4713_Cover.indd 1
3/11/16 12:56 AM
4713_Cover.indd 2
3/11/16 12:57 AM
March 24, 2016
Dear Fellow Stockholders:
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• Reduce general and administrative costs in absolute terms
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(cid:47)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:29)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)
(cid:527)(cid:3) (cid:39)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:73)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:69)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:82)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:3)
(cid:3)
(cid:527)(cid:3) (cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:68)(cid:73)(cid:72)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)
(cid:3) (cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)
(cid:527)(cid:3) (cid:53)(cid:72)(cid:16)(cid:72)(cid:81)(cid:74)(cid:76)(cid:81)(cid:72)(cid:72)(cid:85)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:72)(cid:605)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)
1(cid:54)(cid:72)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:79)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:79)(cid:92)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:522)(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:42)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:523)(cid:15)(cid:3)(cid:522)(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:40)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:523)(cid:15)(cid:3)(cid:522)(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:51)(cid:72)(cid:85)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:523)(cid:15)(cid:3)(cid:522)(cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:41)(cid:79)(cid:82)(cid:90)(cid:523)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:522)(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:41)(cid:79)(cid:82)(cid:90)(cid:523)(cid:17)
(cid:918)(cid:519)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:564)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:68)(cid:78)(cid:72)(cid:3)
(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:82)(cid:88)(cid:86)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:81)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)
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(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:88)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:17)(cid:3)(cid:3)(cid:36)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:72)(cid:85)(cid:3)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)
(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:514)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:92)(cid:72)(cid:3)(cid:87)(cid:82)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)
(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
(cid:41)(cid:76)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:918)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:78)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:92)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:72)(cid:68)(cid:74)(cid:88)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:75)(cid:68)(cid:85)(cid:71)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:15)(cid:3)(cid:71)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
clients and SP+(cid:17)(cid:3)
(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:85)(cid:72)(cid:79)(cid:92)(cid:15)
G Marc Baumann
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)
Cautionary Note Regarding Forward-Looking Statements
(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:79)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:564)(cid:81)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:47)(cid:76)(cid:87)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:53)(cid:72)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:28)(cid:28)(cid:24)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
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(cid:80)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:519)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:73)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:909)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:76)(cid:605)(cid:70)(cid:88)(cid:79)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:72)(cid:71)(cid:76)(cid:70)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:519)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:17)(cid:3)
(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:74)(cid:88)(cid:68)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:69)(cid:72)(cid:3)(cid:81)(cid:82)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
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(cid:92)(cid:72)(cid:68)(cid:85)(cid:16)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:79)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:17)(cid:3)(cid:3)(cid:41)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:86)(cid:83)(cid:72)(cid:68)(cid:78)(cid:3)(cid:82)(cid:81)(cid:79)(cid:92)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:72)(cid:71)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)
(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:87)(cid:68)(cid:78)(cid:72)(cid:3)(cid:81)(cid:82)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:88)(cid:83)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:86)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)
(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:71)(cid:3)(cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:17)
Use of Non-GAAP Financial Measures
(cid:55)(cid:82)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)
(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:83)(cid:79)(cid:88)(cid:86)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:81)(cid:82)(cid:81)(cid:16)(cid:85)(cid:82)(cid:88)(cid:87)(cid:76)(cid:81)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:83)(cid:68)(cid:76)(cid:85)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:70)(cid:92)(cid:3)(cid:38)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:79)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)
(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:74)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:12)(cid:30)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:80)(cid:72)(cid:85)(cid:74)(cid:72)(cid:85)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)(cid:80)(cid:82)(cid:69)(cid:76)(cid:79)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:80)(cid:83)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:11)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:12)(cid:30)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)
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(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:3)(cid:71)(cid:82)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:85)(cid:72)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:76)(cid:87)(cid:3)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)
(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:71)(cid:76)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:519)(cid:86)(cid:3)
(cid:71)(cid:72)(cid:564)(cid:81)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:69)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:76)(cid:80)(cid:76)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:87)(cid:76)(cid:87)(cid:79)(cid:72)(cid:71)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:17)
(cid:41)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:79)(cid:92)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:86)(cid:72)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:79)(cid:82)(cid:90)(cid:17)(cid:3)(cid:3)
SP PLUS CORPORATION
RECONCILIATION OF NET INCOME ATTRIBUTABLE TO SP PLUS TO ADJUSTED NET INCOME
ATTRIBUTABLE TO SP PLUS AND ADJUSTED NET INCOME PER SHARE (ADJUSTED EPS)
(millions, except for share and per share data, unaudited)
Net income attributable to SP Plus, as reported
Add: Non-routine structural and other repairs, after tax
Add: Restructuring, merger and integration costs, after tax
Add (Subtract): Net income related to asset sales or dispositions
Add: Costs incurred related to Parkmobile and other contemplated transactions, after tax
Add: Writeoff of debt issuance costs and original discount on borrowings, after tax
Subtract: Reversal of valuation allowances for deferred tax assets
Adjusted net income attributable to SP Plus
Net income per share, as reported
Basic
Diluted
Adjusted net income per share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
SP PLUS CORPORATION
RECONCILIATION OF ADJUSTED GROSS PROFIT AND
ADJUSTED GENERAL AND ADMINISTRATIVE EXPENSES
(millions, unaudited)
Gross profit
Gross profit, as reported
Add: Non-routine structural and other repairs
Add (Subtract): Gross profit related to asset sales or dispositions
Adjusted gross profit
General and administrative expenses
General and administrative expenses, as reported
Subtract: Restructuring, merger and integration costs
Add (Subtract): General and administrative expenses related to asset sale or dispositions
Subtract: Parkmobile and other contemplated transaction costs
Adjusted general and administrative expenses
Year Ended December 31,
2015
2014
$
$
17.4
2.7
5.6
0.6
0.1
0.4
(4.6)
22.1
23.1
0.8
5.0
(2.2)
0.5
-
(10.4)
16.8
$
$
$0.78
$0.77
$1.00
$0.98
$1.05
$1.03
$0.76
$0.75
22,189,140
22,511,759
22,009,800
22,407,343
Year Ended December 31,
2015
2014
$
$
$
$
$
$
170.1
4.6
0.1
174.8
97.3
(7.8)
0.4
(0.1)
89.8
$
$
171.3
1.3
(1.5)
171.2
101.5
(8.5)
(0.8)
(0.9)
91.2
SP PLUS CORPORATION
RECONCILIATION OF FREE CASH FLOW
(millions, unaudited)
Operating income
Depreciation and amortization
Net accretion of acquired lease contracts
Non-cash stock-based compensation
Income tax paid, net
Income attributable to noncontrolling interest
Change in operating assets and liabilities
Purchase of leaseholds, equipment and cost of contracts and contingent purchase pa
Operating cash flow
Cash interest paid
Free cash flow (1)
plus: Cash used for non-routine structural and other repairs
Adjusted free cash flow
(1) Reconciliation of Free Cash Flow to Consolidated Statements of Cash Flow
(millions, unaudited)
Net cash provided by operating activities
Net cash used in investing activities
Acquisitions and sale of business, net
Distribution to noncontrolling interest
Effect of exchange rate changes on cash and cash equivalents
Free cash flow
Year Ended December 31,
2015
2014
$
$
38.8
34.0
(0.9)
3.7
(18.1)
(2.9)
(3.6)
(13.3)
37.8
(10.7)
43.6
(11.8)
(1.0)
(3.1)
(0.7)
27.1
$
$
$
27.1
9.9
$
33.6
3.8
$
36.9
$
37.4
Year Ended December 31,
2015
2014
$
$
$
$
39.5
30.3
(1.0)
3.3
(1.3)
(3.0)
(4.5)
(15.8)
47.5
(13.9)
51.6
(14.9)
-
(2.9)
(0.2)
33.6
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
Or
For the transition period from
to
Commission file number: 000-50796
SP PLUS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
16-1171179
(I.R.S. Employer
Identification No.)
200 E. Randolph Street, Suite 7700
Chicago, Illinois 60601-7702
(Address of Principal Executive Offices, Including Zip Code)
(312) 274-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(Title of Each Class)
The NASDAQ Stock Market LLC
(Name of Each Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:3) No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3) No (cid:2)
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 periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3)
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 (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:2) No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (cid:3)
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 the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer (cid:3)
Accelerated filer (cid:2)
Smaller reporting company (cid:3)
Non-accelerated filer (cid:3)
(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 Act). Yes (cid:3) No (cid:2)
As of June 30, 2015, the aggregate market value of the voting and non-voting common stock held by nonaffiliates of the registrant was
approximately $578.5 million. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors of the
registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and
directors as affiliates is not necessarily a conclusive determination for any other purposes.
As of February 29, 2016, there were 22,328,578 shares of common stock of the registrant outstanding.
Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on April 21, 2016, are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
(This page has been left blank intentionally.)
SP PLUS CORPORATION
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Schedule II—Valuation and Qualifying Accounts
Index to Exhibits
2
11
18
19
21
21
22
24
25
44
45
45
45
46
47
47
47
47
47
48
88
89
90
1
The Business section and other parts of this Annual Report on Form 10-K ("Form 10-K") contain forward-looking statements, within
the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Many of the forward-looking
statements are located in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-
looking statements provide current expectations of future events based on certain assumptions and include any statement that
does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future,"
"anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," and similar terms.
Forward-looking statements are not guarantees of future performance and the Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited
to, those discussed in Part I, Item 1A of this Form 10-K under the heading "Risk Factors," which are incorporated herein by reference.
Each of the terms the "Company" and "SP Plus" as used herein refers collectively to SP Plus Corporation and its wholly owned
subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for
any reason, except as required by law.
Item 1. Business
Our Company
PART I
We are one of the leading providers of parking management, ground transportation and other ancillary services to commercial,
institutional and municipal clients in the United States, Puerto Rico and Canada. Our services include a comprehensive set of on-
site parking management and ground transportation services, which include facility maintenance, event logistics services, training,
scheduling and supervising all service personnel as well as providing customer service, marketing, and accounting and revenue
control functions necessary to facilitate the operation of our clients' facilities or events. We also provide a range of ancillary services
such as airport and municipal shuttle operations, valet services, taxi and livery dispatch services and municipal meter revenue
collection and enforcement services.
Acquisitions, Investment in Joint Venture and Sale of Business
In October 2012, we completed our acquisition (the "Central Merger") of Central Parking Corporation ("Central") for 6,161,332 shares
of our common stock and the assumption of $217.7 million of Central's debt, net of cash acquired. Additionally, Central's former
stockholders will be entitled to receive $27.0 million to be paid three years after closing, to the extent the $27.0 million is not used
to satisfy seller indemnity obligations pursuant to the Agreement and Plan of Merger dated February 28, 2012. Our consolidated
results of operations for the twelve months ended December 31, 2015, 2014 and 2013 include Central's results of operations for
the entire year.
In October 2014, we entered into an agreement to establish a joint venture with Parkmobile USA, Inc. ("Parkmobile USA") and
contributed all of the assets and liabilities of our proprietary Click and Park® parking prepayment business in exchange for a
30 percent interest in the newly formed legal entity called Parkmobile, LLC ("Parkmobile"). Parkmobile is a leading provider of on-
demand and prepaid transaction processing for on- and off-street parking and transportation services. The Parkmobile joint venture
combines two parking transaction engines, with SP Plus contributing the Click and Park® parking prepayment systems, which
enables consumers to reserve and pay for parking online in advance and Parkmobile USA contributing its on demand transaction
engine that allows consumers to transact real-time payment for parking privileges in both on- and off-street environments. We
account for our investment in the joint venture with Parkmobile under the equity method of accounting.
In August 2015, we signed an agreement to sell and subsequently sold portions of our security business primarily operating in the
Southern California market to a third-party for a gross sales price of $1.8 million, which resulted in a gain on sale of business of
$0.5 million, net of legal and other expenses. The pretax profit for the operations of said business was not significant to the periods
represented herein.
Our Operations
Our history and resulting experience have allowed us to develop and standardize a rigorous system of processes and controls that
enable us to deliver consistent, transparent, value-added and high-quality parking facility management services. We serve a variety
of industries and have end-market specific specialization in airports, healthcare facilities, hotels, municipalities and government
facilities, commercial real estate, residential communities, retail and colleges and universities.
We operate our clients' facilities through two primary 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 client rather than to us.
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• Under a lease, we generally pay to the property owner either a fixed annual rent, a percentage of gross customer
collections, or a combination of both. Under a lease, we collect all revenue and are responsible for most operating
expenses, but typically we are not responsible for major maintenance, capital expenditures or real estate taxes.
As of December 31, 2015, we operated approximately 82% of our locations under management contracts, and approximately 18%
of our locations under leases. We held a partial ownership interest in three parking facilities (two leased and one managed) as of
December 31, 2015 and 2014.
Our revenue is derived from a broad and diverse group of clients, industry end-markets and geographies. Our clients include some
of North America's largest private and public owners, municipalities, managers and developers of major office buildings, residential
properties, commercial properties, shopping centers and other retail properties, sports and special event complexes, hotels, and
hospitals and medical centers. No single client accounted for more than 8% of our revenue, net of reimbursed management contract
revenue, or more than 3% of our gross profit for the year ended December 31, 2015. Additionally, we have built a diverse geographic
footprint that as of December 31, 2015 included operations in 44 states, the District of Columbia and Puerto Rico, and municipalities,
including New York, Los Angeles, Chicago, Boston, Washington D.C. and Houston, among others, and three Canadian provinces.
Our strategy is focused on building scale and leadership positions in large, strategic markets in order to leverage the advantages
of scale across a larger number of parking locations in a single market.
While a large share of our operating arrangements are fixed-fee management contracts, we continue to grow our lease and
management contract businesses. Generally, management contracts provide us with insulation from economic cycles and enhance
our earnings visibility because our management contract revenue does not fluctuate materially in relation to variations in parking
volumes; our lease contracts experience variability, as revenues typically increase in periods of improving macroeconomic conditions
through increased parking volumes and typically decrease during periods of deteriorating macroeconomic conditions through
reduced parking volumes.
We are a leader in the field of introducing automation and technology as part of our parking facility and transportation operations,
having been a leader in the use of mobile payment technology, mobile parking apps that show parking options and shuttle bus
locations for customers, implementation of remote parking management operations and the use of License Plate Recognition (LPR)
system for parking enforcement operations. We continue to utilize and provide the Click and Park® and Click and Ride® technology
to our customers through our joint venture with Parkmobile, which is a leading provider of on-demand and prepaid transaction
processing for on- and off-street parking and transportation services.
Our ability to innovate operations by integrating and incorporating appropriate technologies into our service lines allows us to further
strengthen our relationships with clients, improve cost efficiency, enhance customer service and introduce new customer facing
services. This continuous commitment to using automation and technology to innovate within operations is demonstrated through
our continued use of the Click and Park® and Click and Ride® technology, as a customer offering through our joint venture partner
Parkmobile, and our development of new online parking programs and electronic shuttle pass systems that support large
entertainment and sporting venues, various sized urban garages, office buildings and public transportation hubs. We also innovate
through application of our in-house interactive marketing expertise and digital advertising to increase parking demand, development
of electronic payment tools to increase customer convenience and streamline revenue processes, use of advanced video and
intercom services to enhance customer service to parking patrons 24-hours-a-day, the creation of our remote management services
technology and operating center that enables us to remotely monitor facilities and parking operations, the use of our LPR system
and video analytics for car counting, on-street enforcement and enhanced security and our proprietary MPM Plus® monthly parker
management and billing system provides comprehensive and reliable billing of the parking-related provisions of multi-year
commercial tenant leases.
As of December 31, 2015, we managed approximately 3,900 parking facility locations containing approximately 2.0 million parking
spaces in approximately 346 cities, operated 77 parking-related service centers serving 71 airports, operated a fleet of approximately
800 shuttle buses carrying approximately 40.2 million passengers per year, operated 390 valet locations and employed a professional
staff of approximately 22,000 people.
Services
As a professional parking management company, we provide a comprehensive, turn-key package of parking services to our clients.
Under a typical management contract structure, we are responsible for providing and supervising all personnel necessary to facilitate
daily parking operations including cashiers, porters, valet attendants, managers, bookkeepers, and a variety of maintenance,
marketing, customer service, and accounting and revenue control functions.
Ancillary Services
Beyond the conventional parking facility management services described above, we also offer an expanded range of ancillary
services. For example:
• We provide shuttle bus vehicles and the drivers to operate, for example; through on-airport car rental operations as well
as private off-airport parking locations.
• We provide ground transportation services, such as taxi and livery dispatch services, as well as concierge-type ground
transportation information and support services for arriving passengers
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• We provide on-street parking meter collection and other forms of parking enforcement services.
• We provide remote parking management services using technology that enables us to monitor a parking operation from
a remote, off-site location and provide 24-hour-a-day customer assistance (including remedying equipment
malfunctions).
Industry Overview
Overview
The parking industry is large and fragmented and includes companies that provide temporary parking spaces for vehicles on an
hourly, daily, weekly, or monthly basis along with providing various ancillary services. A substantial number of companies in the
industry offer parking services as a non-core operation in connection with property management or ownership, and the vast majority
of companies in the industry are small, private and operate a limited number of parking facilities. Accordingly, the industry remains
highly fragmented and dynamic. From time to time, smaller operators find they lack the financial resources, economies of scale
and/or management techniques required to compete for the business of increasingly sophisticated clients or family owners face
difficult generational transfers. We expect this trend to continue and will provide larger parking management companies with
opportunities to expand their businesses and acquire smaller operators. We also expect that small new operators will continue to
enter the business as they have for the past several decades.
Industry Operating Arrangements
Parking facilities operate under three general types of arrangements:
• management contract;
•
•
lease; and
ownership.
The general terms and benefits of these three types of arrangements are as follows:
Management Contract
Under a management contract, the facility operator generally receives a base monthly fee for managing the facility and may receive
an incentive fee based on the achievement of facility performance objectives. Facility operators also generally charge fees for
various ancillary services such as accounting support services, equipment leasing and consulting. Primary responsibilities under
a management contract include hiring, training and staffing parking personnel, and providing revenue collection, accounting, record-
keeping, insurance and facility marketing services. The facility owner usually is responsible for operating expenses associated with
the facility's operation, such as taxes, license and permit fees, insurance costs, payroll and accounts receivable processing and
wages of personnel assigned to the facility, although some management contracts, typically referred to as "reverse" management
contracts, require the facility operator to pay certain of these cost categories but provide for payment to the operator of a larger
management fee. Under a management contract, the facility owner usually is responsible for non-routine maintenance and repairs
and capital improvements, such as structural and significant mechanical repairs. Management contracts are typically for a term of
one to three years (although the contracts may often be terminated, without cause, on 30-days' notice or less) and may contain
renewal clauses.
Lease
Under a lease, the parking facility operator generally pays to the property owner either a fixed base rent, percentage rent that is
tied to the facility's financial performance, or a combination of both. The parking facility operator collects all revenue and is responsible
for most operating expenses, but typically is not responsible for major maintenance, capital expenditures or real estate taxes. In
contrast to management contracts, leases typically are for terms of three to ten years, often contain a renewal term, and provide
for a fixed payment to the facility owner regardless of the facility's operating earnings. However, many of these leases may be
canceled by the client for various reasons, including development of the real estate for other uses and other leases may be canceled
by the client on as little as 30 days' notice without cause. Leased facilities generally require larger capital investment by the parking
facility operator than do managed facilities and therefore tend to have longer contract periods.Ownership
Ownership of parking facilities, either independently or through joint ventures entails greater potential risks and rewards than either
managed or leased facilities. All owned facility revenue flows directly to the owner, and the owner has the potential to realize benefits
of appreciation in the value of the underlying real estate. Ownership of parking facilities usually requires large capital investments,
and the owner is responsible for all obligations related to the property, including all structural, mechanical and electrical maintenance
and repairs and property taxes.
Industry Growth Dynamics
A number of industry trends should facilitate growth for larger outsourced commercial parking facility management providers,
including the following:
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Opportunities From Large Property Managers, Owners and Developers. As a result of past industry consolidation, there is a
significant number of national property managers, owners and developers that own or manage multiple locations. Sophisticated
property owners consider parking a profit center that experienced parking facility management companies can maximize. This
dynamic favors larger parking facility operators that can provide specialized, value-added professional services with nationwide
coverage.
Outsourcing of Parking Management and Related Services. Growth in the parking management industry has resulted from a
trend by parking facility owners to outsource the management of their parking and related operations to independent operators.
We believe that entities such as large property managers, owners and developers, as well as cities, municipal authorities, hospitals
and universities, in an effort to focus on their core competencies, reduce operating budgets and increase efficiency and profitability,
will continue and perhaps increase the practice of retaining parking management companies to operate facilities and provide related
services, including shuttle bus operations, municipal meter collection and valet parking.
Vendor Consolidation. Based on interactions with our clients, we believe that many parking facility owners and managers are
evaluating the benefits of reducing the number of parking facility management relationships they maintain. We believe this is a
function of the desire to reduce costs associated with interacting with a large number of third-party suppliers coupled with the desire
to foster closer inter-company relationships. By limiting the number of outsourcing vendors, companies will benefit from suppliers
who will invest the time and effort to understand every facet of the client's business and industry and who can effectively manage
and handle all aspects of their daily requirements. We believe a trend towards vendor consolidation can benefit a company like
ours, given our national footprint and scale, extensive experience, broad process capabilities and a demonstrated ability to create
value for our clients.
Industry Consolidation. The parking management industry is highly fragmented, with hundreds of small regional or local operators.
We believe national parking facility operators have a competitive advantage over local and regional operators by reason of their:
•
•
•
•
broad product and service offerings;
deeper and more experienced management;
efficient cost structure due to economies of scale; and
financial resources to invest in infrastructure and information systems.
General Business Trends
We believe that sophisticated commercial real estate developers and property managers and owners recognize the potential 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 Competitive Strengths
We believe we have the following key competitive strengths:
A Leading Market Position with a Unique Value Proposition. We are one of the leading providers of parking management, ground
transportation and other ancillary services, to commercial, institutional, and municipal clients in the United States, Puerto Rico and
Canada. We market and offer many of our services under our SP+ brand, which reflects our ability to provide customized solutions
and meet the varied demands of our diverse client base and their wide array of property types. We can augment our parking services
by providing our clients with related services through our SP+ Facility Maintenance, SP+ Transportation, SP+ Event Logistics
and, in certain sections of the country and Canada, SP+ Security service lines, thus enabling our clients to efficiently address
various needs through a single vendor relationship. We believe our ability to offer a comprehensive range of services on a national
basis is a significant competitive advantage and allows our clients to attract, service and retain customers, gain access to the
breadth and depth of our service and process expertise, leverage our significant technology capabilities and enhance their parking
facility revenue, profitability and cash flow.
Our Scale and Diversification. Expanding our client base, industry end-markets and geographic locations has enabled us to
significantly enhance our operating efficiency over the past several years by standardizing processes and managing overhead.
• Client Base. Our clients include some of the nation's largest private and public owners, municipalities, managers and
developers of major office buildings, residential properties, commercial properties, shopping centers and other retail
properties, sports and special event complexes, hotels, and hospitals and medical centers.
•
Industry End-Markets. We believe that our industry end-market diversification, such as colleges and universities,
hospitals and medical centers, municipalities and event services, allows us to minimize our exposure to industry-
specific seasonality and volatility. We believe that the breadth of end-markets we serve and the depth of services we
offer to those end-markets provide us with a broader base of customers that we can target.
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• Geographic Locations. We have a diverse geographic footprint that includes operations in 44 states, the District of
Columbia, Puerto Rico and three Canadian provinces as of December 31, 2015.
Stable Client Relationships. We have a track record of providing our clients and parking customers with a consistent, value-added
and high quality parking facility management experience, as reflected by our high location retention rates. Managers, property
owners and developers continue to outsource the management of their parking operations and look to consolidate the number of
their outsourcing providers, we believe this trend has meaningful benefits to companies like ours, which has a national footprint
and scale, extensive industry experience, broad process capabilities, and a demonstrated ability to create value for our clients.
Established Platform for Future Growth. We have invested resources and developed a national infrastructure and technology
platform that is complemented by significant management expertise, which enables us to scale our business for future growth
effectively and efficiently. We have the ability to transition into a new location very quickly, from the simplest to the most complex
operation, and have experience working with incumbent facility managers to affect smooth and efficient takeovers and integrate
new locations seamlessly into our operations.
Visible and Predictable Business Model. We believe that our business model provides us with a measure of insulation from broader
economic cycles, because a significant portion of our combined locations operates on fixed-fee and reverse management fee
management contracts that for the most part are not dependent upon the level of utilization of those parking facilities. Additionally,
because we only have a partial ownership interest in four parking facilities, we have limited the risks of real estate ownership. We
benefit further from visibility provided by a recurring revenue model reinforced by high location retention rates.
Highly Capital Efficient Business with Attractive Cash Flow Characteristics. Our business generates attractive cash flow due to
negative working capital dynamics and our low capital expenditure requirements.
Focus on Operational Excellence and Human Capital Management. Our culture and training programs place a continuing focus
on excellence in the execution of all aspects of day-to-day parking facility operation. This focus is reflected in our ability to deliver
to our clients a professional, high-quality product through well-trained, service-oriented personnel, which we believe differentiates
us from our competitors. To support our focus on operational excellence, we manage our human capital through a comprehensive,
structured program that evaluates the competencies and performance of all of our key operations and administrative support
personnel on an annual basis. We have also dedicated significant resources to human capital management, providing
comprehensive training for our employees, delivered primarily through the use of our web-based SP+ University™ learning
management system, which promotes customer service and client retention in addition to providing our employees with continued
training and career development opportunities.
Our focus on customer service and satisfaction is a key driver of our high location retention rate, which, after excluding the impact
of certain facilities that were sold as part of the security business in 2015, was approximately 88% and 90% for the year ended
December 31, 2015 and 2014, respectively.
Focus on Operational Safety Initiatives. Our culture and training programs continue to place a focus on various safety initiatives
throughout the organization, as we continue to develop an integrated approach for continuous improvement in our risk and safety
programs. We have also dedicated significant resources to our risk and safety programs by providing comprehensive training for
our employees, delivered primarily through the use of our web-based SP+ University™ learning management system and our SP
+irit in Safety newsletters.
Our Growth Strategy
Building on these competitive strengths, we believe we are well positioned to execute on the following growth strategies:
Grow Our Portfolio of Contracts in Existing Geographic Markets. Our strategy is to capitalize on economies of scale and operating
efficiencies by expanding our contract portfolio in our existing geographic markets, especially in our core markets. As a given
geographic market achieves a threshold operational size, we typically will establish a local office in order to promote increased
operating efficiency by enabling local managers to use a common staff for recruiting, training and human resources support. This
concentration of operating locations allows for increased operating efficiency and superior levels of customer service and retention
through the accessibility of local managers and support resources.
Increase Penetration in Our Current Vertical End-Markets. We believe that a significant opportunity exists for us to further expand
our presence into certain industry end-markets, such as colleges and universities, hospitals and medical centers as well as
municipalities. In order to effectively target these new markets, we have implemented a go-to-market strategy of aligning our business
by vertical end-markets and branding our domain expertise through our SP+ operating division designations to highlight the
specialized expertise, competencies and services that we provide to meet the needs of each particular industry and customer. Our
developed SP+ brand, which emphasizes our specialized market expertise and distinguishes our ancillary service lines from the
traditional parking, includes a broad array of our operating divisions such as, SP+ Airport Services, SP+ GAMEDAY, SP+
Healthcare Services, SP+ Hotel Services, SP+ Municipal Services, SP+ Office Services, SP+ Residential Services, SP+
Retail Services and SP+ University Services, which further highlight the market-specific subject matter expertise that enables
our professionals to meet the varied parking and transportation-related demands of those specific property types. Because our
capabilities range beyond parking facility management, our SP+ Transportation, SP+ Facility Maintenance, and SP+ Event
Logistics brands more clearly distinguish those service lines from the traditional parking services that we provide under our SP +
Parking, Standard Parking, Central Parking and USA Parking brands.
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Expand and Cross-Sell Additional Services to Drive Incremental Revenue. We believe we have significant opportunities to further
strengthen our relationships with existing clients, and to attract new clients, by continuing to cross-sell value-added services that
complement our core parking operations. These services include shuttle bus operations, taxi and livery dispatch services, valet
services, concierge-type ground transportation, on-street parking meter collection and enforcement, facility maintenance services,
remote management, parking consulting and billing services.
Expand Our Geographic Platform. We believe that opportunities exist to further develop new geographic markets either through
new contract wins, acquisitions, alliances, joint ventures or partnerships. Clients who outsource the management of their parking
operations often have a presence in a variety of urban markets and seek to outsource the management of their parking facilities
to a national provider. We continue to focus on leveraging relationships with existing clients that have locations in multiple markets
as one potential entry point into developing new core markets.
Focus on Operational Efficiencies to Further Improve Profitability. We have invested substantial resources in information
technology and continually seek to consolidate various corporate functions where possible in order to improve our processes and
service offerings. In addition, we will continue to evaluate and improve our human capital management to ensure a consistent and
high-level of service for our clients. The initiatives undertaken to date in these areas have improved our cost structure and enhanced
our financial strength, which we believe will continue to yield future benefits. SP+ Remote Management Services allows us to
provide remote parking management services, whereby personnel are able to monitor revenue and other aspects of a parking
operation and provide 24-hour-a-day customer assistance (including remedying equipment malfunctions). After consolidating remote
operations, we have begun expanding the locations where our remote management technology is installed. As of December 31,
2015, we provided SP+ Remote Management Services to approximately 233 locations. We expect this business to grow as clients
focus on improving the profitability of their parking operations by decreasing labor costs at their locations through remote
management.
Pursue Opportunistic, Strategic Acquisitions. The outsourced parking management industry remains highly fragmented and
presents a significant opportunity for us. Given the scale in our existing operating platform, we have a demonstrated ability to
successfully identify, acquire and integrate strategic acquisitions and investments, such as Central in 2012 and our minority interest
investment in Parkmobile in 2014. We will continue to selectively pursue acquisitions or joint venture investment opportunities that
help us acquire scale or further enhance our service capabilities.
Grow the Hospitality Business. USA Parking is a leader in the valet industry, and management continues to believe there is
significant opportunity to use USA Parking's capability to develop a national valet business. Our objective is to focus on the most
important aspects of the valet business promptly upon obtaining a new location, from the first contact with a potential customer to
the execution of our services. Given the importance of neat, clean and polite service, the success of our valet business is dependent
upon ensuring that its valet associates deliver excellent service every day. To accomplish this objective, our USA University subsidiary
provides training to its valet associates. USA University, which began operating in 1995, has trained approximately 2,000 employees
during our past fiscal year to become an integrated extension of our clients' staff and blend seamlessly into the overall hospitality
experience.
Business Development
Our efforts to attract new clients are primarily concentrated in and coordinated by a dedicated business development group, whose
background and expertise is in the field of sales and marketing, and whose financial compensation is determined to a significant
extent by their business development success. This business development group is responsible for forecasting sales, maintaining
a pipeline of prospective and existing clients, initiating contacts with such clients, and then following through to coordinate meetings
involving those clients and the appropriate members of our operations hierarchy. By concentrating our sales efforts through this
dedicated group, we enable our operations personnel to focus on achieving excellence in our parking facility operations and
maximizing our clients' parking profits and our own profitability.
We also place a specific focus on marketing and client relationship efforts that pertain to those clients having a large regional or
national presence. Accordingly, we assign a dedicated executive to those clients to address any existing portfolio issues, as well
as to reinforce existing and develop new account relationships and to take any other action that may further our business development
interests.
Support Operations
We maintain regional and city offices throughout the United States, Puerto Rico and Canada in order to support approximately
22,000 employees and 3,900 locations. These offices serve as the central bases through which we provide the employees to staff
our parking facilities as well as the on-site and support management staff to oversee those operations. Our administrative staff
accountants are based in those same offices and facilitate the efficient, accurate and timely production and delivery to our clients
of our monthly reports. Having these all-inclusive operations and accounting teams located in regional and city offices throughout
the United States, Puerto Rico and Canada allows us to add new locations quickly and in a cost-efficient manner.
Our overall basic corporate functions in the areas of finance, human resources, risk management, legal, purchasing and procurement,
general administration, strategy and information and technology are based in our Chicago corporate office and Nashville support
office.
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Clients and Properties
Our client base includes a diverse cross-section of public and private owners of commercial, institutional and municipal real estate.
Employees
As of December 31, 2015, we employed 21,974 individuals, including 13,187 full-time and 8,787 part-time employees and as of
December 31, 2014, we employed 24,030 individuals, including 14,057 full-time and 9,973 part-time employees. Approximately
34% of our employees are covered by collective bargaining agreements and represented by labor unions. Various union locals
represent parking attendants and cashiers in the following cities: Atlanta, Akron (OH), Baltimore, Boston, Buffalo, Chicago, Cleveland,
Dallas, Denver, Detroit, Jersey City, Kansas City, Long Beach (CA), Los Angeles, Manchester (NH), Miami, New York City, Newark,
Philadelphia, Pittsburgh, Portland, Rochester, San Francisco, San Jose, San Juan (Puerto Rico), Santa Monica, Seattle, Syracuse
and Washington, DC.
We are frequently engaged in collective bargaining negotiations with various union locals. No single collective bargaining agreement
covers a material number of our employees. We believe that our employee relations are generally good.
Insurance
We purchase comprehensive liability insurance covering certain claims that occur in the operations that we lease or manage. The
primary amount of such coverage is $1.8 million per occurrence and $1.8 million in the aggregate per facility for our general/garage
liability, $2.0 million per occurrence and $2.0 million in the aggregate per facility for our garage keepers legal liability coverage and
$2.0 million per occurrence for auto liability coverage. In addition, we purchase workers' compensation insurance for all eligible
employees and umbrella/excess liability coverage. Under our various liability and workers' compensation insurance policies, we
are obligated to pay directly or reimburse the insurance carrier for the first $0.5 million of each loss covered by our general/garage
liability or automobile liability policies and $0.3 million for each loss covered by our workers' compensation and garage keepers
legal liability policies. As a result, we are effectively self-insured for all claims up to those levels. We also purchase property insurance
that provides coverage for loss or damage to our property and in some cases our clients' property, as well as business interruption
coverage for lost operating income and certain associated expenses. Because of the size of the operations covered and our claims
experience, we purchase insurance policies at prices that we believe represent a discount to the prices that would typically be
charged to parking facility owners on a stand-alone basis. The clients for whom we operate parking facilities pursuant to management
contracts have the option of purchasing their own liability insurance policies (provided that we are named as an additional insured
party), but historically most of our clients have chosen to obtain insurance coverage by being named as additional insureds under
our master liability insurance policies. Pursuant to our management contracts, we charge those clients an allocated portion of our
insurance-related costs.
We provide group health insurance with respect to eligible full-time employees (whether they work at leased facilities, managed
facilities or in our support offices). For the year ended December 31, 2015, we self-insured the cost of the medical claims for these
participants up to a stop-loss limit of $0.3 million million per individual. Pursuant to our management contracts, we charge those
clients an allocated portion of our insurance-related costs.
Competition
The parking industry is fragmented and highly competitive, with limited barriers to entry. We face direct competition for additional
facilities to manage or lease, while our facilities themselves compete with nearby facilities for our parking customers and in the
labor market generally for qualified employees. Moreover, the construction of new parking facilities near our existing facilities can
adversely affect our business. There are only a few national parking management companies that compete with us. However, we
also face competition from numerous smaller, locally owned independent parking operators, as well as from developers, hotels,
national financial services companies and other institutions that manage their own parking facilities as well as facilities owned by
others. Many municipalities and other governmental entities also operate their own parking facilities, potentially eliminating those
facilities as management or lease opportunities for us. Some of our present and potential competitors have or may obtain greater
financial and marketing resources than we have, which may negatively impact our ability to retain existing contracts and gain new
contracts. We also face significant competition in our efforts to provide ancillary services such as shuttle bus services and on-street
parking enforcement because a number of large companies specialize in these services. In addition, entry barriers into these
ancillary service businesses are low.
We believe that we compete for management clients based on a variety of factors, including fees charged for services, ability to
generate revenues and control expenses for clients, accurate and timely reporting of operational results, quality of customer service,
and ability to anticipate and respond to industry changes. Factors that affect our ability to compete for leased locations include the
ability to make financial commitments, long-term financial stability, and the ability to generate revenues and control expenses.
Factors affecting our ability to compete for employees include wages, benefits and working conditions.
Regulation
Our business is subject to numerous federal, state and local laws and regulations, and in some cases, municipal and state authorities
directly regulate parking facilities. Our facilities in New York City are, for example, subject to extensive governmental restrictions
concerning automobile capacity, pricing, structural integrity and certain prohibited practices. Many cities impose a tax or surcharge
on parking services, which generally range from 10% to 50% of revenues collected. We collect and remit sales/parking taxes and
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file tax returns for and on behalf of our clients and ourselves. We are affected by laws and regulations that may impose a direct
assessment on us for failure to remit sales/parking taxes or to file tax returns for ourselves and on behalf of our clients.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property.
Such laws typically impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence
of such hazardous or toxic substances. In connection with the operation of parking facilities, we may be potentially liable for any
such costs.
Several state and local laws have been passed in recent years that encourage car-pooling and the use of mass transit or impose
certain restrictions on automobile usage. These types of laws have adversely affected our revenues and could continue to do so
in the future. For example, the City of New York imposed restrictions in the wake of the September 11 terrorist attacks, which
included street closures, traffic flow restrictions and a requirement for passenger cars entering certain bridges and tunnels to have
more than one occupant during the morning rush hour. It is possible that cities could enact additional measures such as higher
tolls, increased taxes and vehicle occupancy requirements in certain circumstances, which could adversely impact us. We are also
affected by zoning and use restrictions and other laws and regulations that are common to any business that deals with real estate.
In addition, we are subject to laws generally applicable to businesses, including but not limited to federal, state and local regulations
relating to wage and hour matters, employee classification, mandatory healthcare benefits, unlawful workplace discrimination,
human rights laws and whistle blowing. Several cities in which we have operations either have adopted or are considering the
adoption of so-called "living wage" ordinances, which could adversely impact our profitability by requiring companies that contract
with local governmental authorities and other employers to increase wages to levels substantially above the federal minimum wage.
In addition, we are subject to provisions of the Occupational Safety and Health Act of 1970, as amended ("OSHA"), and related
regulations. Any actual or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim,
even if without merit, could result in costly litigation, regulatory action or otherwise harm our business, financial condition and results
of operations.
In connection with certain transportation services provided to our clients, including shuttle bus operations, we provide the vehicles
and the drivers to operate these transportation services. The U.S. Department of Transportation and various state agencies exercise
broad powers over these transportation services, including, licensing and authorizations, safety and insurance requirements. Our
employee drivers must also comply with the safety and fitness regulations promulgated by the Department of Transportation,
including those related to drug and alcohol testing and service hours. We may become subject to new and more restrictive federal
and state regulations. Compliance with such regulations could hamper our ability to provide qualified drivers and increase our
operating costs.
We are also subject to consumer credit laws and credit card industry rules and regulations relating to the processing of credit card
transactions, including the Fair and Accurate Credit Transactions Act and the Payment Card Data Security Standard. These laws
and these industry standards impose substantial financial penalties for non-compliance.
Various other governmental regulations affect our operation of parking facilities, both directly and indirectly, including the Americans
with Disabilities Act (the "ADA"). Under the ADA, all public accommodations, including parking facilities, are required to meet certain
federal requirements related to access and use by disabled persons. For example, the ADA requires parking facilities to include
handicapped spaces, headroom for wheelchair vans, attendants' booths that accommodate wheelchairs and elevators that are
operable by disabled persons. When negotiating management contracts and leases with clients, we generally require that the
property owner contractually assume responsibility for any ADA liability in connection with the property. There can be no assurance,
however, that the property owner has assumed such liability for any given property and there can be no assurance that we would
not be held liable despite assumption of responsibility for such liability by the property owner. Management believes that the parking
facilities we operate are in substantial compliance with ADA requirements.
Regulations by the Federal Aviation Administration may affect our business. The FAA generally prohibits parking within 300 feet of
airport terminals during times of heightened alert. The 300 foot rule and new regulations may prevent us from using a number of
existing spaces during heightened security alerts at airports. Reductions in the number of parking spaces may reduce our gross
profit and cash flow for both our leased facilities and those facilities we operate under management contracts.
Intellectual Property
SP Plus® and the SP+® and the SP+ logo, SP+ GAMEDAY®, Innovation In Operation®, Standard Parking® and the Standard
Parking logo, CPC®, Central Parking System®, Central Parking Corporation®, USA Parking®, Focus Point Parking® and Allright
Parking® are service marks registered with the United States Patent and Trademark Office. In addition, we have registered the
names and, as applicable, the logos of all of our material subsidiaries and divisions as service marks with the United States Patent
and Trademark Office or the equivalent state registry. We invented the Multi-Level Vehicle Parking Facility musical Theme Floor
Reminder System. We have also registered the copyright rights in our proprietary software, such as Client View©, Hand Held
Program©, License Plate Inventory Programs© and ParkStat© with the United States Copyright Office. We also own the URL
parking.com.
Corporate Information
9
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also available free charge at
www.spplus.com as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange
Commission (SEC). We provide references to our website for convenience, but our website does not constitute, and should not be
viewed as, part hereof, and our website is not incorporated into this or any of our other filings with the SEC.
10
Item 1A. Risk Factors
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding
any statement in this Form 10-K or elsewhere. The following information should be read in conjunction with Part II, Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K.
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently
known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly
cause the Company's actual results of operations and financial condition to vary materially from past or anticipated future results
of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company's
business, financial condition, results of operations and stock price.
Because of the following factors, as well as other factors affecting the Company's financial condition and operating results, past
financial performance should not be considered to be a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved in the normal
course of business, and a dispute with Central's former stockholders, could affect our operations and financial condition.
In the normal course of business, we are from time to time involved in various legal proceedings. The outcome of these legal
proceedings cannot be predicted. It is possible that an unfavorable outcome of some or all of the matters could cause us to incur
substantial liabilities that may have a material adverse effect upon our financial condition and results of operations. Any significant
adverse litigation, judgments or settlements could have a negative effect on our business, financial condition and results of operations.
In addition, we are subject to a number of ongoing legal proceedings, and we may incur substantial expenses defending such
matters and may have judgments levied against us that are substantial and may not be covered by previously established reserves.
On October 2, 2012 ("Closing Date"), we completed the acquisition (the "Central Merger" or "Merger") of 100% of the outstanding
common shares of KCPC Holdings, Inc., which was the ultimate parent of Central Parking Corporation (collectively, "Central"), for
6,161,332 shares of Company common stock and the assumption of approximately $217.7 million of Central's debt, net of cash
acquired. Additionally, the Agreement and Plan of Merger dated February 28, 2012 with respect to the Central Merger ("Merger
Agreement") provides that Central's former stockholders are entitled to receive cash consideration (the "Cash Consideration") in
the amount equal to $27.0 million plus, if and to the extent the Net Debt Working Capital (as defined below) was less than $275.0
million (the "Lower Threshold") as of September 30, 2012, the amount by which the Net Debt Working Capital was below such
amount (such sum, the "Cash Consideration Amount") to be paid three years after closing, to the extent the $27.0 million is not
used to satisfy indemnity obligations pursuant to the Merger Agreement.
Pursuant to the Merger Agreement, we are entitled to indemnification from Central's former stockholders (i) if and to the extent
Central's combined net debt and the absolute value of Central's working capital (as determined in accordance with the Merger
Agreement) (the "Net Debt Working Capital") exceeded $285.0 million (the "Upper Threshold") as of September 30, 2012 and (ii) for
certain defined adverse consequences as set forth in the Merger Agreement (including with respect to Structural and Repair Costs).
Pursuant to the Merger Agreement, Central's former stockholders are required to satisfy certain indemnity obligations, which are
capped at the Cash Consideration Amount (the "Capped Items") only through a reduction of the Cash Consideration. For certain
other indemnity obligations set forth in the Merger Agreement, which are not capped at the Cash Consideration Amount (the
"Uncapped Items"), including the Net Debt Working Capital indemnity obligations described above, Central's former stockholders
may satisfy any amount payable pursuant to such indemnity obligations as set forth in the Merger Agreement.
Since the Closing Date, we have periodically given Central’s former stockholders notice regarding indemnification matters, including
with respect to the calculation of Net Debt Working Capital, and have made adjustments for known matters as they arose, although
Central’s former stockholders have not agreed to the aggregate of such adjustments made by us. During such time, Central’s
former stockholders have continually requested additional documentation supporting our indemnification claims, including with
respect to the calculation of Net Debt Working Capital. Furthermore, following our notices of indemnification matters, the
representative of Central's former stockholders has indicated that they may make additional inquiries and raise issues with respect
to our indemnification claims (including, specifically, as to Structural and Repair Costs) and that they may assert various claims of
their own relating to the Merger Agreement.
We previously determined and submitted notification to Central’s former stockholders, that (i) the Net Debt Working Capital was
$296.3 million as of September 30, 2012 and that, accordingly, the Net Debt Working Capital exceeded the Upper Threshold by
$11.3 million; and (ii) we had indemnity claims of $23.4 million for certain defined adverse consequences (including indemnity claims
with respect to Structural and Repair Costs incurred through December 31, 2015) and as set forth in an October 1, 2015 notification
letter to Central's former stockholders' that certain indemnification claims for Structural and Repair Costs yet to be incurred met the
requirements of the indemnification provisions established in the Merger Agreement. These additional indemnification claims for
Structural and Repair Costs are estimated to be $1.2 million (representing 80% of the $1.5 million of Structural and Repair Costs
yet to be incurred by us).
11
In early 2015, we and Central’s former stockholders engaged an independent public accounting firm for ultimate resolution, through
binding arbitration, regarding its dispute as to the calculation of Net Debt Working Capital. On April 30, 2015 and with respect to
our Net Debt Working Capital calculation, the representative of Central's former stockholders submitted specific objections to the
calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $270.8 million ($4.2 million below the Lower
Threshold) and on September 21, 2015 submitted a revised calculation, asserting that the Net Debt Working Capital as of September
30, 2012 was $278.0 million ($3.0 million above the Lower Threshold) and therefore no amounts were due to us given the calculated
net Debt Working Capital was between the Lower Threshold and the Upper Threshold. On October 1, 2015, we provided notification
to Central's former stockholders that the aggregate amount of our (i) Net Debt Working Capital claim of $11.3 million as of September
30, 2012 and (ii) indemnity claims for certain defined adverse consequences as set forth in the Merger Agreement (including with
respect to Structural and Repair Costs), exceeded the $27.0 million Cash Consideration and therefore we would not be making
any Cash Consideration payment pursuant to Section 3.7 of the Merger Agreement. On October 20, 2015, Central's former
stockholders provided notification that they deemed our refusal to pay the $27.0 million Cash Consideration to be a violation of the
terms of the Merger Agreement.
On February 19, 2016, we received a non-appealable and binding decision from the independent public accounting firm indicating
that Net Debt Working Capital as of September 30, 2012 was $291.6 million, or $6.6 million above the Upper Threshold. Furthermore,
as part of the independent public accounting firm’s decision over the calculation of Net Debt Working Capital as of September 30,
2012, it was determined by the independent public accounting firm and us that $1.5 million of Net Debt Working Capital claims were
more appropriately claimable as an adverse consequence indemnification claim, as defined in the Merger Agreement. As such and
in conjunction with the independent public accounting firm’s decision on Net Debt Working Capital, we (i) reclassified $1.5 million
of indemnification claims from the Net Debt Working Capital calculation to indemnification claims for certain adverse consequences;
and (ii) recognized an expense of $1.6 million ($0.9 million, net of tax) in General and administrative expenses for certain of the
other amounts disallowed under the Net Debt Working Capital calculation as of and for the year ended December 31, 2015,
respectively. The independent public accounting firm also determined that an additional $1.6 million of Net Debt Working Capital
claims were disallowed; however, these Net Debt Working Capital amounts claimed by us were not previously recognized as a cost
recovery given their contingent nature and since these claims were not previously recognized as an expense by us, the independent
public accounting firm’s decision to disallow these claims had no impact to our consolidated financial statements as of and for the
year ended December 31, 2015.
We have evaluated the nature of the costs and related indemnity claims and have concluded that it is probable that such indemnified
claims will sustain any challenge from Central’s former stockholders and recoverability of these indemnified claims is reasonably
assured. However, under the Merger Agreement, all post-closing claims and disputes, including as to indemnification matters, are
ultimately subject to resolution through binding arbitration or, in the case of a dispute as to the calculation of Net Debt Working
Capital, resolution by an independent public accounting firm. Should a dispute resolution process for indemnification matters result
in determinations unfavorable to us, the resulting resolution may have a material and adverse impact on our business, financial
condition and results of operations.
We are subject to intense competition and potential changes to consumer behavior, both of which could constrain our
ability to gain business, as well as our profitability.
We believe that competition is intense in the parking facility management, valet, transportation services and event management
businesses, including other ancillary services that we offer. The low cost of entry into the parking facility management, valet,
transportation services and event management businesses have led to a strongly competitive, fragmented markets consisting of
various sized entities, ranging from small local or single lot operators to large regional and national businesses and multi-facility
operators, as well as governmental entities that choose not to outsource their parking operations. Competitors may be able to adapt
more quickly to changes in customer requirements, devote greater resources to the promotion and sale of their services or develop
technology that is as or more successful than our proprietary technology. We provide nearly all of our services under contracts,
many of which are obtained through competitive bidding, and many of our competitors also have long-standing relationships with
our clients. Providers of parking facility management services have traditionally competed on the basis of cost and quality of service.
As we have worked to establish ourselves as principal members of the industry, we compete predominately on the basis of high
levels of service and strong relationships. We may not be able to, or may choose not to, compete with certain competitors on the
basis of price. As a result, a greater proportion of our clients may switch to other service providers or self-manage. Furthermore,
these strong competitive pressures could impede our success in bidding for profitable business and our ability to increase prices
even as costs rise, thereby reducing margins.
While we devote considerable effort and resources to analyze and respond to consumer preferences and changes to consumer
preferences and the markets in which we operate, consumer preferences cannot be predicted with certainty and can change rapidly.
If we are unable to anticipate and respond to trends in the consumer market place and the industry, including but not limited to
market displacement by livery service companies and ride sharing companies, it could constrain our business and have a material
and adverse impact on our business, financial condition and results of operations.
12
Our management contracts and leases expose us to certain risks.
The loss or renewal on less favorable terms of a substantial number of management contracts or leases could have a material
adverse effect on our business, financial condition and results of operations. A material reduction in the operating income associated
with the integrated services we provide under management contracts and leases could have a material adverse effect on our
business, financial condition and results of operations. Our management contracts are typically for a term of one to three years,
although the contracts may often be terminated, without cause, on 30 days' notice or less, giving clients regular opportunities to
attempt to negotiate a reduction in fees or other allocated costs. Any loss of a significant number of clients could in the aggregate
materially adversely affect our operating results.
We are particularly exposed to increases in costs for locations that we operate under leases because we are generally responsible
for all the operating expenses of our leased locations. During the first and fourth quarters of each year, seasonality impacts our
performance with regard to moderating revenues, 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,
all of which negatively affects gross profit.
Deterioration in economic conditions in general could reduce the demand for parking and ancillary services and, as a
result, reduce our earnings and adversely affect our financial condition.
Adverse changes in global, national and local economic conditions could have a negative impact on our business. In addition, our
business operations tend to be concentrated in large urban areas. Many of our customers are workers who commute by car to their
places of employment in these urban centers. Our business could be materially adversely affected to the extent that weak economic
conditions or demographic factors have resulted in the elimination of jobs and high unemployment in these large urban areas. In
addition, increased unemployment levels, the movement of white-collar jobs from urban centers to suburbs or out of North America
entirely, increased office vacancies in urban areas, movement toward home office alternatives or lower consumer spending could
reduce consumer demand for our services.
Adverse changes in economic conditions could also lead to a decline in parking at airports and commercial facilities, including
facilities owned by retail operators and hotels. In particular, reductions in parking at leased facilities can lower our profit because a
decrease in revenue would be exacerbated by fixed costs that we must pay under our leases.
If adverse economic conditions reduce discretionary spending, business travel or other economic activity that fuels demand for our
services, our earnings could be reduced. Adverse changes in local and national economic conditions could also depress prices for
our services or cause clients to cancel their agreements to purchase our services.
We are increasingly dependent on information technology, and potential disruption, cyber-attacks, cyber terrorism and
security breaches present risks that could harm our business.
We are increasingly centralized and dependent on automated information technology systems to manage and support a variety of
business processes and activities. In addition, a portion of our business operations is conducted electronically, increasing the risk
of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. Improper activities by
third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may
result in a future compromise or breach of our networks, payment card terminals or other payment systems. In particular, the
techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until
launched against a target; accordingly, we may be unable to anticipate these techniques or implement adequate preventative
measures. Additionally, our systems are subject to damage or interruption from system conversions, power outages, computer or
telecommunications failures, computer viruses and malicious attack, security breaches and catastrophic events. If our systems
are damaged or fail to function properly, we may incur substantial repair and/or replacement costs, experience data loss or theft
and impediments to our ability to manage customer transactions, which could adversely affect our operations and our results of
operations. In addition, there is a risk of business interruption, reputational damage and potential legal liability damages from leakage
of confidential information. The occurrence of acts of cyber terrorism such as website defacement, denial of automated payment
services, sabotage of our proprietary on-demand technology or the use of electronic social media to disseminate unfounded or
otherwise harmful allegations to our reputation, could have a material adverse effect on our business. Any business interruptions
or damage to our reputation could negatively impact our financial condition and results of operations. While we maintain insurance
coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be
insufficient to cover all losses and would not remedy damage to our reputation.
In the fourth quarter of 2014, a third-party vendor retained by our client that provides and maintains payment card systems in some
of our parking facilities notified us that an unauthorized person had used a remote access tool to connect to some of its payment
processing systems and that our customers' data was at risk. We retained a leading computer forensic firm to conduct an investigation
and further determine the facts. After extensive analysis, we discovered evidence confirming that criminals used a remote access
tool to install malware that searched for payment card data that was being routed through the computers that accept payments
made at the parking facilities (the "Data Breach"). The malware has now been removed from servers that were attacked and it no
longer presents a threat to customers using the impacted parking garages that we operate. We have received a small number of
reports of fraudulent use of payment cards potentially connected to the data breach. We fulfilled all obligations for notifying our
payment processors and impacted customers. We have also implemented additional security measures including forcing our vendors
to use two-factor authentication for remote access.
13
We do not have control over security measures taken by third-party vendors hired by our clients to prevent unauthorized access
to electronic and other confidential information. There can be no assurance that other third-party payment processing vendors will
not suffer a similar attack in the future, that unauthorized parties will not gain access to personal financial information, or that any
such incident will be discovered in a timely manner.
We have incurred substantial indebtedness that requires us to comply with certain financial and operating covenants
under our credit facility and to make payments as they become due, and our failure to comply could cause amounts
borrowed under the facility to become immediate due and payable or prevent us from borrowing under the facility.
On February 20, 2015, we entered into an Amended and Restated Credit Agreement ("Restated Credit Agreement"), providing for
$400.0 million in secured senior credit facility ("Restated Credit Facility") consisting of (i) a $200.0 million revolving credit facility
and (ii) a $200.0 million term loan facility (which is subject to scheduled quarterly amortization) with Bank of America, Wells Fargo
Bank and certain other financial institutions. The Restated Credit Facility matures on February 20, 2020, at which time any amounts
outstanding will be due and payable in full. As of December 31, 2015, we had $185.0 million outstanding under the term loan facility
and $94.7 million outstanding under the revolving credit facility, respectively. This level of indebtedness and any increases in
outstanding indebtedness may:
•
•
•
require us to dedicate a significant percentage of our cash flow from operations to payments on our debt, thereby
reducing the availability of cash flow to fund capital expenditures, pursue other acquisitions or investments in new
technologies, make stock repurchases, pay dividends and for general corporate purposes;
increase our vulnerability to general adverse economic conditions, including increases in interest rates if the borrowings
bear interest at variable rates or if such indebtedness is refinanced at a time when interest rates are higher; and
limit our flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry, creating
competitive disadvantages compared to other competitors with lower debt levels and borrowing costs.
We are required to comply with specified financial and operating covenants and to make scheduled payments of our term loan,
which could limit our ability to operate our business as we otherwise might operate it. Our failure to comply with any of these
covenants or to meet any payment obligations under the Restated Credit Facility could result in an event of default which, if not
cured or waived, would result in any amounts outstanding, including any accrued interest and unpaid fees, becoming immediately
due and payable.
We cannot assure you that cash flow from operations, combined with additional borrowings under the Restated Credit Facility and
any future credit facility, will be available in an amount sufficient to enable us to repay our indebtedness, or to fund other liquidity
needs. If the consolidated leverage ratio exceeds certain thresholds, the interest rate on indebtedness outstanding under our credit
facility will be higher.
We may incur substantial additional indebtedness in the future, which could cause the related risks to intensify. We may need to
refinance all or a portion of our indebtedness on or before their respective maturities. We cannot assure you that we will be able
to refinance any of our indebtedness, including indebtedness under our Restated Credit Facility, on commercially reasonable terms
or at all. If we are unable to refinance our debt, we may default under the terms of our indebtedness, which could lead to an
acceleration of the debt. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such
indebtedness was accelerated.
We must comply with public and private regulations that may impose significant costs on us.
Under various federal, state and local environmental laws, ordinances and regulations, current or previous owners or operators of
real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in their properties.
This applies to properties we either own or operate. These laws typically impose liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or toxic substances. We may be potentially liable for
such costs as a result of our operation of parking facilities. Additionally, we hold a partial ownership interest in four of these parking
facilities acquired in the Central Merger, and Central previously owned a large number of properties that we did not acquire. We
may now be liable for such costs as a result of such previous and current ownership. In addition, from time to time we are involved
in environmental issues at certain locations or in connection with our operations. The cost of defending against claims of liability,
or remediation of a contaminated property, could have a material adverse effect on our business, financial condition and results of
operations. In addition, several state and local laws have been passed in recent years that encourage carpooling and the use of
mass transit. Laws and regulations that reduce the number of cars and vehicles being driven could adversely impact our business.
In connection with certain transportation services provided to our clients, including shuttle bus operations, we provide the vehicles
and the drivers to operate these transportation services. The U.S. Department of Transportation and various state agencies exercise
broad powers over these transportation services, including, licensing and authorizations, safety and insurance requirements. Our
employee drivers must also comply with the safety and fitness regulations promulgated by the Department of Transportation,
including those related to drug and alcohol testing and service hours. We may become subject to new and more restrictive federal
and state regulations. Compliance with such regulations could hamper our ability to provide qualified drivers and increase our
operating costs.
14
We are also subject to consumer credit laws and credit card industry rules and regulations relating to the processing of credit card
transactions, including the Fair and Accurate Credit Transactions Act and the Payment Card Data Security Standard. These laws
and these industry standards impose substantial financial penalties for non-compliance.
In addition, we are subject to laws generally applicable to businesses, including but not limited to federal, state and local regulations
relating to wage and hour matters, employee classification, mandatory healthcare benefits, unlawful workplace discrimination and
whistle blowing. Any actual or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim,
even if without merit, could result in costly litigation, regulatory action or otherwise harm our business, financial condition and results
of operations.
We collect and remit sales/parking taxes and file tax returns for and on behalf of ourselves and our clients. We are affected by laws
and regulations that may impose a direct assessment on us for failure to remit sales/parking taxes and filing of tax returns for
ourselves and on behalf of our clients.
The financial difficulties or bankruptcy of one or more of our major clients could adversely affect our results.
Future revenue and our ability to collect accounts receivable depend, in part, on the financial strength of our clients. We estimate
an allowance for accounts we do not consider collectible, and this allowance adversely impacts profitability. In the event that our
clients experience financial difficulty, become unable to obtain financing or seek bankruptcy protection, our profitability would be
further impacted by our failure to collect accounts receivable in excess of the estimated allowance. Additionally, our future revenue
would be reduced by the loss of these clients or by the cancellation of leases or management contracts by clients in bankruptcy.
Additional funds would need to be reserved for future insurance losses if such losses are worse than expected.
We provide liability and worker's compensation insurance coverage consistent with our obligations to our clients under our various
management contracts and leases. We are obligated to reimburse our insurance carriers for, or pay directly, each loss incurred up
to the amount of a specified deductible or self-insured retention. The per-occurrence deductible is $0.3 million for our workers'
compensation and garage keepers legal liability policies and $0.5 million for our automobile liability policy. The per-occurrence self-
insured retention for our general liability policy is $0.5 million. We also purchase property insurance that provides coverage for loss
or damage to our property, and in some cases our clients' property, as well as business interruption coverage for lost operating
income and certain associated expenses. The deductible applicable to any given loss under the property insurance policies varies
based upon the insured values and the peril that causes the loss. The stop-loss limit applicable under the group health insurance
we provide for eligible employees is $0.3 million per illness. Our financial statements reflect our funding of all such obligations based
upon guidance and evaluation received from third-party insurance professionals. There can be no assurance, however, that the
ultimate amount of our obligations will not exceed the amount presently funded or accrued, in which case we would need to set
aside additional funds to reserve for any such excess. Changes in insurance reserves as a result of periodic evaluations of the
liabilities can cause swings in operating results that may not be indicative of the operations of our ongoing business. Additionally,
our obligations could increase if we receive a greater number of insurance claims, or if the severity of, or the administrative costs
associated with, those claims generally increases. A material increase in insurance costs due to a change in the number or severity
of claims, claim costs or premiums paid by us could have a material adverse effect on our operating income.
Labor disputes could lead to loss of revenues or expense variations.
When one or more of our major collective bargaining agreements becomes subject to renegotiation or when we face union organizing
drives, we may disagree with the union on important issues that, in turn, could lead to a strike, work slowdown or other job actions.
There can be no assurance that we will be able to renew existing labor union contracts on acceptable terms. In such cases, there
are no assurances that we would be able to staff sufficient employees for our short-term needs. A strike, work slowdown or other
job action could in some cases disrupt us from providing services, resulting in reduced revenues. If declines in client service occur
or if our clients are targeted for sympathy strikes by other unionized workers, contract cancellations could result. The result of
negotiating a first time agreement or renegotiating an existing collective bargaining agreement could result in a substantial increase
in labor and benefits expenses that we may be unable to pass through to clients. In addition, potential legislation could make it
significantly easier for union organizing drives to be successful and could give third-party arbitrators the ability to impose terms of
collective bargaining agreements upon us and a labor union if we are unable to agree with such union on the terms of a collective
bargaining agreement.
At December 31, 2015, approximately 34% of our employees were represented by labor unions and approximately 58% of our
collective bargaining contracts are up for renewal in 2016, representing approximately 23% of our employees. In addition, at any
given time, we may face a number of union organizing drives.
In addition, we make contributions to multi-employer benefit plans on behalf of certain employees covered by collective bargaining
agreements and could be responsible for paying unfunded liabilities incurred by such benefit plans, which amount could be material.
Our business success depends on retaining senior management and attracting and retaining qualified personnel.
Our future performance depends on the continuing services and contributions of our senior management to execute on our acquisition
and growth strategies and to identify and pursue new opportunities. Our future success also depends, in large degree, on our
continued ability to attract and retain qualified personnel. Any unplanned turnover in senior management or inability to attract and
retain qualified personnel could have a negative effect on our results of operations.
15
Negative or unexpected tax consequences could adversely affect our results of operations.
Adverse changes in underlying profitability and financial outlook of our operations could lead to changes in valuation allowances
against our deferred tax assets on our consolidated balance sheet, which could materially and adversely affect our results of
operations. Additionally, changes in U.S. tax laws or state tax laws or our interpretation of existing laws in states where we have
significant operations could have an adverse effect on deferred tax assets and liabilities on our consolidated balance sheets and
results of operations. We are also subject to tax audits by governmental authorities in the United States and Canada. Negative
unexpected results from one or more such tax audits or our failure to sustain our reporting positions on examination could have an
adverse effect on our results of operations and our effective tax rate.
We have investments in joint ventures and may be subject to certain financial and operating risks with our joint venture
investments.
We have acquired or invested in a number of joint ventures, and may acquire or enter into joint ventures with additional companies.
These transactions create risks such as: (i) additional operating losses and expenses in the businesses acquired or joint ventures
for which we have made investments in, (ii) the dependence on the investee's accounting, financial reporting and similar systems,
controls and processes of other entities whose financial performance is incorporated into our financial results due to our investment
in that entity, (iii) potential unknown liabilities associated with a company we may acquire or in which we invest, (iv) our requirement
or obligation to commit and provide additional capital, equity, or credit support as required by the joint venture agreements, (v) the
joint venture partner may be unable to perform its obligations as a result of financial or other difficulties or be unable to provide for
additional capital, equity or credit support as required by the joint venture agreements and (vi) disruption of our ongoing business,
including loss of management focus on the business. As a result of future acquisitions or joint ventures for which we may invest in,
we may need to issue additional equity securities, spend our cash, or incur debt and contingent liabilities, any of which could reduce
our profitability and harm our business. In addition, valuations supporting our acquisitions or investments in joint ventures could
change rapidly given the global economic environment and climate. We could determine that such valuations have experienced
impairments other-than-temporary declines in fair value which could adversely impact our financial results.
Weather conditions, including natural disasters, or acts of terrorism could disrupt our business and services.
Weather conditions, including fluctuations in temperatures, hurricanes, snow or severe weather storms, earthquakes, drought,
heavy flooding, natural disasters or acts of terrorism may result in reduced revenues and gross profit. Weather conditions, natural
disasters and acts of terrorism may also cause economic dislocations throughout the country. Weather conditions, including natural
disasters, could lead to reduced levels of travel and require increase in certain costs of parking services of which could negatively
affect gross profit. In addition, terrorist attacks have resulted in, and may continue to result in, increased government regulation of
airlines and airport facilities, including imposition of minimum distances between parking facilities and terminals, resulting in the
elimination of currently managed parking facilities. We derive a significant percentage of our gross profit from parking facilities and
parking related services in and around airports. The Federal Aviation Administration generally prohibits parking within 300 feet of
airport terminals during periods of heightened security. While the prohibition is not currently in effect, there can be no assurance
that this governmental prohibition will not again be reinstated. The existing regulations governing parking within 300 feet of airport
terminals or future regulations may prevent us from using certain parking spaces. Reductions in the number of parking spaces and
air travelers may reduce our revenue and cash flow for both our leased facilities and those facilities we operate under management
contracts.
Because our business is affected by weather related trends, typically in the first and fourth quarters of each year, our
results may fluctuate from period to period, which could make it difficult to evaluate our business.
Weather conditions, including fluctuations in temperatures, snow or severe weather storms, heavy flooding, hurricanes or natural
disasters, can negatively impact portions of our business. We periodically have experienced fluctuations in our quarterly results
arising from a number of factors, including the following:
•
•
reduced levels of travel during and as a result of severe weather conditions, which is reflected in lower revenue from
urban, airport and hotel parking; and
increased costs of parking services, such as snow removal.
These factors have typically had negative impacts to our gross profit in the first quarter and could cause gross profit reductions in
the future, either in the first quarter or other quarters. As a result of these seasonal affects, our revenue and earnings in the second,
third and fourth quarters generally tend to be higher than revenue and earnings in the first quarter. Accordingly, you should not
consider our first quarter results as indicative of results to be expected for any other quarter or for any full fiscal year. Fluctuations
in our results could make it difficult to evaluate our business or cause instability in the market price of our common stock.
Risks relating to our acquisition strategy may adversely impact our results of operations.
In the past, a significant portion of our growth has been generated by acquisitions, and we expect to continue to acquire businesses
in the future as part of our growth strategy. A slowdown in the pace or size of our acquisitions could lead to a slower growth rate.
There can be no assurance that any acquisition we make in the future will provide us with the benefits that we anticipate when
entering into the transaction. The process of integrating an acquired business may create unforeseen difficulties and expenses.
The areas in which we may face risks in connection with any potential acquisition of a business include, but are not limited to:
16
• management time and focus may be diverted from operating our business to acquisition integration;
•
•
•
•
clients or key employees of an acquired business may not remain, which could negatively impact our ability to grow that
acquired business;
integration of the acquired business’s accounting, information technology, human resources, and other administrative
systems may fail to permit effective management and expense reduction;
implementing internal controls, procedures, and policies appropriate for a public company in an acquired business that
lacked some of these controls, procedures, and policies may fail;
additional indebtedness incurred as a result of an acquisition may impact our financial position, results of operations, and
cash flows; and
•
unanticipated or unknown liabilities may arise relating to the acquired business.
Goodwill impairment charges could have a material adverse effect on our financial condition and results of operations.
Goodwill represents the excess purchase price of acquired businesses over the fair values of the assets acquired and liabilities
assumed. We have elected to make the first day of our fiscal fourth quarter, October 1st, the annual impairment assessment date
for goodwill. However, we could be required to evaluate the recoverability of goodwill prior to the annual assessment if we experience
a significant under-performance relative to expected historical or projected future operating results, significant changes in the use
of acquired assets or our business strategy, and significant negative industry or economic trends. If the fair value of one of our
operating units is less than its carrying value, we would record impairment for the excess of the carrying amount over the estimated
fair value. The valuation of our operating units requires significant judgment in evaluation of recent indicators of market activity and
estimated future cash flows, discount rates, and other factors. The amount of any impairment could have a material adverse effect
on our reported financial results for the period in which the charge is taken.
Impairment of long-lived assets may adversely affect our operating results.
We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. These events and circumstances include, but are not limited to, a current expectation that
a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, a significant adverse change
in the extent or manner in which we use a long-lived asset or a change in its physical condition. When this occurs, a recoverability
test is performed that compares the projected undiscounted cash flows from the use and eventual disposition of an asset or asset
group to its carrying amount. If as a result of this test we conclude that the projected undiscounted cash flows are less than the
carrying amount, impairment would be recorded for the excess of the carrying amount over the estimated fair value. The amount
of any impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken.
State and municipal government clients may sell or enter into long-term leases of parking-related assets with our
competitors or property owners and developers may redevelop existing locations for alternative uses.
In order to raise additional revenue, a number of state and municipal governments have either sold or entered into long-term leases
of public assets or may be contemplating such transactions. The assets that are the subject of such transactions have included
government-owned parking garages located in downtown commercial districts and parking operations at airports. The sale or long-
term leasing of such government-owned parking assets to our competitors or clients of our competitors could have a material
adverse effect on our business, financial condition and results of operations.
Additionally, property owners and developers may elect to redevelop existing locations for alternative uses other than parking or
significantly reduce the number of existing spaces used for parking at those facilities in which we either lease or operate through
a management contract. Reductions in the number of parking spaces or potential loss of contracts due to redevelopment by property
owners may reduce our gross profit and cash flow for both our leased facilities and those facilities in which we operate under
management contracts.
Our ability to expand our business will be dependent upon the availability of adequate capital.
The rate of our expansion will depend in part on the availability of adequate capital, which in turn will depend in large part on cash
flow generated by our business and the availability of equity and debt capital. In addition, our Restated Credit Facility contains
provisions that restrict our ability to incur additional indebtedness and/or make substantial investments or acquisitions. As a result,
we cannot assure you that we will be able to finance our current growth strategies.
The sureties for our performance bond program may elect not to provide us with new or renewal performance bonds for
any reason.
As is customary in the industry, a surety provider can refuse to provide a bond principal with new or renewal surety bonds. If any
existing or future surety provider refuses to provide us with surety bonds, either generally or because we are unwilling or unable
to post collateral at levels sufficient to satisfy the surety's requirements, there can be no assurance that we would be able to find
alternate providers on acceptable terms, or at all. Our inability to provide surety bonds could also result in the loss of existing
17
contracts. Failure to find a provider of surety bonds, and our resulting inability to bid for new contracts or renew existing contracts,
could have a material adverse effect on our business and financial condition.
Federal health care reform legislation may adversely affect our business and results of operations.
In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were
signed into law in the U.S. (collectively, the "Health Care Reform Laws"). The Health Care Reform Laws require large employers
to provide a minimum level of health insurance for all qualifying employees or pay penalties for not providing such coverage. In
addition, the Health Care Reform Laws establish new regulations on health plans. Accordingly, we could incur costs associated
with: (i) providing additional health insurance benefits; (ii) the payment of penalties if the minimum level of coverage is not provided;
and (iii) the filing of additional information with the Internal Revenue Service to comply with these laws. If we are unable to raise
the rates we charge our clients to cover these expenses, our operating profit could be negatively impacted.
We do not maintain insurance coverage for all possible risks.
We maintain a comprehensive portfolio of insurance policies to help protect us against loss or damage incurred from a wide variety
of insurable risks. Each year, we review with our professional insurance advisers whether the insurance policies and associated
coverages that we maintain are sufficient to adequately protect us from the various types of risk to which we are exposed in the
ordinary course of business. That analysis takes into account various pertinent factors such as the likelihood that we would incur
a material loss from any given risk, as well as the cost of obtaining insurance coverage against any such risk. There can be no
assurance that we may not sustain a material loss for which we do not maintain any, or adequate, insurance coverage.
Item 1B. Unresolved Staff Comments
Not applicable.
18
Item 2. Properties
Parking Facilities
We operate parking facilities in 44 states and the District of Columbia in the United States, Puerto Rico and three provinces of
Canada. The following table summarizes certain information regarding facilities in which we operate as of December 31, 2015:
States/Provinces
Airports and Urban Cities
Airport
Urban
Total
Airport
Urban
Total
Alabama
Airport, Birmingham, Mobile and Talladega
# of Locations
# of Spaces
Alberta
Arizona
California
Colorado
Calgary, Edmonton and Sherwood Park
Glendale, Nogales, Phoenix, Scottsdale
and Tempe
Airports, Glendale, Long Beach, Los
Angeles, Newport Beach, Oakland,
Riverside, Sacramento, San Francisco,
San Jose, Santa Monica and other various
cities
Airports, Aurora, Boulder, Broomfield,
Colorado Springs, Denver, Golden,
Greenwood Village, Lakewood, Lone Tree,
Westminster and other various cities
Connecticut
Airports, Hartford, Stamford, Waterbury
and Windsor Locks
Delaware
Wilmington
District of Columbia Washington
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Airports, Coral Gables, Ft. Lauderdale,
Jacksonville, Miami, Miami Beach,
Orlando, South Miami, St. Petersburg,
Tampa, West Palm Beach and other
various cities
Airports, Athens, Atlanta, Decatur, and
Duluth
Aiea, Honolulu, Kaneohe, Lahaina,
Wailuku and Waipahu
Airport
Airports, Chicago, Elgin, Evanston, Harvey,
Lake County, North Chicago, Oak Park,
Rosemont, Schaumburg and other various
cities
Indianapolis and South Bend
Kansas City and Topeka
Airports, Covington, Louisville, Frankfort
and Lexington
Airports, Baton Rouge, Gretina, New
Orleans, Shreveport and Westwego
Airports and Portland
Airports, Baltimore, Bethesda, Ellicott City,
Landover, Oxon Hill, Rockville and Towson
Attleboro, Boston, Cambridge,
Charlestown, Chelsea, Lawrence,
Roxbury, Somerville, Springfield and
Worcester and various other cities
Airports, Ann Arbor, Birmingham, Detroit,
Pontiac, Flint, Freeland, Grand Rapids,
Kalamazoo, Lansing, Royal Oak and
Traverse City
Minneapolis and St. Paul
Jackson
Airports, Barnhart, Clayton, Kansas City,
Springfield and St. Louis
Airports
Airports, Lincoln
New Hampshire
Airports, Manchester
1
—
—
55
9
28
56
9
28
1,074
—
—
10,034
1,298
11,108
1,298
19,829
19,829
21
600
621
45,083
261,847
306,930
157
167
42,056
60,948
103,004
5
5
74
13
5
74
7,941
—
—
2,679
1,634
16,188
10,620
1,634
16,188
199
223
46,602
86,869
133,471
67
38
—
83
38
1
35,367
46,577
81,944
—
883
12,989
—
12,989
883
320
333
37,366
120,157
157,523
4
3
19
65
99
53
4
3
25
72
99
—
—
570
832
570
832
16,807
3,428
20,235
10,324
—
17,698
33,138
28,022
33,138
59
27,700
52,403
80,103
2
5
3,081
1,129
4,210
31
35
12
76
—
12
—
45
35
12
34,989
—
—
15,173
10,429
3,288
50,162
10,429
3,288
83
24,816
31,818
56,634
5
14
5
3,801
1,307
8,427
—
2,441
—
3,801
3,748
8,427
10
8
—
—
24
16
—
1
13
—
—
6
7
—
6
3
14
—
—
7
5
2
5
19
States/Provinces
Airports and Urban Cities
Airport
Urban
Total
Airport
Urban
Total
# of Locations
# of Spaces
New Jersey
Atlantic City, Bayonne, Camden, East
Rutherford, Jersey City, New Brunswick,
Newark, Paterson, Wayne, Weehawken
and various other cities
New Mexico
Airport and Albuquerque
—
1
89
8
89
9
—
—
73,216
3,777
73,216
3,777
New York
North Carolina
North Dakota
Ohio
Oklahoma
Ontario
Oregon
Pennsylvania
Puerto Rico
Quebec
Rhode Island
Airports, Bronx, Brooklyn, Buffalo,
Flushing, Hamburg, Long Island City,
Manhattan, Queens, Ronkoma, Syracuse,
West Harrison, White Plains and other
various cities
Airports, Albemarle, Asheville, Carolina
Beach, Charlotte, Durham, Fletcher,
Greensboro, Wilmington, and Winston
Salem
Airports
Airports, Akron, Cincinnati, Cleveland,
Columbus, Dayton, Lakewood, North
Canton and Westerville
Oklahoma City and Tulsa
Brampton, Cambridge, Kitchener,
Mississauga, North York, Oshawa, Ottawa,
Saultsaintemarie, Thunder bay, Toronto
and various other cities
Airports, Corvallis, Medford, Portland and
Redmond
Airports, Avoca, Chester, Harrisburg,
Lancaster, Middletown, Norristown,
Philadelphia, Pittsburgh and Scranton
Caguas, Carolina, Dorado, Guaynabo,
Ponce, Rio Grande and San Juan
Gatineau
Airports, Middletown, Newport, Providence
and Warwick
South Carolina
Beaufort and Columbia
South Dakota
Airports, Rapid City, Sioux Falls
Tennessee
Texas
Utah
Virginia
Airports, Blountville, Knoxville, Memphis
and Nashville
Airports, Addison, Austin, Dallas, El Paso,
Ft. Worth, Houston, Irving, San Antonio,
Waco and Woodlands and other various
cities
Airports, Farmington, Park City and Salt
Lake City
Airports, Arlington, Fairfax, Manassas,
Newport News, Norfolk, Reston,
Richmond, Roanoke, Vienna and various
other cities
Washington
Airport, Bellevue, Bellingham and Seattle
West Virginia
Charleston
Wisconsin
Airports, Appleton, Green Bay, Lacrosse,
Madison, Menomonee Falls and
Milwaukee
Totals
8
509
517
15,547
91,673
107,220
9
2
17
—
88
—
97
17,208
26,038
2
2,971
—
43,246
2,971
154
171
17,655
91,578
109,233
28
28
—
7,466
7,466
—
88
88
—
35,770
35,770
8
17
25
19,133
9,353
28,486
4
68
72
7,241
57,976
65,217
—
—
7
—
2
40
8
8
8
—
40
8
—
—
18,622
4,647
15
9,027
8
2
—
2,716
2,236
1,949
—
18,622
4,647
11,263
1,949
2,716
4
64
68
10,197
13,876
24,073
33
223
256
36,893
142,645
179,538
10
16
26
14,769
5,536
20,305
7
86
93
11,280
32,166
43,446
1
—
84
16
85
16
2,348
22,431
—
2,854
24,779
2,854
12
30
42
17,605
14,524
32,129
274
3,600
3,874
532,214
1,471,729
2,003,943
For additional information on our properties, see also Part II, Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations—Summary of Operating Facilities" and the notes to the Consolidated Financial Statements included in
Part II, Item 8. "Financial Statements and Supplementary Data."
20
Office Leases
We lease approximately 35,000 square feet for our corporate offices in Chicago, Illinois and 33,000 square feet for our support
office in Nashville, Tennessee. We believe that these spaces will be adequate to our meet current and foreseeable future needs.
We also lease regional offices in various cities in the United States and Canada. These lease agreements generally include renewal
and expansion options, and we believe that these facilities are adequate to meet our current and foreseeable future needs.
Item 3. 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 addition, we are from time-to-time party to litigation, administrative
proceedings and union grievances that arise in the normal course of business, and occasionally pay non-material amounts to
resolve claims or alleged violations of regulatory requirements. There are no "normal course" matters that separately or in the
aggregate, would, in the opinion of management, have a material adverse effect on our operations, financial condition or cash flow.
In determining the appropriate 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 potential 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 potential loss or a range of potential loss involves significant estimation and judgment.
Item 4. Mine Safety Disclosures
Not applicable.
21
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the NASDAQ Stock Market LLC under the symbol "SP". The following sets forth the high and low
intraday sales prices of our common stock on the NASDAQ Stock Market LLC during each quarter of the two most recent calendar
years.
Quarter Ended
March 31
June 30
September 30
December 31
Dividends
Sales Price
2015
2014
High
Low
High
Low
$
$
$
$
25.39
27.33
27.41
26.39
$
$
$
$
19.71
21.62
18.50
21.66
$
$
$
$
27.72
26.73
22.60
25.76
$
$
$
$
23.59
20.50
17.96
18.65
We did not pay a cash dividend in respect of our common stock in 2015 or 2014. By the terms of our Restated Credit Facility, we
can pay cash dividends on our capital stock while such facility is in effect. Any future dividends will be determined based on earnings,
capital requirements, financial condition, and other factors considered relevant by our Board of Directors. There are no restrictions
on the ability of our wholly owned subsidiaries to pay cash dividends to us.
Holders
As of February 29, 2016, there were 22,328,578 holders of our common stock, based on the number of record holders of our
common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants
and
Rights (a)
Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column (a))
575,567
$
—
575,567
$
—
—
—
370,420
—
370,420
Plan Category
Equity compensation plans approved by securities
holders
Equity compensation plans not approved by securities
holders
Total
Stock Repurchases
In June 2011, our Board of Directors authorized us to repurchase shares of our common stock, on the open market, up to $20.0 million
in share repurchases in the aggregate. Under this repurchase program, we may purchase our common shares from time to time
in open market purchases or privately negotiated transactions and may make all or part of the purchases pursuant to Rule 10b5-1
plans. Any repurchased shares are retired and returned to an authorized but unissued status. The repurchase program may be
suspended or discontinued at any time without notice. As of December 31, 2015, $12.5 million remained available for stock
repurchases under the June 2011 authorization by the Board of Directors. We made no stock repurchases during 2015 or 2014.
22
Stock Performance Graph
Company / Index
SP Plus Corporation
S&P 500 Index
S&P SmallCap 600 Commercial &
Professional Services
$
$
$
Years Ended December 31,
2010
2011
2012
2013
2014
2015
100.00 $
94.15 $
115.86 $
137.20 $
132.93 $
100.00 $
102.11 $
118.45 $
156.82 $
178.29 $
125.92
180.75
100.00 $
89.38 $
112.95 $
166.87 $
165.32 $
167.46
The performance graph above shows the cumulative total stockholder return of our common stock for the period starting on December
31, 2010 to December 31, 2015. This performance is compared with the cumulative total returns over the same period of the
Standard & Poor's 500 Index and the Standard & Poor's SmallCap 600 Commercial and Professional Services Index, which includes
our direct competitor, ABM Industries Incorporated. The graph assumes that on December 31, 2010, $100 was invested in each
of the other two indices, and assumes reinvestment of dividends. The stock performance shown in the graph represents past
performance and should not be considered indication of future performance.
23
Item 6. Selected Financial Data
The following selected consolidated data should be read in conjunction with the consolidated financial statements and the notes
thereto, which are included in Item 8. "Financial Statements and Supplementary Data" and the information contained in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of Operations." The results of operations for the historical
periods are not necessarily indicative of the results to be expected for future periods. See Item 1A. "Risk Factors" of this Annual
Report on Form 10-K for a discussion of risk factors that could impact our future results.
Our consolidated results of operations for the years ended December 31, 2015, 2014 and 2013 include Central's results of
operations for the entire year. Our consolidated results of operations for the year ended December 31, 2012 include Central's
results of operations for the period October 2, 2012 through December 31, 2012.
(millions)
Statement of Income
Parking services revenue
Lease contracts
Management contracts
Reimbursed management contract revenue
Total revenue
Cost of parking services
Lease contracts
Management contracts
Reimbursed management contract expense
Total cost of parking services
Gross profit
Lease contracts
Management contracts
Total gross profit
General and administrative expenses
Depreciation and amortization
Operating income
Other expense (income)
Interest expense
Interest income
Gain on sale of business
Gain on contribution of a
business to an unconsolidated entity
Equity in losses from investments in unconsolidated entity
Total other expense (income)
Earnings (loss) before income taxes
Income tax expense (benefit)
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to SP Plus Corporation (1)
Balance sheet data (at end of year)
Cash and cash equivalents
Total assets (2) (5)
Total debt (3) (5)
Total SP Plus Corporation shareholders' equity (4)
$
$
$
2015
2014
2013
2012
2011
Year Ended December 31,
$
570.9
$
496.6
$
489.6
$
250.3
$
350.3
921.2
694.7
338.3
834.9
679.8
347.3
836.9
629.9
1,615.9
1,514.7
1,466.8
532.8
218.3
751.1
694.7
455.7
207.9
663.6
679.8
456.1
208.7
664.8
629.9
1,445.8
1,343.4
1,294.7
38.1
132.0
170.1
97.3
34.0
38.8
12.7
(0.2)
(0.5)
—
1.7
13.7
25.1
4.8
20.3
2.9
17.4
18.7
784.1
225.1
$
$
40.9
130.4
171.3
101.5
30.3
39.5
17.8
(0.4)
—
(4.1)
0.3
13.6
25.9
(0.2)
26.1
3.0
23.1
18.2
823.1
250.8
$
$
33.5
138.6
172.1
98.9
31.2
42.0
19.0
(0.6)
—
—
—
18.4
23.6
8.8
14.8
2.7
12.1
23.2
858.5
284.8
$
$
230.5
480.8
473.1
953.9
231.8
141.9
373.7
473.1
846.8
18.6
88.5
107.1
86.5
13.5
7.1
8.6
(0.3)
—
—
—
8.3
(1.2)
(3.6)
2.4
1.0
1.4
28.5
900.0
305.3
$
$
250.1
$
229.8
$
203.1
$
186.2
$
147.5
173.7
321.2
408.4
729.6
136.5
97.2
233.7
408.4
642.1
11.0
76.5
87.5
48.3
6.6
32.6
4.7
(0.2)
—
—
—
4.5
28.1
10.7
17.4
0.4
17.0
13.2
242.0
81.1
41.3
(1) Net income attributable to SP Plus Corporation for 2012 includes the following significant amounts from the Central Merger: Total revenue, excluding
reimbursed revenue, of $127.8 million; total cost of parking services, excluding reimbursed expense, of $190.0 million; and general and administrative
expenses of $24.6 million.
(2) Total assets as of December 31, 2012 includes the impact of assets acquired in the Central Merger of $624.9 million.
(3) Total long-term debt, including current portion as of December 31, 2012, includes $217.7 million of debt, net of cash acquired, assumed in the Central Merger.
(4) Total SP Plus Corporation stockholders' equity as of December 31, 2012 includes approximately $140.7 million related to the issuance of our common stock in
the Central Merger.
(5) Total assets and total debt for all years presented have been adjusted for the early adoption of ASU 2015-03.
24
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other parts of this Form 10-K
contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.
Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does
not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates,"
"believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," and similar terms. Forward-looking
statements are not guarantees of future performance and the Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A.
"Risk Factors" of this Form 10-K, which are incorporated herein by reference. The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-
K. Each of the terms the "Company" and "SP Plus" as used herein refers collectively to SP Plus Corporation and its wholly owned subsidiaries,
unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as
required by law.
Overview
Our Business
We provide parking management, ground transportation and other ancillary services to commercial, institutional and municipal clients in urban
markets and airports across the United States, Puerto Rico and Canada. Our services include a comprehensive set of on-site parking
management and ground transportation services, which include facility maintenance, security services, training, scheduling and supervising
all service personnel as well as providing customer service, marketing, and accounting and revenue control functions necessary to facilitate
the operation of our clients' facilities. We also provide a range of ancillary services such as airport shuttle operations, valet services, taxi and
livery dispatch services and municipal meter revenue collection and enforcement services. We typically enter into contractual relationships
with property owners or managers as opposed to owning facilities.
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 revenues 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 revenues 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 December 31,
2015, we operated 82% of our locations under management contracts and 18% under leases.
In evaluating our financial condition and operating performance, management's primary focus is on our gross profit and total general and
administrative expense. 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 local parking taxes), 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 December 31, 2015, 82% of our locations were operated under management contracts and 78% of our gross
profit for the year ended December 31, 2015 was derived from management contracts. Only 38% of total revenue (excluding reimbursed
management contract revenue), however, was from management contracts because under those contracts the revenue collected from parking
customers belongs to our clients. Therefore, gross profit and total general and administrative expense, rather than revenue, are management's
primary focus.
Acquisitions, Investment in Joint Venture and Sale of Business
In October 2012, we completed the Central Merger for 6,161,332 shares of our common stock and the assumption of $217.7 million of Central's
debt, net of cash acquired. Additionally, Central's former stockholders will be entitled to receive $27.0 million to be paid three years after closing,
to the extent the $27.0 million is not used to satisfy seller indemnity obligations pursuant to the Agreement and Plan of Merger dated February 28,
2012. Our consolidated results of operations for the twelve months ended December 31, 2015, 2014 and 2013 include Central's results of
operations for the entire year.
In October 2014, we entered into an agreement to establish a joint venture with Parkmobile USA, Inc. ("Parkmobile USA") and contributed all
of the assets and liabilities of our proprietary Click and Park® parking prepayment business in exchange for a 30 percent interest in the newly
formed legal entity called Parkmobile, LLC ("Parkmobile"). Parkmobile is a leading provider of on-demand and prepaid transaction processing
for on- and off-street parking and transportation services. The Parkmobile joint venture combines two parking transaction engines, with SP
Plus contributing the Click and Park® parking prepayment systems, which enables consumers to reserve and pay for parking online in advance
and Parkmobile USA contributing its on demand transaction engine that allows consumers to transact real-time payment for parking privileges
in both on- and off-street environments. We account for our investment in the joint venture with Parkmobile under the equity method of accounting.
25
In August 2015, we sold portions of our security business primarily operating in the Southern California market to a third-party for a gross sales
price of $1.8 million, which resulted in a gain on sale of business of $0.5 million, net of legal and other expenses. The pre-tax profit for the
operations of the sold business was not significant to the periods presented herein.
Summary of Operating Facilities
The following table reflects our facilities operated at the end of the years indicated:
Leased facilities (1)
Managed facilities (1) (2)
Total facilities
2015
713
3,161
3,874
December 31,
2014
774
3,348
4,122
2013
850
3,317
4,167
(1)
Includes partial ownership in two managed facilities and one leased facility acquired in the Central Merger.
(2) Adjusted to exclude managed facilities related to the security business primarily operating in the Southern California market for December 31, 2015, 2014, and 2013.
Revenue
We recognize parking services revenue from lease and management contracts as the related services are provided. Substantially all of our
revenues come from the following two sources:
•
•
Parking services revenue—lease contract. Parking services revenues 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 contract. 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, development fees, gains on sales of contracts, 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-insured for all liability, worker's compensation and health care 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 revenues do not
include gross customer collections at the managed locations as these revenues belong to the property owners rather than to us.
Management contracts generally provide us with management fees regardless of the operating performance of the underlying
facilities.
Conversions between type of contracts, lease or management, are typically determined by our clients and not us. Although the underlying
economics to us of management contracts and leases are similar, the manner in which we account for them differs substantially.
Reimbursed Management Contract Revenue
Reimbursed management contract revenue consists of the direct reimbursement from the property owner for operating expenses incurred
under a management contract, which is reflected in our revenue.
Cost of Parking Services
Our cost of parking services consists of the following:
• Cost of parking services—lease contract. 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 contract. 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.
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.
26
General and Administrative Expenses
General and administrative expenses include salaries, wages, benefits, 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 estimated remaining useful life.
Segments
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur
expenses, and about which separate financial information is regularly evaluated by our chief operating decision maker ("CODM"), in deciding
how to allocate resources. Our CODM is our president and chief executive officer.
The chief operating decision maker does not evaluate segments using discrete asset information. The business is managed based on regions
administered by executive vice presidents. Effective January 1, 2015, we began certain organizational and executive leadership changes to
align with how our CODM reviews performance and makes decisions in managing the Company and therefore, changed internal operating
segment information reported to the CODM. The operating segments are internally reported as Region One (North), Region Two (South),
Region Three (New York Metropolitan tri-state area of New York, New Jersey and Connecticut), Region Four (Airport transportation operations
nationwide), and Region Five (other operating units of USA Parking and event planning and transportation services). The following includes
the internal reporting as of December 31, 2015 for which all periods presented have been restated to reflect the new internal reporting to the
CODM.
• Region One encompasses operations in Delaware, District of Columbia, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Northern California, Ohio, Oregon, Pennsylvania, Rhode Island, Virginia, Washington, West
Virginia, Wisconsin and the three Canadian provinces of Alberta, Ontario, and Quebec.
• Region Two encompasses operations in Alabama, Arizona, Colorado, Florida, Georgia, Hawaii, Kansas, Louisiana, Mississippi,
Missouri, Nebraska, New Mexico, North Carolina, Oklahoma, South Carolina, Southern California, Tennessee, Texas, Utah and
Puerto Rico.
• Region Three encompasses operations in the New York Metropolitan tri-state area New York, New Jersey and Connecticut.
• Region Four encompasses all major airport and transportation operations nationwide.
• Region Five encompasses other reporting units of USA Parking and event planning and transportation services.
• Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior
years.
27
Fiscal 2015 Compared to Fiscal 2014
The following tables are a summary of revenues (excluding reimbursed management contract revenue), cost of parking services (excluding
reimbursed management contract expense) and gross profit by regions for the comparable years ended December 31, 2015 and 2014.
Segment revenue information is summarized as follows:
(millions)
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Amount
%
Region One
Region Two
Region Three
Region Four
Region Five
Other
Total
Variance
Year Ended December 31,
Lease contract revenue
New location
Contract expirations
$
8.7
2.8
$
3.3
$
16.0
8.3
6.1
Same location
188.7
185.2
106.9
Conversions
7.9
1.5
4.4
$
2.1
$
14.1
98.2
5.6
$
1.5
$ 81.8
$
3.1
2.3
13.1
$
4.5
5.0
39.0
—
0.4
0.2
2.0
1.8
$ — $ — $ — $ 102.3
$ 11.4
$
90.9
797.4%
0.2
2.3
0.2
—
—
—
—
1.7
—
13.8
48.4
(34.6)
-71.5%
440.5
429.5
14.3
7.3
11.0
7.0
2.6%
95.9%
2.4
39.6
—
103.3
103.1
0.2
—
Total lease contract
revenue
Management contract
revenue
$ 208.1
$ 206.0
$ 125.7
$ 120.0
$ 108.9
$ 117.7
$ 123.8
$ 48.5
$
4.4
$
2.7
$ — $
1.7
$ 570.9
$ 496.6
$
74.3
15.0%
New location
$ 12.2
$
2.5
$ 13.5
$
4.3
$
Contract expirations
Same location
Conversions
3.7
68.7
0.1
14.2
67.1
0.2
8.3
57.7
0.1
22.0
56.9
—
4.3
1.7
21.8
—
$
2.2
3.6
19.9
0.1
$
2.7
$
0.8
$
13.4
84.5
—
18.1
84.4
—
7.1
6.2
30.3
0.1
$
1.4
5.8
22.5
0.1
$ — $ — $ 39.8
$ 11.2
$
28.6
255.4%
—
13.9
—
—
33.3
63.7
(30.4)
-47.7%
12.2
276.9
263.0
13.9
5.3%
—
0.3
0.4
(0.1)
-19.4%
Total management contract
revenue
$ 84.7
$ 84.0
$ 79.6
$ 83.2
$ 27.8
$ 25.8
$ 100.6
$ 103.3
$ 43.7
$ 29.8
$ 13.9
$ 12.2
$ 350.3
$ 338.3
$
12.0
3.6%
Parking services revenue—lease contract
Lease contract revenue increased $74.3 million, or 15.0%, to $570.9 million for the year ended December 31, 2015, compared to $496.6
million for the year-ago period. The increase resulted primarily from increases in revenue from new locations, locations that converted from
management contracts, and same location revenue during the current year, partially offset by decreases in revenue from contract expirations.
The increase in same location revenue of 11.0 million, or 2.6%, was primarily due to increases in short-term parking revenue and monthly
parking revenue.
From a reporting segment perspective, lease contract revenue increased primarily due to new locations in all five operating regions, same
locations in regions one, two, three and four, and conversions in region one. This was partially offset by decreases in revenue from contract
expirations in regions one, two, three and four, same locations in region five and other. Same location revenue increases for the aforementioned
regions were primarily due to increases in short-term parking revenue and monthly parking revenue. The other region amounts in same location
represent revenues not specifically identifiable to a region.
Revenue associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period.
Parking services revenue—management contract
Management contract revenue increased $12.0 million, or 3.6%, to $350.3 million for the year ended December 31, 2015, compared to $338.3
million for the year-ago period. The increase resulted primarily from increases in revenue from new locations and same locations, partially
offset by decreases in revenue from contract expirations and locations that converted from lease contracts during the year. Same location
revenue increased by $13.9 million and 5.3%, primarily due to an increase in fees from ancillary services.
From a reporting segment perspective, the increase resulted primarily from increases in revenue from new locations in all five operating regions,
contract expirations in region five, same locations in all five operating regions and other, and locations that converted from lease contracts in
region two. Decreases in revenue from contract expirations in regions one, two, three and four, and locations that converted from lease contracts
in regions one and three, partially offset the total increase in management contract revenue. The other region amounts in same location represent
revenues not specifically identifiable to a region.
Revenue associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period.
Reimbursed management contract revenue
Reimbursed management contract revenue increased $14.9 million, or 2.2%, to $694.7 million for the year ended December 31, 2015, compared
to $679.8 million in the year-ago period. This increase resulted primarily from an increase in reimbursements for costs incurred on behalf of
owners.
28
Segment cost of parking services information is summarized as follows:
(millions)
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Amount
%
Region One
Region Two
Region Three
Region Four
Region Five
Other
Total
Variance
Year Ended December 31,
Cost of parking services
lease contracts:
New location
Contract expirations
$
7.4
2.3
$
2.8 $
10.9
7.1
5.1
Same location
Conversions
Total cost of parking
services lease contracts
Cost of parking services
management contracts:
New location
$
Contract expirations
Same location
Conversions
Total cost of parking
services management
contracts
178.5
174.5
88.9
7.5
5.5
3.5
101.5
100.0
0.1
—
$
1.8
$
12.0
81.6
4.7
$
1.4
$ 79.2
$
2.9
2.1
11.7
$
4.0
4.9
35.9
—
0.4
0.3
1.8
1.6
$ — $ — $ — $ 97.0
$ 10.0
$
87.0
870.0%
0.3
2.1
0.1
—
3.5
—
—
1.5
—
12.1
39.8
(27.7)
-69.6%
411.0
395.6
12.7
10.3
15.4
2.4
3.9%
23.3%
2.3
36.8
—
$ 195.7
$ 193.7 $ 104.6
$ 100.1
$ 106.6
$ 113.1
$ 118.3
$ 44.8
$
4.1
$
2.5
$
3.5
$
1.5
$ 532.8
$ 455.7
$
77.1
16.9%
8.6
2.4
35.6
—
$
1.7 $
9.8
9.2
6.4
36.5
31.1
—
0.1
$
2.7
$
15.0
29.7
—
$
3.0
1.3
9.3
—
1.9
1.9
7.7
—
$
1.8
$
0.5
$
13.7
60.6
—
17.1
59.4
—
5.3
5.5
21.4
0.1
$
0.8
4.1
13.0
0.1
$ — $ — $ 27.9
$
7.6
$
20.3
267.1%
—
2.9
—
—
6.0
—
29.3
47.9
(18.6)
-38.8%
160.9
152.3
0.2
0.1
8.6
0.1
5.6%
100.0%
$ 46.6
$ 48.0 $ 46.8
$ 47.4
$ 13.6
$ 11.5
$ 76.1
$ 77.0
$ 32.3
$ 18.0
$
2.9
$
6.0
$ 218.3
$ 207.9
$
10.4
5.0%
Cost of parking services—lease contracts
Cost of parking services for lease contracts increased $77.1 million, or 16.9%, to $532.8 million for the year ended December 31, 2015,
compared to $455.7 million for the year-ago period. The increase resulted primarily from increases in costs from new locations, same locations
and locations that converted from management contracts during the year, which was partially offset by a decrease in costs from contract
expirations. Same location costs increased $15.4 million or 3.9%, primarily due to higher rent expense as a result of higher revenues for same
locations, an increase in health and benefit costs and higher structural repair costs related to certain lease contracts acquired in the Central
Merger.
From a reporting segment perspective, cost of parking services for lease contracts increased primarily due to new locations in all five operating
regions and other, same locations in regions one, two, three, four and other, and locations that converted from management contracts in regions
one, three and five, this was partially offset by decreases in contract expirations in regions one, two, three, and four, same locations in region
five, and locations that converted from management contracts in region two. The other region amounts represent structure repair costs related
to certain lease contracts acquired in the Central Merger and other costs that are not specifically identifiable to a region.
Cost of parking services associated with contract expirations relates to contracts that have expired, however, we were operating the facility in
the comparative period presented.
Cost of parking services—management contracts
Cost of parking services for management contracts increased $10.4 million, or 5.0%, to $218.3 million for the year ended December 31, 2015,
compared to $207.9 million for the year-ago period. The increase resulted primarily from increases in costs from new locations, same locations
and locations that converted from lease contracts during the year, which was partially offset by decrease in cost from contract expirations.
Same location costs increased $8.6 million or 5.6% primarily due to increased revenues from ancillary services, partially offset by decreased
costs relating to certain unallocated insurance reserve adjustments.
From a reporting segment perspective, cost of parking services for management contracts increased due to new locations in all five operating
regions, same locations in regions two, three, four and five, and locations that converted from lease contracts in regions two, and contract
expirations in region five. Decreases in contract expirations in regions one, two, three, and four, and same locations in region one and other,
partially offset the total increase in the cost of parking services for management contracts. The other region amounts represent prior year
insurance reserve adjustments and other costs that are not specifically identifiable to a region.
Cost of parking services associated with contract expirations relates to contracts that have expired, however, we were operating the facility in
the comparative period presented.
Reimbursed management contract expense
Reimbursed management contract expense increased $14.9 million, or 2.2%, to $694.7 million for the year ended December 31, 2015, compared
to $679.8 million in the year-ago period. This increase resulted primarily from an increase in reimbursements for costs incurred on behalf of
owners.
29
Segment gross profit/gross profit percentage information is summarized as follows:
(millions)
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Amount
%
Region One
Region Two
Region Three
Region Four
Region Five
Other
Total
Variance
Year Ended December 31,
Gross profit lease
contracts:
New location
$ 1.3
$ 0.5
$ 1.2
$ 0.3
$ 0.2
$ 0.1
$ 2.6
$ 0.5
$ —
$ —
$ —
$ —
$ 5.3
$
1.4
$
3.9
269.0%
Contract expirations
Same location
Conversions
Total gross profit lease
contracts
Gross profit percentage
lease contracts:
0.5
10.2
0.4
5.1
10.7
(4.0)
1.0
18.0
0.9
2.1
16.6
0.9
0.2
1.8
0.1
1.4
3.1
—
0.1
2.8
—
0.1
3.1
—
(0.1)
(0.1)
0.2
0.2
0.2
0.1
—
(3.5)
—
—
0.2
—
1.7
29.5
1.6
8.6
33.9
(3.0)
(6.9)
-80.2%
(4.4)
-13.0%
4.6
-153.4%
$ 12.4
$ 12.3
$ 21.1
$ 19.9
$ 2.3
$ 4.6
$ 5.5
$ 3.7
$ 0.3
$ 0.2
$ (3.5)
$ 0.2
$ 38.1
$ 40.9
$
(2.8)
-6.9%
(Percentages)
New location
14.9%
15.2 %
14.5%
14.3%
6.5%
6.7%
3.2%
11.1%
— % 100.0 %
4.2%
7.1%
—%
2.0% (50.0)% (50.0)%
7.9%
10.0 %
8.7 %
—%
11.1 %
50.0 %
—%
—%
—%
—%
—%
—%
5.2%
12.6 %
12.3%
17.8 %
11.8%
6.7%
7.9 %
—%
11.2%
(41.1)%
Contract expirations
17.9%
31.9 %
16.4%
14.9%
8.7%
10.7%
Same location
5.4%
5.8 %
16.8%
16.9%
1.7%
3.0%
5.1% (266.
7
)%
20.5%
16.1%
50.0% 100.0%
Conversions
Total gross profit
percentage
Gross profit management
contracts:
6.0%
6.0 %
16.8%
16.6%
2.1%
3.9%
4.4%
7.6%
6.8 %
8.6 %
—%
11.8%
6.7%
8.2 %
New location
$ 3.6
$ 0.8
$ 4.3
$ 1.6
$ 1.3
$ 0.3
$ 0.9
$ 0.3
$ 1.8
$ 0.6
$ —
$ —
$ 11.9
$
3.6
$
8.3
230.6%
Contract expirations
Same location
Conversions
Total gross profit
management contracts
Gross profit percentage
management contracts:
1.3
33.1
0.1
4.4
30.6
0.2
1.9
26.6
—
7.0
27.2
—
0.4
12.5
—
1.7
12.2
0.1
(0.3)
23.9
—
1.0
25.0
—
0.7
8.9
—
1.7
9.5
—
—
11.0
—
—
6.2
—
4.0
15.8
(11.8)
-74.7%
116.0
110.7
5.3
4.8%
0.1
0.3
(0.2)
-66.7%
$ 38.1
$ 36.0
$ 32.8
$ 35.8
$ 14.2
$ 14.3
$ 24.5
$ 26.3
$ 11.4
$ 11.8
$ 11.0
$ 6.2
$132.0
$ 130.4
$
1.6
1.2%
(Percentages)
New location
29.5%
32.0 %
31.9%
37.2%
30.2%
13.6%
33.3%
37.5%
25.4 %
42.9 %
Contract expirations
35.1%
31.0 %
22.9%
31.8%
23.5%
47.2%
-2.2%
5.5%
11.3 %
29.3 %
Same location
48.2%
45.6 %
46.1%
47.8%
57.3%
61.3%
28.3%
29.6%
29.4 %
42.2 %
Conversions
100.0% 100.0 %
—%
—%
—% 100.0%
—%
—%
— %
— %
—%
—%
79%
—%
—%
—%
29.9%
32.1 %
12.0%
24.8 %
50.8%
41.9%
42.1 %
—%
33.3%
73.1 %
Total gross profit
percentage
45.0%
42.9 %
41.2%
43.0%
51.1%
55.4%
24.4%
25.5%
26.1 %
39.6 %
79%
50.8%
37.7%
38.5 %
Gross profit—lease contracts
Gross profit for lease contracts decreased $2.8 million, or 6.9%, to $38.1 million for the year ended December 31, 2015, compared to
$40.9 million for year-ago period. Gross profit percentage for lease contracts was 6.7% for the year ended December 31, 2015 compared to
8.2% for the year-ago period. Gross profit lease contracts decreases were the result of contract expirations and same locations, partially offset
by increases from same new locations and locations that converted from management contracts during the year. Gross profit for lease contracts
on same locations decreased primarily due to an increase in operating costs, driven by an increase in health and benefit costs and an increase
in structural repair costs related to certain lease contracts acquired in the Central Merger, partially offset by an increase in revenue.
From a reporting segment perspective, gross profit for lease contracts decreased primarily due to contract expirations in regions one, two and
three, same locations in regions one, three, four and other, partially offset by increases in new locations from regions one, two, three and four,
same locations in region two, and locations that converted from management contracts in regions one, three and five.
Gross profit associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period presented.
Gross profit—management contracts
Gross profit for management contracts increased $1.6 million, or 1.2%, to $132.0 million for the year ended December 31, 2015, compared to
$130.4 million in for the year-ago period. Gross profit percentage for management contracts decreased to 37.7% for the year ended
December 31, 2015, compared to 38.5% for the year-ago period. Gross profit for management contracts increases were primarily the result
of new locations and same locations, partially offset by decreases in contract expirations and locations that converted from lease contracts
during the year. Gross profit management contracts increased on same locations primarily as the result of increased revenues, partially offset
by increased costs primarily related to ancillary services.
30
From a reporting segment perspective, gross profit for management contracts increased primarily due new locations in all five operating regions,
same locations in regions one, three and other. Total increases in gross profit were partially offset by decreases in contract expirations in all
five operating regions, same locations in regions two, four and five, and locations that converted from lease contracts in regions one and three.
Gross profit associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period presented.
General and administrative expenses
General and administrative expenses decreased $4.2 million, or 4.1%, to $97.3 million for year ended December 31, 2015, compared to $101.5
million for the year-ago period. The decrease in General and administrative expenses primarily related to a decrease in compensation and
benefit costs, merger and integration costs, including severance and benefit expenses, and overall better expense control, partially offset by
increases in expected pay-out under our performance based compensation and long-term incentive compensation programs and a $1.6 million
charge related to our dispute with Central's former stockholders over Net Debt Working Capital indemnity claims.
Interest expense
Interest expense decreased $5.1 million, or 28.7%, to $12.7 million for the year ended December 31, 2015, as compared to $17.8 million in
the year-ago period. This decrease resulted primarily from a decrease in average borrowing rates and reductions in borrowings under our
Senior Credit Facility and Amended and Restated Credit Facility.
Interest income
Interest income decreased by $0.2 million, or 50.0%, to $0.2 million for the year ended December 31, 2015, as compared to $0.4 million in the
year-ago period.
Gain on sale of a business
During the third quarter 2015, we recognized a $0.5 million gain on the sale of a portion of our security business primarily operating in the
Southern California market.
Equity in losses from investment in unconsolidated entity
Equity in losses from investment in unconsolidated entity relates to our investment in the joint venture with Parkmobile accounted for under
the equity method of accounting and our share of equity earnings in the Parkmobile joint venture. Equity in losses from investment in
unconsolidated entity was $1.7 million for the the year ended December 31, 2015, as compared to $0.3 million for the year ended December
31, 2014.
Income tax expense
For the year ended December 31, 2015, we recognized income tax expense of $4.8 million on pre-tax earnings of $25.1 million compared to
a $0.2 million income tax benefit on pre-tax earnings of $25.9 million for the year ended December 31, 2014. Our effective tax rate was 19.1%
for the year ended December 31, 2015 compared to a benefit of 0.8% for the year ended December 31, 2014. The $5.0 million increase in
income tax expense was primarily due to a decrease in valuation allowance reversals recognized for historical net operating losses for the year
ended December 31, 2014, when compared to the year ended December 31, 2015, unfavorable adjustments to deferred taxes for the year
ended December 31, 2015, when compared to favorable adjustments to deferred taxes for the year ended December 31, 2014, partially offset
by a deferred tax liability established in 2014 relating to our equity investment in an unconsolidated entity.
31
Fiscal 2014 Compared to Fiscal 2013
The following tables are a summary of revenues (excluding reimbursed management contract revenue), cost of parking services (excluding
reimbursed management contract expense) and gross profit by regions for the comparable years ended 2014 and 2013.
Segment revenue information is summarized as follows:
Region One
Region Two
Region Three
Region Four
Region Five
Other
Total
Variance
Year Ended December 31,
(millions)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Amount
%
Lease contract revenue:
New location
$ 15.4
$
Contract expirations
1.6
$
2.3
3.5
7.2
2.6
$
1.4
9.9
$
2.9
6.4
Same location
187.5
189.9
109.7
112.0
108.4
110.2
Conversions
1.5
3.4
0.5
0.6
—
—
$ — $
2.5
$
10.4
0.7
3.2
39.8
—
$ — $ — $ — $ — $ 28.0
$
4.4
$
23.6
536.4%
—
2.7
—
—
2.6
—
—
1.7
—
—
10.6
27.0
(16.4)
-60.7%
(0.4)
451.5
454.2
(2.7)
-0.6%
—
6.5
4.0
2.5
62.5%
—
41.5
4.5
Total lease contract
revenue
Management contract
revenue:
$ 206.0
$ 199.1
$ 120.0
$ 123.9
$ 117.7
$ 120.6
$ 48.5
$ 43.7
$
2.7
$
2.6
$
1.7
$
(0.4)
$ 496.6
$ 489.6
$
7.0
1.4%
New location
$ 11.7
$
3.4
$ 13.4
$
2.9
$
Contract expirations
Same location
Conversions
3.4
68.3
0.6
23.3
68.1
0.5
3.9
65.8
0.1
12.5
71.4
0.2
4.7
1.0
20.1
—
$
0.9
2.3
20.2
—
$
5.3
$
0.9
$
(0.2)
98.0
0.2
19.9
75.8
—
5.2
0.3
24.3
—
$
0.7
0.8
32.2
—
$ — $ — $ 40.3
$
8.8
$
31.5
358.0%
—
12.2
—
—
8.5
58.8
(50.3)
-85.5%
11.3
288.6
279.0
—
0.9
0.7
9.6
0.2
3.4%
28.6%
Total management contract
revenue
$ 84.0
$ 95.3
$ 83.2
$ 87.0
$ 25.8
$ 23.4
$ 103.3
$ 96.6
$ 29.8
$ 33.7
$ 12.2
$ 11.3
$ 338.3
$ 347.3
$
(9.0)
-2.6%
Parking services revenue—lease contracts
Lease contract revenue increased $7.0 million, or 1.4%, to $496.6 million for the year ended December 31, 2014, compared to $489.6 million
for the year-ago period. The increase resulted primarily from increases in revenue from new locations and locations that converted from
management contracts during the current year, partially offset by decreases in revenue from contract expirations and same location revenue.
The decrease in same location revenue of $2.7 million, or 0.6%, was primarily due to decreases in short-term parking revenue and monthly
parking revenue.
From a reporting segment perspective, lease contract revenue increased primarily due to new locations in regions one, two, three and four,
same locations in regions four, five and other and conversions in region four. This was partially offset by decreases in contract expirations in
regions one, two, three and four, same location revenue in regions one, two and three and conversions in regions one and two. Same location
revenue decreases for the aforementioned regions were primarily due to decreases in short-term parking revenue and monthly parking revenue.
The other region amounts in same location represent revenues not specifically identifiable to a region.
Revenue associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period presented.
Parking services revenue—management contracts
Management contract revenue decreased $9.0 million, or 2.6%, to $338.3 million for the year ended December 31, 2014, compared to
$347.3 million for the year-ago period. The decrease resulted primarily from decreases in contract expirations, which was partially offset by
the increases in new location and same location revenues.
From a reporting segment perspective, management contract revenue decreased primarily due contract expirations in all five regions, same
location revenues in regions two and five, partially offset by increases in management contract revenue for new locations in all five operating
regions, and same locations in regions one, four and other.
Revenue associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period presented.
Reimbursed management contract revenue
Reimbursed management contract revenue increased $49.9 million, or 7.9%, to $679.8 million for the year ended December 31, 2014, compared
to $629.9 million in the year-ago period. This increase resulted primarily from an increase in reimbursements for costs incurred on behalf of
owners.
32
Segment cost of parking services information is summarized as follows:
(millions)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Amount
%
Region One
Region Two
Region Three
Region Four
Region Five
Other
Total
Variance
Year Ended December 31,
Cost of parking services
lease contracts:
New location
$ 13.2
$
Contract expirations
1.7
$
1.6
6.1
Same location
177.4
177.8
Conversions
1.4
3.0
6.4
2.1
91.3
0.3
$
$
1.3
8.4
2.8
4.8
8.3
$ — $
2.3
$
94.9
105.5
112.4
0.5
—
—
0.6
2.7
37.2
—
$ — $ — $
(0.1)
$ — $ 24.6
$
3.5
$
21.1
602.9%
—
2.5
—
—
2.6
—
—
1.6
—
—
8.6
25.5
(16.9)
-66.3%
(1.3)
416.8
423.6
(6.7)
-1.6%
—
5.7
3.5
2.2
62.9%
—
38.5
4.0
Total cost of parking
services lease contracts
$ 193.7
$ 188.5
$ 100.1
$ 105.1
$ 113.1
$ 120.7
$ 44.8
$ 40.5
$
2.5
$
2.6
$
1.5
$
(1.3)
$ 455.7
$ 456.1
$
(0.4)
-0.1%
Cost of parking services
management contracts:
New location
$
Contract expirations
Same location
Conversions
Total cost of parking
services management
contracts
7.6
2.5
37.8
0.1
$
1.8
$
12.7
37.9
0.1
$
7.5
2.3
37.5
0.1
$
2.0
6.7
39.5
—
$
3.1
0.4
8.0
—
0.5
0.7
9.6
—
$
4.0
0.1
71.1
1.7
$
0.8
$
19.6
50.3
1.4
3.4
0.1
14.5
—
$
0.5
0.4
21.5
—
$
1.5
$ — $ 27.1
$
5.6
$
21.5
383.9%
—
4.5
—
—
2.8
—
5.4
40.1
(34.7)
-86.5%
173.5
161.6
1.9
1.5
11.9
0.4
7.4%
26.7%
$ 48.0
$ 52.5
$ 47.4
$ 48.2
$ 11.5
$ 10.8
$ 76.9
$ 72.1
$ 18.0
$ 22.4
$
6.0
$
2.8
$ 207.9
$ 208.8
$
(0.9)
-0.4%
Cost of parking services—lease contracts
Cost of parking services for lease contracts decreased $0.4 million, or 0.1%, to $455.7 million for the year ended December 31, 2014, compared
to $456.1 million for the year-ago period. The decrease resulted primarily from decreases in costs from contract expirations and same locations,
which was partially offset by increases in costs from new locations and locations that converted from management contracts during the current
year. Same location costs decreased $6.7 million, or 1.6%, primarily due to lower operating expenses and lower rent expense, primarily as a
result of contingent rental payments on the decrease in revenue for same locations, partially offset by structural repair costs related to certain
lease contracts acquired in the Central Merger.
From a reporting segment perspective, cost of parking services for lease contracts decreased primarily due to contract expirations in regions
one, two, three and four, same locations in regions one, two, three and five and conversions in regions one and two, partially offset by, increases
in cost of parking services for lease contracts in new locations in regions one, two, three and four, same locations in region four and converted
locations in region four. Same location cost decreased primarily due to a reduction on contingent rental payments on the decrease in revenue
and reduced other operating costs, partially offset by structural repair costs related to certain lease contracts acquired in the Central Merger
and other costs that are not specifically identifiable to a region.
Cost of parking services associated with contract expirations relates to contacts that have expired, however, we were operating the facility in
the comparative period presented.
Cost of parking services—management contracts
Cost of parking services for management contracts decreased $0.9 million, or 0.4%, to $207.9 million for the year ended December 31, 2014,
compared to $208.8 million for the year-ago period. The decrease resulted from decreases in costs related to contract expirations, partially
offset by, increases in new locations, same locations and locations that converted from management to lease contracts during the year.
From a reporting segment perspective, cost of parking services for management contracts decreased due to contract expirations in all five
regions, same locations in regions one, two, three and five, partially offset by, increases in new location costs in all five regions and other, same
location costs in region four and locations that converted from management to lease contracts in region four. Same location cost increases
primarily resulted from increases in costs associated with reverse management contracts and in the cost of providing management services.
The other region amounts in same location primarily represent certain unallocated insurance reserve adjustments and costs that are not
specifically identifiable to a region.
Cost of parking services associated with contract expirations relates to contacts that have expired, however, we were operating the facility in
the comparative period presented.
33
Same location
Conversions
Total gross profit lease
contracts
Gross profit percentage
lease contracts:
Conversions
Total gross profit
percentage
Gross profit management
contracts:
Reimbursed management contract expense
Reimbursed management contract expense increased $49.9 million, or 7.9%, to $679.8 million for the year ended December 31, 2014, compared
to $629.9 million in the year-ago period. This increase resulted from an increase in reimbursements for costs incurred on behalf of owners.
Segment gross profit/gross profit percentage information is summarized as follows:
(millions)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Amount
%
Region One
Region Two
Region Three
Region Four
Region Five
Other
Total
Variance
Year Ended December 31,
Gross profit lease
contracts:
New location
$ 2.2
$ 0.7
$ 0.8
$ 0.1
$ 0.1
$ —
$ 0.2
$ 0.1
$ —
$ —
$ 0.1
$ —
$ 3.4
$ 0.9
$
Contract expirations
(0.1)
(2.6)
10.1
0.1
12.1
0.4
0.5
18.4
0.2
1.5
17.1
0.1
1.6
2.9
—
2.1
(2.2)
—
—
3.0
0.5
0.5
2.6
—
—
0.2
—
—
0.1
—
—
0.1
—
—
0.9
—
2.0
34.7
0.8
1.5
30.6
0.5
2.5
0.5
4.1
0.3
277.8%
33.3%
13.4%
60.0%
$ 12.3
$ 10.6
$ 19.9
$ 18.8
$ 4.6
$ (0.1)
$ 3.7
$ 3.2
$ 0.2
$ 0.1
$ 0.2
$ 0.9
$ 40.9
$ 33.5
$
7.4
22.1%
(Percentages)
New location
14.3%
30.4%
11.1%
7.1%
3.4%
—%
8.0%
14.3%
Contract expirations
-6.2%
-74.3%
19.2%
15.2%
25.0%
20.2%
—%
15.6%
Same location
5.4%
6.4%
16.8%
15.3%
2.7%
-2.0%
7.2%
5.9% -225.0%
7.7%
6.7%
11.8%
40.0%
16.7%
—%
—%
11.1%
—%
—%
12.3%
12.5%
—%
—%
7.4%
—%
—%
—%
3.7%
—%
6.5%
—%
—%
—%
—%
—%
18.9%
12.1%
20.5%
5.6%
6.7%
6.0%
5.3%
16.6%
15.2%
3.9%
-0.1%
7.6%
7.3%
7.4%
3.7%
11.8% -225.0%
8.2%
6.8%
New location
$ 4.1
$ 1.6
$ 5.9
$ 0.9
$ 1.6
$ 0.4
$ 1.3
$ 0.1
$ 1.8
$ 0.2
$ (1.5)
$ —
$ 13.2
$ 3.2
$
10.0
312.5%
Contract expirations
Same location
Conversions
0.9
30.5
0.5
10.6
30.2
0.4
1.6
28.3
—
5.8
31.9
0.2
0.6
12.1
—
1.6
10.6
—
(0.3)
26.9
(1.5)
0.3
25.5
(1.4)
0.2
9.8
—
0.4
10.7
—
—
7.7
—
—
8.5
—
3.1
18.7
(15.6)
-83.4%
115.1
117.4
(1.0)
(0.8)
(2.3)
(0.2)
-2.0%
25.0%
Total gross profit
management contracts
Gross profit percentage
management contracts:
$ 36.0
$ 42.8
$ 35.8
$ 38.8
$ 14.3
$ 12.6
$ 26.4
$ 24.5
$ 11.8
$ 11.3
$ 6.2
$ 8.5
$130.4
$138.5
$
(8.1)
-5.8%
(Percentages)
New location
35.0%
47.1%
44.0%
31.0%
34.0%
44.4%
24.5%
11.1%
34.6%
28.6%
Contract expirations
26.5%
45.5%
41.0%
46.4%
60.0%
69.6% 150.0%
1.5%
66.7%
50.0%
—%
—%
—%
—%
32.8%
36.4%
36.5%
31.8%
Same location
44.7%
44.3%
43.0%
44.7%
60.2%
52.5%
27.4%
33.6%
40.3%
33.2%
63.1%
75.2%
39.9%
42.1%
Conversions
83.3%
80.0%
—
100.0%
—
—
-750.0%
—
—
—
—
—
-111.1% -114.3%
Total gross profit
percentage
42.9%
44.9%
43.0%
44.6%
55.4%
53.8%
25.6%
25.4%
39.6%
33.5%
50.8%
75.2%
38.5%
39.9%
Gross profit—lease contracts
Gross profit for lease contracts increased $7.4 million, or 22.1%, to $40.9 million for the year ended December 31, 2014, compared to
$33.5 million for year-ago period. Gross profit percentage for lease contracts was 8.2% for the year ended December 31, 2014 compared to
6.8% for the year ago-period. Gross profit lease contracts increases were the result of new locations, contract expirations, same locations and
locations that converted from management contracts during the current year. Gross profit for lease contracts on same locations increased
primarily due to decreased operating expenses and lower rent expense, primarily as a result of contingent rental payments in an amount that
exceeded the decrease in revenue in short-term and monthly parking revenue, partially offset by structural repair costs related to certain lease
contracts acquired in the Central Merger.
34
From a reporting segment perspective, gross profit for lease contracts increased primarily due to new locations in regions one, two, three, four
and other, same locations in regions two, three, four, five and other, partially offset by decreases in gross profit for lease contracts in contract
expirations on regions one, two, three and four. Gross profit increased for lease contracts on same locations primarily due to deceased operating
expenses and lower rent expense, primarily as a result of contingent rental payments in an amount that exceeded the decrease in revenue in
short-term and monthly parking revenue, partially offset by structural repair costs related to certain lease contracts acquired in the Central
Merger.
Gross profit associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period presented.
Gross profit—management contracts
Gross profit for management contracts decreased $8.1 million or 5.8%, to $130.4 million for the year ended December 31, 2014, compared to
$138.5 million in for the year-ago period. Gross profit percentage for management contracts was 38.5% for the year ended December 31, 2014
compared to 39.9% for the year-ago period. Gross profit for management contracts decreases were primarily the result of contract expirations,
same locations and locations that converted from lease contracts during the current year, partially offset by an increase in new locations. Gross
profit management contracts decreases on same locations were primarily the result of increases in costs associated with reverse management
contracts and the cost of providing management services.
From a reporting segment perspective, gross profit for management contracts decreased primarily due to contract expirations in all five regions,
new locations in other region, same locations in regions two, five and other, and locations that converted from lease locations in region two,
partially offset by increases in new locations in all five regions, same locations in regions one, three and four and conversions in region one.
Gross profit for management contracts decreased on some locations primarily as the result of increased costs associated with reverse
management contracts and the cost of providing management services.
Gross profit associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative
period presented.
General and administrative expenses
General and administrative expenses increased $2.6 million, or 2.6%, to $101.5 million for year ended December 31, 2014, compared to $98.9
million for the year-ago period. The increase in general and administrative expenses primarily related to increased compensation and benefit
cost, including increased cost due to an actuarial update to the mortality tables supporting certain of our deferred compensation arrangements
with certain executives, partially offset by decreased merger and integration related costs.
Equity in losses from investment in unconsolidated entity
Equity in losses from investment in unconsolidated entity relates to our investment in the joint venture with Parkmobile accounted for under
the equity method of accounting and our share of equity earnings in the Parkmobile joint venture. Equity in losses form investment in
unconsolidated entity was $0.3 million for the year ended December 31, 2014. There were no comparable losses or gains for equity in losses
from investment in unconsolidated entity during the year ended December 31, 2013.
Interest expense
Interest expense decreased $1.2 million, or 6.4%, to $17.8 million for the year ended December 31, 2014, as compared to $19.0 million in the
year-ago period. This decrease resulted primarily from a decrease in average borrowings under our Senior Credit Facility.
Interest income
Interest income decreased by $0.2 million, or 33.3%, to $0.4 million for the year ended December 31, 2014, as compared to $0.6 million in the
year-ago period.
Income tax expense
For the year ended December 31, 2014, we recognized income tax benefit of $0.2 million on pre-tax earnings of $25.9 million compared to an
$8.8 million income tax expense on pre-tax earnings of $23.6 million for the year ended December 31, 2013. Our effective tax rate was a benefit
of 0.8% for the year ended December 31, 2014 compared to 37.4% for the year ended December 31, 2013. Our effective tax rate decreased
to a benefit of 0.8% as of December 31, 2014 compared to 37.4% as of December 31, 2013 due to the reversal of valuation allowances for
deferred tax assets established for historical net operating losses. The valuation allowances were reversed due to changes in New York tax
laws in the first quarter of 2014 and an entity restructuring undertaken in the fourth quarter of 2014, which resulted in our determining that the
future benefits of the net operating loss/carryforwards were more likely than not to be realized.
35
Liquidity and Capital Resources
General
We continually project anticipated cash requirements for our operating, investing, and financing needs as well as cash flows generated from
operating activities available to meet these needs. Our operating needs can include, among other items, commitments for cost of parking
services, operating leases, payroll payments, insurance claims payments, interest payments, leases acquired in the Central Merger, which
include provisions allocating to us responsibility for all structural repair payments required on the property (see also "Lease commitments"
below for additional discussion on certain lease contracts acquired in the Central Merger), and legal settlements. Our investing and financing
spending can include payments for acquired businesses, joint ventures, capital expenditures, cost of contracts purchased, commitments for
capital leases, distributions to noncontrolling interests, payments on our outstanding indebtedness and to a much lesser extent, cash from
sales of non-core assets.
Outstanding Indebtedness
On December 31, 2015, we had total indebtedness of approximately $225.1 million, a decrease of $25.7 million from December 31, 2014. The
$225.1 million includes:
•
•
$223.1 million under our Restated Credit Facility (as defined below); and
$2.0 million of other debt including capital lease obligations, obligations on seller notes and other indebtedness.
Senior Credit Facility
On October 2, 2012, the Company entered into a credit agreement ("Credit Agreement") with Bank of America, N.A. ("Bank of America"), as
administrative agent, Wells Fargo Bank, N.A. ("Wells Fargo Bank") and JPMorgan Chase Bank, N.A., as co-syndication agents, U.S. Bank
National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner &
Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party
thereto.
Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders made available to us a secured Senior Credit Facility
(the "Senior Credit Facility") that permits aggregate borrowings of $450.0 million consisting of (i) a revolving credit facility of up to $200.0 million
at any time outstanding, which included a letter of credit facility that is limited to $100.0 million at any time outstanding, and (ii) a term loan
facility of $250.0 million. The Senior Credit Facility was due to mature on October 2, 2017.
Amended and Restated Credit Facility
On February 20, 2015 ("Restatement Date"), we entered into an Amended and Restated Credit Agreement (the "Restated Credit Agreement")
with Bank of America, N.A. ("Bank of America"), as administrative agent, an issuing lender and swing-line lender; Wells Fargo Bank, N.A., as
an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO Harris Bank N.A., as co-documentation
agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint lead arrangers and joint book managers;
and the lenders party thereto (the "Lenders"). The Restated Credit Agreement reflects modifications to, and an extension of, the Credit Agreement,
as described above.
Pursuant to the terms, and subject to the conditions, of the Restated Credit Agreement, the Lenders have made available to the Company a
senior secured credit facility (the "Restated Credit Facility") that permits aggregate borrowings of $400.0 million consisting of (i) a revolving
credit facility of up to $200.0 million at any time outstanding, which includes a $100.0 million sublimit for letters of credit and a $20.0 million
sublimit for swing-line loans, and (ii) a term loan facility of $200.0 million (reduced from $250.0 million). The Company may request increases
of the revolving credit facility in an aggregate additional principal amount of $100.0 million. The Restated Credit Facility matures on February 20,
2020.
The entire amount of the term loan portion of the Restated Credit Facility had been drawn by the Company as of the Restatement Date (including
approximately $10.4 million drawn on such date) and is subject to scheduled quarterly amortization of principal as follows: (i) $15.0 million in
the first year, (ii) $15.0 million in the second year, (iii) $20.0 million in the third year, (iv) $20.0 million in the fourth year, (v) $20.0 million in the
fifth year and (vi) $110.0 million in the sixth year. The Company also had outstanding borrowings of $147.3 million (including $53.4 million in
letters of credit) under the revolving credit facility as of the Restatement Date.
Borrowings under the Restated Credit Facility bear interest, at the Company's option, (i) at a rate per annum based on the Company's consolidated
total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance
with the pricing levels set forth in the Restated Credit Agreement (the "Restatement Applicable Margin"), plus LIBOR or (ii) the Restatement
Applicable Margin plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a daily rate equal to LIBOR
plus 1.0%. (the highest of (x), (y) and (z), the "Base Rate"), except that all swing-line loans will bear interest at the Base Rate plus the Applicable
Margin.
Under the terms of the Restated Credit Agreement, the Company is required to maintain a maximum consolidated total debt to EBITDA ratio
of not greater than 4.0 to 1.0 as of the end of any fiscal quarter ending during the period from the Restatement Date through September 30,
2015, (ii) 3.75 to 1.0 as of the end of any fiscal quarter ending during the period from October 1, 2015 through September 30, 2016, and (iii) 3.5
to 1.0 as of the end of any fiscal quarter ending thereafter. In addition, the Company is required to maintain a minimum consolidated fixed
charge coverage ratio of not less than 1:25:1.0.
36
Events of default under the Restated Credit Agreement include failure to pay principal or interest when due, failure to comply with the financial
and operational covenants, the occurrence of any cross default event, non-compliance with the other loan documents, the occurrence of a
change of control event, and bankruptcy and other insolvency events. If an event of default occurs and is continuing, the Lenders holding a
majority of the commitments and outstanding term loan under the Restated Credit Agreement have the right, among others, to (i) terminate
the commitments under the Restated Credit Agreement, (ii) accelerate and require the Company to repay all the outstanding amounts owed
under the Restated Credit Agreement and (iii) require the Company to cash collateralize any outstanding letters of credit.
Each wholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Restated Credit Agreement) has guaranteed
all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Restated Credit Agreement. The
Company's obligations under the Restated Credit Agreement and such domestic subsidiaries' guaranty obligations are secured by substantially
all of their respective assets.
We believe that our cash flow from operations, combined with additional borrowing capacity under our Restated Credit Facility, 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.
We were in compliance with all our covenants as of December 31, 2015.
At December 31, 2015, we had $105.3 million of borrowing availability under the Restated Credit Agreement, of which we could have borrowed
$82.7 million on December 31, 2015 and remained in compliance with the above described covenants as of such date. The additional borrowing
availability under the Restated Credit Agreement is limited only as of our fiscal quarter-end by the covenant restrictions described above. At
December 31, 2015, we had $52.4 million letters of credit outstanding under the Restated Credit Facility and borrowings against the Restated
Credit Facility aggregated $227.3 million (excluding debt discount of $1.8 million and deferred financing costs of $2.4 million).
Interest Rate Swap Transactions
In October 2012, we entered into Interest Rate Swap transactions (collectively, the "Interest Rate Swaps") with each of JPMorgan Chase Bank,
N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0 million (the "Notional Amount"). The Interest
Rate Swaps have a termination date of September 30, 2017. The Interest Rate Swaps effectively fix the interest rate on an amount of variable
interest rate borrowings under our credit agreements, originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin
rate for LIBOR loans under our credit agreements determined based upon our consolidated total debt to EBITDA ratio. The Notional Amount
is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under our credit agreements. These Interest
Rate Swaps are classified as cash flow hedges, and we calculate the effectiveness of the hedge on a monthly basis. The ineffective portion of
the cash flow hedge is recognized in earnings as an increase of interest expense. As of December 31, 2015, no ineffective portion of the cash
flow has been recognized in earnings within interest expense. The fair value of the Interest Rate Swaps at December 31, 2015 and 2014 was
a $0.2 million and $0.6 million asset, respectively, and included in the line item "Other assets, net" within the Consolidated Balance Sheet.
We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.
Stock Repurchases
In June 2011, our Board of Directors authorized us to repurchase shares of our common stock, on the open market, up to $20.0 million in share
repurchases in the aggregate. Under this repurchase program, we may purchase our common shares from time to time in open market purchases
or privately negotiated transactions and may make all or part of the purchases pursuant to Rule 10b5-1 plans. Any repurchased shares are
retired and returned to an authorized but unissued status. The repurchase program may be suspended or discontinued at any time without
notice. As of December 31, 2015, $12.5 million remained available for stock repurchases under the June 2011 authorization by the Board of
Directors. We made no stock repurchases during 2015 or 2014.
Letters of Credit
We had provided letters of credit totaling $45.3 million and $46.8 million to our casualty insurance carriers to collateralize our casualty insurance
program as of December 31, 2015 and 2014, respectively.
We had provided $7.1 million and $8.1 million in letters of credit to collateralize other obligations as of December 31, 2015 and 2014, respectively.
Deficiency Payments
Pursuant to our obligations with respect to the parking garage operations at Bradley International Airport, we are required to make certain
deficiency 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. As of December 31, 2015, we had
made $11.6 million of cumulative deficiency payments to the trustee, net of reimbursements. Deficiency payments made are recorded as
increases to cost parking services and the reimbursements are recorded as reductions to cost of parking services. We believe these advances
to be fully recoverable and will recognize the principal, interest and premium payments related to these deficiency payments when they are
received. We do not directly guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.
We received deficiency repayments (net of deficiency payments made) of $1.8 million in the year ended December 31, 2015, compared to
deficiency repayments (net of deficiency payments made) of $1.3 million made in the year ended December 31, 2014. We received $0.4 million
in interest and $0.2 million premium on deficiency repayments from the trustee in the year ended December 31, 2015, compared to $0.5 million
in interest and $0.1 million premium on deficiency repayments from the trustee in the year ended December 31, 2014.
37
Lease Commitments
We have minimum lease commitments of $214.0 million for fiscal 2016. The leased properties generate sufficient cash flow to meet the base
rent payment.
Certain lease contracts acquired in the Central Merger include provisions allocating to us responsibility for the cost of certain structural and
other repairs required to be made to the leased property, including improvement and repair costs arising as a result of ordinary wear and tear.
During the year ended December 31, 2015, 2014 and 2013, we recorded $4.6 million, $1.3 million and $nil, respectively, of costs (net of expected
recoveries of the total cost recognized by the Company through the applicable indemnity discussed further in Note 2. Acquisition of our
Consolidated Financial Statements) in Cost of parking services-Lease contracts within the Consolidated Statements of Income for structural
and other repair costs related to certain lease contracts acquired in the Central Merger, whereby we have expensed repair costs for certain
leases and engaged third-party general contractors to complete certain structural and other repair projects, and other indemnity related costs.
We expect to incur additional costs for certain structural and other repair costs pursuant to the contractual requirements of certain lease contracts
acquired in the Central Merger ("Structural and Repair Costs"). Based on information available at this time, we currently expect to incur additional
Structural and Repair Costs of $1.5 million. While we are unable to estimate with certainty when such remaining costs will be incurred, it is
expected that a substantial majority of these costs will be incurred in early- to mid-calendar year 2016. We currently expect to recover 80% of
the Structural and Repair Costs incurred and related to certain lease contracts acquired in the Central Merger through the applicable indemnity
discussed further in Note 2. Acquisition of our Consolidated Financial Statements.
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, clients may 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, may require us to deposit the daily receipts into client
designated bank accounts and the clients then reimburse us for operating expenses and pay our management fee subsequent to month-end
or may require segregated bank accounts 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 revenues 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 accounts. For all these reasons, from time to time, we carry a significant cash balance, while also utilizing our senior credit facility.
Summary of Cash Flows
(millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Operating activities
Years ended December 31,
2014
2013
2015
$
$
$
43.6
$
(11.8) $
(30.6) $
51.6
$
(14.9) $
(41.5) $
34.9
(13.3)
(26.4)
Our primary sources of funds are cash flows from operating activities and changes in operating assets and liabilities.
Net cash provided by operating activities totaled $43.6 million million for 2015, compared to $51.6 million for 2014. Cash provided during 2015
included $49.9 million from operations, partially offset by changes in operating assets and liabilities that resulted in a use of $6.3 million. The
net decrease in operating assets and liabilities resulted primarily from: (i) a net decrease in accounts payable and accrued liabilities of $17.9
million, which primarily resulted from the timing on payments to our clients as described under "Daily Cash Collections" and vendors and
decreases in the amount of book overdrafts included in accounts payable, partially offset by (ii) a net decrease in notes and accounts receivable
of $3.5 million due to timing of collections, and (iii) a net decrease in prepaid expenses and other of $8.1 million by managing the cash outlay
for future expenses yet to be incurred.
Net cash provided by operating activities totaled $51.6 million for 2014, compared to $34.9 million for 2013. Cash provided during 2014 included
$45.6 million from operations and changes in operating assets and liabilities of $6.0 million. The net increase in operating assets and liabilities
resulted primarily from: (i) a net decrease in notes and accounts receivables due to timing of collections, (ii) a net decrease in prepaid expenses
and other of $2.1 million by managing cash outlay for future expenses yet to be incurred, (iii) a decrease in accounts payable and accrued
liabilities of $1.5 million, which primarily resulted from the timing on payments to our clients as described under ‘‘Daily Cash Collections’’ and
incurred expenses towards the later part of the year.
Net cash provided by operating activities totaled $34.9 million for 2013. Cash provided during 2013 included $50.0 million from operations that
was partially offset by changes in operating assets and liabilities that resulted in a use of $15.2 million. The net decrease in changes in operating
assets and liabilities resulted primarily from: (i) a net increase in notes and accounts receivables and other assets of $6.9 million; (ii) a net
decrease in accounts payable and accrued liabilities of $15.6 million, 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’’ and a reduction in accrued merger and
integration expenses related to the Central Merger; partially offset by (iii) a net decrease in prepaid assets of $7.4 million.
38
Investing Activities
Net cash used in investing activities totaled $11.8 million for 2015, compared to $14.9 million in 2014. Cash used in investing activities in 2015,
included capital expenditures of $9.6 million for capital investments needed to secure and/or extend leased facilities and investments in IT
projects, cost of contract of contract purchased for $3.7 million, partially offset by proceeds from the sale of a business of $1.0 million, net, and
sale of equipment and contract terminations of $0.5 million.
Net cash used in investing activities totaled $14.9 million for 2014, compared to $13.3 million in 2013. Cash used in investing activities in 2014,
included capital expenditures of $13.5 million for capital investments needed to secure and/or extend leased facilities and investments in IT
projects, cost of contract of contract purchased for $2.3 million, partially offset by proceeds from the sale of equipment and contract terminations
of $0.9 million.
Net cash used in investing activities totaled $13.3 million in 2013. Cash used in investing activities in 2013 included capital expenditures of
$15.7 million for capital investments needed to secure and/or extend leased facilities and investments in IT projects, cost of contract purchased
of $0.4 million and contingent payments for previously acquired businesses of $0.3 million, partially offset by proceeds from the sale of equipment
and contract terminations of $0.8 million and proceeds from sale of equity interest in land of $2.3 million.
Financing Activities
Net cash used in financing activities totaled $30.6 million in 2015, compared to $41.5 million in 2014. Cash used in financing activities for 2015
included net payments on the Senior Credit facility and Restated Credit Facility of $36.4 million, distributions to noncontrolling interests of
$3.1 million, payments of debt issuance costs and original discount on borrowings of $1.4 million, and payments on long-term borrowings
(capital leases) of $0.3 million, partially offset by proceeds from the Restated Credit Facility of $10.4 million and tax benefits related to the
vesting of restricted stock units of $0.3 million.
Net cash used in financing activities totaled $41.5 million in 2014, compared to $26.4 million in 2013. Cash used in financing activities for 2014
included $1.8 million for businesses acquired, net payments on the Senior Credit facility of $36.9 million, distributions on noncontrolling interests
of $2.9 million, partially offset by $0.2 million of proceeds from other long-term borrowings (capital leases).
Net cash used in financing activities totaled $26.4 million in 2013. Cash used in financing activities for 2013 included contingent payments for
businesses acquired of $0.6 million, net payments on Senior Credit Facility of $22.6 million, payments on notes payable and other long-term
borrowings of $0.2 million, distributions to noncontrolling interests of $2.8 million, and payments on other long-term borrowings (capital leases)
of $0.5 million, partially offset by the tax benefit on vesting of restricted stock units of $0.2 million.
Cash and Cash Equivalents
We had cash and cash equivalents of $18.7 million at December 31, 2015, compared to $18.2 million at December 31, 2014. The cash balances
reflect our ability to utilize funds deposited into our local bank accounts. Availability, timing of deposits and the subsequent movement of cash
into our corporate bank accounts may result in significant changes to our cash balances.
39
Summary Disclosures about Contractual Obligations and Commercial Commitments
The following summarizes certain of our contractual obligations at December 31, 2015 and the effect such obligations are expected to have
on our liquidity and cash flow in future periods. The nature of our business is to manage parking facilities and as a result, we do not have
significant short-term purchase obligations.
(millions)
Contractual obligations
Operating leases (1)
Capital leases
Total contractual obligations
Other Long-Term Liabilities
Deferred Compensation
Other long-term liabilities (2)
Total other long-term liabilities
Commercial Commitments
Senior Credit Facility (3)
Other Debt (3)
Interest payments on debt and long-term liabilities
Letters of credit (4)
Total commercial commitments
Total
Total
2016
2017 - 2018
2019 - 2020
2021 and
thereafter
Payments Due by Period
$
$
$
$
$
$
985.1
0.3
985.4
10.5
58.2
68.7
227.3
1.7
29.4
52.4
310.8
1,364.9
$
$
$
$
$
$
222.0
0.1
222.1
1.6
21.8
23.4
15.0
1.4
8.3
52.3
77.0
322.5
$
$
$
$
$
$
349.3
0.2
349.5
2.8
23.9
26.7
40.0
0.3
14.7
0.1
55.1
431.3
$
$
$
$
$
$
207.6
—
207.6
2.2
8.0
10.2
172.3
—
6.4
—
178.7
396.5
$
$
$
$
$
$
206.2
—
206.2
3.9
4.5
8.4
—
—
—
—
—
214.6
(1) Represents minimum rental commitments, excluding (i) contingent rent provisions under all non-cancelable leases; and (ii) sublease income of $26.7 million.
(2) Represents customer deposits, insurance claims and obligation related to acquisitions.
(3) Represents principal amounts. See Note 11. Borrowing Arrangements to the consolidated financial statements included in Item 8."Financial Statements and Supplementary
Data."
(4) Represents aggregate amount of currently issued letters of credit at their maturities.
We made contingent payments for business acquired (earn-outs) of $0.1 million, $1.8 million and $0.3 million for each of the years ended 2015,
2014 and 2013, respectively. In addition, we received deficiency repayments (net of deficiency payments made) related to the Bradley Agreement
of $1.8 million and $1.3 million for the years ended December 31, 2015 and 2014, respectively, and made deficiency payments (net of repayments
received) of $0.1 million for the year ended December 31, 2013.
The above schedule does not include any amounts for expected deficiency payments in the "less than one year" category or any other "payments
due by period" category, as we concluded that the potential for future deficiency payments did not meet the criteria of both probable and
estimable.
40
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of
contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical
accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and
which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that
are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base
these estimates and judgments on historic experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily
apparent from other sources. Certain accounting estimates are particularly sensitive because of their complexity and the possibility that future
events affecting them may differ materially from our current judgments and estimates.
This listing of critical accounting policies is not intended to be a comprehensive list of all of our accounting policies. We also have other key
accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results, which
are included in Note 1. Significant Accounting Policies and Practices of the notes to the consolidated financial statements included in Part II,
Item 8. "Financial Statements and Supplementary Data".
Goodwill and Other Intangibles
Goodwill represents the excess of purchase price paid over the fair value of net assets acquired. In accordance with the Financial Accounting
Standards Board's ("FASB") authoritative accounting guidance on goodwill, we do not amortize goodwill but rather evaluate it for impairment
on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired. We have elected to assess
the impairment of goodwill annually on the first day of our fiscal fourth quarter, or at an interim date if there is an event or change in circumstances
indicate the carrying value may not be recoverable. Factors that could trigger an impairment review include significant under-performance
relative to expected historical or projected future operating results, significant changes in the use of acquired assets or our business strategy,
a change in reportable segments and significant negative industry or economic trends.
A multi-step impairment test is performed on goodwill. We have the option to evaluate various qualitative factors to determine the likelihood of
impairment. If determined that it is more likely than not the fair value is less than the carrying value of a reporting unit, then we are required to
perform Step 1. If we do not elect to perform a qualitative assessment, we can voluntarily proceed directly to Step 1. In Step 1, we perform a
quantitative analysis to compare the fair value of the reporting unit to its carrying value including goodwill. If the fair value of the reporting unit
exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired, and we are not required to perform
further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must
perform Step 2 of the impairment test in order to determine the implied fair value of the reporting unit's goodwill. If the carrying value of a
reporting unit's goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
The goodwill impairment test is performed at the reporting unit level; our reporting units represent our operating segments, which are comprised
of our five operating regions. Management determines the fair value of each of its reporting units by using a discounted cash flow approach
and a market approach using multiples of EBITDA of comparable companies to estimate market value. In addition, we compare our derived
enterprise value on a consolidated basis to our market capitalization as of its test date to ensure its derived value approximates our market
value when taken as a whole.
In conducting our goodwill impairment quantitative assessment, we analyzed actual and projected growth trends of the reporting units, gross
margin, operating expenses and EBITDA (which also includes forecasted five-year income statement and working capital projections, a market-
based weighted average cost of capital and terminal values after five years). We also assess critical areas that may impact our business
including economic conditions, market related exposures, competition, changes in product offerings and changes in key personnel. As part of
the 2015 and 2014 goodwill assessments, we engaged a third party to evaluate our reporting unit's fair values.
We continue to perform a goodwill impairment test as required on an annual basis and on an interim basis, if certain conditions exist. Factors
we consider important, which could result in changes to our estimates, include underperformance relative to historical or projected future
operating results and declines in acquisitions and trading multiples. Due to the diverse customer base, we do not believe our future operating
results will vary significantly relative to its historical and projected future operating results. However, future events may indicate differences
from our judgments and estimates that could, in turn, result in impairment charges in the future. Future events that may result in impairment
charges include increases in interest rates, which would impact discount rates, unfavorable economic conditions or other factors that could
decrease revenues and profitability of existing locations and changes in the cost structure of existing facilities. Factors that could potentially
have an unfavorable economic effect on our judgments and estimates include, among others: changes imposed by governmental and regulatory
agencies, such as property condemnations and assessment of parking-related taxes; construction or other events that could change traffic
patterns; and terrorism or other catastrophic events.
Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment when circumstances change that
would create a triggering event. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. We
evaluate the remaining useful life of the other intangible assets on a periodic basis to determine whether events or circumstances warrant a
revision to the remaining useful life. Assumptions and estimates about future values and remaining useful lives of our intangible and other long-
lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic
trends, and internal factors, such as changes in our business strategy and internal forecasts. Although management believes the historical
41
assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial
results.
Long-Lived Assets
We evaluate long-lived asset groups whenever events or circumstances indicate that the carrying value of an asset may not be recoverable.
Events or circumstances that would result in an impairment review primarily include a significant change in the use of an asset, or the planned
sale or disposal of an asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to
future undiscounted cash flows expected to be generated by the asset group. If it is determined to be impaired, the impairment recognized is
measured by the amount by which the carrying value of the asset exceeds its fair value. Our estimates of future cash flows from such assets
could be impacted if it underperforms relative to historical or projected future operating results.
Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment
are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results
or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge.
Insurance Reserves
We purchase comprehensive casualty insurance (including, without limitation, general liability, automobile liability, garage-keepers legal liability,
worker's compensation and umbrella/excess liability insurance) covering certain claims that arise in connection with our operations. Under our
various liability and workers' compensation insurance policies, we are obligated to pay directly or reimburse the insurance carrier for the first
$0.5 million of each loss covered by our general/garage liability or automobile liability policies and $0.3 million for each loss covered by our
workers' compensation and garage keepers legal liability policies. As a result, we are effectively self-insured for all claims up to these levels.
It is our policy to record our self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported. We utilize
historical claims experience and actuarial methods which consider a number of factors to estimate our ultimate cost of losses incurred in
determining the required level of insurance reserves and timing of expense recognition associated with claims against us. This determination
requires the use of judgment in both the estimation of probability when determining the required insurance reserves and amount to be recognized
as an expense. Future information regarding historical loss experience may require changes to the level of insurance reserves and could result
in increased expense recognition in the future.
Allowance for Doubtful Accounts
We report accounts receivable, net of an allowance for doubtful accounts, to represent our estimate of the amount that ultimately will be realized
in cash. In determining the adequacy of the allowance for doubtful accounts, we primarily use the review of specific accounts but also use
historical collection trends and aging of receivables and make adjustments in the allowance as necessary. Changes in economic conditions or
other circumstances could have an impact on the collection of existing receivable balances or future allowance for doubtful account
considerations.
Income Taxes
Income tax expense involves management judgment as to the ultimate resolution of any tax issues. Historically, our assessments of the ultimate
resolution of tax issues have been reasonably accurate. The current open issues are not dissimilar from historical items.
Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between financial reporting amounts and the tax bases of existing assets and
liabilities based on currently enacted tax laws and tax rates in effect for the periods in which these temporary differences are expected to reverse
or be settled. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes. We have certain
state net operating loss carry forwards which expire in 2035. Our ability to fully utilize these net operating losses to offset taxable income is
limited due to the change in ownership resulting from the initial public offering of our stock in 2004 (Internal Revenue Code, Section 382). We
consider a number of factors in our assessment of the recoverability of our state net operating loss carryforwards including their expiration
dates, the limitations imposed due to the change in ownership as well as future projections of income. Future changes in our operating
performance along with these considerations may significantly impact the amount of net operating losses ultimately recovered, and our
assessment of their recoverability.
When evaluating our tax positions, we account for uncertainty in income taxes in our consolidated financial statements. The evaluation of a
tax position is a two-step process, the first step being recognition. We determine whether it is more-likely-than-not that a tax position will be
sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. If
a tax position does not meet the more-likely-than-not threshold, the benefit of that position is not recognized in our financial statements. The
second step is measurement. The tax position is measured as the largest amount of benefit that is more-likely-than-not of being realized upon
ultimate resolution with a taxing authority.
Legal and Other Contingencies
We are subject to claims and litigation in the normal course of our business. The outcomes of claims and legal proceedings brought against
us and other loss contingencies are subject to significant uncertainty. We accrue a charge 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. When a loss is probable,
we record an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record
the lowest amount in the estimated range of loss and disclose the estimated range. We do not record liabilities for reasonably possible loss
42
contingencies, but do disclose a range of reasonably possible losses if they are material and we are able to estimate such a range. If we cannot
provide a range of reasonably possible losses, we explain the factors that prevent us from determining such a range. 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. 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 estimation and
judgment.
43
Item 7A. 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 the variable rate Restated Credit
Facility, discussed previously, to finance our operations. This Restated Credit 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 our exposure to an increase in interest rates.
In October 2012, we entered into interest rate swap transactions (collectively, the "Interest Rate Swaps") with each of JPMorgan
Chase Bank, Bank of America and PNC Bank, N.A. in an initial aggregate notional amount of $150.0 million (the "Notional Amount").
The Interest Rate Swaps have an effective date of October 31, 2012 and a termination date of September 30, 2017. The Interest
Rate Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under our credit agreements, originally
equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under our credit agreements
determined based upon SP Plus's consolidated total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly
amortization that coincides with quarterly prepayments of principal under our credit agreements. These Interest Rate Swaps are
classified as cash flow hedges, and we calculate the effectiveness of the hedge on a monthly basis. The ineffective portion of the
cash flow hedge is recognized in earnings as an increase of interest expense. For the year ended December 31, 2015 and 2014,
no ineffective portion of the cash flow was recognized as interest expense. The fair value of the Interest Rate Swaps at December 31,
2015 and 2014 was a $0.2 million and $0.6 million asset, and are included in "Other assets, net" within the Consolidated Balance
Sheet.
We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.
On February 20, 2015, we entered into a Restated Credit Agreement. Pursuant to the terms, and subject to the conditions, of the
Restated Credit Agreement, as described in Note 11, Borrowing Arrangements within out Notes to our Consolidated Financial
Statements, the Lenders have made available to us a Restated Credit Facility that permits aggregate borrowings of $400.0 million
consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which includes a letter of credit facility that
is limited to $100.0 million at any time outstanding, and (ii) a term loan facility of $200.0 million, subject to securing additional
commitments from the Lenders or new lending institutions. Interest expense on such borrowings is sensitive to changes in the
market rate of interest. If we were to borrow the entire non-hedged variable rate debt of $175.4 million available under the revolving
credit facility, a 1 percent (%) increase in the average market rate would result in an increase in our annual interest expense of
$1.8 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
Substantially all of our operations are conducted in the United States and, as such, are not subject to material foreign currency
exchange risk. All foreign investments are denominated in U.S. dollars, with the exception of Canada. We had approximately
$0.6 million of Canadian dollar denominated cash instruments at December 31, 2015, and no debt instruments denominated in
Canadian dollar at December 31, 2014. 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.
44
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and related notes and schedules required by this Item are incorporated into this Form 10-K
and set forth in Part IV, Item 15. "Exhibits and Financial Statements" herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Prior to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and under the supervision and
with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Corporate Controller,
we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (the
"Evaluation") at a reasonable assurance level as of the last day of the period covered by this Form 10-K.
Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the
"Exchange Act") as controls and other procedures that are designed to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified by the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer and Corporate
Controller, to allow timely decisions regarding required disclosures.
Based upon the Evaluation, our Chief Executive Officer, Chief Financial Officer and Corporate Controller concluded that our
disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2015.
Inherent Limitations of the Effectiveness of Internal Control
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles
("GAAP"). Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that the Company's receipts and expenditures are being made only in accordance with
authorizations of the Company's management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the financial statements.
Management, including our Chief Executive Officer, Chief Financial Officer and Corporate Controller, does not expect that our
internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in
future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation
and fair presentation of our published financial statements.
Prior to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, our management assessed the
effectiveness of our internal control over financial reporting as of the last day of the period covered by the report. In making this
assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") in Internal Control—Integrated Framework (2013 Framework). Based on our Evaluation under the COSO Framework,
our management concluded that our internal control over financial reporting was effective as of December 31, 2015.
45
Ernst & Young LLP has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part
of its audit, has issued an attestation report, included herein, on the effectiveness of our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2015, which were identified in
connection with the Evaluation, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
46
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item with respect to our directors and compliance by our directors, executive officers and certain
beneficial owners of our common stock with Section 16(a) of the Exchange Act is incorporated by reference to all information under
the captions entitled "Board Matters—Nominees for Director," "Board Matters—Nominations for Director," "Our Corporate
Governance Practices—Codes of Conduct and Ethics," "Board Committees and Meetings," "Executive Officers" and "Section 16
(a) Beneficial Ownership Reporting Compliance" included in our 2016 Proxy Statement.
We have adopted a code of ethics as part of our compliance program. The code of ethics applies to our Chief Executive Officer
(Principal Executive Officer), Chief Financial Officer (Principal Financial Officer) and Corporate Controller (Principal Accounting
Officer). In addition we have adopted a code of business conduct that applies to all of our officers and employees. Any amendments
to, or waivers from, our code of ethics will be posted on our website www.spplus.com. A copy of these codes of conduct and ethics
will be provided to you without charge upon request to investor_relations@spplus.com.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to all information under the caption entitled "Compensation Discussion
and Analysis," "Compensation Committee Report," "Executive Compensation," and "Director Compensation," included in our 2016
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item is incorporated by reference to all information under the caption entitled "Equity Compensation
Plan Information" and "Security Ownership" included in our 2016 Proxy Statement.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information required by this item is incorporated by reference to all information under the caption "Board Matters—Nominations for
Directors—Board Designees," "Our Corporate Governance Practices—Director Independence," "Our Corporate Governance
Practices—Related-Party Transaction Policy," and "Transactions with Related Persons and Control Persons" included in our 2016
Proxy Statement.
Item 14. Principal Account Fees and Services
Information required by this item is incorporated by reference to all information under the caption "Audit Committee Disclosure—
Principal Accounting Fees and Services," and "Audit Committee Disclosure—Procedures for Audit Committee Pre-Approval of Audit
and Permissible Non-Audit Services of our Independent Registered Public Accounting Firm" included in our 2016 Proxy Statement.
47
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements and Schedules
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2015 and 2014
For the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
49
50
51
52
53
54
55
56
The following financial statement schedule is included in this report and should be read in conjunction with the financial statements
and Report of Independent Registered Public Accounting Firm referred to above.
Schedule II—Valuation and Qualifying Accounts
89
Other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
(b) Exhibits Required by Item 601 of Regulation S-K
The information required by this item is set forth on the exhibit index that follows the signature page of this report.
48
The Board of Directors and Stockholders of SP Plus Corporation
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of SP Plus Corporation as of December 31, 2015 and 2014, and
the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in the Index at
Item 15. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of SP Plus Corporation at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), SP
Plus Corporation's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control
—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
and our report dated March 1, 2016, expressed an unqualified opinion thereon.
Chicago, Illinois
March 1, 2016
/s/ ERNST & YOUNG LLP
49
The Board of Directors and Stockholders of SP Plus Corporation
Report of Independent Registered Public Accounting Firm
We have audited SP Plus Corporation's internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). SP Plus Corporation's management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included
in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, SP Plus Corporation maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of SP Plus Corporation as of December 31, 2015 and 2014, and the related consolidated statements
of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31,
2015, and our report dated March 1, 2016 expressed an unqualified opinion thereon.
Chicago, Illinois
March 1, 2016
/s/ ERNST & YOUNG LLP
50
SP Plus Corporation
Consolidated Balance Sheets
(millions, except for share and per share data)
Assets
Cash and cash equivalents
Notes and accounts receivable, net
Prepaid expenses and other
Deferred taxes
Total current assets
Leasehold improvements, equipment, land and construction in progress, net
Other assets
Advances and deposits
Other intangible assets, net
Favorable acquired lease contracts, net
Equity investments in unconsolidated entities
Other assets, net
Cost of contracts, net
Goodwill
Total other assets
Total assets
Liabilities and stockholders' equity
Accounts payable
Accrued rent
Compensation and payroll withholdings
Property, payroll and other taxes
Accrued insurance
Accrued expenses
Current portion of long-term obligations under credit facility and other long-term borrowings
Total current liabilities
Deferred taxes
Long-term borrowings, excluding current portion
Obligations under credit facility
Other long-term borrowings
Unfavorable acquired lease contracts, net
Other long-term liabilities
Total noncurrent liabilities
Stockholders' equity
Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of December 31, 2015
and 2014; no shares issued
Common stock, par value $0.001 per share; 50,000,000 shares authorized as of December 31,
2015 and 2014; 22,328,578 and 22,127,725 shares issued and outstanding as of December 31,
2015 and 2014, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings (accumulated deficit)
Total SP Plus Corporation stockholders' equity
Noncontrolling interest
Total shareholders' equity
Total liabilities and stockholders' equity
See Notes to Consolidated Financial Statements.
51
December 31,
2015
2014
$
$
$
18.7
105.1
13.9
12.3
150.0
34.6
5.0
75.9
38.1
19.0
18.3
11.9
431.3
599.5
784.1
95.1
22.9
21.0
8.6
19.4
25.4
15.2
207.6
—
209.4
0.5
209.9
50.3
66.2
326.4
18.2
109.3
17.8
10.9
156.2
42.8
6.7
91.0
48.3
20.7
14.0
10.5
432.9
624.1
823.1
106.5
22.1
22.0
11.7
22.0
26.0
14.5
224.8
5.8
235.5
0.8
236.3
61.4
65.0
368.5
—
—
—
247.9
(1.1)
2.8
249.6
0.5
250.1
784.1
$
—
243.9
(0.2)
(14.6)
229.1
0.7
229.8
823.1
$
$
$
$
SP Plus Corporation
Consolidated Statements of Income
(millions, except for share and per share data)
Parking services revenue
Lease contracts
Management contracts
Reimbursed management contract revenue
Total revenue
Cost of parking services
Lease contracts
Management contracts
Reimbursed management contract expense
Total cost of parking services
Gross profit
Lease contracts
Management contracts
Total gross profit
General and administrative expenses
Depreciation and amortization
Operating income
Other expense (income)
Interest expense
Interest income
Gain on sale of a business
Gain on contribution of a business to an unconsolidated entity
Equity in losses from investment in unconsolidated entity
Total other expenses (income)
Earnings before income taxes
Income tax expense (benefit)
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to SP Plus Corporation
Common stock data
Net income per common share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
See Notes to Consolidated Financial Statements.
$
$
$
$
Years Ended December 31,
2014
2013
2015
570.9
350.3
921.2
694.7
1,615.9
532.8
218.3
751.1
694.7
1,445.8
38.1
132.0
170.1
97.3
34.0
38.8
12.7
(0.2)
(0.5)
—
1.7
13.7
25.1
4.8
20.3
2.9
17.4
0.78
0.77
$
$
$
$
496.6
338.3
834.9
679.8
1,514.7
455.7
207.9
663.6
679.8
1,343.4
40.9
130.4
171.3
101.5
30.3
39.5
17.8
(0.4)
—
(4.1)
0.3
13.6
25.9
(0.2)
26.1
3.0
23.1
1.05
1.03
$
$
$
$
489.6
347.3
836.9
629.9
1,466.8
456.1
208.7
664.8
629.9
1,294.7
33.5
138.6
172.1
98.9
31.2
42.0
19.0
(0.6)
—
—
—
18.4
23.6
8.8
14.8
2.7
12.1
0.55
0.54
22,189,140
22,511,759
22,009,800
22,407,343
21,902,870
22,249,584
52
SP Plus Corporation
Consolidated Statements of Comprehensive Income
(millions)
Net income
Other comprehensive income (expense)
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to SP Plus Corporation
$
$
See Notes to Consolidated Financial Statements.
Years Ended December 31,
2014
2013
2015
$
20.3
(0.9)
19.4
2.9
$
26.1
(0.3)
25.8
3.0
16.5
$
22.8
$
14.8
0.5
15.3
2.7
12.6
53
SP Plus Corporation
Consolidated Statements of Stockholders' Equity
Common Stock
(millions, except for share and per share
data)
Number
of
Shares
Par
Value
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Accumulated
Deficit)
Noncontrolling
Interest
Total
Balance (deficit) at December 31, 2012
21,870,770
$
— $
236.4
$
(0.4) $
(49.8) $
Net income
Foreign currency translation adjustments
Effective portion of cash flow hedge
Shares issued—Central Merger
Exercise of stock options
Issuance of stock grants
Vested restricted stock units
Non-cash stock-based compensation
related to restricted stock units
Tax benefit from exercise of stock options
Purchase of Central shares of
noncontrolling interest
Distribution to noncontrolling interest
15,576
90,965
—
—
4.1
0.2
12.1
(0.5)
1.0
Balance (deficit) at December 31, 2013
21,977,311
$
— $
240.7
$
0.1
$
(37.7) $
Net income
Foreign currency translation adjustments
Effective portion of cash flow hedge
Issuance of stock grants
Vested restricted stock units
Non-cash stock-based compensation
related to restricted stock units and
performance share units
Tax benefit from vesting of restricted stock
Distribution to noncontrolling interest
19,336
131,078
—
—
0.5
2.8
(0.1)
23.1
(0.2)
(0.2)
Balance (deficit) at December 31, 2014
22,127,725
$
— $
243.9
$
(0.2) $
(14.6) $
Net income
Foreign currency translation adjustments
Effective portion of cash flow hedge
Issuance of stock grants
Vested restricted stock units
Proceeds from exercise of stock options
Non-cash stock-based compensation
related to restricted stock units and
performance share units
Tax benefit from vesting of restricted stock
units
Distribution to noncontrolling interest
29,305
164,447
7,101
—
—
—
0.7
—
3.0
0.3
17.4
(0.7)
(0.2)
$
0.8
2.7
(2.8)
0.6
3.0
$
(2.9)
0.7
2.9
$
(3.1)
187.0
14.8
(0.5)
1.0
—
—
—
4.1
0.2
(2.8)
203.7
26.1
(0.2)
(0.2)
0.5
(2.8)
(0.1)
(2.9)
229.8
20.3
(0.7)
(0.2)
0.7
—
—
3.0
0.3
(3.1)
Balance (deficit) at December 31, 2015
22,328,578
$
— $
247.9
$
(1.1) $
2.8
$
0.5
$
250.1
See Notes to Consolidated Financial Statements.
54
SP Plus Corporation
Consolidated Statements of Cash Flows
(millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Net (accretion) amortization of acquired lease contracts
(Gain) loss on sale of equipment
(Gain) loss on sale of equity interest in land
(Gain) loss on sale of business
Amortization of debt issuance costs
Amortization of original discount on borrowings
Non-cash stock-based compensation
Provision for losses on accounts receivable
Excess tax (benefit) expense related to vesting of restricted stock units
(Gain) on contribution of a business to an unconsolidated entity
Deferred income taxes
Changes in operating assets and liabilities
Notes and accounts receivable
Prepaid assets
Other assets
Accounts payable
Accrued liabilities
Net cash provided by operating activities
Investing activities
Purchase of leasehold improvements and equipment
Proceeds from sale of equipment and contract terminations
Cash received from sale of business, net
Proceeds from sale of equity interest in land
Cost of contracts purchased
Contingent payments for businesses acquired
Net cash used in investing activities
Financing activities
Contingent payments for businesses acquired
Payments on senior credit facility revolver (Senior Credit Facility and
Restated Credit Facility)
Proceeds from senior credit facility revolver (Senior Credit Facility and
Restated Credit Facility)
Proceeds from term loan (Restated Credit Facility)
Payments on term loan (Senior Credit Facility and Restated Credit
Facility)
Proceeds from (payments on) other long-term borrowings
Distribution to noncontrolling interest
Payments of debt issuance costs and original discount on borrowings
Excess tax (benefit) expense related to vesting of restricted stock units
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosures
Cash paid during the period for
Interest
Income taxes, net
See Notes to Consolidated Financial Statements.
$
$
$
55
Year Ended December 31,
2015
2014
2013
$
20.3
$
26.1
$
34.1
(0.9)
0.4
—
(0.5)
0.9
1.2
3.7
0.7
(0.3)
—
(9.7)
3.5
3.7
4.4
(11.4)
(6.5)
43.6
(9.6)
0.5
1.0
—
(3.7)
—
(11.8)
(0.1)
(460.9)
439.5
10.4
(15.0)
(0.3)
(3.1)
(1.4)
0.3
(30.6)
(0.7)
0.5
18.2
18.7
10.7
18.1
$
$
$
30.4
(1.0)
(0.3)
—
—
1.3
1.2
3.3
0.7
0.1
(4.1)
(12.1)
5.4
2.6
(0.5)
(9.0)
7.5
51.6
(13.5)
0.9
—
—
(2.3)
—
(14.9)
(1.8)
(572.6)
568.0
—
(32.3)
0.2
(2.9)
—
(0.1)
(41.5)
(0.2)
(5.0)
23.2
18.2
13.9
1.3
$
$
$
14.8
29.5
(4.3)
1.6
(1.2)
—
1.4
1.3
4.2
0.2
(0.2)
—
2.7
(3.8)
7.4
(3.1)
(13.5)
(2.1)
34.9
(15.7)
0.8
—
2.3
(0.4)
(0.3)
(13.3)
(0.6)
(491.6)
491.5
—
(22.5)
(0.6)
(2.8)
—
0.2
(26.4)
(0.5)
(5.3)
28.5
23.2
16.3
1.3
SP PLUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(millions, except share and per share data)
1. Significant Accounting Policies and Practices
The Company
SP Plus Corporation (the "Company") provides parking management, ground transportation and other ancillary services to
commercial, institutional and municipal clients in urban markets and airports across the United States, Puerto Rico and Canada.
These services include a comprehensive set of on-site parking management and ground transportation services, which include
facility maintenance, training, scheduling and supervising all service personnel as well as providing customer service, marketing,
and accounting and revenue control functions necessary to facilitate the operation of clients' facilities. The Company also provides
a range of ancillary services such as airport shuttle operations, valet services, taxi and livery dispatch services and municipal meter
revenue collection and enforcement services.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and Variable Interest
Entities ("VIEs") in which the Company is the primary beneficiary. All significant intercompany profits, transactions and balances
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. Management evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the current environment.
Foreign Currency Translation
The functional currency of the Company's foreign operations is the local currency. Accordingly, assets and liabilities of the Company's
foreign operations are translated from foreign currencies into U.S. dollars at the rates in effect on the balance sheet date while
income and expenses are translated at the weighted-average exchange rates for the year. Adjustments resulting from the translations
of foreign currency financial statements are accumulated and classified as a separate component of stockholders' equity.
Cash and Cash Equivalents
Cash equivalents represent funds temporarily invested in money market instruments with maturities of three months or less. Cash
equivalents are stated at cost, which approximates fair value. Cash and cash equivalents that are restricted as to withdrawal or
use under the terms of certain contractual agreements was $0.9 million and $0.5 million as of December 31, 2015 and 2014,
respectively, and are included within Cash and cash equivalents within the Consolidated Balance Sheet.
Allowance for Doubtful Accounts
Accounts receivable, net of the allowance for doubtful accounts, represents the Company's estimate of the amount that ultimately
will be realized in cash. Management reviews the adequacy of its allowance for doubtful accounts on an ongoing basis, using
historical collection trends, aging of receivables, and a review of specific accounts, and makes adjustments in the allowance as
necessary. Changes in economic conditions or other circumstances could have an impact on the collection of existing receivable
balances or future allowance considerations. As of December 31, 2015 and 2014, the Company's allowance for doubtful accounts
was $0.9 million and $1.0 million, respectively.
Leasehold Improvements, Equipment, Land and Construction in Progress, net
Leasehold improvements, equipment, software, vehicles, and other fixed assets are stated at cost less accumulated depreciation
and amortization. Equipment is depreciated on the straight-line basis over the estimated useful lives ranging from 2 to 10 years.
Expenditures for major renewals and improvements that extend the useful life of property and equipment are capitalized. Leasehold
improvements are amortized on the straight-line basis over the terms of the respective leases or the service lives of the improvements,
whichever is shorter (weighted average remaining life of approximately 8.2 years).
Certain costs associated with directly obtaining, developing or upgrading internal-use software are capitalized and amortized over
the estimated useful life of software.
Cost of Contracts
Cost of contracts represents the cost of obtaining contractual rights associated with providing parking services at a managed or
leased facility. Cost of parking contracts are amortized over the estimated life of the contracts, including anticipated renewals and
terminations. Estimated lives are based on the contract life or anticipated lives of the contract.
56
Goodwill and Other Intangibles
Goodwill represents the excess of purchase price paid over the fair value of net assets acquired. In accordance with the Financial
Accounting Standards Board's ("FASB") authoritative accounting guidance on goodwill, the Company does not amortize goodwill
but rather evaluates it for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill
to become impaired. The Company has elected to assess the impairment of goodwill annually on the first day of its fiscal fourth
quarter, or at an interim date if there is an event or change in circumstances indicate the carrying value may not be recoverable.
Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected
future operating results, significant changes in the use of acquired assets or its business strategy, and significant negative industry
or economic trends.
A multi-step impairment test is performed on goodwill. The Company has the option to evaluate various qualitative factors to
determine the likelihood of impairment. If determined that it is more likely than not the fair value is less than the carrying value of
a reporting unit, then the Company is required to perform Step 1. If the Company does not elect to perform a qualitative assessment,
it can voluntarily proceed directly to Step 1. In Step 1, the Company performs a quantitative analysis to compare the fair value of
the reporting unit to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net
assets assigned to that unit, goodwill is not considered impaired, and the Company's is not required to perform further testing. If
the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company
must perform Step 2 of the impairment test in order to determine the implied fair value of the reporting unit's goodwill. If the carrying
value of a reporting unit's goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the
difference.
The goodwill impairment test is performed at the reporting unit level; the Company's reporting units represent its operating segments,
consisting of the North reporting unit, South reporting unit, NY Metropolitan tri-state area of New York, New Jersey and Connecticut
reporting unit, Airport transportation services reporting unit, USA Parking reporting unit and event planning and transportation
services reporting unit. The December 31, 2015 goodwill balances by reportable segment are presented in detail in Note. 9 Goodwill.
Management determines the fair value of each of its reporting units by using a discounted cash flow approach and a market approach
using multiples of EBITDA of comparable companies to estimate market value. In addition, the Company compares its derived
enterprise value on a consolidated basis to the Company's market capitalization as of its test date to ensure its derived value
approximates the market value of the Company when taken as a whole.
In conducting its goodwill impairment quantitative assessment, the Company analyzed actual and projected growth trends of the
reporting unit, gross margin, operating expenses and EBITDA (which also includes forecasted five-year income statement and
working capital projections, a market-based weighted average cost of capital and terminal values after five years). The Company
also assesses critical areas that may impact its business including economic conditions, market related exposures, competition,
changes in product offerings and changes in key personnel for each of its reporting unit's. As part of the 2015 and 2014 annual
goodwill assessments, the Company engaged a third party to evaluate its reporting unit's fair values.
The Company will continue to perform a goodwill impairment test as required on an annual basis and on an interim basis, if certain
conditions exist. Factors the Company considers important, which could result in changes to its estimates, include under-performance
relative to historical or projected future operating results and declines in acquisitions and trading multiples. Due to the broad customer
base, the Company does not believe its future operating results will vary significantly relative to its historical and projected future
operating results. However, future events may indicate differences from its judgments and estimates which could, in turn, result in
impairment charges in the future. Future events that may result in impairment charges include increases in interest rates, which
would impact discount rates, unfavorable economic conditions or other factors which could decrease revenues and profitability of
existing locations and changes in the cost structure of existing facilities. Factors that could potentially have an unfavorable economic
effect on management's judgments and estimates include, among others: changes imposed by governmental and regulatory
agencies, such as property condemnations and assessment of parking-related taxes; construction or other events that could change
traffic patterns; and terrorism or other catastrophic events.
Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment when circumstances
change that would create a triggering event. Intangible assets with finite lives are amortized on a straight-line basis over their
estimated useful lives. The Company evaluates the remaining useful life of the other intangible assets on a periodic basis to determine
whether events or circumstances warrant a revision to the remaining useful life. Assumptions and estimates about future values
and remaining useful lives of its intangible and other long-lived assets are complex and subjective. They can be affected by a variety
of factors, including external factors such as industry and economic trends, and internal factors, such as changes in its business
strategy and internal forecasts. Although management believes the historical assumptions and estimates are reasonable and
appropriate, different assumptions and estimates could materially impact its reported financial results.
Long-Lived Assets
The Company evaluates long-lived asset groups whenever events or circumstances indicate that the carrying value of an asset or
asset group may not be recoverable. Events or circumstances that would result in an impairment review primarily include a significant
change in the use of an asset, or the planned sale or disposal of an asset. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset
group. If it is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the
57
asset exceeds its fair value. The Company's estimates of future cash flows from such assets could be impacted if it underperforms
relative to historical or projected future operating results.
Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine
the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from
changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could
result in an impairment charge.
Debt Issuance Costs
The costs of obtaining financing are capitalized and amortized as interest expense over the term of the respective financing using
the effective interest method. Pursuant to ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30), adopted by the Company
on December 31, 2015, debt issuance costs of $2.4 million and $2.6 million at December 31, 2015, and 2014, respectively, are
recorded as a direct deduction from the carrying amount of the Company's debt balance within the Consolidated Balance Sheets
and are reflected net of accumulated amortization of $8.2 million and $7.3 million respectively. Amortization expense related to
debt issuance costs and included in interest expense within the Consolidated Statements of Income was $0.9 million, $1.3 million
and $1.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Financial Instruments
The carrying values of cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature
of these financial instruments. Book overdrafts of $25.8 million and $30.8 million are included within Accounts payable within the
Consolidated Balance Sheets as of December 31, 2015, and 2014, respectively. Long-term debt has a carrying value that
approximates fair value because these instruments bear interest at variable market rates.
Insurance Reserves
The Company purchases comprehensive casualty insurance covering certain claims that arise in connection with its operations.
In addition, the Company purchases umbrella/excess liability coverage. Under our various liability and workers' compensation
insurance policies, the Company is obligated to pay directly or reimburse the insurance carrier for the first $0.5 million of each loss
covered by its general/garage liability or automobile liability policies and $0.3 million for each loss covered by its workers'
compensation and garage keepers legal liability policies. As a result, the Company is, in effect, self-insured for all claims up to these
levels. The Company applies the provisions as defined in the guidance related to accounting for contingencies, in determining the
timing and amount of expense recognition associated with claims against the Company. The expense recognition is based upon
the Company's determination of an unfavorable outcome of a claim being deemed as probable and capable of being reasonably
estimated, as defined in the guidance related to accounting for contingencies. This determination requires the use of judgment in
both the estimation of probability and the amount to be recognized as an expense. The Company utilizes historical claims experience
along with regular input from third party insurance advisers in determining the required level of insurance reserves. Future information
regarding historical loss experience may require changes to the level of insurance reserves and could result in increased expense
recognition in the future.
Legal and Other Commitments and Contingencies
The Company is subject to litigation in the normal course of its business. The Company applies the provisions as defined in the
guidance related to accounting for contingencies in determining the recognition and measurement of expense recognition associated
with legal claims against the Company.
Management uses guidance from internal and external legal counsel on the potential outcome of litigation in determining the need
to record liabilities for potential losses and the disclosure of pending legal claims.
Certain lease contracts acquired in the Central Merger include provisions allocating to the Company responsibility for the cost of
certain structural and other repairs required to be made to the leased property, including improvement and repair costs arising as
a result of ordinary wear and tear. The Company recorded $4.6 million, $1.3 million and $nil for the year ended December 31, 2015,
2014 and 2013, respectively, of costs (net of expected recoveries of the total cost recognized by the Company through the applicable
indemnity discussed further in Note 2. Acquisition) in Cost of parking services-Lease contracts within the Consolidated Statements
of Income for structural and other repair costs related to certain lease contracts acquired in the Central Merger, whereby the Company
has expensed repair costs for certain leases and engaged third-party general contractors to complete certain structural and other
repair projects, and other indemnity related costs. The Company expects to incur additional costs for certain structural and other
repair costs pursuant to the contractual requirements of certain lease contracts acquired in the Central Merger ("Structural and
Repair Costs"). Based on information available at this time, the Company currently expects to incur additional Structural and Repair
Costs of $1.5 million. While the Company is unable to estimate with certainty when such remaining costs will be incurred, it is
expected that a substantial majority of these costs will be incurred in early- to mid-calendar year 2016. The Company currently
expects to recover 80% of the Structural and Repair Costs incurred and related to certain lease contracts acquired in the Central
Merger through the applicable indemnity discussed further in Note 2. Acquisition.
58
Interest Rate Swaps
In October 2012, the Company entered into Interest Rate Swap transactions (collectively, the "Interest Rate Swaps") with each
of JPMorgan Chase Bank, N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0
million (the "Notional Amount"). The Interest Rate Swaps have a termination date of September 30, 2017. The Interest Rate
Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under the Company's credit agreements,
originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the
Company's credit agreements determined based upon the Company's consolidated total debt to EBITDA ratio. The Notional
Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the credit
agreements. These Interest Rate Swaps are classified as cash flow hedges, and the Company calculates the effectiveness of
the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase to interest
expense. As of December 31, 2015, no ineffective portion of cash flow hedges has been recognized in interest expense. See
Note 10. Fair Value Measurement for the fair value of the interest rate swap for the year ended December 31, 2015 and 2014.
The Company does not enter into derivative instruments for any purpose other than cash flow hedging purposes.
Parking Services Revenue
The Company's revenues are primarily derived from leased locations, managed properties and the providing of ancillary services,
such as accounting, payments received for exercising termination rights, consulting development fees, gains on sales of contracts,
insurance (general, workers' compensation and health care) and other value-added services. In accordance with the guidance
related to revenue recognition, revenue is recognized when persuasive evidence of an arrangement exists, the fees are fixed or
determinable, and collectability is reasonably assured and as services are provided. The Company recognizes gross receipts (net
of taxes collected from customers) as revenue from leased locations, and management fees for parking services, as the related
services are provided. Ancillary services are earned from management contract properties and are recognized as revenue as those
services are provided.
Cost of Parking Services
The Company recognizes costs for leases, non-reimbursed costs from managed facilities and reimbursed expense as cost of
parking services. Cost of parking services consists primarily of rent and payroll related costs.
Reimbursed Management Contract Revenue and Expense
The Company recognizes as both revenues and expenses, in equal amounts, costs incurred by the Company that are directly
reimbursed from its management clients. The Company has determined it is the principal in these transactions, as defined in
Accounting Standard Codification (ASC) 605-45 Principal Agent Considerations, based on the indicators of gross revenue reporting.
As the principal, the Company is the primary obligor in the arrangement, has latitude in establishing price, discretion in supplier
selection, and the Company assumes credit risk.
Advertising Costs
Advertising costs are expensed as incurred and are included in General and administrative expenses within the Consolidated
Statements of Income. Advertising expenses aggregated $1.6 million, $1.3 million, and $1.0 million for 2015, 2014, and 2013,
respectively.
Stock-Based Compensation
Share based payments to employees including grants of employee stock options, restricted stock units and performance-based
share units are measured at the grant date, based on the estimated fair value of the award, and the related expense is recognized
over the requisite employee service period or performance period (generally the vesting period) for awards expected to vest
(considering estimated forfeitures).
Equity Investment in Unconsolidated Entities
The Company has ownership interests in 38 partnerships, joint ventures or similar arrangements which operate parking facilities,
of which 27 are VIEs and 11 are voting interest model entities where the Company's ownership interests range from 30-50
percent and for which there are no indicators of control. The Company accounts for such investments under the equity method
of accounting, and its underlying share of each investee's equity is included in Equity Investment in Unconsolidated Entities
within the Consolidated Balance Sheets. As the operations of these entities are consistent with the Company's underlying core
business operations, the equity in earnings of these investments are included in Parking Services Revenue - Lease Contracts
within the Consolidated Statements of Income. The equity earnings in these related investments were $2.0 million, $1.9 million,
and $2.1 million for the year ended December 31, 2015, 2014 and 2013, respectively.
In October 2014, the Company entered into an agreement to establish a joint venture with Parkmobile USA, Inc. ("Parkmobile USA")
and contributed all of the assets and liabilities of its proprietary Click and Park parking prepayment business in exchange for a 30
percent interest in the newly formed legal entity called Parkmobile, LLC ("Parkmobile"). The joint venture of Parkmobile provides
on-demand and prepaid transaction processing for on- and off-street parking and transportation services. The contribution of the
Click and Park business in the joint venture resulted in a loss of control of the business, and therefore it was deconsolidated from
59
the Company's financial statements. As a result of the deconsolidation, the Company recognized a pre-tax gain of $4.1 million,
which was measured as the fair value of the consideration received in the form of a 30 percent interest in Parkmobile less the
carrying amount of the former business' net assets, including goodwill. The pre-tax gain is reflected in Gain on a sale of business
within the Consolidated Statements of Income. The Company accounts for its investment in the joint venture with Parkmobile using
the equity method of accounting, and its underlying share of equity in Parkmobile is included in Equity investments in unconsolidated
entities within the Consolidated Balance Sheets. The equity earnings in the Parkmobile joint venture are included in Equity
Investments in Unconsolidated Entities within the Consolidated Statements of Income.
Non-Controlling Interests
Noncontrolling interests represent the noncontrolling holders' percentage share of income or losses from the subsidiaries in which
the Company holds a majority, but less than 100 percent, ownership interest and the results of which are consolidated and included
within in our consolidated financial statements.
Sale of Business
During the third quarter 2015, the Company signed an agreement to sell and subsequently sold portions of the Company’s security
business primarily operating in the Southern California market to a third-party for a gross sales price of $1.8 million, which resulted
in a gain on sale of business of $0.5 million, net of legal and other expenses. The pre-tax gain is reflected in Gain on sale of a
business within the Consolidated Statements of Income. The assets under the sale agreement met the definition of a business as
defined by ASU 805-10-55-4. Cash consideration received during the third quarter 2015, net of legal and other expenses, was
$1.0 million with the remaining consideration for the sale of the business being classified as contingent consideration, which per
the sale agreement is based on the performance of the business and retention of current customers over an eighteen-month period,
and due from the buyer in February 2017. The contingent consideration was valued at fair value as of the date of sale of the
business and resulted in the Company recognizing a contingent consideration receivable from the buyer in the amount of $0.5
million. The pre-tax profit for the operations of the sold business was not significant to prior periods presented. See Note 10. Fair
Value Measurement for the fair value of the contingent consideration receivable as of December 31, 2015.
Income Taxes
Income tax expense involves management judgment as to the ultimate resolution of any tax issues. Historically, our assessments
of the ultimate resolution of tax issues have been reasonably accurate. The current open issues are not dissimilar from historical
items.
Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between financial reporting amounts and the tax bases of existing
assets and liabilities based on currently enacted tax laws and tax rates in effect for the periods in which these temporary differences
are expected to reverse or settle. Income tax expense is the tax payable for the period plus the change during the period in deferred
income taxes. The Company has certain state net operating loss carry forwards which expire in 2035. The Company's ability to
fully utilize these net operating losses to offset state taxable income is limited due to the change in ownership resulting from the
initial public offering of our stock in 2004 (Internal Revenue Code, Section 382). The Company considers a number of factors in its
assessment of the recoverability of its net operating loss carryforwards including their expiration dates, the limitations imposed due
to the change in ownership as well as future projections of income. Future changes in the Company's operating performance along
with these considerations may significantly impact the amount of net operating losses ultimately recovered, and its assessment of
their recoverability.
When evaluating our tax positions, the Company accounts for uncertainty in income taxes in its consolidated financial statements.
The evaluation of a tax position is a two-step process, the first step being recognition. The Company determines whether it is more-
likely-than-not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation,
based on only the technical merits of the position. If a tax position does not meet the more-likely-than-not threshold, the benefit of
that position is not recognized in our financial statements. The second step is measurement. The tax position is measured as the
largest amount of benefit that is more-likely-than-not of being realized upon ultimate resolution with a taxing authority.
Recent Accounting Pronouncements
Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("the FASB") issued Accounting Standards Update ("ASU")
No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03
requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from
the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application
and represents a change in accounting principle. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015 with
early adoption being permitted for financial statements that have not been previously issued. The Company adopted ASU 2015-03
in December 2015 on a retrospective basis and reclassified debt issuance costs from Other assets to a direct reduction from the
carrying amount of the (i) Current portion of obligations under the Restated Senior Credit Facility borrowings and (ii) Long-term
obligations under the Restated Credit Facility borrowings within the Consolidated Balance Sheets for the years ended December
31, 2015 and 2014. See Note 11. Borrowing Arrangements for further detail on the Company's debt instruments.
60
Accounting Pronouncements to be Adopted
In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842). ASU 2016-2 requires lessees to move most leases to
the balance sheet and recognize expense, similar to current accounting guidance, on the income statement. Additionally, the
classification criteria and the accounting for sales-type and direct financing leases is modified for lessors. Under ASU 2016-2, all
entities will classify leases to determine: (i) lease-related revenue and expense and (ii) for lessors, amount recorded on the balance
sheet. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning
of the earliest comparative period in the financial statements, with full retrospective application being prohibited. ASU 2016-2 is
effective for interim and annual reporting periods beginning after December 15, 2018. These and other changes to accounting for
leases under ASU 2016-2 are currently being evaluated by the Company for impacts to the Company's financial position, results
of operations, cash flows and financial statement disclosures.
In January 2016, the FASB issued ASU No. 2016-1, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. ASU 2016-1 amends various areas of the accounting for financial instruments. Key
provisions of the amendment currently being evaluated by the Company requires (i) equity investments to be measured at fair value
(except those accounted for under the equity method), (ii) the simplification of equity investment impairment determination, (iii)
certain changes to the fair value measurement of financial instruments measured at amortized cost, (iv) the separate presentation,
in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-
specific credit risk (given certain conditions), and (v) the evaluation for a valuation allowance on a deferred tax asset related to
available-for-sale securities in combination with the Company's other deferred tax assets. ASU 2016-1 is effective for interim and
annual reporting periods beginning after December 15, 2017. These provisions and others of ASU 2016-1 are currently being
assessed by the Company for impacts on the Company's financial position, results of operations, cash flows and financial statement
disclosures.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments. ASU 2015-16 requires that an acquirer in a business combination recognize adjustments to
provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are
determined. The amendment requires that the acquirer record, in the same period’s financial statements, the effect on earnings
of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts,
calculated as if the accounting had been completed at the acquisition date. The ASU also requires an entity to present separately
on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line
item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized
as of the acquisition date. ASU 2015-16 is effective for interim and annual reporting periods beginning after December 15, 2015.
The Company is currently assessing the impact of adopting the standard on the Company's financial position, results of operations,
cash flows and financial statement disclosures.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This
ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing
arrangement includes a software license, the customer should account for the software license element of the arrangement consistent
with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer
should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s
accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15,
2015. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of
operations, cash flows and financial statement disclosures.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU
2015- 02 amends certain aspects of the consolidation guidance in U.S. GAAP. In particular, it will modify the evaluation of whether
limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities and also eliminates the
presumption that a general partner should consolidate a limited partnership. The new guidance will also affect the consolidation
analysis of the Company’s interests in VIEs, particularly those that have fee arrangements and related party relationships. ASU
2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015 and retrospective adoption is
required either through a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning
of the year of adoption or retrospectively for all comparative periods. Early adoption is permitted. The Company is currently assessing
the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement
disclosures.
In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20):
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP
the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also
may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted
provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption
of ASU 2015-01 to have material impact of adopting this standard on the Company’s financial statements.
61
In June 2014, the FASB issued ASU No. 2014-12 Compensation-Stock Compensation (Topic 718), Accounting for Share Based
Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.
A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period
should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation-Stock
Compensation. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost
would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance
is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Early adoption
is permitted. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results
of operations, cash flows and financial statement disclosures.
In May 2014, the FASB issued ASU No. 2014-9, Revenue from Contracts with Customers. The amendments in ASU No. 2014-9
create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605,
Revenue Recognition, including most industry specific revenue recognition guidance. In addition, the amendments supersede the
cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contract, and create a new
Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. The core principle of the guidance is that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods and services. The amendments are effective
for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2017. Early adoption is not permitted.
The Company is currently assessing the impact on the Company's financial position, results of operations, cash flows and financial
statement disclosures.
2. Acquisition
On October 2, 2012 ("Closing Date"), the Company completed the acquisition (the "Central Merger" or "Merger") of 100% of the
outstanding common shares of KCPC Holdings, Inc., which was the ultimate parent of Central Parking Corporation (collectively,
"Central"), for 6,161,332 shares of Company common stock and the assumption of approximately $217.7 million of Central's debt,
net of cash acquired. Additionally, the Agreement and Plan of Merger dated February 28, 2012 with respect to the Central Merger
("Merger Agreement") provides that Central's former stockholders are entitled to receive cash consideration (the "Cash
Consideration") in the amount equal to $27.0 million plus, if and to the extent the Net Debt Working Capital (as defined below) was
less than $275.0 million (the "Lower Threshold") as of September 30, 2012, the amount by which the Net Debt Working Capital
was below such amount (such sum, the "Cash Consideration Amount") to be paid three years after closing, to the extent the $27.0
million is not used to satisfy indemnity obligations pursuant to the Merger Agreement.
Pursuant to the Merger Agreement, the Company is entitled to indemnification from Central's former stockholders (i) if and to the
extent Central's combined net debt and the absolute value of Central's working capital (as determined in accordance with the Merger
Agreement) (the "Net Debt Working Capital") exceeded $285.0 million (the "Upper Threshold") as of September 30, 2012 and (ii) for
certain defined adverse consequences as set forth in the Merger Agreement (including with respect to Structural and Repair Costs).
Pursuant to the Merger Agreement, Central's former stockholders are required to satisfy certain indemnity obligations, which are
capped at the Cash Consideration Amount (the "Capped Items") only through a reduction of the Cash Consideration. For certain
other indemnity obligations set forth in the Merger Agreement, which are not capped at the Cash Consideration Amount (the
"Uncapped Items"), including the Net Debt Working Capital indemnity obligations described above, Central's former stockholders
may satisfy any amount payable pursuant to such indemnity obligations as follows (provided that the Company reserves the right
to reject the cash and stock alternatives available to the Company and choose to reduce the Cash Consideration):
• Central's former stockholders can elect to pay such amount with cash;
• Central's former stockholders can elect to pay such amount with the Company's common stock (valued at $23.64 per
share, the market value as of the closing date of the Merger Agreement); or
• Central's former stockholders can elect to reduce the $27.0 million cash consideration by such amount, subject to the
condition that the cash consideration remains at least $17.0 million to cover Capped Items.
Under the Merger Agreement, all post-closing claims and disputes, including as to indemnification matters, are ultimately subject
to resolution through binding arbitration or, in the case of a dispute as to the calculation of Net Debt Working Capital, resolution by
an independent public accounting firm. Should a dispute resolution process for indemnification matters result in determinations
unfavorable to the Company, the resulting resolution may have a material impact on the Company’s consolidated financial statements.
Since the Closing Date, the Company has periodically given Central’s former stockholders notice regarding indemnification matters,
including with respect to the calculation of Net Debt Working Capital, and has made adjustments for known matters as they arose,
although Central’s former stockholders have not agreed to the aggregate of such adjustments made by the Company. During such
time, Central’s former stockholders have continually requested additional documentation supporting the Company’s indemnification
claims, including with respect to the Company’s calculation of Net Debt Working Capital. Furthermore, following the Company's
notices of indemnification matters, the representative of Central's former stockholders has indicated that they may make additional
inquiries and raise issues with respect to the Company's indemnification claims (including, specifically, as to Structural and Repair
Costs) and that they may assert various claims of their own relating to the Merger Agreement.
The Company previously determined and submitted notification to Central’s former stockholders, that (i) the Net Debt Working
Capital was $296.3 million as of September 30, 2012 and that, accordingly, the Net Debt Working Capital exceeded the Upper
62
Threshold by $11.3 million; and (ii) the Company had indemnity claims of $23.4 million for certain defined adverse consequences
(including indemnity claims with respect to Structural and Repair Costs incurred through December 31, 2015) and as set forth in
an October 1, 2015 notification letter to Central's former stockholders' that certain indemnification claims for Structural and Repair
Costs yet to be incurred met the requirements of the indemnification provisions established in the Merger Agreement. These
additional indemnification claims for Structural and Repair Costs are estimated to be $1.2 million (representing 80% of the $1.5
million of Structural and Repair Costs yet to be incurred by the Company).
In early 2015, the Company and Central’s former stockholders engaged an independent public accounting firm for ultimate resolution,
through binding arbitration, regarding its dispute as to the Company’s calculation of Net Debt Working Capital. On April 30, 2015,
with respect to the Company's Net Debt Working Capital calculation, the representative of Central's former stockholders submitted
specific objections to the Company's calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $270.8
million ($4.2 million below the Lower Threshold) and on September 21, 2015 submitted a revised calculation, asserting that the Net
Debt Working Capital as of September 30, 2012 was $278.0 million ($3.0 million above the Lower Threshold) and therefore no
amounts are due to the Company given calculated net Debt Working Capital is between the Lower Threshold and the Upper
Threshold. On October 1, 2015, the Company provided notification to Central's former stockholders that the aggregate amount of
the Company's (i) Net Debt Working Capital claim of $11.3 million as of September 30, 2012 and (ii) indemnity claims for certain
defined adverse consequences as set forth in the Merger Agreement (including with respect to Structural and Repair Costs),
exceeded the$27.0 million Cash Consideration and therefore the Company would not be making any Cash Consideration payment
pursuant to Section 3.7 of the Merger Agreement. On October 20, 2015, Central's former stockholders provided notification that
they deemed the Company's refusal to pay the $27.0 million Cash Consideration to be a violation of the terms of the Merger
Agreement.
On February 19, 2016, the Company and Central’s former stockholders received a non-appealable and binding decision from the
independent public accounting firm indicating that Net Debt Working Capital as of September 30, 2012 was $291.6 million, or $6.6
million above the Upper Threshold. Furthermore, as part of the independent public accounting firm’s decision over the calculation
of Net Debt Working Capital as of September 30, 2012, it was determined by the independent public accounting firm and the
Company that $1.5 million of Net Debt Working Capital claims were more appropriately claimable as an adverse consequence
indemnification claim, as defined in the Merger Agreement. As such and in conjunction with the independent public accounting
firm’s decision on Net Debt Working Capital, the Company (i) reclassified $1.5 million of indemnification claims from the Net Debt
Working Capital calculation to indemnification claims for certain adverse consequences; and (ii) recognized an expense of $1.6
million ($0.9 million, net of tax) in General and administrative expenses for certain of the other amounts disallowed under the Net
Debt Working Capital calculation as of and for the year ended December 31, 2015, respectively. The independent public accounting
firm also determined that an additional $1.6 million of Net Debt Working Capital claims were disallowed; however, these Net Debt
Working Capital amounts claimed by the Company were not previously recognized by the Company as a cost recovery given their
contingent nature and since these claims were not previously recognized as an expense by the Company, the independent public
accounting firm’s decision to disallow these claims had no impact to the Company's consolidated financial statements as of and
for the year ended December 31, 2015.
As a result of the independent public accounting firm’s decision on the calculation of Net Debt Working Capital, the Company will
revise its indemnity claims for certain defined adverse consequences from $23.4 million to $24.9 million. As previously discussed
in Note 1. Significant Accounting Policies and Practices, certain lease contracts acquired in the Central Merger include provisions
allocating to the Company responsibility for all or a defined portion of the costs of certain structural and other repair costs required
on the property, including improvement and repair costs arising as a result of ordinary wear and tear. The Company has reduced
the Cash Consideration Amount by $6.6 million, representing the amount Net Debt Working Capital exceeded the Upper Threshold,
and $18.8 million, representing the amount of indemnified claims for certain adverse consequences (including but not limited to
Structural and Repair Costs) recognized by the Company as of December 31, 2015. While the Company has submitted $6.1 million
of additional indemnity claims for certain adverse consequences (including but not limited to Structural and Repair Costs) to Central’s
former stockholders, including claims as set forth in the October 1, 2015 letter, the Company has not recognized these indemnity
claims as a receivable or offset to the Cash Consideration Amount with a corresponding gain or reduction of costs incurred by the
Company, as these additional indemnified claims are contingent in nature or represent costs which the Company has not yet incurred
but which met the requirements of the indemnification provisions established in the Merger Agreement. The Company has evaluated
the nature of the costs and related indemnity claims and has concluded that it is probable that such indemnified claims will sustain
any challenge from Central’s former stockholders and recoverability of these indemnified claims is reasonably assured.
The Central Merger has been accounted for using the acquisition method of accounting (in accordance with the provisions of
Accounting Standards Codification ("ASC") 805, Business Combinations), which requires, among other things, that most assets
acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The purchase price has been allocated
based on the estimated fair value of net assets acquired and liabilities assumed at the date of the date of acquistion. The Company
finalized the purchase price allocation during the third quarter of 2013.
63
The Company incurred certain acquisition and integration costs associated with the transaction that were expensed as incurred
and are reflected in the Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013. The Company
recognized $6.2 million, $8.5 million and $10.9 million, respectively, of these costs in General and administrative expenses for the
years ended December 31, 2015, 2014 and 2013, respectively, and an additional $1.0 million, $nil and $nil, respectively, of costs
in Depreciation and amortization expense. Additionally and as noted above, the Company recognized $1.6 million of expense in
General and administrative expenses for the year ended December 31, 2015 for certain Net Debt Working Capital claims deemed
disallowable by the independent public accounting firm’s decision.
3. Net Income per Common Share
Basic net income per common share is computed by dividing net income attributable to SP Plus Corporation by the weighted
average number of shares of common stock outstanding during the period. Diluted net income per common share is based upon
the weighted average number of shares of common stock outstanding at period end, consisting of incremental shares assumed to
be issued upon exercise of stock options and the incremental shares assumed to be issued under performance share and restricted
stock unit arrangements, using the treasury-stock method.
A reconciliation of the basic weighted average common shares outstanding to diluted weighted average common shares outstanding
is as follows:
(millions, except share and per share data)
Net income attributable to SP Plus Corporation
Basic weighted average common shares outstanding
Dilutive impact of share-based awards
Diluted weighted average common shares outstanding
Net income per common share
Basic
Diluted
Year Ended December 31,
2014
2015
$
17.4
22,189,140
322,619
22,511,759
23.1
22,009,800
397,543
22,407,343
$
2013
12.1
21,902,870
346,714
22,249,584
0.78
0.77
$
$
1.05
1.03
$
$
0.55
0.54
$
$
$
For the year ended December 31, 2015 and 2014, performance-based share units were excluded in the computation of weighted
average diluted common share outstanding because the number of shares ultimately issuable is contingent on the Company's
performance goals, which were not achieved as of the reporting date. There was no performance-based incentive program in place
during 2013.
There are no additional securities that could dilute basic earnings per share in the future that were not included in the computation
of diluted earnings per share, other than those disclosed.
4. Stock-Based Compensation
The Company measures stock-based compensation expense at the grant date, based on the estimated fair value of the award,
and the expense is recognized over the requisite employee service period or performance period (generally the vesting period) for
awards expected to vest (considering estimated forfeitures).
The Company has an amended and restated long-term incentive plan (the "Plan") that was adopted in conjunction with its initial
public offering in 2004. In February 2008, the Board of Directors approved an amendment to the Plan, subject to stockholder
approval, that increased the maximum number of shares of common stock available for awards under the Plan from 2,000,000 to
2,175,000 and extended the Plan's termination date. Company stockholders 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. On March 13, 2013, the Board approved
an amendment to the Plan, subject to stockholder approval, that increased the number of shares of common stock available for
awards under the Plan from 2,175,000 to 2,975,000. Company stockholders approved this Plan amendment on April 24, 2013.
Forfeited and expired options under the Plan become generally available for reissuance. At December 31, 2015, 370,420 shares
remained available for award under the Plan.
Stock Options and Grants
The Company uses 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 Company common stock as 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.
There were no options granted during the years ended December 31, 2015, 2014 and 2013. The Company recognized no stock-
based compensation expense related to stock options for the years ended December 31, 2015, 2014 and 2013 as all options
previously granted are fully vested.
64
On April 21, 2015, the Company authorized vested stock grants to certain directors totaling 32,357 shares. The total value of the
grant was $0.7 million, which was fully expensed at the grant date, and is included in General and administrative expenses within
the Consolidated Statements of Income. On April 22, 2014, the Company authorized vested stock grants to certain directors totaling
19,336 shares. The total value of the grant was $0.5 million, which was fully expensed at the grant date, and is included in General
and administrative expenses within the Consolidated Statements of Income. On April 24, 2013, the Company authorized vested
stock grants to certain directors totaling 21,949 shares. The total value of the grant, based on the fair value of the stock on the grant
date, was $0.5 million, which was fully expensed at the grant date and is included in General and administrative expenses within
the Consolidated Statements of Income.
The Company recognized $0.7 million, $0.5 million, and $0.5 million of stock based compensation expense for the years ended
December 31, 2015, 2014 and 2013, respectively, which are included in General and administrative expense within the Consolidated
Statements of Income. As of December 31, 2015, there was no unrecognized compensation costs related to unvested options.
A summary of the status of the stock option plans as of December 31, 2015, and changes during the years ended December 31,
2015, 2014 and 2013, are presented below:
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 2012
Granted
Exercised
Expired
Outstanding at December 31, 2013
Granted
Exercised
Expired
Outstanding at December 31, 2014
Granted
Exercised
Expired
Vested and Exercisable at December 31, 2015
$
$
7,101
—
—
—
7,101
—
—
—
7,101
—
(7,101)
—
— $
$
5.75
n/a
n/a
n/a
5.75
n/a
n/a
n/a
5.75
n/a
5.75
n/a
—
— $
—
The total intrinsic value of options exercised during the year ended December 31, 2013 was $0.1 million. There were no nonvested
options as of December 31, 2015, 2014 and 2013.
Restricted Stock Units
During the year ended December 31, 2015, the Company authorized certain one-time grants of 3,963 restricted stock units to
certain executives that vest three years from date of issuance. The restricted stock unit agreement is designed to reward performance
over a three-year period.
During the year ended December 31, 2014, the Company authorized certain one-time grants of 31,099 restricted stock units to
certain executives that vest five years from date of issuance. The restricted stock unit agreements are designed to reward
performance over a five-year period.
During the year ended December 31, 2013, the Company authorized a one-time grant of 68,044 restricted stock units to executives
that joined the Company in connection with the Central Merger. These restricted stock units vest on December 3, 2018. The restricted
stock unit agreements are designed to reward performance over a five-year period. Additionally, the Company authorized a one-
time grant of 4,247 restricted stock units to an executive which vest in June 2016.
The fair value of restricted stock units is determined using the market value of Company common stock on the date of the grant,
and compensation expense is recognized over the vesting period. The Company estimates forfeitures at the time of the grant and
revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data
to estimate pre-vesting forfeitures and records stock-based compensation expense only for those awards that are expected to vest.
65
A summary of the status of the restricted stock units as of December 31, 2015, and changes during the year ended December 31,
2015, 2014 and 2013, are presented below:
Nonvested at December 31, 2012
Issued
Vested
Forfeited
Nonvested at December 31, 2013
Issued
Vested
Forfeited
Nonvested at December 31, 2014
Issued
Vested
Forfeited
Nonvested at December 31, 2015
Shares
Weighted
Average
Grant-Date
Fair Value
723,425
72,291
(90,965)
—
704,751
31,099
(145,421)
(34,729)
555,700
12,589
(150,073)
(16,500)
401,716
$
$
$
$
19.78
20.40
21.84
n/a
20.00
22.20
22.41
23.88
19.57
23.65
20.77
19.45
19.25
The Company recognized $1.6 million, $2.4 million and $3.8 million of stock based compensation expense related to the restricted
stock units for the year ended December 31, 2015, 2014 and 2013, respectively, which is included in General and administrative
expense. For the years ended December 31, 2015, 2014 and 2013, unrecognized stock-based compensation costs, net of estimated
forfeitures, were $2.7 million, $4.4 million and $7.3 million, respectively. The costs related to restricted stock units that are expected
to be recognized over a weighted average period of approximately 3.8 years, 4.0 years and 4.0 years for 2015, 2014 and 2013,
respectively.
Performance Share Units
In September 2014, the Board of Directors authorized a performance-based incentive program under the Company's Long-Term
Incentive Plan ("Performance-Based Incentive Program"), whereby the Company will issue performance share units to certain
executive management individuals that represent shares potentially issuable in the future. The objective of the performance-based
incentive program is to link compensation to business performance, encourage ownership of Company stock, retain executive
talent, and reward executive performance. The Performance-Based Incentive Program provides participating executives with the
opportunity to earn vested common stock if certain performance targets for pre-tax free cash flow are achieved over the cumulative
three year period and recipients satisfy service-based vesting requirements. The stock-based compensation expense associated
with unvested performance-based incentives are recognized on a straight-line basis over the shorter of the vesting period or minimum
service period and dependent upon the probable outcome of the number of shares that will ultimately be issued based on the
achievement of pre-tax free cash flow over the cumulative three year period.
During 2014, certain participating executives became vested in the Performance-Based Incentive Program shares based on
retirement eligibility and as a result $0.2 million of stock-based compensation related to 9,687 shares were recognized in General
and administrative expenses within the Consolidated Statement of Income, and which continue to be subject to achieving cumulative
pre-tax free cash flow over the three-year period of 2014 through 2016.
In April 2015, the Board of Directors authorized another performance-based incentive program under the Company's Long-Term
Incentive Plan ("2015 Performance-Based Incentive Program"). The 2015 Performance-Based Incentive Program is similar to the
2014 Performance-Based Incentive Program, with the exception of the number of shares ultimately to be issued is based on the
achievement of pre-tax free cash flow over the cumulative three-year period of 2015 through 2017.
During 2015, certain participating executives became vested in Performance-Based Incentive Program shares based on retirement
eligibility and as a result $0.1 million of stock-based compensation related to 6,915 shares were recognized in General and
administrative expenses, and which continue to be subject to achieving cumulative pre-tax free cash flow over the respective three-
year periods.
66
A summary of the status of the performance share units as of December 31, 2015, and changes during the year ended December 31,
2015 and 2014 are presented below:
Nonvested at December 31, 2013
Issued
Vested
Forfeited
Nonvested at December 31, 2014
Issued
Vested
Forfeited
Nonvested at December 31, 2015
Shares
Weighted
Average
Grant-Date
Fair Value
—
89,117
(9,687)
—
79,430
125,392
(6,915)
(24,056)
173,851
$
n/a
18.96
18.96
n/a
18.96
21.64
19.91
20.60
20.63
The Company recognized $1.3 million and $0.3 million of stock-based compensation expense for the years ended December 31,
2015 and 2014, respectively, and is included in General and administrative expenses within the Consolidated Statement of Income.
During the year ended December 31, 2015, 24,056 performance-based shares were forfeited under the Long-Term Incentive
Program and became available for reissuance. During the year ended December 31, 2014, no performance-based shares were
forfeited. Future compensation expense for currently outstanding awards under the Performance-Based Incentive Program could
reach a maximum of $5.4 million. Stock-based compensation for the Performance-Based Incentive Program is expected to be
recognized over a weighted average period of 1.6 years. There was no such program in place during 2013.
5. Leasehold Improvements, Equipment, Land and Construction in Progress, net
Leasehold improvements, equipment, and construction in progress and related accumulated depreciation and amortization is as
follows:
(millions)
Equipment
Software
Vehicles
Other
Leasehold improvements
Construction in progress
Less accumulated depreciation and
amortization
Land
Leasehold improvements, equipment, land
and construction in progress, net
Ranges of Estimated Useful Life
2 - 10 Years
3 - 10 Years
4 Years
10 Years
Shorter of lease term or economic life up to
10 years
$
December 31
2015
2014
$
34.5
27.0
8.7
0.4
20.2
3.6
94.4
(59.8)
34.6
—
$
34.6
$
33.6
24.1
8.6
0.3
20.4
2.1
89.1
(47.6)
41.5
1.3
42.8
Asset additions are recorded at cost, which includes interest on significant projects. Depreciation is provided in amounts sufficient
to relate the cost of depreciable assets to operations over their estimated useful lives or over the terms of the respective leases,
whichever is shorter, and depreciated principally on the straight-line basis. The costs and accumulated depreciation of assets sold
or disposed of are removed from the accounts and the resulting gain or loss is reflected in earnings. Plant and equipment are
reviewed for impairment when conditions indicate an impairment or future impairment; the assets are either written down or the
useful life is adjusted to the remaining period of estimated useful life.
Depreciation expense was $15.9 million, $12.0 million and $10.4 million in 2015, 2014 and 2013, respectively. During the year
ended December 31, 2013, the Company sold its equity interest in land for $2.3 million and recognized a gain on sale of $1.2 million.
67
6. Cost of Contracts, net
Cost of contracts, net is comprised of the following:
(millions)
Cost of contracts
Accumulated amortization
Cost of contracts, net
The expected future amortization of cost of contracts is as follows:
(millions)
2016
2017
2018
2019
2020
2021 and Thereafter
Total
December 31,
2015
2014
$
$
31.3
(19.4)
11.9
$
$
28.3
(17.8)
10.5
Cost of
Contract
3.2
3.0
2.5
1.6
0.6
1.0
11.9
$
$
Amortization expense related to cost of contracts was $3.1 million, $3.2 million and $2.8 million for the years ended December 31,
2015, 2014 and 2013 respectively. The weighted average remaining life was 9.0 years, 9.5 years and 9.6 years as of December 31,
2015, 2014 and 2013, respectively.
7. Other Intangible Assets, Net
The following presents a summary of other intangible assets:
December 31,
2015
2014
(millions)
Covenant not to
compete
Trade names and
trademarks
Proprietary know how
Management contract
rights
Acquired intangible
assets, net (2)
Weighted
Average
Life
(Years)
Acquired
Intangible
Assets,
Gross (1)
Accumulated
Amortization
Acquired
Intangible
Assets,
Net
Acquired
Intangible
Assets,
Gross(1)
Accumulated
Amortization
Acquired
Intangible
Assets,
Net
3.0
$
0.9
$
(0.9) $
— $
0.9
$
(0.9) $
—
1.1
1.3
12.8
9.8
34.7
81.0
(7.8)
(25.0)
(16.8)
2.0
9.7
64.2
9.8
34.7
81.0
(5.5)
(17.4)
(11.6)
4.3
17.3
69.4
11.1 $
126.4
$
(50.5) $
75.9
$
126.4
$
(35.4) $
91.0
(1) Excludes the original cost and accumulated amortization on fully amortized intangible assets.
(2) Intangible assets have estimated remaining lives between one and 16 years.
Amortization expense related to intangible assets included in depreciation and amortization expense was $15.1 million, $15.2 million
and $16.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
68
The expected future amortization of intangible assets as of December 31, 2015 is as follows:
(millions)
2016
2017
2018
2019
2020
2021 and Thereafter
Total
Intangible asset
amortization
14.6
7.2
5.3
5.2
5.2
38.4
75.9
$
$
8. Favorable and Unfavorable Acquired Lease Contracts, net
Favorable and unfavorable lease contracts represent the acquired fair value of lease contracts in connection with the Central Merger.
Favorable and unfavorable acquired lease contracts are being amortized over the contract term, including anticipated renewals
and terminations.
The following presents a summary of favorable and unfavorable lease contracts:
Favorable
December 31,
(Unfavorable)
December 31,
(millions)
Acquired fair value of lease contracts
Accumulated (amortization) accretion
Total acquired fair value of lease contracts, net
2015
2014
2015
2014
$
$
74.0
(35.9)
38.1
$
$
77.0
(28.7)
48.3
$
$
(88.2) $
37.9
(50.3) $
(90.1)
28.7
(61.4)
Amortization for lease contracts, net of favorable lease contracts, was $0.9 million for the year ended December 31, 2015 and is
recognized as an increase to Cost of parking services - Lease contract. Amortization, net of unfavorable lease contracts, was $1.0
million and $4.3 million for the years ended December 31, 2014 and 2013, respectively, and is recognized as a reduction to Cost
of parking services-Lease contract within the Consolidated Statements of Income.
For the year ended December 31, 2015, the weighted average remaining life for favorable and unfavorable acquired lease contracts
was 11.1 years and 10.1 years, respectively. For the year ended December 31, 2014, the weighted average remaining life for
favorable and unfavorable acquired lease contracts was 10.8 years and 9.8 years, respectively. For the years ended December 31,
2013, the weighted average remaining life for favorable and unfavorable acquired lease contracts was 10.1 years and 8.9 years,
respectively.
The expected future amortization (accretion) of lease contract rights is as follows:
Favorable /
(Unfavorable),
Net
(Unfavorable)
$
(10.1) $
(9.0)
(7.3)
(4.8)
(3.7)
(15.4)
(50.3) $
(1.9)
(2.6)
(3.3)
(1.2)
(0.6)
(2.6)
(12.2)
$
(millions)
2016
2017
2018
2019
2020
2021 and Thereafter
Total
Favorable
8.2
6.4
4.0
3.6
3.1
12.8
38.1
$
$
69
9. Goodwill
The amounts for goodwill and changes to carrying value by reportable segment are as follows:
(millions)
Balance as of December 31, 2013
Goodwill acquired
Foreign currency translation
Disposals (1)
Balance as of December 31, 2014
Foreign currency translation
Disposals (2)
Balance as of December 31, 2015
Region
One
Region
Two
Region
Three
Region
Four
Region
Five
Total
$
$
$
163.8
—
(0.5)
(2.1)
161.2
(0.7)
—
160.5
$
$
$
143.8
—
—
(2.3)
141.5
—
(0.9)
140.6
$
$
$
37.0
—
(0.6)
36.4
—
—
36.4
$
$
$
62.6
0.2
—
(0.1)
62.7
—
—
62.7
$
$
$
32.2
—
—
(1.1)
31.1
—
—
31.1
$
$
$
439.4
0.2
(0.5)
(6.2)
432.9
(0.7)
(0.9)
431.3
(1) In October 2014, the Company contributed all of the assets and liabilities of its proprietary Click and Park parking prepayment business in exchange for a 30
percent interest in the newly formed legal entity called Parkmobile, LLC. The contribution of the Click and Park business to the joint venture resulted in a loss
of control of the subsidiary and therefore it was deconsolidated from the Company's financial statements. As a result of the deconsolidation, the Company
was required to allocate $6.2 million of goodwill to the net carrying amount of the subsidiary's net assets contributed to the Parkmobile joint venture. The pro-
rata allocation on the disposal of goodwill at the operating segment level was based on a relative fair value approach.
(2) In August 2015, certain assets, which met the definition of a business, were sold to a third-party in an arms-length transaction (see also Note 1. Significant
Accounting Policies and Practices and Note 10. Fair Value for further detail on the sale of the business). The sale resulted in the disposal of specifically
identifiable goodwill associated with the business of $0.9 million from Region Two.
The Company tests goodwill at least annually for impairment (the Company has elected to annually test for potential impairment
of goodwill on the first day of the fourth quarter) and tests more frequently if indicators are present or changes in circumstances
suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development
of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which
is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1. Significant
Accounting Policies and Practices for additional detail on the Company's policy for assessing goodwill for impairment.
Due to a change in the Company’s segment reporting effective January 1, 2015, the goodwill allocated to previous reporting units
have been reallocated to new reporting units based on the relative fair value of the new reporting units. See also Note 19. Domestic
and Foreign Operations for further disclosure on the Company’s change in reporting segments effective January 1, 2015.
As a result of the change in internal reporting segment information, the Company completed a quantitative test (Step One) of
goodwill impairment as of January 1, 2015 and concluded that the estimated fair values of each of the Company’s reporting units
exceeded its carrying amount of net assets assigned to that reporting unit and therefore no further testing was required (Step Two).
In conducting the January 1, 2015 goodwill impairment quantitative test (Step One), the Company analyzed actual and projected
growth trends of the reporting units, gross margin, operating expenses and Earnings Before Interest, Taxes, Depreciation and
Amortization (“EBITDA”) (which also includes forecasted five-year income statement and working capital projection, a market-based
weighted average cost of capital and terminal values after five years). The Company also assesses critical areas that may impact
its business including economic conditions, market related exposures, competition, changes in service offerings and changes in
key personnel. As part of the January 1, 2015 goodwill assessment, the Company engaged a third-party to evaluate its reporting
units’ fair values. No impairment was recorded as a result of the goodwill impairment test performed.
The Company completed its annual goodwill impairment test as of October 1, 2015, using a quantitative test (Step One), and
concluded that the estimated fair values of each of the Company's reporting units exceeded its carrying amount of net assets
assigned to that reporting unit and therefore no further testing was required (Step Two). As part of the October 1, 2015 goodwill
assessment, the Company engaged a third-party to evaluate its reporting units' fair values. No impairment was recorded as a result
of the goodwill impairment test performed.
The reporting units are reported as Region One (North reporting unit), Region Two (South reporting unit), Region Three (New York
Metropolitan tri-state area of New York, New Jersey and Connecticut reporting unit), Region Four (Airport transportation operations
nationwide reporting unit) and Region Five (USA Parking reporting unit and event planning and transportation services reporting
unit). For purposes of reportable segments, goodwill in Region Five is attributable to USA Parking and event planning and
transportation services reporting units.
70
10. Fair Value Measurement
Fair Value Measurements-Recurring Basis
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. Fair value
measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. Applicable
accounting literature establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The fair value
hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable
inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from
independent sources while unobservable inputs reflect a reporting entity's pricing based upon its own market assumptions. Applicable
accounting literature defines levels within the hierarchy based on the reliability of inputs as follows:
• Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.
• Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar
assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-
corroborated inputs, which are derived principally from or corroborated by observable market data.
• Level 3: Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are
unobservable.
The following table sets forth the Company's financial assets and liabilities measured at fair value on a recurring basis and the basis
of measurement at December 31, 2015 and 2014:
(millions)
Assets
Prepaid expenses and other
Contingent consideration
receivable
Interest rate swap
Total
Liabilities
Accrued expenses
Contingent consideration
obligation
Other long term liabilities
Contingent consideration
obligation
Total
Interest Rate Swap
$
$
$
$
Fair Value at
December 31, 2015
Level 2
Level 1
Level 3
Level 1
Fair Value at
December 31, 2014
Level 2
Level 3
— $
—
— $
— $
0.2
0.2
$
0.5
—
0.5
$
$
— $
—
— $
— $
0.6
0.6
$
— $
— $
— $
— $
— $
—
— $
—
—
—
— $
—
—
—
— $
—
—
—
0.1
0.2
0.3
The Company seeks to minimize risks from interest rate fluctuations through the use of interest rate swap contracts and hedge
only exposures in the ordinary course of business. Interest rate swaps are used to manage interest rate risk associated with our
floating rate debt. The Company accounts for its derivative instruments at fair value provided it meets certain documentary and
analytical requirements to qualify for hedge accounting treatment. Hedge accounting creates the potential for a Consolidated
Statements of Income match between the changes in fair values of derivatives and the changes in cost of the associated underlying
transactions, in this case interest expense. Derivatives held by us are designated as hedges of specific exposures at inception,
with an expectation that changes in the fair value will essentially offset the change in the underlying exposure. Discontinuance of
hedge accounting is required whenever it is subsequently determined that an underlying transaction is not going to occur, with any
gains or losses recognized in the Consolidated Statements of Income at such time, with any subsequent changes in fair value
recognized currently in earnings. Fair values of derivatives are determined based on quoted prices for similar contracts. The effective
portion of the change in fair value of the interest rate swap is reported in accumulated other comprehensive income, a component
of stockholders' equity, and is being recognized as an adjustment to interest expense or other (expense) income, respectively, over
the same period the related expenses are recognized in earnings. Ineffectiveness would occur when changes in the market value
of the hedged transactions are not completely offset by changes in the market value of the derivative and those related gains and
losses on derivatives representing hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are
recognized currently in earnings when incurred. No ineffectiveness was recognized during 2015, 2014 or 2013.
71
Contingent Consideration Receivable
During the third quarter of 2015, certain assets, which met the definition of a business, were sold to a third-party in an arms-length
transaction (see also Note 1. Significant Accounting Policies and Practices for further detail on the sale of the business). Under
the sales agreement, 40% of the sale proceeds from the buyer is contingent in nature and scheduled to be received by the Company
in February 2017, or eighteen months from the date of the transaction. The contingent consideration amount expected to be received
by the Company is based on the financial and operational performance of the business sold. The significant inputs used to derive
the Level 3 fair value contingent consideration receivable is the probability of reaching certain revenue growth of the business and
retention of current customers over the eighteen month period. The fair value of the contingent consideration receivable for the
year ended December 31, 2015 was $0.5 million.
Contingent Consideration Obligation
The significant inputs used to derive the fair value of the contingent consideration obligation include financial forecasts of future
operating results, the probability of reaching the forecast and the associated discount rate. The contingent acquisition obligation
remaining for the year ended December 31, 2015 was not significant.
The following table provides a reconciliation of the beginning and ending balances for the contingent consideration obligation
measured at fair value using significant unobservable inputs (Level 3):
(millions)
Balance at December 31, 2012
Increase related to new acquisitions
Payment of contingent consideration
Change in fair value
Balance at December 31, 2013
Increase related to new acquisitions
Payment of contingent consideration
Change in fair value
Balance at December 31, 2014
Increase related to new acquisitions
Payment of contingent consideration
Change in fair value
Balance at December 31, 2015
Note: Amounts may not foot due to rounding.
Due to Seller
$
$
(3.3)
—
0.9
0.9
(1.5)
—
1.8
(0.5)
(0.3)
—
0.1
0.2
—
For the year ended December 31, 2015, the Company recognized a benefit of $0.2 million in General and administrative expenses
within the Consolidated Statement of Income due to the change in fair value measurements using a level three valuation technique.
For the years ended December 31, 2014 and 2013, the Company recognized an expense and benefit, respectively, of $0.5 million
and $0.9 million in General and administrative expenses due to the change in fair value measurements using a level three valuation
technique. These adjustments were the result of using revised forecasts to operating results, updates to the probability of achieving
the revised forecasts and updated fair value measurements that revised the Company's contingent consideration obligations related
to the purchase of these businesses.
Nonrecurring Fair Value Measurements
Certain assets are measured at fair value on a nonrecurring basis; that is, the assets are measured at fair value on an ongoing
basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
Non-financial assets such as goodwill, intangible assets, and leasehold improvements, equipment land and construction in progress
are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment
is recognized. The Company assesses the impairment of intangible assets annually or whenever events or changes in circumstances
indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of its goodwill and intangible assets
is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not
be recoverable. The Company has not recorded impairment charges related to its business acquisitions. The purchase price of
business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based
on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. The Company utilizes Level 3 inputs
in the determination of the initial fair value.
72
Financial Instruments not Measured at Fair Value
The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in
the Consolidated Balance Sheet at December 31, 2015 and 2014:
(millions)
Cash and cash equivalents
Long-term borrowings
Senior credit facility, net of original discount on
borrowings and deferred financing costs
Other obligations
$
$
2015
2014
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
18.7
$
18.7
$
18.2
$
18.2
223.1
2.0
$
223.1
2.0
$
248.4
2.4
$
248.4
2.4
The carrying value of cash and cash equivalents approximates their fair value due to the short-term nature of these financial
instruments and would be classified as a Level 1. The fair value of the Senior Credit Facility and Other obligations were estimated
to not be materially different from the carrying amount and are generally measured using a discounted cash flow analysis based
on current market interest rates for similar types of financial instruments and would be classified as a Level 2.
11. Borrowing Arrangements
Long-term borrowings, in order of preference, consisted of the following:
(millions)
Senior credit facility, net of original discount on borrowings and
deferred financing costs
Other borrowings
Total obligations under credit facility and other borrowings
Less: Current portion of obligations under credit facility and other
borrowings
Total long-term obligations under credit facility and other
borrowings
(1) Credit Agreement was due to mature October 2, 2017
(2) Restated Credit Agreement matures on February 20, 2020.
Amount Outstanding
December 31,
Maturity Date
2015
2014
(1) / (2)
Various
$
$
$
223.1
2.0
225.1
15.2
209.9
$
248.4
2.4
250.8
14.5
236.3
Aggregate minimum principal maturities of long-term borrowings for the fiscal years following December 31, 2015, are as follows:
(millions)
2016
2017
2018
2019
2020
Thereafter
Total debt
Less: Current portion, including debt discount
Less: Original discount on borrowings
Less: Deferred financing costs
Total long-term portion, obligations under credit facility and other borrowings
$
$
16.5
20.4
20.1
20.0
152.3
—
229.3
15.2
1.8
2.4
209.9
73
Senior Credit Facility
On October 2, 2012, the Company entered into a credit agreement ("Credit Agreement") with Bank of America, N.A. ("Bank of
America"), as administrative agent, Wells Fargo Bank, N.A. ("Wells Fargo Bank") and JPMorgan Chase Bank, as co-syndication
agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents,
Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers
and joint book managers, and the lenders party thereto.
Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders made available to the Company a secured
senior credit facility (the "Senior Credit Facility") that permitted aggregate borrowings of $450.0 million consisting of (i) a revolving
credit facility of up to $200.0 million at any time outstanding, which includes a letter of credit facility that is limited to $100.0 million
at any time outstanding, and (ii) a term loan facility of $250.0 million. The Senior Credit Facility was due to mature on October 2,
2017.
Amended and Restated Credit Facility
On February 20, 2015 (“Restatement Date”), the Company entered into an Amended and Restated Credit Agreement (the “Restated
Credit Agreement”) with Bank of America, N.A. (“Bank of America”), as administrative agent, an issuing lender and swing-line lender;
Wells Fargo Bank, N.A., as an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO
Harris Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities,
LLC, as joint lead arrangers and joint book managers; and the lenders party thereto (the “Lenders”). The Restated Credit Agreement
reflects modifications to, and an extension of, the Senior Credit Agreement.
Pursuant to the terms, and subject to the conditions, of the Restated Credit Agreement, the Lenders have made available to the
Company a senior secured credit facility (the “Restated Credit Facility”) that permits aggregate borrowings of $400.0 million consisting
of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which includes a $100.0 million sublimit for letters of
credit and a $20.0 million sublimit for swing-line loans, and (ii) a term loan facility of $200.0 million (reduced from $250.0 million
under the Senior Credit Facility). The Company may request increases of the revolving credit facility in an aggregate additional
principal amount of $100.0 million. The Restated Credit Facility matures on February 20, 2020.
The entire amount of the term loan portion of the Restated Credit Facility had been drawn by the Company as of the Amended and
Restatement Date (including approximately $10.4 million drawn on such date) and is subject to scheduled quarterly amortization
of principal as follows: (i) $15.0 million in the first year, (ii) $15.0 million in the second year, (iii) $20.0 million in the third year,
(iv) $20.0 million in the fourth year, (v) $20.0 million in the fifth year and (vi) $110.0 million in the sixth year. The Company also had
outstanding borrowings of $147.3 million (including $53.4 million in letters of credit) under the revolving credit facility as of the
Restatement Date.
Borrowings under the Restated Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s
consolidated total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter,
determined in accordance with the pricing levels set forth in the Restated Credit Agreement (the “ Applicable Margin”), plus LIBOR
or (ii) the Applicable Margin plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a
daily rate equal to LIBOR plus 1.0% (the highest of (x), (y) and (z), the “Base Rate”), except that all swing-line loans will bear interest
at the Base Rate plus the Applicable Margin.
Under the terms of the Restated Credit Agreement, the Company is required to maintain a maximum consolidated total debt to
EBITDA ratio of not greater than 4.0 to 1.0 as of the end of any fiscal quarter ending during the period from the Amended and
Restatement Date through September 30, 2015, (ii) 3.75 to 1.0 as of the end of any fiscal quarter ending during the period from
October 1, 2015 through September 30, 2016, and (iii) 3.5 to 1.0 as of the end of any fiscal quarter ending thereafter. In addition,
the Company is required to maintain a minimum consolidated fixed charge coverage ratio of not less than 1.25:1.0.
Events of default under the Restated Credit Agreement include failure to pay principal or interest when due, failure to comply with
the financial and operational covenants, the occurrence of any cross default event, non-compliance with the other loan documents,
the occurrence of a change of control event, and bankruptcy and other insolvency events. If an event of default occurs and is
continuing, the Lenders holding a majority of the commitments and outstanding term loan under the Restated Credit Agreement
have the right, among others, to (i) terminate the commitments under the Restated Credit Agreement, (ii) accelerate and require
the Company to repay all the outstanding amounts owed under the Restated Credit Agreement and (iii) require the Company to
cash collateralize any outstanding letters of credit.
Each wholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Restated Credit Agreement)
has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the
Restated Credit Agreement. The Company’s obligations under the Restated Credit Agreement and such domestic subsidiaries’
guaranty obligations are secured by substantially all of their respective assets.
The Company was in compliance with all of its covenants as of December 31, 2015.
74
The weighted average interest rate on our Senior Credit Facility and Restated Credit Facility was 2.6% and 3.2% for the years
ended December 31, 2015 and 2014, respectively. The rate includes all outstanding LIBOR contracts, cash flow hedge effectiveness
effect and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 2.7%
and 3.2%, respectively, at December 31, 2015 and December 31, 2014.
At December 31, 2015, the Company had $105.3 million of borrowing availability under the Restated Credit Agreement, of which
the Company could have borrowed $82.7 million on December 31, 2015 and remained in compliance with the above described
covenants as of such date. The additional borrowing availability under the Restated Credit Agreement is limited only as of the
Company's fiscal quarter end by the covenant restrictions described above. At December 31, 2015, the Company had $52.4 million
of letters of credit outstanding under the Restated Credit Agreement with aggregate borrowings against the Restated Credit
Agreement of $227.3 million (excluding debt discount of $1.8 million and deferred financing cost of $2.4 million).
In connection with and effective upon the execution and delivery of the Restated Credit Agreement on February 20, 2015, the
Company recorded losses on extinguishment of debt, relating to debt discount and debt issuance costs, of $0.6 million.
See Note 1. Significant Accounting Policies and Practices for additional information regarding the treatment of debt issuance costs
under ASU 2015-3, which requires such costs to be a direct deduction from the carrying amount of the related debt liability.
Subordinated Convertible Debentures
The Company acquired Subordinated Convertible Debentures ("Convertible Debentures") as a result of the acquisition of Central.
The subordinated debenture holders have the right to redeem the Convertible Debentures for $19.18 per share upon their stated
maturity (April 1, 2028) or upon acceleration or earlier repayment of the Convertible Debentures. There were $0.1 million and no
significant redemptions during the years ended December 31, 2015 and 2014, respectively. The approximate redemption value of
the Convertible Debentures outstanding at December 31, 2015 and December 31, 2014 is $1.1 million and $1.2 million, respectively.
12. Leases and Contingencies
The Company operates parking facilities under operating leases expiring on various dates. Certain of the leases contain options
to renew at the Company's discretion. Total future annual rent expense is not determinable as a portion of such future rent is
contingent based on revenues of the parking facilities.
At December 31, 2015, the Company's minimum rental commitments, excluding contingent rent provisions and sublease income
under all non-cancellable operating leases, are as follows:
(millions)
2016
2017
2018
2019
2020
2021 and thereafter
Total
$
$
222.0
190.6
158.7
137.2
70.4
206.2
985.1
(1) $18.6 is included in 2016 minimum commitments for leases that expire in less than one year.
Rent expense, including contingent rents, was $400.3 million, $330.8 million and $326.8 million in 2015, 2014 and 2013, respectively.
Contingent rent expense was $186.2, $139.7 million and $133.9 million in 2015, 2014 and 2013, respectively. Contingent rent
expense consists primarily of percentage rent payments, which will cease at various times as certain leases expire. Future sublease
income under all non-cancellable operating leases was $29.8 million as of December 31, 2015.
The Company accrued no contingent payment obligations outstanding under the previous business combination accounting
pronouncement for the year ended December 31, 2015. The Company has recorded a contingency obligation for acquisitions
subsequent to the adoption of the most recent guidance on business combinations, in the amount of $0.1 million and $0.3 million,
as of December 31, 2015 and 2014, respectively.
The Company has contractual provisions under certain lease contracts to complete structural or other improvements to leased
properties and incurs repair costs, including improvements and repairs arising as a result of ordinary wear and tear. The Company
evaluates the nature of those costs when incurred and either capitalizes the costs as leasehold improvements, as applicable, or
recognizes the costs as repair expenses within Cost of Parking Services-Leases within the Consolidated Statements of Income.
75
13. Income Taxes
For financial reporting purposes, earnings before income
taxes includes the following components:
(millions)
United States
Foreign
Total
The components of income tax expense (benefit) are as follows:
(millions)
Current provision
U.S. federal
Foreign
State
Total current
Deferred provision
U.S. federal
Foreign
State
Total deferred
Income tax expense (benefit)
Year Ended December 31,
2014
2013
2015
21.7
3.4
25.1
$
$
23.5
2.4
25.9
$
$
21.4
2.2
23.6
Year Ended December 31,
2014
2013
2015
11.5
1.2
1.8
14.5
(4.9)
0.1
(4.9)
(9.7)
4.8
$
$
9.5
0.8
1.6
11.9
(1.5)
0.1
(10.7)
(12.1)
$
(0.2) $
3.2
0.7
2.2
6.1
2.3
(0.1)
0.5
2.7
8.8
$
$
$
$
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amount used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are as follows:
(millions)
Deferred tax assets
Net operating loss carry forwards
Accrued expenses
Accrued compensation
Book over tax cost unfavorable acquired lease contracts
Other
Total gross deferred tax assets
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities
Prepaid expenses
Undistributed foreign earnings
Tax over book depreciation and amortization
Tax over book goodwill amortization
Tax over book cost favorable acquired lease contracts
Equity investments in unconsolidated entities
Other
Total deferred tax liabilities
Net deferred tax asset
76
December 31,
2015
2014
20.6
34.1
12.1
20.6
0.7
88.1
(6.8)
81.3
(0.4)
(1.0)
(11.0)
(28.7)
(15.6)
(8.8)
(0.1)
(65.6)
15.7
$
$
22.0
34.3
12.0
25.2
0.4
93.9
(12.3)
81.6
(0.6)
(0.8)
(16.7)
(28.7)
(19.8)
(9.2)
(0.7)
(76.5)
5.1
$
$
Amounts recognized on the balance sheet consist of:
(millions)
Deferred tax asset, current
Other assets, net / Deferred tax (liability)
Net deferred tax asset
December 31,
2015
2014
$
$
12.3
3.4
15.7
$
$
10.9
(5.8)
5.1
The accounting guidance for accounting for income taxes requires that the Company assess the realisability of deferred tax assets
at each reporting period. These assessments generally consider several factors including the reversal of existing temporary
differences, projected future taxable income, and potential tax planning strategies. The Company has valuation allowances totaling
$6.8 million and $12.3 million at December 31, 2015 and 2014, respectively, primarily related to our state Net Operating Loss
carryforwards ("NOLs") and state tax credit that the Company believes are not likely to be realized based on upon its estimates of
future taxable income, limitations on the uses of its state NOLs, and the carryforward life over which the state tax benefit is realized.
The Company recognized a $5.5 million benefit for the reversal of a valuation allowance for deferred tax assets established for the
historical net operating losses. The valuation allowance was reversed primarily due to changes in the New York City tax laws enacted
April 1, 2015 and an entity restructuring undertaken in the fourth quarter of 2015, which resulted in the Company determining that
the future benefit of the net operating loss carryforwards were more likely than not to be realized.
The Company has $19.7 million of tax-effected state net operating loss carryforwards as of December 31, 2015, which will expire
in years 2016 through 2035. As noted above, the utilization of the state net operating loss carryforwards of the Company are limited
due to the ownership change in June 2004 and are also limited due to the Central Merger.
Since 2005, the Company has treated its investment in its Canadian subsidiary as non-permanent in duration and provided taxes
on the undistributed Canadian earnings. As of December 31, 2015, the Company treats approximately $2.4 million of Canadian
earnings as permanently reinvested to meet the Canadian subsidiary's working capital requirements. The amount of tax that may
be payable on the distribution of such earnings to the United States is approximately $1.0 million. Generally, such amounts will
become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. The Company has provided
taxes for the remaining undistributed earnings of its Canadian subsidiary in excess of the permanently reinvested amount. The
Company is treating its cumulative earnings of $5.6 million in its Puerto Rico subsidiary as permanent in duration to satisfy current
working capital requirements. The amount of tax that may be payable on a distribution of such earnings to the United States is $2.5
million.
A reconciliation of the Company's reported income tax provision (benefit) to the amount computed by multiplying book income
before income taxes by the statutory United States federal income tax rate is as follows:
(millions)
Tax at statutory rate
Permanent differences
State taxes, net of federal benefit
Effect of foreign tax rates
Minority interest
Equity investments in unconsolidated entities
Current year adjustment to deferred taxes
Recognition of tax credits
Other
Change in valuation allowance
Income tax (benefit) expense
Year Ended December 31,
2014
2013
2015
$
$
8.8
1.4
0.3
(0.1)
(1.0)
—
1.5
(1.2)
0.6
10.3
(5.5)
4.8
$
$
$
9.1
1.0
0.8
—
(1.1)
2.4
(1.3)
(1.5)
(0.5)
8.9
(9.1)
(0.2) $
8.3
0.8
1.4
—
(0.9)
—
4.0
(1.7)
0.9
12.8
(4.0)
8.8
Taxes paid, which are for United States federal income tax, certain state income taxes, and foreign income taxes were $18.1 million,
$1.3 million, and $1.3 million in 2015, 2014 and 2013, respectively.
As of December 31, 2015, 2014 and 2013 the Company had not identified any uncertain tax positions that would have a material
impact on the Company's financial position.
77
The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense. The tax
years that remain subject to examination for the Company's major tax jurisdictions as of December 31, 2015 are shown below:
2011 - 2015
2007 - 2015
2012 - 2015
14. Benefit Plans
Deferred Compensation Arrangements
United States—federal income tax
United States—state and local income tax
Foreign—Canada and Puerto Rico
The Company offers deferred compensation arrangements for certain key executives. Subject to their continued employment by
the Company, certain employees are offered supplemental pension arrangements in which the employees will receive a defined
monthly benefit upon attaining age 65. At December 31, 2015 and 2014, the Company has accrued $3.7 million and $5.0 million,
respectively, representing the present value of the future benefit payments. Expenses related to these plans amounted to $0.2
million, $0.4 million and $0.1 million in 2015, 2014 and 2013, respectively.
The Company also has agreements with certain former key executives that provide for aggregate annual payments for periods
ranging from 10 years to life, beginning when the executive retires or upon death or disability. Under certain conditions, the amount
of deferred benefits can be reduced. Compensation costs for the years ended December 31, 2015, 2014 and 2013 were $0.1
million, $1.0 million and $0.6 million, respectively. The Company had recorded a liability of $3.8 million and $4.2 million associated
with these agreements as of December 31, 2015 and 2014, respectively.
Life insurance contracts with a face value of approximately $6.9 million and $10.8 million as of December 31, 2015 and 2014 have
been purchased to fund, as necessary, the benefits under the Company's deferred compensation agreements. The cash surrender
value of the life insurance contracts is approximately $3.9 million and $3.9 million as of December 31, 2015 and 2014, respectively,
and classified as non-current assets and included in Other assets, net within the Consolidated Balance Sheet. The plan is a non-
qualified plan and is not subject to ERISA funding requirements.
Defined Contribution Plans
The Company sponsored two savings and retirement plans whereby the participants may elect to contribute a portion of their
compensation to the plans. The two plans merged effective January 1, 2014 into a single plan. The plan is a qualified defined
contribution plan 401(k). The Company contributes an amount in cash or other property as a Company match equal to 50% of
the first 6% of contributions as they occur. Expenses related to the Company's 401(k) match amounted to $2.1 million, $1.8
million, and $1.8 million in 2015, 2014 and 2013, respectively.
The Company also offers a non-qualified deferred compensation plan to those employees whose participation in its 401(k) plan is
limited by statute or regulation. This plan allows certain employees to defer a portion of their compensation, limited to a maximum
of $0.1 million per year, to be paid to the participants upon separation of employment or distribution date selected by employee. To
support the non-qualified deferred compensation plan, the Company has elected to purchase Company Owned Life Insurance
("COLI") policies on certain plan participants. The cash surrender value of the COLI policies is designed to provide a source for
funding the non-qualified deferred compensation liability. As of December 31, 2015 and 2014, the cash surrender value of the COLI
policies is $10.9 million and $9.9 million, respectively and classified as non-current assets in Other Assets, net within the Consolidated
Balance Sheet. The liability for the non-qualified deferred compensation plan is included in Other long-term liabilities on the
Consolidated Balance Sheet and was $12.5 million and $11.3 million as of December 31, 2015 and 2014, respectively.
Multi-Employer Defined Benefit and Contribution Plans
The Company contributes to a number of multiemployer defined benefit plans under the terms of collective-bargaining agreements
that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer
plans in the following aspects:
• Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers.
• If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
• If the Company chooses to stop participating in one of its multiemployer plans, it may be required to pay the plan an
amount based on the underfunded status of the plan, referred to as withdrawal liability.
The Company's contributions represented more than 5% of total contributions to the Teamsters Local Union No. 727 and Local 272
Labor Management Benefit Funds for the plan year ending February 28, 2015 and November 30, 2015, respectively. The Company
does not represent more than five percent to any other fund. The Company's participation in this plan for the annual periods ended
December 31, 2015, 2014 and 2013, is outlined in the table below. The "EIN/Pension Plan Number" column provides the Employee
Identification Number ("EIN") and the three-digit plan number, if applicable. The zone status is based on information that the Company
78
received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65
percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent
funded. The "FIP/RP Status Pending/Implemented" column indicates plans for which a Financial Improvement Plan ("FIP") or a
Rehabilitation Plan ("RP") is either pending or has been implemented.
The "Expiration Date of Collective Bargaining Agreement" column lists the expiration dates of the agreements to which the plans
are subject.
EIN/
Pension
Plan
Number
Pension Protection
Zone Status
2015
2014
2013
FIP/FR
Pending
Implementation
Contributions
(millions)
2015
2014
2013
Surcharge
Imposed
Zone
Status
as of
the
Most
Recent
Annual
Report
Expiration
Date of
Collective
Bargaining
Agreement
36-61023973 Green Green Green
N/A
$ 3.5
$ 3.3
$ 3.4
No
2015
10/31/2016
13-5673836 Green
N/A
Green
N/A
$ 2.2
$ 2.0
$ 2.4
No
2015
3/5/2021
216271 Green
N/A
N/A
N/A
$ 2.2
$ — $ —
No
2015
6/30/2016
Pension
Teamsters
Local Union
727
Local 272
Labor
Management
Local 911 (Los
Angeles Airport)
Net expenses for contributions not reimbursed by clients and related to multiemployer defined benefit and defined contribution
benefit plans were $4.6 million, $2.7 million and $0.6 million in 2015, 2014 and 2013, respectively.
In the event that the Company decides to cease participating in these plans, the Company could be assessed a withdrawal liability.
The Company currently does not have any intentions to cease participating in these multiemployer pension plans and therefore
would not trigger the withdrawal liability.
15. Management Contracts and Related Arrangements with Affiliates
Closing Agreements
In connection with the Central Merger, on February 28, 2012, the Company entered into initial Closing Agreements (the "Initial
Closing Agreements") with each of Lubert-Adler Real Estate Fund V, L.P. and Lubert-Adler Real Estate Parallel Fund V, L.P.
(collectively, "Lubert-Adler Entities"); each of Kohlberg Investors V, L.P., Kohlberg TE Investors V, L.P., Kohlberg Partners V, L.P.,
Kohlberg Offshore Investors V, L.P., and KOCO Investors V, L.P. (collectively, the "Kohlberg Entities"); and each of Versa Capital
Fund I, L.P. and Versa Capital Fund I Parallel, L.P. (collectively, the "Versa Entities"). As of the most recent filings with the Securities
and Exchange Commission, the Lubert-Adler Entities collectively own approximately 6.0% of our common stock, the Kohlberg
Entities collectively own approximately 16.2% of our common stock, and the Versa Entities collectively own approximately 3.7% of
our common stock. In addition, Paul Halpern, one of the Company's directors, is affiliated with the Versa Entities; and Jonathan P.
Ward and Gordon H. Woodward, both directors, are affiliated with the Kohlberg Entities.
Under the Initial Closing Agreements, the Lubert-Adler, Kohlberg and Versa Entities (collectively, the "Central Stockholders") agreed,
among other things, to vote their shares of our common stock in accordance with the Board's recommendations or, in specified
cases, in proportion to the votes made by the Company's other stockholders, until October 2, 2015.
Additionally, the Initial Closing Agreements provide that each Central Stockholder will be subject to a four-year "standstill period"
following the closing of the Merger, during which each such Central Stockholder will not, among other things, (i) acquire any additional
voting securities of the Company, (ii) seek or propose a merger, acquisition, tender offer or other extraordinary transaction with
respect to the Company, (iii) call a meeting of Company stockholders or initiate a stockholder proposal, or (iv) form a "group" with
any person with respect to Company securities.
The Initial Closing Agreements also impose certain restrictive covenants on some of the Central Stockholders, including, among
others, (i) non-compete covenants, (ii) non-solicitation covenants, (iii) confidentiality obligations and (iv) non-disparagement
requirements.
The foregoing description of the Initial Closing Agreements does not purport to be complete and is qualified in its entirety by reference
to the Closing Agreements, copies of which are attached to the Company's Current Report on Form 8-K filed on February 29, 2012
as Exhibits 10.2 through 10.4 and incorporated by reference herein.
In connection with the Central Merger, on October 2, 2012, the Company entered into Additional Closing Agreements (the "Additional
Closing Agreements") with the Central Stockholders. Pursuant to the terms of the Additional Closing Agreements, the Kohlberg,
Lubert-Adler and Versa Entities have each agreed that, until October 2, 2015 and for so long as it owns in the aggregate (together
with its affiliates, all other Central stockholders and their respective affiliates and any other persons with which any of the foregoing
79
form a "group") beneficially or of record more than 10% of Company issued and outstanding common stock, to cause the shares
of our common stock held by them to be counted as present at any meeting of Company stockholders and to vote, in person or by
proxy, all of such shares of Company common stock as follows:
From October 2, 2013 until October 2, 2014:
• with respect to the election of directors to the Company's Board, "for" any nominees recommended by the Board; and
• with respect to all other matters submitted for a vote of Company stockholders, in accordance with the recommendation of
the Board with respect to such matters.
From October 2, 2014 until October 2, 2015:
• with respect to the election of directors to the Board, "for" any nominees recommended by our Board; and
• with respect to all other matters submitted for a vote of Company stockholders, in proportion to the votes cast by all of the
Company's other stockholders.
The Additional Closing Agreements also provide that the Kohlberg, Lubert-Adler and Versa Entities will be subject to a four-year
standstill period following the Closing Date, during which time, such Central Stockholder will not, among other things, (i) acquire or
agree to acquire any additional voting securities of the Company, (ii) seek or propose a merger, acquisition, tender offer or other
extraordinary transaction with or involving the Company or any of its subsidiaries or their respective securities or assets, (iii) call a
meeting of the stockholders of the Company or initiate a stockholder proposal or (iv) form a "group" (as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934) with any person (other than an affiliate of such Central Stockholder) with respect to the
acquisition or voting of any of the Company's voting securities.
The Additional Closing Agreements impose certain restrictive covenants on the Kohlberg and Versa Entities, including
(i) confidentiality obligations with respect to the Company confidential information and (ii) non- disparagement requirements. The
Lubert-Adler Entity is subject to confidentiality obligations with respect to its confidential information pursuant to the terms of its
Additional Closing Agreement.
The foregoing description of the Additional Closing Agreements does not purport to be complete and is qualified in its entirety by
reference to the Additional Closing Agreements, copies of which are attached as Exhibits 10.2 through 10.8 to the Company's
Current Report on Form 8-K filed with the SEC on October 2, 2012.
Agreements Related to Myron C. Warshauer
Myron C. Warshauer was a director from April 2013 to April 2015 and our chief executive officer until October 15, 2001, when his
employment period terminated under the employment agreement with him dated as of March 30, 1998. This agreement, which was
amended on July 7, 2003 and May 10, 2004, requires the Company to pay Mr. Warshauer various post-employment benefits. For
the years ended December 31, 2014 and 2013, Mr. Warshauer received payments of $0.5 million and $0.5 million, respectively,
which included payments for health and dental insurance, office space and secretarial coverage. No post-employment benefits
were made for the year ended 2015.
In addition, the Company entered into a consulting agreement with Shoreline Enterprises, LLC, which is solely owned by Myron C.
Warshauer, dated October 16, 2001, as amended on May 10, 2004. Pursuant to this agreement, Mr. Warshauer provided consulting
services under the title of Vice Chairman (Emeritus), which title and role is not that of an officer, director, employee or agent of the
Company. Under this agreement, the Company paid Shoreline $0.2 million and $0.2 million for the years ended December 31, 2014
and 2013, respectively. No payments were made to Shoreline for the year ended December 31, 2015.
Both of these agreements terminated on December 5, 2014.
Related Arrangements with Affiliates
In 2013 the Company provided property management services for twelve separate retail shopping centers and commercial office
buildings in which D&E Parking, Inc. has an ownership interest. Edward Simmons, a former executive officer of the Company,
has an ownership interest in D&E. In consideration of the property management services the Company provided for these twelve
properties, the Company recorded net management fees totaling $0.3 million for the year ended December 31, 2013. No such
management fee was recognized during 2015 and 2014.
16. Bradley Agreement
The Company entered into a 25-year agreement with the State of Connecticut ("State") that expires on April 6, 2025, under which
it operates the surface parking and 3,500 garage parking spaces at Bradley International Airport ("Bradley") located in the Hartford,
Connecticut metropolitan area.
The parking garage was financed through the issuance of State of Connecticut special facility revenue bonds and provides that the
Company deposits, with the trustee for the bondholders, all gross revenues collected from operations of the surface and garage
parking. From these gross revenues, the trustee pays debt service on the special facility revenue bonds outstanding, operating and
capital maintenance expense of the surface and garage parking facilities, and specific annual guaranteed minimum payments to
the state. Principal and interest on the Bradley special facility revenue bonds increase from approximately $3.6 million in contract
80
year 2002 to approximately $4.5 million in contract year 2025. Annual guaranteed minimum payments to the State increase from
approximately $8.3 million contract year 2002 to approximately $13.2 million in contract year 2024. The annual minimum guaranteed
payment to the State by the trustee for the twelve months ended December 31, 2015 and 2014 was $11.0 million and $10.8 million,
respectively. All of the cash flow from the parking facilities are pledged to the security of the special facility revenue bonds and are
collected and deposited with the bond trustee. Each month the bond trustee makes certain required monthly distributions, which
are characterized as "Guaranteed Payments." To the extent the monthly gross receipts generated by the parking facilities are not
sufficient for the trustee to make the required Guaranteed Payments, the Company is obligated to deliver the deficiency amount to
the trustee, with such deficiency payments representing interest bearing advances to the trustee. The Company does not directly
guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.
The following is the list of Guaranteed Payments:
• Garage and surface operating expenses,
• Principal and interest on the special facility revenue bonds,
• Trustee expenses,
• Major maintenance and capital improvement deposits; and
• State minimum guarantee.
To the extent sufficient funds exist, the trustee is then directed to reimburse the Company for deficiency payments up to the amount
of the calculated surplus, with the Company having the right to be repaid the principal amount of any and all deficiency payments,
together with actual interest and premium, not to exceed 10% of the initial deficiency payment. The Company calculates and records
interest and premium income along with deficiency principal repayments as a reduction of cost of parking services in the period
the associated deficiency repayment is received from the trustee. The Company believes these advances to be fully recoverable
as the Bradley Agreement places no time restriction on the Company's right to reimbursement. The reimbursement of principal,
interest and premium will be recognized when received.
The total deficiency payments, net of reimbursements, as of December 31, 2015 and 2014 are as follows:
(millions)
Balance at beginning of year
Deficiency payments made
Deficiency repayment received
Balance at end of year
December 31,
2015
2014
$
$
13.3
0.1
(1.8)
11.6
$
$
14.6
—
(1.3)
13.3
For the year ended December 31, 2015, the Company received deficiency repayments (net of deficiency payments made) of $1.7
million and received interest of $0.4 million and premium of $0.2 million, with the net of these amounts recorded as reduction in
Cost of parking services within the Consolidated Statements of Income. For the year ended December 31, 2014, the Company
received deficiency payments (net of deficiency payments made) of $1.3 million and received interest of $0.5 million and premium
of $0.1 million, with the net of these amounts recorded as additional cost of parking services within the Consolidated Statements
of Income. There were no amounts of estimated deficiency payments accrued as of December 31, 2015, as the Company concluded
that the potential for future deficiency payments did not meet the criteria of both probable and estimable.
In addition to the recovery of certain general and administrative expenses incurred, the Bradley Agreement provides for an
annual management fee payment, which is based on operating profit tiers. The annual management fee is further apportioned
60% to the Company and 40% to an un-affiliated entity and the annual management fee will be paid to the extent funds are
available for the trustee to make distribution, and are paid after Guaranteed Payments (as defined in the Bradley Agreement)
repayment of all deficiency payments, including interest and premium. Cumulative management fees of approximately $15.7
million and $14.7 million have not been recognized as of December 31, 2015 and 2014, respectively, and no management fees
were recognized as revenue during 2015, 2014 or 2013.
81
17. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) is comprised of unrealized gains (losses) on cash flow hedges
and foreign currency translation adjustments. The components of changes in accumulated comprehensive income (loss), net of
taxes, were as follows:
(millions)
Balance as of December 31, 2012
Change in other comprehensive income (loss)
Balance as of December 31, 2013
Change in other comprehensive income (loss)
Balance as of December 31, 2014
Change in other comprehensive income (loss)
Balance as of December 31, 2015
Note: Amounts may not foot due to rounding.
18. Legal Proceedings
Foreign
Currency
Translation
Adjustments
Effective
Portion
of Unrealized
Gain (Loss) on
Derivative
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
$
$
0.1
(0.5)
(0.4)
(0.2)
(0.5)
(0.7)
(1.2) $
(0.5) $
1.0
0.5
(0.2)
0.3
(0.2)
0.1
$
(0.4)
0.5
0.1
(0.3)
(0.2)
(0.9)
(1.1)
The Company is subject to litigation in the normal course of its business. The outcomes of legal proceedings and claims brought
against it and other loss contingencies are subject to significant uncertainty. The Company accrues a charge against income when
its 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, the Company accrues for the authoritative judgments or assertions made against it
by government agencies at the time of their rendering regardless of its intent to appeal. In addition, the Company is from time-to-
time party to litigation administrative proceedings and union grievances that arise in the normal course of business, and occasionally
pays non-material amounts to resolve claims or alleged violations of regulatory requirements. There are no "normal course" matters
that separately or in the aggregate, would, in the opinion of management, have a material adverse effect on its operation, financial
condition or cash flow.
In determining the appropriate accounting for loss contingencies, the Company considers the likelihood of loss or impairment of an
asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss. The Company regularly evaluates
current information available 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.
19. Domestic and Foreign Operations
Business Unit Segment Information
Segment information is presented in accordance with a "management approach," which designates the internal reporting used by
the chief operating decision maker for making decisions and assessing performance as the source of the Company's reportable
segments. The Company's segments are organized in a manner consistent with which separate financial information is available
and evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing the Company's
overall performance.
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue
and incur expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker.
The chief operating decision maker is the Company's president and chief executive officer. The business is managed based on
regions administered by executive vice presidents. 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 chief operating decision maker 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 operating 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.
82
On January 1, 2015, the Company changed its internal reporting segment information reported to its CODM. All periods presented
have been restated to reflect the new internal reporting to the CODM. The following includes the current internal reporting:
• Region One encompasses operations in Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Northern California, Ohio, Oregon, Pennsylvania, Rhode Island, Virginia, Washington,
West Virginia, Wisconsin and three Canadian provinces of Alberta, Ontario and Quebec.
• Region Two encompasses operations in Alabama, Arizona, Colorado, Florida, Georgia, Hawaii, Kansas, Louisiana,
Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Oklahoma, South Carolina, Southern California, Tennessee,
Texas, Utah and Puerto Rico.
• Region Three encompasses operations in the New York metropolitan tri-state area of New York, New Jersey and Connecticut.
• Region Four encompasses all major airport and transportation operations nationwide.
• Region Five encompasses other reporting units of USA Parking and event planning and transportation services.
• Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to
prior years.
The following is a summary of revenues (excluding reimbursed management contract revenue) and gross profit by operating
segment for the years ended December 31, 2015, 2014 and 2013:
(millions)
Parking services revenue (a)
Region One
Lease contracts
Management contracts
Total Region One
Region Two
Lease contracts
Management contracts
Total Region Two
Region Three
Lease contracts
Management contracts
Total Region Three
Region Four
Lease contracts
Management contracts
Total Region Four
Region Five
Lease contracts
Management contracts
Total Region Five
Other
Lease contracts
Management contracts
Total Other
Reimbursed management contract
revenue
Total revenues
Gross Profit
Region One
Lease contracts
Management contracts
Total Region One
Year Ended December 31,
2015
Gross
Margin
2014
Gross
Margin
2013
Gross
Margin
$
208.1
84.7
292.8
125.7
79.6
205.3
108.8
27.8
136.6
123.8
100.6
224.4
4.4
43.8
48.2
—
13.9
13.9
$
206.0
84.0
290.0
119.9
83.2
203.1
117.8
25.8
143.6
48.5
103.3
151.8
2.7
29.8
32.5
1.7
12.2
13.9
$
199.1
95.3
294.4
124.0
87.0
211.0
120.6
23.4
144.0
43.7
96.6
140.3
2.6
33.7
36.3
(0.4)
11.3
10.9
694.7
1,615.9
$
679.8
1,514.7
$
629.9
1,466.8
$
12.5
38.0
50.5
6%
45%
83
12.4
36.0
48.4
6% $
43%
10.6
42.8
53.4
5 %
45 %
(millions)
Region Two
Lease contracts
Management contracts
Total Region Two
Region Three
Lease contracts
Management contracts
Total Region Three
Region Four
Lease contracts
Management contracts
Total Region Four
Region Five
Lease contracts
Management contracts
Total Region Five
Other
Lease contracts
Management contracts
Total Other
Total gross profit
General and administrative expenses
General and administrative
expense percentage of gross profit
Depreciation and amortization
Operating income
Other expenses (income):
Interest expense
Interest income
Gain on sale of business
Gain on contribution of a
business to an unconsolidated
entity
Equity in losses from
investment in unconsolidated entity
Income before income taxes
Income tax (benefit) expense
Net income
Less: Net income attributable
to noncontrolling interest
Net income attributable
to SP Plus Corporation
$
Year Ended December 31,
2015
Gross
Margin
2014
Gross
Margin
2013
Gross
Margin
15 %
45 %
— %
54 %
7 %
25 %
(2)%
34 %
N/A
N/A
19.8
35.8
55.6
4.7
14.3
19.0
3.6
26.4
30.0
0.2
11.7
11.9
0.2
6.2
6.4
171.3
101.5
59%
30.3
39.5
17.8
(0.4)
—
(4.1)
0.3
13.6
25.9
(0.2)
26.1
3.0
23.1
17%
43%
4%
55%
7%
26%
8%
39%
N/A
N/A
$
18.9
38.8
57.7
(0.1)
12.6
12.5
3.2
24.6
27.8
—
11.3
11.3
0.9
8.5
9.4
172.1
98.9
57%
31.2
42.0
19.0
(0.6)
—
—
—
18.4
23.6
8.8
14.8
2.7
12.1
21.1
32.9
54.0
2.2
14.2
16.4
5.5
24.5
30.0
0.3
11.4
11.7
(3.5)
11.0
7.5
170.1
97.3
57%
34.0
38.8
12.7
(0.2)
(0.5)
—
1.7
13.7
25.1
4.8
20.3
2.9
17.4
17%
41%
2%
51%
4%
24%
7%
26%
N/A
N/A
$
84
On January 1, 2016, the Company changed its internal reporting segment information reported to its CODM. The Company will
prospectively report on the following regions beginning in 2016 and restate prior periods presented to reflect the internal reporting
to the CODM:
• Region One (Urban) encompasses operations in Alabama, Arizona, Colorado, Connecticut, Delaware, District of Columbia,
Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Northern California, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, Southern California, Tennessee, Texas, Utah, Virginia, Washington, West
Virginia, Wisconsin, Puerto Rico, and three Canadian provinces of Alberta, Ontario and Quebec.
• Region Two (Airport transportation) encompasses all major airport and transportation operations nationwide.
• Region Three encompasses other reporting units of USA Parking and event planning and transportation services.
• Other consists of ancillary revenue that is not specifically identifiable to a region and certain unallocated insurance reserve
adjustments.
20. Unaudited Quarterly Results
The following table sets forth the Company's unaudited quarterly consolidated statement of income data for the years ended
December 31, 2015 and December 31, 2014. The unaudited quarterly information has been prepared on the same basis as the
annual financial information and, in management's opinion, includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information for the quarters presented. Historically, the Company's operating results have varied
from quarter to quarter and are expected to continue to fluctuate in the future. These fluctuations have been due to a number of
factors, including: general economic conditions in its markets; acquisitions; additions of contracts; expiration and termination of
contracts; conversion of lease contracts to management contracts; conversion of management contracts to lease contracts and
changes in terms of contracts that are retained and timing of general and administrative expenditures.
The operating results for any historical quarter are not necessarily indicative of results for any future period.
85
(millions, except for share
and per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(Unaudited)
(Unaudited)
2015
2014
Parking services revenue
Lease contracts
$
135.8
$
146.4
$
146.6
$
142.1
$
116.6
$
125.0
$
129.0
$
Management contracts
94.1
88.3
85.8
82.1
90.0
84.9
77.9
174.3
404.2
128.7
60.0
174.3
363.0
7.1
34.1
41.2
25.7
7.9
7.6
4.0
(0.1)
—
—
0.5
4.4
3.2
1.3
1.9
0.5
Reimbursed
management contract
revenue
Total revenue
Cost of parking
services
Lease contracts
Management contracts
Reimbursed
management contract
expense
Total cost of parking
services
Gross profit
Lease contracts
Management contracts
Total gross profit
General and
administrative expenses
Depreciation and
amortization
Operating income
Other expense (income)
Interest expense
Interest income
Gain on sale of
business
Gain on contribution of
a business to an
unconsolidated entity
Equity in losses from
investment in
unconsolidated entity
Total other expenses
(income)
Earnings (loss) before
income taxes
Income tax expense
(benefit)
Net income
Less: Net income
attributable to
noncontrolling interest
Net income attributable to
SP Plus Corporation
Common stock data
Net income per share
Basic
Diluted
Weighted average
shares outstanding
Basic
Diluted
$
$
$
170.9
405.6
134.5
53.8
168.3
400.7
136.0
53.6
181.2
405.4
133.6
50.9
169.2
375.8
112.1
59.2
164.5
374.4
112.0
50.0
173.4
380.3
116.5
46.8
170.9
168.3
181.2
169.2
164.5
173.4
172.7
359.2
357.9
365.7
340.5
326.5
336.7
339.7
11.9
34.5
46.4
24.7
8.2
13.5
3.0
—
—
—
0.3
3.3
10.2
(0.4)
10.6
0.8
10.6
32.2
42.8
23.8
8.2
10.8
3.0
—
(0.5)
—
0.4
2.9
7.9
3.5
4.4
0.8
8.5
31.2
39.7
23.1
9.7
6.9
2.7
(0.1)
—
—
0.5
3.1
3.8
0.4
3.4
0.8
4.5
30.8
35.3
26.1
7.2
2.0
4.8
(0.1)
—
—
—
4.7
(2.7)
(7.4)
4.7
0.5
13.0
34.9
47.9
25.0
7.7
15.2
4.8
(0.1)
—
—
—
4.7
10.5
4.2
6.3
0.9
12.5
31.1
43.6
24.1
7.6
11.9
4.2
(0.1)
—
—
—
4.1
7.8
2.8
5.0
0.8
126.0
85.5
172.7
384.2
115.1
51.9
10.9
33.6
44.5
26.3
7.8
10.4
4.0
(0.1)
—
(4.1)
0.3
0.1
10.3
0.2
10.1
0.8
9.3
1.4
$
9.8
$
3.6
$
2.6
$
4.2
$
5.4
$
4.2
$
0.06
0.06
$
$
0.44
0.43
$
$
0.17
0.16
$
$
0.11
0.11
$
$
0.20
0.19
$
$
0.24
0.24
$
$
0.20
0.19
$
$
0.42
0.41
22,127,725
22,145,190
22,205,707
22,276,763
21,977,836
21,991,965
21,997,394
22,071,706
22,528,608
22,521,832
22,548,166
22,486,888
22,351,845
22,398,886
22,426,787
22,451,557
86
21. Subsequent Events
On February 19, 2016, the Company and Central’s former stockholders received a non-appealable and binding decision from an
independent public accounting firm indicating that Net Debt Working Capital as of September 30, 2012 was $291.6 million, or $6.6
million above the Upper Threshold. Therefore, the Company recognized an expense of $1.6 million ($0.9 million, net of tax) in
General and administrative expenses for certain of the other amounts disallowed under the Net Debt Working Capital calculation
as of and for the year ended December 31, 2015, respectively.
See Note 2. Acquisition for disclosure regarding the non-appealable and binding decision by the independent public accounting
firm on Net Debt Working Capital, including impacts to our Consolidated Financial Statements, and the Company's indemnification
from Central's former stockholders for for certain defined adverse consequences as set forth in the Merger Agreement (including
with respect to Structural and Repair Costs).
87
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
SP PLUS CORPORATION
Date: March 1, 2016
By:
/s/ VANCE C. JOHNSTON
Vance C. Johnston
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ G MARC BAUMANN
G Marc Baumann
/s/ KAREN M. GARRISON
Karen M. Garrison
/s/ PAUL HALPERN
Paul Halpern
/s/ ROBERT S. ROATH
Robert S. Roath
Title
Director, President and Chief Executive Officer
(Principal Executive Officer)
Director
Director
Director
/s/ WYMAN T. ROBERTS
Director
Wyman T. Roberts
/s/ DOUGLAS R. WAGGONER
Director
Date
March 1, 2016
March 1, 2016
March 1, 2016
March 1, 2016
March 1, 2016
March 1, 2016
March 1, 2016
Douglas R. Waggoner
/s/ JONATHAN P. WARD
Jonathan P. Ward
/s/ JAMES A. WILHELM
James A. Wilhelm
/s/ GORDON H. WOODWARD
Gordon H. Woodward
/s/ VANCE C. JOHNSTON
Vance C. Johnston
/s/ KRISTOPHER H. ROY
Kristopher H. Roy
Director
Director and Non-Executive Chairman
March 1, 2016
Director
March 1, 2016
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
March 1, 2016
Senior Vice President, Corporate Controller and
Assistant Treasurer (Principal Accounting Officer
and Duly Authorized Officer)
March 1, 2016
88
SP PLUS CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Description
(millions)
Allowance for doubtful accounts
Year ended December 31, 2015
Year ended December 31, 2014
Year ended December 31, 2013
Tax valuation account
Year ended December 31, 2015
Year ended December 31, 2014
Year ended December 31, 2013
Balance at
Beginning
of Year
Additions
Charged
to Costs
and
Expenses
Reductions (1)
Balance at
End of
Year
$
$
$
$
1.0
0.7
0.5
$
$
12.3
21.3
25.3
$
$
0.7
0.7
0.6
—
—
2.1
(0.8) $
(0.5)
(0.4) $
(5.5) $
(9.0) $
(6.0) $
0.9
1.0
0.7
6.8
12.3
21.3
(1) Represents uncollectible accounts written off and reversal of provision.
89
INDEX TO EXHIBITS
Exhibit
Number
3.1
3.1.1
3.1.2
3.1.3
3.1.4
Description
Second Amended and Restated Certificate of Incorporation of the Company filed on June 2, 2004 (incorporated
by reference to exhibit 3.1 of the Company's Annual Report on Form 10-K filed on March 13, 2009).
Certificate of Amendment of Second Amended and Restated Certificate of Incorporation of the Company
effective as of January 7, 2008 (incorporated by reference to exhibit 3.1.1 of the Company's Annual Report
on Form 10-K filed on March 13, 2009).
Certificate of Amendment of Second Amended and Restated Certificate of Incorporation of the Company
effective as of April 29, 2010 (incorporated by reference to exhibit 3.1.3 of the Company's Quarterly Report
on Form 10-Q filed on August 6, 2010).
Certificate of Amendment of Second Amended and Restated Certificate of Incorporation of the Company
effective as of May 6, 2010 (incorporated by reference to exhibit 3.1.4 of the Company's Quarterly Report on
Form 10-Q filed on August 6, 2010).
Certificate of Ownership and Merger, as filed with the Secretary of State of the State of Delaware on
November 25, 2013, effective as of December 2, 2013 (incorporated by reference to exhibit 3.1 of the
Company's Current Report on Form 8-K filed on December 2, 2013).
3.2
Fourth Amended and Restated Bylaws of the Company dated January 1, 2010 (incorporated by reference to
exhibit 3.1 of the Company's Current Report on Form 8-K filed on January 27, 2010).
3.2.1
Amendment to Fourth Amended and Restated Bylaws of the Company dated January 1, 2010 (incorporated
by reference to exhibit 3.1 of the Company's Current Report on Form 8-K filed on February 22, 2016).
4.1 *
Specimen common stock certificate.
10.1 ^
10.1.1
10.2
10.3
10.4
Amended and Restated Credit Agreement, dated as of February 20, 2015, by and among the Company, Bank
of America, N.A., as administrative agent, an issuing lender and wing-line lender; Wells Fargo Bank, N.A., as
an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO Harris
Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo
Securities LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the
lenders party thereto (incorporated by reference to exhibit 10.1.2 of the Company's Annual Report on Form 10-
K filed for on March 6, 2015).
Amendment No. 1 to Restated Credit Agreement, dated as of April 29, 2015, by and among the Company,
Bank of America, N.A., as administrative agent, an issuing lender and wing-line lender; Wells Fargo Bank,
N.A., as an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and
BMO Harris Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Wells Fargo Securities LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers,
and the lenders party thereto (incorporated by reference to exhibit 10.1 of the Company's Current Report on
Form 8-K filed on May 1, 2015).
Confirmation of Interest Rate Swap Transaction, dated as of October 25, 2012, between the Company and
Bank of America, N.A. (incorporated by reference to exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q filed for September 30, 2012).
Confirmation of Interest Rate Swap Transaction, dated as of October 25, 2012, between the Company and
JPMorgan Chase Bank, N.A. (incorporated by reference to exhibit 10.5 of the Company's Quarterly Report
on Form 10-Q filed for September 30, 2012).
Confirmation of Interest Rate Swap Transaction, dated as of October 25, 2012, between the Company and
PNC Bank, N.A. (incorporated by reference to exhibit 10.6 of the Company's Quarterly Report on Form 10-
Q filed for September 30, 2012).
10.5 +
Deferred Compensation Agreement dated as of August 1, 1999, between the Company and James A. Wilhelm
(incorporated by reference to exhibit 10.7 of the Company's Annual Report on Form 10-K filed on March 15,
2012).
10.5.1 +
First Amendment to Deferred Compensation Agreement dated January 25, 2012, between the Company and
James A. Wilhelm (incorporated by reference to exhibit 10.7.1 of the Company's Annual Report on Form 10-
K filed on March 15, 2012).
10.6 +
Employment Agreement dated May 18, 1998 between the Company and Robert N. Sacks (incorporated by
reference to exhibit 10.24 of the Company's Annual Report on Form 10-K filed for December 31, 2001).
10.6.1 +
First Amendment to Employment Agreement dated as of November 7, 2001 between the Company and Robert
N. Sacks (incorporated by reference to exhibit 10.25 of the Company's Annual Report on Form 10-K filed for
December 31, 2001).
90
Exhibit
Number
10.6.2 +
Description
Second Amendment to Employment Agreement dated as of August 1, 2003 between the Company and Robert
N. Sacks (incorporated by reference to exhibit 10.7.2 of the Company's Registration Statement on Form S-1,
File No. 333-112652, filed on February 10, 2004).
10.6.3 +
Third Amendment to Employment Agreement dated as of April 1, 2005 between the Company and Robert N.
Sacks (incorporated by reference to exhibit 10.7.3 of the Company's Annual Report on Form 10-K filed on
March 13, 2009).
10.6.4 +
Fourth Amendment to Employment Agreement dated as of December 29, 2008 between the Company and
Robert N. Sacks (incorporated by reference to exhibit 10.7.4 of the Company's Annual Report on Form 10-K
filed on March 13, 2009).
10.6.5 +
Fifth Amendment to Employment Agreement dated as of January 28, 2009 between the Company and Robert
N. Sacks (incorporated by reference to exhibit 10.7.5 of the Company's Annual Report on Form 10-K filed on
March 13, 2009).
10.7 +
Amended and Restated Executive Employment Agreement dated as of December 1, 2002 between the
Company and John Ricchiuto (incorporated by reference to exhibit 10.22.2 of the Company's Annual Report
on Form 10-K filed for December 31, 2002).
10.7.1 +
First Amendment to Amended and Restated Executive Employment Agreement dated as of April 11, 2005,
between the Company and John Ricchiuto (incorporated by reference to exhibit 10.3 of the Company's Current
Report on Form 8-K filed on March 7, 2005).
10.7.2 +
Second Amendment to Employment Agreement dated as of December 28, 2008 between the Company and
John Ricchiuto (incorporated by reference to exhibit 10.10.2 to the Company's Annual Report on Form 10-K
filed for December 31, 2012).
10.7.3 +
Third Amendment to Employment Agreement dated as of April 2, 2012 between the Company and John
Ricchiuto (incorporated by reference to exhibit 10.8 to the Company's Quarterly Report on Form 10-Q filed
for June 30, 2012).
10.8 +
Amended and Restated Employment Agreement dated March 1, 2005, between the Company and Steven
A. Warshauer (incorporated by reference to exhibit 10.2 to the Company's Current Report on Form 8-K filed
on March 7, 2005).
10.8.1 +
First Amendment to Employment Agreement dated as of December 29, 2008 between the Company and
Steven A. Warshauer (incorporated by reference to exhibit 10.11.1 to the Company's Annual Report on
Form 10-K filed for December 31, 2012).
10.8.2 +
Second Amendment to Employment Agreement dated as of April 2, 2012 between the Company and Steven
A. Warshauer (incorporated by reference to exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
filed for June 30, 2012).
10.9 +
Amended and Restated Executive Employment Agreement between the Company and G Marc Baumann
dated November 19, 2014 effective as of January 1, 2015.
10.10 +
Amended and Restated Executive Employment Agreement dated as of March 1, 2005, between the Company
and Thomas L. Hagerman (incorporated by reference to exhibit 10.1 of the Company's Current Report on
Form 8-K filed on March 7, 2005).
10.10.1 +
First Amendment to Amended and Restated Executive Employment Agreement dated October 1, 2007
between the Company and Thomas Hagerman (incorporated by reference to exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed for September 30, 2007).
10.10.2 +
Second Amendment to Employment Agreement dated as of December 29, 2008 between the Company and
Thomas L. Hagerman (incorporated by reference to exhibit 10.14.2 to the Company's Annual Report on
Form 10-K filed for December 31, 2012).
10.10.3 +
Third Amendment to Employment Agreement dated as of April 2, 2012 between the Company and Thomas
L. Hagerman (incorporated by reference to exhibit 10.7 to the Company's Quarterly Report on Form 10-Q
filed for June 30, 2012).
10.11 +
Executive Employment Agreement dated March 15, 2005 between the Company and Gerard M. Klaisle
(incorporated by reference to exhibit 10.14 of the Company's Annual Report on Form 10-K filed on March 12,
2010).
91
Exhibit
Number
10.11.1 +
Description
First Amendment to Amended and Restated Executive Employment Agreement dated December 29, 2008
between the Company and Gerard M. Klaisle (incorporated by reference to exhibit 10.14.1 of the Company's
Annual Report on Form 10-K filed on March 12, 2010).
10.11.2 +
Second Amendment to Amended and Restated Executive Employment Agreement dated July 28, 2011
between the Company and Gerald M. Klaisle (incorporated by reference to exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q filed on November 7, 2011).
10.12 +
Employment Agreement, dated as of September 10, 2012, between the Company and William Bodenhamer
(incorporated by reference to exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed for
September 30, 2012).
10.13 +
Employment Agreement, dated as of September 10, 2012, between the Company and Rob Toy (incorporated
by reference to exhibit 10.9 to the Company's Quarterly Report on Form 10-Q filed for September 30, 2012).
10.14 +
Employment Agreement effective as of March 3, 2014 by and between the Company and Vance C. Johnston
(incorporated by reference to exhibit 10.1 of the Company's Current Report on Form 1-K/A filed on March 31,
2014).
10.15 +
Employment Agreement between the Company and Hector Chevalier dated July 14, 2014 and made effective
as of July 1, 2014 (incorporated by reference to exhibit 10.1 of the Company's Current Report on Form 8-K
filed on July 17, 2014).
10.16 +
Long-Term Incentive Plan dated as of May 1, 2004 (incorporated by reference to exhibit 10.12 of Amendment
No. 1 to the Company's Registration Statement on Form S-1, File No. 333-112652, filed on May 10, 2004).
10.16.1 +
Long-Term Incentive Plan Amendment effective as of April 22, 2008 (incorporated by reference to Appendix B
of the Company's 2008 Proxy on Form DEF 14A, filed on April 1, 2008).
10.17 *+
Form of Performance Share Agreement between the Company and Recipient.
10.18 +
Form of the Company's Restricted Stock Unit Agreement dated as of July 1, 2008 (incorporated by reference
to exhibit 10.1 of the Company's Current Report on Form 8-K filed on July 2, 2008).
10.18.1 +
10.18.2 +
10.19
10.20
First Amendment to Form of the Company's Restricted Stock Unit Agreement (incorporated by reference to
exhibit 10.1 of the Company's Current Report on Form 8-K as filed on August 6, 2009).
Second Amendment to Form of the Company's Restricted Stock Unit Agreement dated May 27, 2011
(incorporated by reference to exhibit 10.1 of the Company's Current Report on Form 8-K filed on June 2,
2011).
Office Lease dated as of October 31, 2012 between the Company and Piedmont—Chicago Center Owner, LLC
(incorporated by reference to exhibit 10.23 of the Company's Annual Report on Form 10-K filed for
December 31, 2013).
Office Lease dated as of October 17, 2013 between the Company and Riverview Business Center I & II, LLC
(incorporated by reference to exhibit 10.23 of the Company's Annual Report on Form 10-K filed for
December 31, 2013).
10.21
Form of Property Management Agreement (incorporated by reference to exhibit 10.30 of the Company's
Annual Report on Form 10-K filed on March 10, 2006).
10.22
10.23
10.24
10.25
Guaranty Agreement of APCOA/Standard Parking, Inc. dated as of March 2000 to and for the benefit of the
State of Connecticut, Department of Transportation (incorporated by reference to exhibit 10.27 of the
Company's Annual Report on Form 10-K filed on March 13, 2009).
Construction, Financing and Operating Special Facility Lease Agreement dated as of March 2000 between
the State of Connecticut Department of Transportation and APCOA Bradley Parking Company, LLC
(incorporated by reference to exhibit 10.28 of the Company's Annual Report on Form 10-K filed on March 13,
2009).
Trust Indenture dated March 1, 2000 between State of Connecticut and First Union National Bank as Trustee
(incorporated by reference to exhibit 10.29 of the Company's Annual Report on Form 10-K filed on March 13,
2009).
Agreement and Plan of Merger, dated February 28, 2012, by and among the Company, Hermitage Merger
Sub, Inc., KCPC Holdings, Inc. and Kohlberg CPC Rep., L.L.C. (incorporated by reference to exhibit 10.1 of
the Company's Current Report on Form 8-K filed on February 29, 2012). The schedules and exhibits to the
Agreement and Plan of Merger have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-
K but will be provided supplemental to the SEC upon request.
92
Exhibit
Number
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
Description
The Closing Agreements, dated February 28, 2012, between the Company and each of Lubert-Adler Real
Estate Fund V, L.P. and Lubert-Adler Real Estate Parallel Fund V, L.P. (incorporated by reference to
exhibit 10.2 of the Company's Current Report on Form 8-K filed on February 29, 2012).
The Closing Agreements, dated February 28, 2012, between the Company and each of Kohlberg Investors
V, L.P., Kohlberg TE Investors V, L.P., Kohlberg Partners V, L.P., Kohlberg Offshore Investors V, L.P. and
KOCO Investors V, L.P. (incorporated by reference to exhibit 10.3 of the Company's Current Report on Form 8-
K filed on February 29, 2012).
The Closing Agreements, dated February 28, 2012, between the Company and each of Versa Capital Fund
I, L.P. and Versa Capital Fund I Parallel, L.P. (incorporated by reference to exhibit 10.4 of the Company's
Current Report on Form 8-K filed on February 29, 2012).
Closing Agreement, dated as of October 2, 2012, between the Company and Kohlberg CPC Rep, LLC
(incorporated by reference to exhibit 10.2 of the Company's Current Report on Form 8-K filed on October 2,
2012).
Closing Agreement, dated as of October 2, 2012, between the Company and 2929 CPC HoldCo, LLC
(incorporated by reference to exhibit 10.3 of the Company's Current Report on Form 8-K filed on October 2,
2012).
Closing Agreement, dated as of October 2, 2012, between the Company and VCM STAN-CPC Holdings, LLC
(incorporated by reference to exhibit 10.4 of the Company's Current Report on Form 8-K filed on October 2,
2012).
Closing Agreement, dated as of October 2, 2012, between the Company and West-FSI, LLC (incorporated
by reference to exhibit 10.5 of the Company's Current Report on Form 8-K filed on October 2, 2012).
Closing Agreement, dated as of October 2, 2012, between the Company and Sailorshell and Co. (incorporated
by reference to exhibit 10.6 of the Company's Current Report on Form 8-K filed on October 2, 2012).
Closing Agreement, dated as of October 2, 2012, between the Company and CP Klaff Equity LLC (incorporated
by reference to exhibit 10.7 of the Company's Current Report on Form 8-K filed on October 2, 2012).
Closing Agreement, dated as of October 2, 2012, between the Company and Jumpstart Development LLC
(Worldwide) (incorporated by reference to exhibit 10.8 of the Company's Current Report on Form 8-K filed
on October 2, 2012).
14.1
Code of Ethics (incorporated by reference to exhibit 14.1 of the Company's Annual Report on Form 10-K for
December 31, 2002).
21 *
Subsidiaries of the Company.
23 *
Consent of Independent Registered Public Accounting Firm dated as of March 1, 2016.
31.1 *
Section 302 Certification dated March 1, 2016 for G Marc Baumann, Director, President and Chief Executive
Officer (Principal Executive Officer).
31.2 *
Section 302 Certification dated March 1, 2016 for Vance C. Johnston, Executive Vice President, Chief
Financial Officer and Treasurer (Principal Financial Officer).
31.3 *
Section 302 Certification dated March 1, 2016 for Kristopher H. Roy, Vice President Corporate Controller and
Assistant Treasurer (Principal Accounting Officer and Duly Authorized Officer).
32 **
Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, dated March 1, 2016.
101.INS *
XBRL Instance Document.
101.SCH *
XBRL Taxonomy Extension Schema.
101.CAL *
XBRL Taxonomy Extension Calculation Linkbase.
101.DEF *
XBRL Taxonomy Extension Definition Linkbase.
101.LAB *
XBRL Taxonomy Extension Label Linkbase.
101.PRE *
XBRL Taxonomy Extension Presentation Linkbase.
_______________________________________________________________________________
93
* Filed herewith.
** Furnished herewith.
+ Management contract or compensation plan, contract or agreement.
^ Confidential treatment has been granted with respect to certain portions of this Exhibit pursuant to a confidential treatment order granted by the Securities and
Exchange Commission. Omitted portions have been separately filed with the Securities and Exchange Commission.
94
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(This page has been left blank intentionally.)
As of March 19, 2016
Directors
Executive Officers
G Marc Baumann
President & Chief Executive Officer
William H. Bodenhamer, Jr.
Executive Vice President,
Operations
Hector O. Chevalier
Executive Vice President,
Operations
Thomas L. Hagerman
Executive Vice President,
Chief Business Development Officer
Vance C. Johnston
Executive Vice President,
Chief Financial Officer & Treasurer
Gerard M. Klaisle
Executive Vice President,
Chief Administrative Officer
John Ricchiuto
Executive Vice President,
Operations
Robert N. Sacks
Executive Vice President,
General Counsel & Secretary
Robert M. Toy
Executive Vice President,
President of Urban Operations
James A. Wilhelm,
Non-Executive Chairman (d)
Chief Executive Officer,
SP Plus Corporation (retired)
Karen M. Garrison, Lead
Independent Director (a)(b)(c)(d)
President, Pitney Bowes Business
Services (retired)
G Marc Baumann, Director
President & Chief Executive Officer,
SP Plus Corporation
Paul Halpern, Director (a)
Chief Investment Officer,
Versa Capital Management, LLC
Robert S. Roath, Director (a)(b)(c)(d)
Chief Financial Officer,
RJR Nabisco, Inc. (retired)
Wyman T. Roberts, Director (c)
President & Chief Executive Officer,
Brinker International, Inc.
Douglas R. Waggoner, Director (b)
Chief Executive Officer,
Echo Global Logistics, Inc.
Jonathan P. Ward, Director (c)
Operating Partner,
Kohlberg & Company, L.L.C.
Gordon H. Woodward, Director (b)
Chief Investment Officer,
Kohlberg & Company, L.L.C.
(a) Audit Committee
Chair: Robert S. Roath
(b) Nominating and Corporate
Governance Committee
Chair: Karen M. Garrison
(c) Compensation Committee
Chair: Robert S. Roath
(d) Executive Committee
Chair: James A. Wilhelm
Stockholder Information
Corporate Address
SP Plus Corporation
200 East Randolph Street
Suite 7700
Chicago, IL 60601
Telephone: (312) 274-2000
www.spplus.com
Investor Relations Contact
Vance C. Johnston
Executive Vice President,
Chief Financial Officer and Treasurer
Telephone: (312) 521-8409
Investor_Relations@spplus.com
Independent Registered Public
Accounting Firm
Ernst & Young LLP
155 North Wacker Drive
Chicago, Illinois 60606
Transfer Agent
Continental Stock Transfer &
Trust Company
17 Battery Park
New York, NY 10004
Telephone: (212) 509-4000
Stock Listing
NASDAQ Global Select Market
Trading Symbol: SP
Stock Price Information
The table below shows the reported
high and low sales price of common
stock during the periods indicated
in 2015. The closing price of a
common share at December 31, 2015
was $23.90.
HIGH LOW
$25.39
First Quarter
Second Quarter $27.33
Third Quarter
$27.41
Fourth Quarter $26.39
$19.71
$21.62
$18.50
$21.66
Annual Meeting of Shareholders
The Annual Stockholders Meeting
will be held on April 21, 2016 at
11:00 a.m., local time, at The
Radisson Blu Aqua, 221 North
Columbus Drive, Chicago, IL 60601.
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