  
General and administrative expenses (1)
    11,560       12,761  
Depreciation and amortization
    1,460       1,487  
 
           
Operating income
    6,136       5,405  
Other expenses (income):
               
Interest expense
    1,490       1,436  
Interest income
    (53 )     (67 )
 
           
 
    1,437       1,369  
Income before income taxes
    4,699       4,036  
Income tax expense
    1,847       1,574  
 
           
Net income
    2,852       2,462  
Less: Net income attributable to noncontrolling interest
    7       64  
 
           
Net income attributable to Standard Parking Corporation
  $ 2,845     $ 2,398  
 
           
Common stock data:
               
Net income per share:
               
Basic
  $ 0.18     $ 0.15  
Diluted
  $ 0.18     $ 0.15  
Weighted average shares outstanding:
               
Basic
    15,390,514       15,296,282  
Diluted
    15,804,599       15,628,952  
 
     
(1)  
Non-cash stock based compensation expense of $508 and $527 for the three months ended March 31, 2010 and 2009, respectively, included in general and administrative expenses.
See Notes to Condensed Consolidated Interim Financial Statements.

 

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STANDARD PARKING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
                 
    Three Months Ended  
    March 31, 2010     March 31, 2009  
Operating activities:
               
Net income
  $ 2,852     $ 2,462  
Adjustments to reconcile net income to net cash provided by operations:
               
Depreciation and amortization
    1,445       1,390  
Loss on sale of assets
    18       82  
Amortization of debt issuance costs
    159       161  
Non-cash stock-based compensation
    508       527  
Excess tax benefit related to stock option exercises
    (75 )      
(Reversal) provision for losses on accounts receivable
    (111 )     253  
Deferred income taxes
    516       612  
Change in operating assets and liabilities
    (3,534 )     (5,186 )
 
           
Net cash provided by operating activities
    1,778       301  
Investing activities:
               
Purchase of leaseholds improvements and equipment
    (452 )     (847 )
Cost of contracts purchased
          (604 )
Capitalized interest
    (36 )     (17 )
Contingent purchase payments
    (11 )     (8 )
 
           
Net cash used in investing activities
    (499 )     (1,476 )
Financing activities:
               
Repurchase of common stock
          (3,884 )
Proceeds from exercise of stock options
    135        
Tax benefit related to stock option exercises
    75        
(Payments on) proceeds from senior credit facility
    (950 )     7,150  
Distribution to noncontrolling interest
    (7 )     (52 )
Payments on long-term borrowings
    (31 )     (29 )
Payments on capital leases
    (141 )     (289 )
 
           
Net cash (used in) provided by financing activities
    (919 )     2,896  
Effect of exchange rate changes on cash and cash equivalents
    142       (234 )
 
           
Increase in cash and cash equivalents
    502       1,487  
Cash and cash equivalents at beginning of period
    8,256       8,301  
 
           
Cash and cash equivalents at end of period
  $ 8,758     $ 9,788  
 
           
Supplemental disclosures:
               
Cash paid during the period for:
               
Interest
  $ 1,296     $ 1,546  
Income taxes
    1,015       594  
See Notes to Condensed Consolidated Interim Financial Statements.

 

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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 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 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, 2010 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ending December 31, 2010. The financial statements presented in this report should be read in conjunction with the consolidated financial statements and footnotes thereto included in our 2009 Annual Report on Form 10-K filed March 12, 2010.
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 partner’s noncontrolling interest in consolidated VIEs. We have interests in twelve joint ventures and one limited liability company. The twelve joint ventures each operate between one and thirty parking facilities. The limited liability company collects and distributes parking facility data for a fee. Of the thirteen variable interest entities, six are consolidated into our financial statements, and seven are single purpose entities where the Company is not the primary beneficiary and therefore has a noncontrolling interest as power is shared. Investments in variable interest entities where the Company is not the primary beneficiary are accounted for under the equity method. All significant intercompany profits, transactions and balances have been eliminated in consolidation.
Financial Instruments
The carrying values of cash and cash equivalents, 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 Caps
We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.
On February 22, 2010, we entered into interest rate cap agreements with Wells Fargo Bank N.A. (“Wells Fargo”) and Fifth Third Bank (“Fifth Third”), allowing us to limit our exposure on a portion of our borrowings under the Credit Agreement (“Rate Cap Transactions”). Pursuant to two separate letter agreements between the Company and Wells Fargo and Fifth Third, respectively, we will receive payments from Wells Fargo and Fifth Third each quarterly period to the extent that the prevailing three month LIBOR during that period exceeds our cap rate of 3.25%. The Rate Cap Transactions are effective March 31, 2010, and will settle each quarter on a date that is intended to coincide with our quarterly interest payment dates under the Credit Agreement. The Rate Cap Transactions cap our LIBOR interest rate on a notional amount of $50 million at 3.25% for a total of 39 months. These Rate Cap Transactions are classified as a cash flow hedge, and we calculate the effectiveness of the hedge on a quarterly basis. The ineffective portion of the cash flow hedge is recognized in current period earnings as an increase of interest expense. The fair value of the interest rate cap at March 31, 2010 is $540 and is included in prepaid expenses.
2. 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 (generally the vesting period) for awards expected to vest (considering estimated forfeitures).

 

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The Company has an amended and restated Long-Term Incentive Plan that was adopted in conjunction with our initial public offering. On February 27, 2008, our Board approved an amendment to our Long-Term Incentive Plan, subject to shareholder approval, 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. Our shareholders approved this Plan amendment on April 22, 2008, and the Plan now terminates twenty years from the date of such approval, or April 22, 2028. At March 31, 2010, 113,558 shares remained available for award under the Plan. In most cases, options granted under the Plan vest at the end of a three-year period from the date of the award. Options are granted with an exercise price equal to the closing price at the date of grant.
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. For options granted prior to 2008, the expected life for options was calculated using the simplified method. The simplified method was calculated as the vesting term plus the contractual term divided by two.
There were no options granted during the three months ended March 31, 2010 and 2009.
The Company recognized no stock-based compensation expense related to stock options for the three months ended March 31, 2010 and 2009 as all options previously granted were fully vested. As of March 31, 2010, there were no unrecognized compensation costs related to unvested options.
Performance-Based Incentive Program
In December 2006, the Board of Directors adopted a performance-based incentive program under our Long-Term Incentive Plan. This program provided participating executives with the opportunity to earn a combination of stock (50%) and cash (50%) if certain performance targets for pre-tax income and pre-tax free cash flow are achieved. On February 23, 2007, certain participating executives became entitled to performance restricted stock based on the stock price at the commencement of the three year performance cycle (2007-2009) and as a result 16,404 shares were issued subject to vesting upon the achievement of the performance goals. On April 13, 2007, an additional 13,294 shares of the performance restricted stock were issued subject to vesting upon the achievement of the three year performance goals to the remaining participating executives. On December 31, 2007, 3,849 shares were released free of restrictions in accordance with the achievement of the first year performance goals. On December 31, 2008, 7,072 shares were released free of restrictions in accordance with the achievement of the second year performance goals. On August 11, 2009, 2,816 forfeited shares were retired. On December 31, 2009, 6,756 shares were released free of restrictions in accordance with the achievement of the cumulative program performance goals. The remaining 9,205 shares that were unvested at December 31, 2009 were forfeited. The plan was completed as of December 31, 2009 and the forfeited shares were subsequently retired on April 22, 2010.
We record stock-based compensation expense for awards with performance conditions based on the probable outcome of that performance condition. The Company recognized no stock-based compensation expense and no cash compensation expense related to the performance-based incentive program for the three months ended March 31, 2010. The Company recognized $10 of stock-based compensation expense and $10 of cash compensation expense related to the performance-based incentive program for the three months ended March 31, 2009.
Restricted Stock Units
In March 2008, the Company’s Compensation Committee and the Board of Directors authorized a one-time 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 in one-third installments on each of the tenth, eleventh and twelfth anniversaries of the grant date. The restricted stock unit agreements provide for accelerated vesting upon the recipient reaching their retirement age.
The cost 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.
The Company recognized $508 and $517 of stock based compensation expense related to the restricted stock units for the three months ended March 31, 2010 and 2009, respectively, which is included in general and administrative expense. As of March 31, 2010, there was $9,356 of unrecognized stock-based compensation costs, net of estimated forfeitures, related to the restricted stock units that is expected to be recognized over a weighted average period of approximately 7.1 years.

 

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3. 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  
    2010     2009  
Weighted average common basic shares outstanding
    15,390,514       15,296,282  
Effect of dilutive stock options and restricted stock units
    414,085       332,670  
 
           
Weighted average common diluted shares outstanding
    15,804,599       15,628,952  
 
           
Net income per share:
               
Basic
  $ 0.18     $ 0.15  
Diluted
  $ 0.18     $ 0.15  
There were 19,068 anti-dilutive options excluded in the computation of diluted earnings per share for the three months ended March 31, 2010 because the options’ exercise prices were greater than the average market price of the common stock. There were no anti-dilutive options for the three months ended March 31, 2009.
For the three months ended March 31, 2010 and 2009, 9,205 and 18,777 shares, respectively, of performance based restricted stock were not included in the computation of weighted diluted common share amounts because the number of shares ultimately issued is contingent on the Company’s performance goals, which were not achieved as of that date. The plan was completed as of December 31, 2009 and all forfeited shares were subsequently retired on April 22, 2010.
There are no additional securities that could dilute basic EPS in the future that were not included in the computation of diluted EPS, other than those disclosed.
4. Recently Issued Accounting Pronouncements
Accounting Standards Net Yet Adopted
In October 2009, the FASB issued updated accounting guidance that amends the guidance related to revenue recognition-multiple-element arrangements. The standards enable companies to account for certain products and services (deliverables) separately rather than as a combined unit. This accounting guidance provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendor’s multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. A company may adopt the new standard retroactively and early application is permitted. The Company currently does not have any multiple-element arranagements.
Accounting Standards Adopted
In June 2009, the FASB updated the accounting standards related to the consolidation of variable interest entities. This new guidance requires a qualitative approach to identifying a controlling financial interest in a VIE, and requires an ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. The updated accounting guidance is effective for annual reporting periods beginning after November 15, 2009. The Company’s adoption of this updated accounting guidance on January 1, 2010 did not impact the financial condition or results of operations of the Company.

 

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In January 2010, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard which requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. The majority of the provisions of this update are effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of this standard did not have a material impact on our financial statements.
5. Acquisitions
2009 Acquisitions
On July 1, 2009, the Company acquired substantially all of the assets of Gameday Management Group U.S. Gameday Management, based in Orlando, Florida, which plans and operates transportation and parking systems for major stadiums and sporting events in the amount of $7,328, of which $2,450 was paid in cash, net of a hold back of $50, and $4,828 of potential earn-out payments. Among the assets acquired is Gameday’s Click and Park online parking and traffic management system, which enables customers to purchase reserved parking online in advance of an event. The acquisition represents an acquisition of a business and was accounted for using the purchase method of accounting. This acquisition is not considered material to the Company.
The purchase price allocations are based on preliminary estimates of intangibles with finite lives of $2,393 and goodwill of $4,935. The Company has engaged a third party valuation firm to provide a fair value analysis. These estimates are subject to revision after the Company completes its fair value analysis. The Company financed the acquisition through additional term borrowings under the senior credit facility and existing cash. The results of operations of this acquisition are included in the Company’s consolidated statement of income from the date of acquisition.
The Company expensed acquisition related costs of $15 in 2010 and $178 in 2009. These costs are included in General and Administrative expenses in the income statement.

 

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6. Leasehold Improvements, Equipment and Construction in Progress, Net
A summary of leasehold improvements, equipment, and construction in progress and related accumulated depreciation and amortization is as follows:
                         
    Ranges of Estimated              
    useful life     March 31, 2010     December 31, 2009  
          (Unaudited)        
Equipment
  2-10 years   $ 31,094     $ 28,568  
Leasehold improvements
  Shorter of lease term or economic life up to 10 years     9,680       9,708  
Construction in progress
            5,350       7,543  
 
                   
 
            46,124       45,819  
Less accumulated depreciation and amortization
            (29,109 )     (28,644 )
 
                   
Leasehold improvements, equipment and construction in progress, net
          $ 17,015     $ 17,175  
 
                   
Depreciation expense was $919 and $966 for the three months ended March 31, 2010 and 2009, respectively. Depreciation includes losses on abandonments of leasehold improvements and equipment of $18 and $97 in 2010 and 2009, respectively.
7. 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 either capitalized payments made to third parties or the value ascribed to contracts acquired through acquisition. Cost of contracts is 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, 2010     December 31, 2009  
    (Unaudited)        
Cost of contracts
  $ 17,194     $ 18,885  
Accumulated amortization
    (6,362 )     (6,006 )
 
           
Cost of contracts, net
  $ 10,832     $ 12,879  
 
           
Amortization expense related to cost of contracts was $356 and $397 for the three months ended March 31, 2010 and 2009, respectively. The weighted average useful life is 10 years for 2010 and 10 years for 2009.
8. Goodwill
Goodwill is assigned to reporting units based upon the specific Region where the assets acquired and associate goodwill resided.

 

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The following table reflects the changes in the carrying amounts of goodwill by reported segment for the three months ended March 31, 2010 (Unaudited).
                                         
    Region     Region     Region     Region        
    One     Two     Three     Four     Total  
Balance as of January 1, 2010
  $ 61,849     $ 7,200     $ 35,227     $ 22,577     $ 126,853  
Acquisitions
                             
Adjustments to purchase price*
          2,435                   2,435  
Contingency payments related to acquisitions
                11             11  
Foreign currency translation
          165                   165  
 
                             
Balance as of March 31, 2010
  $ 61,849     $ 9,800     $ 35,238     $ 22,577     $ 129,464  
 
                             
     
*   The Company engaged a third party valuation firm to provide a fair value analysis. These estimates are subject to revision after the Company completes its fair value analysis.
9. Long-Term Receivables, Net
Long-term receivables, net, consist of the following:
                 
    Amount Outstanding  
    March 31, 2010     December 31, 2009  
    (Unaudited)        
Bradley International Airport
               
Deficiency payments
  $ 10,980     $ 9,606  
Other Bradley related, net
    3,203       3,203  
Valuation allowance
    (2,484 )     (2,484 )
 
           
Total long-term receivables, net
  $ 11,699     $ 10,325  
 
           
Agreement
We entered into a 25-year 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 located in the Hartford, Connecticut metropolitan area. The Company manages the facility for which it is expected to receive a management fee.
The parking garage was financed on April 6, 2000 through the issuance of $53,800 of State of Connecticut 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, operating and capital maintenance expenses of the surface and garage parking facilities and specific annual guaranteed minimum payments to the State. Principal and interest on the Bradley special facility revenue bonds increase from approximately $3,600 in lease year 2002 to approximately $4,500 in lease year 2025. Annual guaranteed minimum payments to the State will increase from approximately $8,300 in lease year 2002 to approximately $13,200 in lease year 2024. The annual minimum guaranteed payment to the State by the trustee for the three months ended March 31, 2010 and 2009 was $2,462 and $2,412, respectively.
All of the cash flow from the Parking Facilities is pledged to the security of the 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.
The following is the list of Guaranteed Payments:
   
Garage and surface operating expenses
 
   
Principal and interest on Bonds
 
   
Trustee expenses
 
   
Major maintenance and capital improvement deposits
 
   
State Minimum Guarantee

 

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However, to the extent there is a cash surplus in any month during the term of the Lease, 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 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.
In the three months ended March 31, 2010, we made deficiency payments of $1,374 and we did not record or receive any interest and premium income related to deficiency repayments from the trustee. In the three months ended March 31, 2009, we made deficiency payments of $1,082 and we did not record or receive any interest and premium income related to deficiency repayments from the trustee. The receivable from the trustee for interest and premium income related to deficiency repayments was $0 as of March 31, 2010 and March 31, 2009.
The deficiency payments, if any, are recorded as a receivable by us for which we are reimbursed from time to time as provided in the trust agreement. As of March 31, 2010 and December 31, 2009, we have a receivable of $10,980 and $9,606, respectively, compromised of cumulative deficiency payments to the trustee, net of reimbursements. We believe these advances to be fully recoverable and therefore have not recorded a valuation allowance for them. We do not guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.
The Construction, Financing and Operating Special Facility Lease Agreement, which governs reimbursement of Guarantor Payments, places no time restriction or limits on our right to reimbursement.
The following table reconciles the beginning and ending balance of the receivable for each period presented:
                 
    March 31, 2010     December 31, 2009  
    (Unaudited)        
Deficiency payments:
               
Balance at beginning of period
  $ 9,606     $ 5,961  
Deficiency payments made
    1,374       3,645  
Deficiency repayment received
           
 
           
Balance at end of period
    10,980       9,606  
Other Bradley related
    3,203       3,203  
Valuation allowance
    (2,484 )     (2,484 )
 
           
Total long-term receivables
  $ 11,699     $ 10,325  
 
           
Compensation
In addition to the recovery of certain general and administrative expenses incurred, our agreement provides for an annual management fee payment which 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 paid after the Guaranteed Payments (as defined in our agreement), 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. Therefore, due to the existence and length of time for repayment of the deficiency amounts to the Company, no management fees have been recognized. Management fees will be recognized in accordance with SAB 104 when “collectibility is reasonably assured.”
Cumulative management fees of $4,350 have not been recognized as of March 31, 2010 and no management fee income was recognized during the three months ending March 31, 2010 and 2009.

 

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10. Borrowing Arrangements
Long-term borrowings, in order of preference, consist of:
                         
    Amount Outstanding  
    Due Date     March 31, 2010     December 31, 2009  
            (Unaudited)      
Senior credit facility
  June 2013   $ 108,900     $ 109,850  
Capital lease obligations
  Various     1,915       2,056  
Obligations on Seller notes and other
  Various     1,274       1,305  
 
                   
 
            112,089       113,211  
Less current portion
            654       662  
 
                   
 
          $ 111,435     $ 112,549  
 
                   
Senior Credit Facility
On July 15, 2008, we amended and restated our credit facility.
The $210,000 revolving senior credit facility will expire in July 2013. The revolving senior credit facility includes a letter of credit sub-facility with a sublimit of $50,000.
This revolving senior credit facility bears interest, at our option, at either (1) LIBOR plus an applicable LIBOR margin of between 2.00% and 3.50% depending on the ratio of our total funded indebtedness to our EBITDA from time to time (“Total Debt Ratio”) or (2) the Base Rate (as defined below) plus an applicable Base Rate Margin of between 0.50% and 2.00% depending on our Total Debt Ratio. We may elect interest periods of one, two, three or six months for LIBOR based borrowings. The Base Rate is the greater of (i) the rate publicly announced from time to time by Bank of America, N.A. as its “prime rate”, or (ii) the overnight federal funds rate plus 0.50%.
Our senior credit facility includes a fixed charge ratio covenant, a total debt to EBITDA ratio covenant, a limit on our ability to incur additional indebtedness, issue preferred stock or pay dividends, and certain other restrictions on our activities. We are required to repay borrowings under our senior credit facility out of the proceeds of future issuances of debt or equity securities and asset sales, subject to certain customary exceptions. Our senior credit facility is secured by substantially all of our assets and all assets acquired in the future (including a pledge of 100% of the stock of our existing and future domestic guarantor subsidiaries and 65% of the stock of our existing and future foreign subsidiaries).
We are in compliance with all of our financial covenants as of March 31, 2010.
The weighted average interest rate on our senior credit facility at March 31, 2010 and December 31, 2009 was 3.3% and 3.2%, respectively. The rate includes all outstanding LIBOR contracts, interest rate cap effect and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 3.3% and 3.3% at March 31, 2010 and December 31, 2009, respectively.
At March 31, 2010, we had $16,884 of letters of credit outstanding under the senior credit facility, borrowings against the senior credit facility aggregated $108,900, and we had $19,405 available under the senior credit facility.
We have entered into various financing agreements, which were used for the purchase of equipment.
11. Stock Repurchases
In July 2008, our Board of Directors authorized us to repurchase shares of our common stock, on the open market or through private purchases, up to $60,000 in aggregate. As of December 31, 2009, $18,973 remained available for repurchase under this authorization.
During the first quarter of 2009, we repurchased 93,600 shares from third party shareholders at an average price of $18.23 per share, including average commissions of $0.03 per share, on the open market. Our former majority shareholder sold 119,701 shares to us in the first quarter of 2009 at an average price of $18.20 per share. The total value of the first quarter transactions was $3,884. We retired 200,650 shares during the first quarter of 2009, and retired and the remaining 12,651 shares in April 2009.

 

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We did not make any share repurchases subsequent to the first quarter of 2009..As of March 31, 2010, $18,973 remained available for repurchase under the July 2008 authorization by the Board of Directors.
12. Business Unit Segment Information
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, in deciding how to allocate resources. Our chief operating decision maker 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. Regions one and three are generally organized geographically. The following is a summary of revenues (excluding reimbursed management contract expense) and gross profit by regions for the three months ended March 31, 2010 and 2009. Information related to prior periods has been recast to conform to the current region alignment.

 

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The Company has provided this business unit segment information for all comparable prior periods. Segment information is summarized as follows (in thousands):
                                 
    For the three months ended  
    March 31,     Gross     March 31,     Gross  
    2010     Margin     2009     Margin  
Revenues:
                               
Region One
                               
Lease contracts
  $ 17,035             $ 19,213          
Management contracts
    11,913               13,572          
 
                           
Total Region One
    28,948               32,785          
Region Two
                               
Lease contracts
    746               620          
Management contracts
    8,091               2,192          
 
                           
Total Region Two
    8,837               2,812          
Region Three
                               
Lease contracts
    4,955               4,905          
Management contracts
    12,469               14,164          
 
                           
Total Region Three
    17,424               19,069          
Region Four
                               
Lease contracts
    10,375               9,913          
Management contracts
    7,548               8,317          
 
                           
Total Region Four
    17,923               18,230          
Other
                               
Lease contracts
    5               49          
Management contracts
    54               48          
 
                           
Total Other
    59               97          
Reimbursed expense
    106,055               102,558          
 
                           
Total revenues
  $ 179,246             $ 175,551          
 
                           
Gross Profit
                               
Region One
  $ 153       1 %   $ 734       4 %
Lease contracts
    6,234       52 %     7,093       52 %
 
                           
Management contracts
    6,387               7,827          
Total Region One
                               
Region Two
                               
Lease contracts
    75       10 %     16       3 %
Management contracts
    2,174       27 %     848       39 %
 
                           
Total Region Two
    2,249               864          
Region Three
                               
Lease contracts
    369       7 %     412       8 %
Management contracts
    5,772       46 %     6,233       44 %
 
                           
Total Region Three
    6,141               6,645          
Region Four
                               
Lease contracts
    682       7 %     522       5 %
Management contracts
    3,618       48 %     4,090       49 %
 
                           
Total Region Four
    4,300               4,612          
Other
                               
Lease contracts
    66       1,320 %     67       137 %
Management contracts
    13       24 %     (362 )     (754 )%
 
                           
Total Other
    79               (295 )        
Total gross profit
    19,156               19,653          
General and administrative expenses
    11,560               12,761          
General and administrative expense percentage of gross profit
    60 %             65 %        
Depreciation and amortization
    1,460               1,487          
 
                           
Operating income
    6,136               5,405          
Other expenses (income):
                               
Interest expense
    1,490               1,436          
Interest income
    (53 )             (67 )        
 
                           
 
    1,437               1,369          
Income before income taxes
    4,699               4,036          
Income tax expense
    1,847               1,574          
 
                           
Net income
    2,852               2,462          
Less: Net income attributable to noncontrolling interest
    7               64          
 
                           
Net income attributable to Standard Parking Corporation
  $ 2,845             $ 2,398          
 
                           

 

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Region One encompasses operations in Delaware, District of Columbia, Florida, Georgia, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Rhode Island, Tennessee, Vermont, Virginia, and Wisconsin.
Region Two encompasses our Canadian operations, event planning and transportation, and our technology based parking and traffic management systems.
Region Three encompasses operations in Arizona, California, Colorado, Hawaii, Louisiana, Nevada, Texas, Utah, Washington, and Wyoming.
Region Four encompasses all major airport and transportation operations nationwide.
Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years.
The CODM does not evaluate segments using discrete asset information.
13. Comprehensive Income
Comprehensive income consists of the following components, net of tax (Unaudited):
                 
    For the three months ended  
    March 31, 2010     March 31, 2009  
Net income
  $ 2,852     $ 2,462  
Revaluation of interest rate cap
    (159 )      
Effect of foreign currency translation
    456       (234 )
 
           
Comprehensive income
    3,149       2,228  
Less: comprehensive income attributable to noncontrolling interest
    7       64  
 
           
Comprehensive income attributable to Standard Parking Corporation
  $ 3,142     $ 2,164  
 
           
14. Income Taxes
For the three months ended March 31, 2010, the Company recognized income tax expense of $1,847 on pre-tax earnings of $4,699 compared to $1,574 income tax expense on pre-tax earnings of $4,036 for the three months ended March 31, 2009. Income tax expense is based on a projected annual effective tax rate of approximately 39.3% for the three months ended March 31, 2010 compared to approximately 39.0% for the three months ended March 31, 2009. The change in the Company’s effective tax rate resulted primarily from the adoption of the FASB updated accounting guidance on reporting non-controlling interests in consolidated financial statements.
In July 2006, the FASB issued accounting guidance for uncertainty in income taxes . The accounting guidance for uncertainty in income taxes recognized in an enterprise’s financial statements also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense. Upon adoption, the Company completed a detailed analysis of its tax positions and determined that the implementation of this guidance did not have an impact on the Company’s financial position or results from operations. As of March 31, 2010, the Company has not identified any tax positions that would have a material impact on the Company’s financial position.
The tax years that remain subject to examination for the Company’s major tax jurisdictions at March 31, 2010 are shown below:
     
2004 — 2009
  United States — federal income tax
2003 — 2009
  United States — state and local income tax
2005 — 2009
  Canada

 

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15. 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.
As previously disclosed, the Company has been in mediation and discussions with plaintiffs regarding the possible resolution of a California labor code violations case brought against the Company in which plaintiffs are seeking class certification of their claims. Subject to the approval of the court, the Company has entered into a settlement agreement related to Jorge Jaime v. Standard Parking Corporation and two other consolidated cases on March 9, 2010. We also have entered into a memorandum of understanding dated January 5, 2010 for the tentative settlement, subject to court approval, of Grant v. Preferred Security Services, Inc., a similar labor code violation case in which plaintiffs are seeking class certification brought against our wholly owned security subsidiary. The Company estimates that its liability exposure under the distribution methodology set forth in the tentative settlements for these two cases to be in the aggregate $2,475. While there is no guarantee that the settlement methodology will result in this aggregate payout amount, management believes, after comparing similar class settlements and the claims made percentages of those settlements with the purported classes in these two cases, that the aggregate payout of $2,475 is a reasonable estimate of the contingent liability which was recorded by the Company.
John V. Holten, a former director and former indirect controlling shareholder of the Company, has filed a lawsuit against the Company in the United States District Court, District of Connecticut on March 25, 2010. Mr. Holten was terminated as our Chairman in October 2009. Mr. Holten alleges breach of his employment agreement. The suit claims that the agreement entitled Holten to payments over the next several years worth more than $3.8 million and seeks unspecified damages. As previously reported, the Board determined that the terms of the agreement and the process by which Mr. Holten caused the Company to execute it were not fair to the Company and the agreement was not in the best interest of the Company or its stockholders. Accordingly, the Company terminated Holten’s employment as Chairman and determined not to make any further payments to Mr. Holten. The Company intends to vigorously defend against this lawsuit and assert its own claims against Mr. Holten in connection with his employment agreement.
16. Subsequent Event
On April 28, 2010, our Stockholders approved the charter amendment increasing the Company’s number of shares of common stock authorized for issuance under the certificate of incorporation by 28,700,000 shares, and increasing the number of shares of preferred stock from ten to 5,000,000. The amount of total authorized capital stock following the amendment is 55,000,000 shares, which includes 50,000,000 shares of common stock with a $0.001 par value and 5,000,000 shares of preferred stock with a $0.01 par value. The amendment was filed with the State of Delaware on April 29, 2010.

 

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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 and the consolidated financial statements and the notes thereto included in our Annual Report on our Form 10-K for the year ended December 31, 2009.
Overview
Our Business
We manage parking facilities in urban markets and at airports across the United States and in three 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, 2010, we operated approximately 90% of our locations under management contracts and approximately 10% of our locations under leases. For the three months ended March 31, 2010, we derived approximately 93% of our gross profit under management contracts and approximately 7% 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 expense and general and administrative expense 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, 2010, we operated approximately 90% of our locations under management contracts, and for the three months ended March 31, 2010, we derived approximately 93% of our gross profit under management contracts. Only approximately 55% of total revenue (excluding reimbursed management contract expenses), 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 expense, 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 rate for the twelve-month period ended March 31, 2010 was approximately 90%, compared to approximately 89% for the twelve-month period ended March 31, 2009, which also reflects our decision not to renew, or to terminate, unprofitable contracts.
For the three months ended March 31, 2010 compared to the three months ended March 31, 2009, there was no change in average gross profit per location, which was $9.0 thousand for both periods.

 

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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, 2010     December 31, 2009     March 31, 2009  
Managed facilities
    1,926       1,921       1,960  
Leased facilities
    208       208       225  
 
                 
Total facilities
    2,134       2,129       2,185  
 
                 
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 type 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 Expense
Reimbursed management contract expense 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.
   
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.

 

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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.
Seasonality
During the first quarter of each year, seasonality impacts our performance with regard to moderating revenue, with the reduced levels of travel most clearly reflected in the parking activity associated with our airport and hotel businesses as well as increases in certain costs of parking services, such as snow removal, both of which negatively affect gross profit. Although our revenue and profitability are affected by the seasonality of the business, general and administrative costs are relatively stable throughout the fiscal year.
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, in deciding how to allocate resources. Our chief operating decision maker is our president and chief executive officer.
Our business is managed based on regions administered by executive vice presidents. The following is a summary of revenues (excluding reimbursed management contract expense) by region for the three months ended March 31, 2010 and 2009. Information related to prior years has been recast to conform to the new region alignment.
Region One encompasses Delaware, District of Columbia, Florida, Georgia, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Rhode Island, Tennessee, Vermont, Virginia, and Wisconsin.
Region Two encompasses our Canadian operations, event planning and transportation, and our technology based parking and traffic management systems.
Region Three encompasses Arizona, California, Colorado, Hawaii, Louisiana, Nevada, Texas, Utah, Washington, and Wyoming.
Region Four encompasses all major airport and transportation operations nationwide.
Other consists of ancillary revenue that is not specifically identifiable to a region and reserve adjustments related to prior years.
The following tables present the material factors that impact our financial statements on an operating segment basis.

 

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Segment revenue information is summarized as follows:
                                                                                                                 
    Three Months Ended March 31,  
    Region One     Region Two     Region Three     Region Four     Other     Total     Variance  
    2010     2009     2010     2009     2010     2009     2010     2009     2010     2009     2010     2009     Amount     %  
    (in millions)  
Lease contract revenue:
                                                                                                               
New location
  $ 0.3     $     $     $     $ 0.7     $     $ 0.2     $     $     $     $ 1.2     $     $ 1.2        
Contract expirations
          1.6                         0.5                                     2.1       (2.1 )     (100.0 )
Same location
    16.8       17.6       0.8       0.7       4.2       4.4       10.1       9.9                   31.9       32.6       (0.7 )     (2.1 )
Conversions
                                                                                   
 
                                                                                   
Total lease contract revenue
  $ 17.1     $ 19.2     $ 0.8     $ 0.7     $ 4.9     $ 4.9     $ 10.3     $ 9.9     $     $     $ 33.1     $ 34.7     $ (1.6 )     (4.6 )
 
                                                                                   
Management contract revenue:
                                                                                                               
New location
  $ 1.1     $     $ 5.8     $     $ 0.9     $ 0.1     $ 0.3     $     $     $     $ 8.1     $ 0.1     $ 8.0       8000.0  
Contract expirations
    0.1       2.1             0.1       0.1       1.8             0.3                   0.2       4.3       (4.1 )     (95.3 )
Same location
    10.7       11.4       2.3       2.1       11.5       12.3       7.3       8.1                   31.8       33.9       (2.1 )     (6.2 )
Conversions
                                                                                   
 
                                                                                   
Total management contract revenue
  $ 11.9     $ 13.5     $ 8.1     $ 2.2     $ 12.5     $ 14.2     $ 7.6     $ 8.4     $     $     $ 40.1     $ 38.3     $ 1.8       4.7  
 
                                                                                   
Parking services revenue—lease contracts. Lease contract revenue decreased $1.6 million, or 4.6%, to $33.1 million in the three months ended March 31, 2010, compared to $34.7 million for the three months ended March 31, 2009. The decrease resulted primarily from contract expirations exceeding increases in revenue from new locations. Same location revenue for those facilities, which as of March 31, 2010 are the comparative periods for the two years presented, decreased 2.1%. The decrease in same location revenue was due to decreases in short-term parking revenue of $0.2 million, or 5.5%, and a decrease in monthly parking revenue of $0.5 million, or 4.6%. Revenue associated with contract expirations relates to contracts that expired during the current period.
Parking services revenue—management contracts. Management contract revenue increased $1.8 million, or 4.7%, to $40.1 million for three months ended March 31, 2010, compared to $38.3 million for the three months ended March 31, 2009. The increase resulted primarily from new locations, partially offset by decreases in revenue from contract expirations. Same locations revenue for those facilities, which as of March 31, 2010 are the comparative for the two years presented, decreased 6.2%.
Reimbursed management contract expense. Reimbursed management contract expense increased $3.5 million, or 3.4%, to $106.1 million for the three months ended March 31, 2010, compared to $102.6 million for the three months ended March 31, 2009. This increase resulted from an increase in reimbursed costs incurred on behalf of owners.
Lease contract revenue decreased primarily due to region one same location revenue. Same location revenue decreased compared to the prior year primarily due to decreases in short-term and monthly parking revenue.
Management contract revenue increased primarily due to new locations in regions one, two, three and four, partially offset by contract expirations in regions one and three and decreases in same locations for regions one, three and four. Same location revenue decreased primarily due to decreased fees from reverse management locations and ancillary services.
Segment cost of parking services information is summarized as follows:
                                                                                                                 
    Three Months Ended March 31,  
    Region One     Region Two     Region Three     Region Four     Other     Total     Variance  
    2010     2009     2010     2009     2010     2009     2010     2009     2010     2009     2010     2009     Amount     %  
    (in millions)  
Cost of parking services lease contracts:
                                                                                                               
New location
  $ 0.3     $     $     $     $ 0.7     $     $ 0.2     $     $     $     $ 1.2     $     $ 1.2        
Contract expirations
          1.6                         0.5                                     2.1       (2.1 )     (100.0 )
Same location
    16.6       16.9       0.7       0.6       3.9       4.0       9.5       9.4       (0.1 )     (0.1 )     30.6       30.8       (0.2 )     (0.6 )
Conversions
                                                                                   
 
                                                                                   
Total cost of parking services lease contracts
  $ 16.9     $ 18.5     $ 0.7     $ 0.6     $ 4.6     $ 4.5     $ 9.7     $ 9.4     $ (0.1 )   $ (0.1 )   $ 31.8     $ 32.9     $ (1.1 )     (3.3 )
 
                                                                                   
Cost of parking services management contracts:
                                                                                                               
New location
  $ 0.4     $     $ 4.5     $     $ 0.5     $ 0.1     $ 0.3     $     $     $     $ 5.7     $ 0.1     $ 5.6       5600.0  
Contract expirations
    0.1       1.0                   0.1       1.2             0.1                   0.2       2.3       (2.1 )     (91.3 )
Same location
    5.2       5.5       1.4       1.3       6.1       6.6       3.6       4.1       0.1       0.5       16.4       18.0       (1.6 )     (8.9 )
Conversions
                                                                                   
 
                                                                                   
Total cost of parking services management contracts
  $ 5.7     $ 6.5     $ 5.9     $ 1.3     $ 6.7     $ 7.9     $ 3.9     $ 4.2     $ 0.1     $ 0.5     $ 22.3     $ 20.4     $ 1.9       9.3  
 
                                                                                   

 

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Cost of parking services—lease contracts. Cost of parking services for lease contracts decreased $1.1 million, or 3.3%, to $31.8 million for the three months ended March 31, 2010, compared to $32.9 million for the three months ended March 31, 2009. The decrease resulted primarily from decreases in costs related to contract expirations, partially offset by increases in costs related to new locations. Same locations costs for those facilities which as of March 31, 2010 are the comparative for the two years presented, decreased 0.6%. Same location costs decreased $0.3 million due to rent expense, primarily as a result of contingent rental payments on the decrease in revenue for same locations and $0.1 million due to payroll and payroll related, partially offset by increases in other operating costs of $0.2 million.
Cost of parking services—management contracts. Cost of parking services for management contracts increased $1.9 million, or 9.3%, to $22.3 million for the three months ended March 31, 2010, compared to $20.4 million for the three months ended March 31, 2009. The increase resulted primarily from increases in costs related to new locations, partially offset by decreases in costs related to contract expirations. Same location costs for those facilities, which as of March 31, 2010 are the comparative period for the two years presented, decreased 8.9%. Same location decrease in operating expenses for management contracts primarily result from decreases in costs associated with reverse management contracts and the cost of providing management services.
Reimbursed management contract expense. Reimbursed management contract expense decreased $3.5 million, or 3.4%, to $106.1 million, for the three months ended March 31, 2010, compared to $102.6 million for the three months ended March 31, 2009. This increase resulted from an increase in reimbursed cost incurred on the behalf of owners.

 

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Cost of parking services lease contracts decreased primarily due to fewer contract expirations in regions one and three and decreases in same location costs in region one, partially offset by increases in new locations for regions one, three and four. Same location costs decreased primarily due to decreases in rent expense primarily as a result of contingent rental payments on the decrease in revenue for some locations and a reduction in payroll and payroll related.
Cost of parking services management contracts primarily increased due to new locations in regions one, two, three and four, partially offset by fewer contract expirations in regions one and three and decreases in same location in regions one, three, four and other. The other region amounts in same location costs primarily represent prior year insurance reserve adjustments.
Segment gross profit/gross profit percentage information is summarized as follows:
                                                                                                                 
    Three Months Ended March 31,  
    Region One     Region Two     Region Three     Region Four     Other     Total     Variance  
    2010     2009     2010     2009     2010     2009     2010     2009     2010     2009     2010     2009     Amount     %  
    (in millions)  
Gross profit lease contracts:
                                                                                                               
New location
  $     $     $     $     $     $     $     $     $     $     $     $     $        
Contract expirations
                                                                                   
Same location
    0.2       0.7       0.1       0.1       0.3       0.4       0.6       0.5       0.1       0.1       1.3       1.8       (0.5 )     (27.8 )
Conversions
                                                                                   
 
                                                                                   
Total gross profit lease contracts
  $ 0.2     $ 0.7     $ 0.1     $ 0.1     $ 0.3     $ 0.4     $ 0.6     $ 0.5     $ 0.1     $ 0.1     $ 1.3     $ 1.8     $ (0.5 )     (27.8 )
 
                                                                                   
 
    (percentages)  
Gross profit percentage lease contracts:
                                                                                                               
New location
                                                                                       
Contract expirations
                                                                                       
Same location
    1.2       4.0       12.5       14.3       7.1       9.1       5.9       5.1                   4.1       5.5                  
Conversions
                                                                                       
 
                                                                                       
Total gross profit percentage
    1.2       3.6       12.5       14.3       6.1       8.2       5.8       5.1                   3.9       5.2                  
 
                                                                                       
 
    (in millions)  
Gross profit management contracts:
                                                                                                               
New location
  $ 0.7     $     $ 1.3     $     $ 0.4     $     $     $     $     $     $ 2.4     $     $ 2.4        
Contract expirations
          1.1             0.1             0.6             0.2                         2.0       (2.0 )     (100.0 )
Same location
    5.5       5.9       0.9       0.8       5.4       5.7       3.7       4.0       (0.1 )     (0.5 )     15.4       15.9       (0.5 )     (3.1 )
Conversions
                                                                                   
 
                                                                                   
Total gross profit management contracts
  $ 6.2     $ 7.0     $ 2.2     $ 0.9     $ 5.8     $ 6.3     $ 3.7     $ 4.2     $ (0.1 )   $ (0.5 )   $ 17.8     $ 17.9     $ (0.1 )     (0.6 )
 
                                                                                   
 
    (percentages)  
Gross profit percentage management contracts:
                                                                                                               
New location
    63.6             22.4             44.4                                     29.6                        
Contract expirations
          52.4             100.0             33.3             66.7                         46.5                  
Same location
    51.4       51.8       39.1       38.1       47.0       46.3       50.7       49.4                   48.4       46.9                  
Conversions
                                                                                       
 
                                                                                       
Total gross profit percentage
    52.1       51.9       27.2       40.9       46.4       44.4       48.7       50.0                   44.4       46.7                  
 
                                                                                       
Gross profit—lease contracts. Gross profit for lease contracts decreased $0.5 million, or 27.8%, to $1.3 million for the three months ended March 31, 2010, compared to $1.8 million for the three months ended March 31, 2009. Gross profit percentage for lease contracts decreased to 3.9% for the three months ended March 31, 2010, compared to 5.2% for the three months ended March 31, 2009. Gross profit lease contracts decreases on same locations were primarily the result of a decrease in short-term and monthly parking revenue, without an equal and corresponding decrease in costs.

 

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Gross profit—management contracts. Gross profit for management contracts decreased $0.1 million, or 0.6%, to $17.8 million for the three months ended March 31, 2010, compared to $17.9 million for the three months ended March 31, 2009. Gross profit percentage for management contracts decreased to 44.4% for the three months ended March 31, 2010 compared to 46.7% in the three months ended March 31, 2009. Gross profit for management contracts decreases were primarily the result of our same locations, and our contract expirations, partially offset by increases in our new locations. Gross profit percentage on contract expirations accounted for most of the decline on a percentage basis.
Gross profit for lease contracts declined primarily due to same locations in regions one and three due to decreases in short-term and monthly parking revenue, without an equal and corresponding decrease in costs.
Gross profit for management contracts declined primarily due to our same locations in regions one, three and four and our contract expirations in regions one, two, three and four.
General and administrative expenses. General and administrative expenses decreased $1.2 million, or 9.4%, to $11.6 million for the three months ended March 31, 2010, compared to $12.8 million for the three months ended March 31, 2009. This decrease resulted primarily from net decreases in payroll and payroll related expenses of $0.2 million, a decrease of $0.7 million related to the 2009 sale by our former majority shareholder of its stake in the Company, a decrease of $0.1 million related to travel, and a decrease of $0.2 million in other costs.
Interest expense. Interest expense was $1.5 million for the three months ended March 31, 2010 and did not change significantly compared to the three months ended March 31, 2009.
Interest income. Interest income was $0.1 million for the three months ended March 31, 2010 and did not change significantly compared to the three months ended March 31, 2009.
Income tax expense. Income tax expense increased $0.3 million, or 17.3%, to $1.8 million for the three months ended March 31, 2010, as compared to $1.5 million for the three months ended March 31, 2009. An increase in our pre-tax income resulted in a $0.3 million increase in income tax expense. Our effective tax rate was 39.3% for the three months ended March 31, 2010 and 39.0% for the three months ended March 31, 2009.

 

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Liquidity and Capital Resources
Outstanding Indebtedness
On March 31, 2010, we had total indebtedness of approximately $112.1 million, a decrease of $1.1 million from December 31, 2009. The $112.1 million includes:
   
$108.9 million under our senior credit facility; and
   
$3.2 million of other debt including capital lease obligations and obligations on seller notes and other indebtedness.
We believe that our cash flow from operations, combined with availability under our senior credit facility, which amounted to $19.4 million at March 31, 2010, will be sufficient to enable us to pay our indebtedness, or to fund other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before their respective maturities. We believe that we will be able to refinance our indebtedness on commercially reasonable terms.
Senior Credit Facility
On July 15, 2008, we amended and restated our credit facility.
The $210.0 million revolving senior credit facility will expire in July 2013. The revolving senior credit facility includes a letter of credit sub-facility with a sublimit of $50.0 million.
Our revolving senior credit facility bears interest, at our option, at either (1) LIBOR plus an applicable LIBOR margin of between 2.00% and 3.50% depending on the ratio of our total funded indebtedness to our EBITDA from time to time (“Total Debt Ratio”) or (2) the Base Rate (as defined below) plus an applicable Base Rate Margin of between 0.50% and 2.00% depending on our Total Debt Ratio. We may elect interest periods of one, two, three or six months for LIBOR based borrowings. The Base Rate is the greater of (i) the rate publicly announced from time to time by Bank of America, N.A. as its “prime rate,” or (ii) the overnight federal funds rate plus 0.50%.
Our senior credit facility includes a fixed charge ratio covenant, a total debt to EBITDA ratio covenant, a limit on our ability to incur additional indebtedness, issue preferred stock or pay dividends, and certain other restrictions on our activities. We are required to repay borrowings under our senior credit facility out of the proceeds of future issuances of debt or equity securities and asset sales, subject to certain customary exceptions. Our senior credit facility is secured by substantially all of our assets and all assets acquired in the future (including a pledge of 100% of the stock of our existing and future domestic guarantor subsidiaries and 65% of the stock of our existing and future foreign subsidiaries).
We are in compliance with all of our financial covenants.
At March 31, 2010, we had $16.9 million of letters of credit outstanding under the senior credit facility, borrowings against the senior credit facility aggregated $108.9 million and we had $19.4 million available under the senior credit facility.
Interest Rate Cap Transactions
We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.
On February 22, 2010, we entered into interest rate cap agreements with Wells Fargo Bank N.A. (“Wells Fargo”) and Fifth Third Bank (“Fifth Third”), allowing us to limit our exposure on a portion of our borrowings under the Credit Agreement (“Rate Cap Transactions”). Pursuant to two separate letter agreements between the Company and Wells Fargo and Fifth Third, respectively, we will receive payments from Wells Fargo and Fifth Third each quarterly period to the extent that the prevailing three-month LIBOR during that period exceeds our cap rate of 3.25%. The Rate Cap Transactions are effective March 31, 2010, and will settle each quarter on a date that is intended to coincide with our quarterly interest payments dates under the Credit Agreement. The Rate Cap Transactions cap our LIBOR interest rate on a notional amount of $50 million at 3.25% for a total of 39 months. These Rate Cap Transactions are classified as a cash flow hedge, and we calculate the effectiveness of the hedge on a quarterly basis. The ineffective portion of the cash flow hedge is recognized in current period earnings as an increase of interest expense. The fair value of the interest rate cap at March 31, 2010 is $0.5 million and is included in prepaid expenses.

 

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Stock Repurchases
In July 2008, our Board of Directors authorized us to repurchase shares of our common stock, on the open market or through private purchases, up to $60.0 million in aggregate. As of December 31, 2009, $19.0 million remained available for repurchase under this authorization.
During the first quarter of 2009, we repurchased 93,600 shares from third party shareholders at an average price of $18.23 per share, including average commissions of $0.03 per share, on the open market. Our former majority shareholder sold 119,701 shares to us in the first quarter of 2009 at an average price of $18.20 per share. The total value of the first quarter transactions was $3.9 million. We retired 200,650 shares during the first quarter of 2009 and retired the remaining 12,651 shares in April 2009.
We did not make any share repurchases in the first quarter of 2010.
As of March 31, 2010, $19.0 million remained available for repurchase under the July 2008 authorization by the Board of Directors.
Letters of Credit
At March 31, 2010, we have provided letters of credit totaling $16.5 million to our casualty insurance carrier to collateralize our casualty insurance program.
As of March 31, 2010, we provided $0.4 million in letters to collateralize other obligations.
Deficiency Payments
Pursuant to our obligations with respect to the parking garage operations at Bradley International Airport, we are required to make certain payments for the benefit of the State of Connecticut and for holders of special facility revenue bonds. The deficiency payments represent contingent interest bearing advances to the trustee to cover operating cash flow requirements. The payments, if any, are recorded as a receivable by us for which we are reimbursed from time to time as provided in the trust agreement. As of March 31, 2010, we have a receivable of $11.0 million, comprised of cumulative deficiency payments to the trustee, net of reimbursements. We believe these advances to be fully recoverable and therefore have not recorded a valuation allowance for them. We do not guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.
We made deficiency payments of $1.4 million in the first three months of 2010 compared to $1.1 million in the first three months of 2009. We did not receive any payments for interest and premium income related to deficiency payments in the first three months of 2010 and 2009.
Daily Cash Collections
As a result of day-to-day activity at our parking locations, we collect significant amounts of cash. Lease contract revenue is generally deposited into our local bank accounts, with a portion remitted to our clients in the form of rental payments according to the terms of the leases. Under management contracts, some clients require us to deposit the daily receipts into one of our local bank accounts, with the cash in excess of our operating expenses and management fees remitted to the clients at negotiated intervals. Other clients require us to deposit the daily receipts into client accounts and the clients then reimburse us for operating expenses and pay our management fee subsequent to month-end. Some clients require a segregated account for the receipts and disbursements at locations. Our working capital and liquidity may be adversely affected if a significant number of our clients require us to deposit all parking revenue into their respective accounts.
Our liquidity also fluctuates on an intra-month and intra-year basis depending on the contract mix and timing of significant cash payments. Additionally, our ability to utilize cash deposited into our local accounts is dependent upon the availability and movement of that cash into our corporate account. For all these reasons, from time to time, we carry a significant cash balance, while also utilizing our senior credit facility.
Net Cash Provided by Operating Activities
Our primary sources of funds are cash flows from operating activities and changes in working capital. Net cash provided by operating activities totaled $1.8 million for the first three months of 2010. Cash provided included $5.3 million from operations which was offset by a net decrease in working capital of $3.5 million. The decrease in working capital resulted primarily from an increase of $5.3 million in notes and accounts receivable which primarily related to an increase in business from new locations, acquisitions and deficiency payments related to Bradley International Airport guarantor payments as described under “Deficiency Payments”, a decrease of $1.7 million in other liabilities due primarily to deferred revenue that has been subsequently earned and the payment of accrued expenses, offset by a decrease of $1.1 in prepaid assets primarily related to timing of payroll taxes paid in 2009 relating to 2010 payroll and an increase of $2.4 million in accounts payable which primarily resulted from the timing on payments to our clients and new business that are under management contracts as described under “Daily Cash Collections.”

 

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Net cash provided by operating activities totaled $0.3 million for the first three months of 2009. Cash provided included $5.5 million from operations which was offset by a net decrease in working capital of $5.2 million. The decrease in working capital resulted primarily from an increase of $1.0 million in notes and accounts receivable which primarily related to Bradley International Airport guarantor payments as described under “Deficiency Payments”, a decrease of $1.0 million in accounts payable which primarily related to a reduction of payments to trade vendors on behalf of clients, and a decrease of $3.2 million in other liabilities which primarily related to a reduction in accruals related to payment of employee incentive program.
Net Cash Used in Investing Activities
Net cash used in investing activities totaled $0.5 million in the first three months of 2010. Cash used in investing activities for the first three months of 2010 included capital expenditures of $0.5 million for capital investments needed to secure and/or extend leased facilities.
Net cash used in investing activities totaled $1.5 million in the first three months of 2009. Cash used in investing activities for the first three months of 2009 included capital expenditures of $0.9 million for capital investments needed to secure and/or extend leased facilities, investment in information system enhancements and infrastructure, and cost of contract purchases of $0.6 million.
Net Cash Used in Financing Activities
Net cash used in financing activities totaled $0.9 million in the first three months of 2010. Cash used in financing activities for 2010 included $0.1 million for payments on capital leases, $1.0 million for our senior credit facility, partially offset by $0.1 million from the exercise of stock options and $0.1 million from the tax benefit related to stock option exercises.
Net cash provided by financing activities totaled $2.9 million in the first three months of 2009. Cash provided by financing activities for 2009 included $7.1 million in proceeds from our senior credit facility which was partially offset by $3.9 million used to repurchase our common stock and $0.3 million used for payments on capital leases.
Cash and Cash Equivalents
We had cash and cash equivalents of $8.8 million at March 31, 2010, compared to $8.3 million at December 31, 2009. The cash balances reflect our ability to utilize funds deposited into our local accounts and which based upon availability, timing of deposits and the subsequent movement of that cash into our corporate accounts may result in significant changes to our cash balances.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. The statements contained in this Form 10-Q that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.
We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions in this Form 10-Q, to identify forward-looking statements. These forward-looking statements are made based on our management’s expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.
All of our forward-looking statements should be considered in light of these factors. All of our forward-looking statements speak only as of the date they were made, and we undertake no obligation to update our forward-looking statements or risk factors to reflect new information, future events or otherwise, except as may be required under applicable securities laws and regulations. You should review any additional disclosures we make in our press releases and Forms 10-K, 10-Q, and 8-K filed with or furnished to the SEC. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts.

 

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Risk Factors
While it is not possible to identify all risk factors, we continue to face many risks and uncertainties that could cause actual results to differ from our forward-looking statements and could otherwise have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition. Information related to risk factors is described in our most recent Form 10-K under “Risk Factors.”
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rates
Our primary market risk exposure consists of risk related to changes in interest rates. We use a variable rate senior credit facility to finance our operations. This facility exposes us to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases and conversely, if interest rates decrease, interest expense also decreases. We believe that it is prudent to limit the exposure of an increase in interest rates.
We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.
On February 22, 2010, we entered into interest rate cap agreements with Wells Fargo Bank N.A. (“Wells Fargo”) and Fifth Third Bank (“Fifth Third”), allowing us to limit our exposure on a portion of our borrowings under the Credit Agreement (“Rate Cap Transactions”). Pursuant to two separate letter agreements between the Company and Wells Fargo and Fifth Third, respectively, we will receive payments from Wells Fargo and Fifth Third each quarterly period to the extent that the prevailing three month LIBOR during that period exceeds our cap rate of 3.25%. The Rate Cap Transactions are effective March 31, 2010, and will settle each quarter on a date that is intended to coincide with our quarterly interest payments dates under the Credit Agreement. The Rate Cap Transactions cap our LIBOR interest rate on a notional amount of $50 million at 3.25% for a total of 39 months. These Rate Cap Transactions are classified as a cash flow hedge, and we calculate the effectiveness of the hedge on a quarterly basis. The ineffective portion of the cash flow hedge is recognized in current period earnings as an increase of interest expense. The fair value of the interest rate cap at March 31, 2010 is $0.5 million and is included in prepaid expenses.
Our $210.0 million senior credit facility provides for a $210.0 million variable rate revolving facility. In addition, the credit facility includes a letter of credit sub-facility with a sublimit of $50.0 million and swing line sub-facility with a sublimit of $10.0 million. Interest expense on such borrowing is sensitive to changes in the market rate of interest. If we were to borrow the entire $220.0 million available under the facility, a 1% increase in the average market rate would result in an increase in our annual interest expense of $2.20 million.
This amount is determined by considering the impact of the hypothetical interest rates on our borrowing cost, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Due to the uncertainty of the specific changes and their possible effects, the foregoing sensitivity analysis assumes no changes in our financial structure.
Foreign Currency Risk
Our exposure to foreign exchange risk is minimal. All foreign investments are denominated in U.S. dollars, with the exception of Canada. We had approximately $1.5 million of Canadian dollar denominated cash instruments at March 31, 2010. We had no Canadian dollar denominated debt instruments at March 31, 2010. We do not hold any hedging instruments related to foreign currency transactions. We monitor foreign currency positions and may enter into certain hedging instruments in the future should we determine that exposure to foreign exchange risk has increased.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Within the 90-day period prior to the filing date of this report, our chief executive officer, chief financial officer and corporate controller carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon their evaluation, our chief executive officer, chief financial officer and corporate controller concluded that our disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to us (including our consolidated subsidiaries) required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the required time periods.

 

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Changes in Internal Controls Over Financial Reporting
There have been no significant changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
PART II. OTHER INFORMATION
Item 1. 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.
As previously disclosed, the Company has been in mediation and discussions with plaintiffs regarding the possible resolution of a California labor code violations case brought against the Company in which plaintiffs are seeking class certification of their claims. Subject to the approval of the court, the Company has entered into a settlement agreement related to Jorge Jaime v. Standard Parking Corporation and two other consolidated cases on March 9, 2010. We also have entered into a memorandum of understanding dated January 5, 2010 for the tentative settlement, subject to court approval, of Grant v. Preferred Security Services, Inc., a similar labor code violation case in which plaintiffs are seeking class certification brought against our wholly owned security subsidiary. The Company estimates that its liability exposure under the distribution methodology set forth in the tentative settlements for these two cases to be in the aggregate $2,475. While there is no guarantee that the settlement methodology will result in this aggregate payout amount, management believes, after comparing similar class settlements and the claims made percentages of those settlements with the purported classes in these two cases, that the aggregate payout of $2,475 is a reasonable estimate of the contingent liability which was recorded by the Company.
John V. Holten, a former director and former indirect controlling shareholder of the Company, has filed a lawsuit against the Company in the United States District Court, District of Connecticut on March 25, 2010. Mr. Holten was terminated as our Chairman in October 2009. Mr. Holten alleges breach of his employment agreement. The suit claims that the agreement entitled Holten to payments over the next several years worth more than $3.8 million and seeks unspecified damages. As previously reported, the Board determined that the terms of the agreement and the process by which Mr. Holten caused the Company to execute it were not fair to the Company and the agreement was not in the best interest of the Company or its stockholders. Accordingly, the Company terminated Holten’s employment as Chairman and determined not to make any further payments to Mr. Holten. The Company intends to vigorously defend against this lawsuit and assert its own claims against Mr. Holten in connection with his employment agreement.

 

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Item 6. Exhibits
         
Exhibit    
Number   Description
  31.1    
Section 302 Certification dated May 7, 2010 for James A. Wilhelm, Director, President and Chief Executive Officer.
       
 
  31.2    
Section 302 Certification dated May 7, 2010 for G. Marc Baumann, Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer).
       
 
  31.3    
Section 302 Certification dated May 7, 2010 for Daniel R. Meyer, Senior Vice President, Corporate Controller and Assistant Treasurer (Principal Accounting Officer).
       
 
  32.1    
Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 7, 2010.

 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  STANDARD PARKING CORPORATION
 
 
Dated: May 7, 2010  By:   /s/ JAMES A. WILHELM    
    James A. Wilhelm   
    Director, President and Chief Executive Officer
(Principal Executive Officer)  
 
     
Dated: May 7, 2010  By:   /s/ G. MARC BAUMANN    
    G. Marc Baumann   
    Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)  
 
     
Dated: May 7, 2010  By:   /s/ DANIEL R. MEYER    
    Daniel R. Meyer   
    Senior Vice President,
Corporate Controller and Assistant Treasurer
(Principal Accounting Officer and Duly Authorized Officer)  
 

 

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INDEX TO EXHIBITS
         
Exhibit    
Number   Description
  31.1    
Section 302 Certification dated May 7, 2010 for James A. Wilhelm, Director, President and Chief Executive Officer.
       
 
  31.2    
Section 302 Certification dated May 7, 2010 for G. Marc Baumann, Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer).
       
 
  31.3    
Section 302 Certification dated May 7, 2010 for Daniel R. Meyer, Senior Vice President, Corporate Controller and Assistant Treasurer (Principal Accounting Officer).
       
 
  32.1    
Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 7, 2010.

 

32

Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, James A. Wilhelm, certify that:
  1.  
I have reviewed this Form 10-Q of Standard Parking Corporation;
  2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) ) for the registrant and have:
  a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b.  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c.  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d.  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: May 7, 2010  By:   /s/ JAMES A. WILHELM    
    James A. Wilhelm,   
    Director, President and Chief Executive Officer
(Principal Executive Officer)
 
 

 

Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, G. Marc Baumann, certify that:
  1.  
I have reviewed this Form 10-Q of Standard Parking Corporation;
  2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b.  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c.  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d.  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: May 7, 2010  By:   /s/ G. MARC BAUMANN    
    G. Marc Baumann,   
    Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
 
 

 

Exhibit 31.3
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel R. Meyer, certify that:
  1.  
I have reviewed this Form 10-Q of Standard Parking Corporation;
  2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  b.  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  c.  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  d.  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
Date: May 7, 2010  By:   /s/ DANIEL R. MEYER    
    Daniel R. Meyer,   
    Senior Vice President Corporate Controller and Assistant Treasurer
(Principal Accounting Officer and Duly Authorized Officer)
 
 
 

 

Exhibit 32.1
Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Form 10-Q of Standard Parking Corporation (the “Company”) for the quarter ended March 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of their knowledge and belief, that:
1) the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and
2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
Date: May 7, 2010  /s/ JAMES A. WILHELM    
  Name:   James A. Wilhelm   
  Title:   Director, President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
Date: May 7, 2010  /s/ G. MARC BAUMANN    
  Name:   G. Marc Baumann   
  Title:   Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
 
 
     
Date: May 7, 2010  /s/ DANIEL R. MEYER    
  Name:   Daniel R. Meyer   
  Title:   Senior Vice President, Corporate Controller and Assistant Treasurer
(Principal Accounting Officer and Duly Authorized Officer)
 
 
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, or the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Act. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.