April 2, 2018
Dear Fellow Stockholders:
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which, along with the $19 million in gross proceeds received from the recent sale of our 30% interest in
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Our capital allocation strategy remains disciplined as we assess opportunities to deploy capital for our
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and commitment to the success of our clients and SP+(cid:17)
Sincerely,
G Marc Baumann
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Cautionary Note Regarding Forward-Looking Statements
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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, 2017
Or
For the transition period from
to
Commission file number: 000-50796
27MAR201400321985
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, a smaller reporting
company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and
‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:3)
Accelerated filer (cid:2)
Non-accelerated filer (cid:3)
(Do not check if a
smaller reporting company)
Smaller reporting company (cid:3)
Emerging growth company (cid:3)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3)
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, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of
the voting and non-voting common stock held by nonaffiliates of the registrant was approximately $687.3 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 22, 2018, there were 22,542,672 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 May 8, 2018, are incorporated by reference into Part III of this Form 10-K. The 2018 Proxy Statement will be filed with the U.S.
Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
DOCUMENTS INCORPORATED BY REFERENCE
[This page intentionally left blank]
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.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Schedule II—Valuation and Qualifying Accounts
2
11
17
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20
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24
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89
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1
Forward-Looking Statements
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 urban markets and airports across the United States, Canada and Puerto Rico. Our services
include a comprehensive set of on-site parking management and ground transportation services, which include facility maintenance,
event logistics services, 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 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 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%
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 combined
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. On January 3, 2018, we closed a
transaction to sell our entire 30% interest in Parkmobile to Parkmobile USA, Inc. for a gross sale price of $19.0 million and in the
first quarter of 2018, we expect to recognize a pre-tax gain of approximately $10.1 million, net of closing costs.
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 pre-tax profit for the operations of the security business was not significant to the
periods presented herein. The Company received $0.6 million for the final earn-out consideration from the buyer during the second
quarter of 2017, for which we recognized an additional gain of $0.1 million for the year ended December 31, 2017.
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 industry vertical specific specialization in airports, healthcare facilities, hotels, municipalities and government
facilities, commercial real estate, residential communities, retail operations, 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.
• 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 are not responsible for major maintenance, capital expenditures or real estate taxes.
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As of December 31, 2017, 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 one leased facility as of December 31, 2017 and two leased
facilities as of December 31, 2016.
Our revenue is derived from a broad and diverse group of clients, industry vertical 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 healthcare facilities. No single client accounted for more than 9% of our revenue, net of reimbursed management
contract revenue, or more than 3% of our gross profit for the year ended December 31, 2017. Additionally, we have built a diverse
geographic footprint that as of December 31, 2017 included operations in 45 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 may 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.
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. 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,
the 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 License Plate Recognition (LPR) system and video analytics for car counting, on-street enforcement and
enhanced security and our proprietary Receivables Management (used for managing monthly parker billing and payment processing
system) and centralized receivables system (CARS), also used for managing the monthly parker billing and payment process and
providing a comprehensive and reliable billing of the parking-related provisions of multi-year commercial tenant leases.
We continue to be the market leader in the implementation of remote parking management services using technology that enables
us to monitor parking operations from a remote, off-site location and provide 24-hour-a-day customer assistance. In addition, we
provide subject matter expertise and other consulting services related to revenue control equipment. We also utilize mobile payment
technology, including mobile payment apps, providing our customers with flexibility to meet their parking needs. Finally, we continue
to utilize and provide leading on-demand and prepaid transaction processing technology for on- and off-street parking and
transportation services.
As of December 31, 2017, we managed 3,623 parking facility locations containing approximately 2.0 million parking spaces in
350 cities, operated 76 parking-related service centers serving 70 airports, operated a fleet of approximately 700 shuttle buses
carrying approximately 36.7 million passengers per year, operated 738 valet locations and employed a professional staff of
approximately 20,800 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.
Beyond the conventional parking facility management services described above, we also offer an expanded range of ground
transportation and 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 with transportation network companies.
• We provide on-street parking meter collection and other forms of parking enforcement services.
• We provide valet services, including vehicle staging, doorman/bellman services and valet tracking systems with text-for-
car capabilities.
• We provide remote parking management services using technology that enables us to monitor parking operations from a
remote, off-site location and provide 24-hour-a-day customer assistance (including remedying equipment malfunctions).
• We provide innovative and environmentally compliant facility maintenance services, including power sweeping and
washing, painting and general repairs, as well as cleaning and seasonal services.
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• We provide comprehensive security services including the training and hiring of security officers and patrol, as well as
customized services and technology that are efficient and appropriate for the property involved.
• We provide multi-platform marketing services including SP+ branded websites which offer clients a unique platform for
marketing their facilities, mobile apps, search marketing, email marketing and social media campaigns.
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. Additionally, technological
advancements are having an impact on both consumer behavior and parking services technology. 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 market 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 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. 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.
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Industry Growth Dynamics
A number of industry trends should facilitate growth for larger outsourced commercial parking facility management providers,
including the following:
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 generally 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
general 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, including the use of various technological
enhancements, allows us to maximize the profit to our clients and 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, Canada and
Puerto Rico. 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+ GAMEDAY, SP+
Transportation, SP+ Valet Services, SP+ Event Logistics and, in certain sections of the United States 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 vertical markets and geographic locations has enabled us to
significantly enhance our operating efficiency over the past several years by standardizing processes and managing overhead.
This also includes the ability to use our scale and purchasing power with vendors to drive cost savings and benefits to our client
base.
• 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.
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•
Industry Vertical Markets. We believe that our industry vertical market diversification, such as commercial, airports, colleges
and universities, healthcare, municipalities, hospitality 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.
• Geographic Locations. We have a diverse geographic footprint that includes operations in 45 states, the District of
Columbia, Puerto Rico and three Canadian provinces as of December 31, 2017.
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 effect smooth and efficient takeovers and integrate
new locations seamlessly into our operations.
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 two parking facilities, we have limited the risks of real estate ownership. We benefit further
from 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 was approximately 92%
and 87% for the years ended December 31, 2017 and 2016, respectively.
Focus on Operational Safety Initiatives. Our culture and training programs continue to place a focus on various safety initiatives
and disciplines 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 Industry Vertical Markets. We believe that a significant opportunity exists for us to further
expand our presence into certain industry vertical markets, such as colleges and universities, healthcare, and municipalities
hospitality and events services. In order to effectively target these new markets, we have implemented a go-to-market strategy of
aligning our business by industry vertical 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 traditional parking, includes a broad array of our operating divisions such as, SP+ Commercial Services, SP+ Airport
Services, SP+ GAMEDAY, SP+ Healthcare Services, SP+ Hospitality Services, SP+ Municipal Services, SP+ Office Services,
SP+ Residential Services, SP+ Retail Services, SP+ Valet Services and SP+ University Services, which further highlight the
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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.
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 through new
contracts, 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. 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 former minority
interest investment in Parkmobile in 2014. We will continue to selectively pursue acquisitions and joint venture investment
opportunities that help us acquire scale or further enhance our service capabilities.
Grow and expand the Hospitality Business. SP+ Hospitality is a leader in the valet industry, and management continues to believe
there is significant opportunity to use SP+'s capabilities to further 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 SP+
University™ provides training to its valet associates. SP+ University™ continuously provides training to our valet professionals
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 executives to those clients to manage the overall client relationship, 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.
Competition
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. 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. Additionally, technological factors which improve ride-sharing capabilities and increase the use
of parking aggregators can impact our business. 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.
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We also face significant competition in our efforts to provide ancillary services such as shuttle bus services and on-street parking
enforcement because of the number of large companies that specialize in these services.
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.
Support Operations
We maintain regional and city offices throughout the United States, Canada and Puerto Rico in order to support approximately
20,800 employees and 3,623 locations. These offices serve as the centralized locations 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 of client
deliverables, such as monthly reporting, etc. Having these all-inclusive operations and accounting teams located in regional and
city offices throughout the United States, Canada and Puerto Rico allows us to add new locations in a seamless and 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.
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, 2017, we employed 20,800 individuals, including 13,100 full-time and 7,700 part-time employees and as of
December 31, 2016, we employed 22,500 individuals, including 13,700 full-time and 8,800 part-time employees. Approximately
30% 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: Akron (OH), Baltimore, Birmingham, Boston, Buffalo, Burbank,
Chicago, Cincinnati, Cleveland, Dallas, Denver, Detroit, Kansas City, Las Vegas, Long Beach (CA), Los Angeles, Manchester (NH),
Meadowlands, Miami, New York City, Newark, Ontario (Canada), Philadelphia, Pittsburgh, Portland, Richmond, San Diego, San
Francisco, San Jose, San Juan (Puerto Rico), Santa Monica, Seattle, Washington, DC. and Windsor Locks.
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
including coverage for general/garage liability, garage keepers legal liability, and auto liability. 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 deductible / retention
amount for each loss covered by our general/garage liability, our automobile liability, our workers' compensation, and our garage
keepers legal liability policy. As a result, we are effectively self-insured for all claims up to the deductible / retention amount for each
loss. 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). We self-insure the cost of the medical claims for these participants up to a stop-loss limit. Pursuant
to our management contracts, we charge those clients an allocated portion of our insurance-related costs.
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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
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 and Boston imposed restrictions in the wake of 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 new or 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 (the "FAA") 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.
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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
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 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 is not incorporated into this or any of
our other filings with the SEC.
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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 IV, Item 15. "Exhibits and Financial Statement Schedules" 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.
We are subject to intense competition that could constrain our ability to gain business and adversely impact 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 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.
Changing consumer preferences may lead to a decline in parking demand, which could have a material adverse impact
on our business, financial condition and results of operations.
Ride sharing services such as Uber and Lyft and car sharing services like Zipcar, along with the potential for driverless cars, may
lead to a decline in parking demand in cities and urban areas. While we devote considerable effort and resources to analyze and
respond to consumer preference and changes in the markets in which we operate, consumer preferences cannot be predicted with
certainty and can change rapidly. Additionally, changes in consumer behaviors by using mobile phone applications and on-line
parking reservation services that help drivers reserve parking with garage, lots and individual owner spaces cannot be predicted
with certainty and could change current customers' parking preferences. If we are unable to anticipate and respond to trends in
the consumer marketplace and the industry, including but not limited to market displacement by livery service companies, car
sharing companies and changing technologies, it could constrain our business and have a material and adverse impact on our
business, financial condition and results of operations.
Our business success depends on our ability to preserve long-term client relationships.
We primarily provide services pursuant to agreements that are cancelable by either party upon 30-days’ notice. As we generally
incur higher initial costs on new contracts, our business associated with long-term client relationships is generally more profitable
than short-term client relationships. If we lose a significant number of long-term clients, our profitability could be negatively impacted,
even if we gain equivalent revenues from new clients.
We may have difficulty obtaining coverage for certain insurable risks or obtaining coverage for certain insurable risks at
a reasonable cost, and we are subject to volatility associated with our high deductible / retention insured and self-insured
programs including the possibility that changes in estimates of ultimate insurance losses could result in a material change
against our operating results.
We use a combination of insured and self-insured programs to cover workers compensation, general liability, automobile liability,
property damage and other insurable risks and provide liability and workers' compensation insurance coverage consistent with our
obligations to our clients under our various management contracts and leases. We are responsible for claims in excess of our
insurance policies' limits, and while we endeavor to purchase insurance coverage that is appropriate to our assessment of risk, we
are unable to predict with certainty the frequency, nature or magnitude of claims or direct or consequential damages. 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 amount. 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 or retention applicable to any given loss under the property insurance policies varies based upon the
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insured values and the peril that causes the loss. 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.
The determination of required insurance reserves is dependent upon significant actuarial judgments. We use the results of actuarial
studies to estimate insurance rates and insurance reserves for future periods and adjust reserves as appropriate for the current
year and prior years. 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. Actual experience related to our insurance reserves
can cause us to change our estimates for reserves and any such changes may materially impact results, causing significant volatility
in our operating results. 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 increase.
Recent consolidation of entities in the insurance industry could impact our ability to obtain or renew policies at competitive rates.
Should we be unable to obtain or renew our excess, umbrella, or other commercial insurance policies at competitive rates, it could
have a material adverse impact on our business, as would the incurrence of catastrophic uninsured claims or the inability or refusal
of our insurance carriers to pay otherwise insured claims. Further, to the extent that we self-insure our losses, deterioration in our
loss control and/or continuing claim management efforts could increase the overall costs of claims within our retained limits. A
material change in our insurance costs due to changes in frequency of claims, the severity of claims, the costs of excess/umbrella
premiums, regulatory changes, or consolidation of entities within the insurance industry could have a material adverse effect on
our financial position, results of operations, or cash flows.
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.
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 generally 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.
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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 potentially incurred and would not remedy damage to our reputation. We have also implemented
additional security measures including, for example, forcing our vendors to use two-factor authentication for remote access.
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.
Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved in the normal
course of business 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.
We have incurred indebtedness that could adversely affect our financial condition.
Failure to comply with covenants or to meet payment obligations under our credit facility could result in an event of default which,
if not cured or waived, could result in the acceleration of outstanding debt obligations.
We may incur 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
debt repayment. 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, and companies that we acquired in previous years may have 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
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employee drivers must also comply with the safety and fitness regulations promulgated by the U.S. 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.
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.
We cannot predict changes in laws and regulations made by the U.S. President, the U.S. President's Administration, or the current
and future U.S. Congress, but we will monitor developments regarding legislation changes and regulatory shifts.
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.
Our risk management and safety programs may not have the intended effect of allowing us to reduce our insurance costs
for our insurance programs.
We continually attempt to mitigate the aforementioned risk that our insurance coverage may be inadequate through the
implementation of company-wide safety and loss control efforts designed to decrease the incidence of accidents or events that
might increase our exposure or liability.
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, 2017, approximately 30% of our employees were represented by labor unions and
approximately 43% of our collective bargaining contracts are up for renewal in 2018, 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 we 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.
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, mud slides, large scale forest fires, 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.
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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 and fourth quarters and could cause gross profit
reductions in the future, either in the first and fourth quarters 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:
• 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
reporting 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 reporting units requires significant judgment in evaluation of recent indicators of market activity and
estimated future cash flows, discount rates, and other factors. 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
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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 have the ability to obtain adequate capital to expand our business.
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
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.
We cannot predict with certainty what additional healthcare initiatives, if any, will be implemented at the federal or state level, or
what the ultimate effect of The Health Care Reform Laws or any future legislation or regulation will have on us. In addition, it is
possible that the U.S. President's Administration, U.S. Senate and U.S. Congress may seek to modify, repeal or otherwise invalidate
all, or certain provisions of, the current health care reform legislation. Further, regardless of the prevailing political environment in
the United States, if we are unable to raise the rates we charge our clients to cover expenses incurred due to the Health Care
Reform Laws or other additional healthcare initiatives, our operating profit could be negatively impacted.
Changes in tax laws or rulings could materially affect our financial position, results of operations, and cash flows.
We are subject to income and non-income tax laws in the United States (federal, state and local) and other foreign jurisdictions,
which include Canada and Puerto Rico. Changes in tax laws, regulations, tax rulings, administrative practices or changes in
interpretations of existing laws, could materially affect our business. Due to economic and political conditions, tax rates in various
jurisdictions may be subject to significant change, with or without notice, and the effective tax rate could be affected by changes in
the mix of earnings in countries with differing statutory tax rates or changes in tax laws or their interpretation, including the United
States (federal, state and local), Canada and Puerto Rico. Our income tax expense, deferred tax assets and liabilities and our
effective tax rates could be affected by numerous factors, including the relative amount of our foreign earnings, including earnings
being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where
we have higher statutory rates, the applicability of special tax regimes, losses incurred in jurisdictions for which we are not able to
realize the related tax benefit, entry into new businesses or geographies, changes to our existing business and operations,
acquisitions and investments and how they are financed and changes in the relevant tax, accounting and other laws regulation,
16
administrative practices, principles and interpretations. Additionally, adverse changes in the underlying profitability and financial
outlook of our operations or changes in tax law, as discussed above, could lead to changes in our valuation allowances against
deferred tax assets on our consolidated balance sheets, which could materially affect our results of operations.
We are also subject to tax audits and examinations by governmental authorities in the United States (federal, state and local),
Canada and Puerto Rico. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations
to determine the adequacy of its provision for taxes and there can be no assurance as to the outcome of such tax audits and
examinations. Negative unexpected results from one or more such tax audits or examinations 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.
Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax
obligations and effective tax rate.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law. The 2017 Tax Act includes
significant changes to the corporate income tax system in the United States, including a federal corporate rate reduction
from 35% to 21% and the transition of United States international taxation from a worldwide tax system to a territorial tax system,
and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The 2017 Tax Act requires complex
computations to be performed that were not previously required in U.S tax law, significant judgments to be made in interpretation
of the provisions of the 2017 Tax Act and significant estimates in calculations, and the preparation and analysis of information not
previously relevant or regularly produced. The U.S. Department of Treasury, the Internal Revenue Service (IRS), foreign jurisdictions,
state jurisdictions, and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will
be applied or otherwise administered that is different than our interpretation. As we complete our analysis of the 2017 Tax Act,
collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that
we have recorded that may materially impact our provision for income taxes and effective tax rate in the period in which the
adjustments are made.
Additionally, foreign and state jurisdictions may enact tax laws in response to the 2017 Tax Act that could result in further changes
to taxation and materially affect our financial position and results of operations.
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
in which we have made investments, (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) requirements
or obligations 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 under 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 in which we may invest, 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,
resulting in other-than-temporary declines in fair value which could adversely impact our financial results.
Actions of activist investors could disrupt our business.
Public companies have been the target of activist investors. In the event that a third-party, such as an activist investor, proposes
to change our governance policies, board of directors, or other aspects of our operations, our review and consideration of such
proposals may create a significant distraction for our management and employees. This could negatively impact our ability to
execute our long-term growth plan and may require our management to expend significant time and resources. Such proposals
may also create uncertainties with respect to our financial position and operations and may adversely affect our ability to attract
and retain key employees.
Item 1B. Unresolved Staff Comments
Not applicable.
17
Item 2. Properties
Parking Facilities
We operate parking facilities in 45 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, 2017:
States/Provinces
Airports and Urban Cities
Airport
Urban
Total
Airport
Urban
Total
# of Locations
# of Spaces
Alabama
Alberta
Arizona
California
Colorado
Airport, Birmingham, and Mobile
Calgary, Edmonton and Sherwood Park
Glendale, Phoenix, Scottsdale and Tempe
Airports, Fresno, Glendale, Long Beach,
Los Angeles, Newport Beach, Oakland,
Riverside, Sacramento, San Francisco,
San Jose, Santa Monica Stockton and
other various cities
Airport, Aurora, Boulder, Broomfield,
Colorado Springs, Denver, Golden,
Greenwood Village, Lakewood, Lone Tree,
Westminster and other various cities
Connecticut
Delaware
Airport, Bridgeport, Hartford, and Stamford
Wilmington
District of Columbia Washington
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
Airports, Boca Raton, Coral Gables, Ft.
Lauderdale, Jacksonville, Miami, Miami
Beach, Orlando, St. Petersburg, Tampa,
West Palm Beach and other various cities
Athens, Atlanta, Decatur, and Duluth
Airport, Aiea, Honolulu, Kihei, Lahaina,
Wailuku and Waipahu
Airport
Airports, Bridgeview, Chicago, Elgin,
Evanston, Forest Park, Harvey,
Hegewisch, Oak Park, Rosemont,
Schaumburg, and other various cities
Indianapolis
Lawrence and Topeka
Airport, Covington, Louisville, Frankfort
and Lexington
Airports, Baton Rouge, Gretna, New
Orleans, Shreveport and Westwego
Airports and Portland
Airport, Annapolis, Baltimore, Bethesda,
Chevy Chase, Ellicott City, Landover, Oxon
Hill, Rockville and Towson
Allston, Attleboro, Boston, Cambridge,
Charlestown, Chelsea, Roxbury,
Somerville, Springfield, Worcester and
other various cities
Airports, Birmingham, Detroit, Pontiac, and
Warren
Minneapolis and St. Paul
Airport and Jackson
Airports, Clayton, Kansas City, and
St. Louis
Airports
Airport and Omaha
Las Vegas
New Hampshire
Airport
New Jersey
Atlantic City, Bayonne, Camden, East
Rutherford, Jersey City, Little Falls, New
Brunswick, Newark, Paterson, Weehawken
and other various cities
New Mexico
Airport and Albuquerque
1
—
—
45
8
19
46
8
19
1,074
—
—
8,462
1,348
18,254
9,536
1,348
18,254
19
571
590
30,377
227,587
257,964
9
8
—
—
24
—
1
1
14
—
—
6
7
3
6
—
14
—
3
7
2
2
—
5
—
1
154
163
5
5
69
205
84
45
—
13
5
69
229
84
46
1
42,121
7,941
—
—
46,742
—
1,663
883
69,300
111,421
3,329
1,634
14,685
74,637
47,735
27,037
—
11,270
1,634
14,685
121,379
47,735
28,700
883
347
361
39,116
136,679
175,795
2
3
37
51
7
72
2
3
43
58
10
—
—
570
926
570
926
16,807
14,940
31,747
10,324
3,081
15,418
2,759
25,742
5,840
78
27,700
62,658
90,358
116
116
—
35,112
35,112
31
37
12
69
2
11
24
—
45
37
15
34,617
—
2,149
15,237
10,328
3,288
49,854
10,328
5,437
76
25,136
28,319
53,455
4
13
24
3,611
1,307
—
2,029
—
38,822
5
6,236
—
3,611
3,336
38,822
6,236
93
7
93
8
—
—
65,407
3,440
65,407
3,440
18
States/Provinces
Airports and Urban Cities
Airport
Urban
Total
Airport
Urban
Total
# of Locations
# of Spaces
New York
North Carolina
North Dakota
Ohio
Oklahoma
Ontario
Oregon
Pennsylvania
Puerto Rico
Airports, Bronx, Brooklyn, Buffalo,
Flushing, Hamburg, Long Island City,
Manhattan, Queens, Syracuse, White
Plains and other various cities
Airports, Asheville, Carolina Beach,
Charlotte, Durham, Greensboro, N Topsail
Beach, Shelby, Wilmington, and Winston
Salem
Airport
Airports, Akron, Cincinnati, Cleveland,
Columbus, Dayton, Lakewood, Marion,
and Westerville
Oklahoma City and Tulsa
Ajax, Brampton, Cambridge, Kitchener,
Mississauga, North York, Oshawa, Ottawa,
Toronto and other various cities
Airports, Corvallis, and Portland
Airports, Chester, Harrisburg, Lancaster,
Norristown, Philadelphia, and Pittsburgh
Caguas, Carolina, Dorado, Guaynabo,
Ponce, and San Juan
Quebec
Gatineau
Rhode Island
Airports, and Providence
South Carolina
Beaufort and Columbia
South Dakota
Airport
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Airports, Germantown, Knoxville, Memphis
and Nashville
Airports, Addison, Austin, Dallas, Ft. Worth,
Houston, Irving, San Antonio, Waco,
Woodlands and other various cities
Airport, Park City and Salt Lake City
Airports, Arlington, Fairfax, Herndon,
Newport News, Norfolk, Richmond, Vienna
and various other cities
Airports, Bellevue, Seattle, Ridgefield,
Spokane, and other various cities
Charleston and South Charleston
Airports, Madison, Menomonee Falls and
Milwaukee
Totals
7
232
239
11,985
65,401
77,386
11
1
18
—
—
8
90
—
101
21,540
23,037
1
2,131
—
44,577
2,131
170
188
17,715
97,927
115,642
28
28
—
7,453
7,453
69
18
69
26
—
29,849
19,133
9,364
29,849
28,497
1
67
68
1,114
54,067
55,181
—
—
7
—
1
33
8
3
8
—
33
8
10
8
1
—
—
9,027
—
1,800
16,610
16,610
4,647
722
1,199
—
4,647
9,749
1,199
1,800
4
70
74
10,197
15,181
25,378
43
10
7
3
—
211
254
53,729
128,243
181,972
14
24
14,769
4,777
19,546
79
86
11,280
35,711
46,991
89
18
92
18
2,348
37,251
—
3,563
39,599
3,563
3
28
31
4,646
14,026
18,672
257
3,366
3,623
482,299
1,478,968
1,961,267
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."
Office Leases
We lease approximately 35,000 square feet for our corporate offices in Chicago, Illinois and 25,000 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.
19
Item 3. Legal Proceedings
General
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 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.
Settlement with Former Central Stockholders
See Note 2. Central Merger and Restructuring, Merger and Integration Costs to the Consolidated Financial Statements included
in Part IV, Item 15. "Exhibits and Financial Statement Schedules" for disclosures related to the settlement with Former Central
Stockholders reached in December 2016.
Holten Settlement
See Note 18. Legal Proceedings to the Consolidated Financial Statements included in Part IV, Item 15. "Exhibits and Financial
Statement Schedules" for disclosures related to the Holten Settlement reached in March 2016.
Item 4. Mine Safety Disclosures
Not applicable.
20
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
2017
2016
High
Low
High
Low
$
$
$
$
38.55
36.20
39.98
41.25
$
$
$
$
27.05
28.10
29.60
35.50
$
$
$
$
25.00
24.38
26.02
30.30
$
$
$
$
20.67
20.41
22.47
22.60
We did not pay a cash dividend in respect of our common stock in 2017 or 2016. By the terms of our Restated Credit Agreement,
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 22, 2018, we estimate that there were 2,200 registered 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 (Column A)
Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights (Column B)
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column A)
513,599
$
—
513,599
$
—
—
—
248,534
—
248,534
Plan Category
Equity compensation plans approved by securities
holders
Equity compensation plans not approved by securities
holders
Total
21
Stock Repurchases
In May 2016, our Board of Directors authorized us to repurchase, on the open market, shares of our outstanding common stock in
an amount not to exceed $30.0 million in aggregate. Purchases of our common stock may be made in open market transactions
effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with Rule 10b-18
and 10b5-1under the Securities Exchange Act of 1934 ("Exchange Act"). The share repurchase program does not obligate us to
repurchase any particular amount of common stock, and has no fixed termination date. Under this program, we repurchased
305,183 shares of common stock through December 31, 2017, at an average price of $24.43, resulting in $7.5 million in program-
to-date repurchases. The dollar value of shares that may yet be purchased under the program is $22.5 million.
Stock Performance Graph
Company / Index
SP Plus Corporation
S&P 500 Index
S&P SmallCap 600 Commercial &
Professional Services
$
$
$
Years Ended December 31,
2012
2013
2014
2015
2016
2017
100.00 $
118.42 $
114.73 $
108.69 $
128.01 $
100.00 $
132.39 $
150.51 $
152.59 $
170.84 $
168.71
208.14
100.00 $
147.74 $
146.37 $
148.26 $
183.77 $
205.57
The performance graph above shows the cumulative total stockholder return of our common stock for the period starting on December
31, 2012 to December 31, 2017. 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, 2012, $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 an indication of future performance.
22
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 15. "Exhibits and Financial Statement Schedules" 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.
(millions)
Statement of Income
Parking services revenue
Lease contracts
Management contracts
Reimbursed management contract revenue (1)
2017
2016
2015
2014
2013
Year Ended December 31,
$
563.1
$
545.0
$
570.9
$
496.6
$
348.2
911.3
679.2
346.8
891.8
676.6
350.3
921.2
650.6
338.3
834.9
638.7
489.6
347.3
836.9
585.8
Total parking services revenue
1,590.5
1,568.4
1,571.8
1,473.6
1,422.7
Cost of parking services
Lease contracts
Management contracts
Reimbursed management contract expense (1)
518.4
207.6
726.0
679.2
505.6
209.8
715.4
676.6
532.8
218.3
751.1
650.6
455.7
207.9
663.6
638.7
456.1
208.7
664.8
585.8
Total cost of parking services
1,405.2
1,392.0
1,401.7
1,302.3
1,250.6
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 expense (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
Per Share Data
Basic
Diluted
Balance sheet data (at end of year)
Cash and cash equivalents
Total assets
Total debt
Total SP Plus Corporation stockholders' equity
$
$
$
$
$
44.7
140.6
185.3
82.9
21.0
81.4
9.2
(0.6)
(0.1)
—
0.7
9.2
72.2
27.7
44.5
3.3
41.2
1.86
1.83
22.8
762.9
153.8
$
$
$
$
39.4
137.0
176.4
90.0
33.7
52.7
10.5
(0.5)
—
—
0.9
10.9
41.8
15.8
26.0
2.9
23.1
1.04
1.03
22.2
778.6
195.1
$
$
$
$
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
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
1.05
1.03
18.2
823.1
250.8
$
$
$
$
313.1
$
268.4
$
250.1
$
229.8
$
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
0.55
0.54
23.2
858.5
284.8
203.1
(1) The Company corrected reimbursed management contract revenue and reimbursed management contract expense for the previous periods presented. The
correction resulted in the following: (i) a reduction of reimbursed management contract revenue of $47.1 million, $44.1 million, $41.1 million and $44.1 million for
the years December 31, 2016, 2015, 2014 and 2013, respectively, and (ii) a reduction of reimbursed management contract expense of $47.1 million, $44.1 million,
$41.1 million and $44.1 million for the years December 31, 2016, 2015, 2014 and 2013, respectively. See Note 1. Significant Accounting Policies and Practices
of the Consolidated Financial Statements, which is included in Part IV, Item 15. "Exhibits and Financial Statement Schedules."
23
Item 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, Canada and Puerto Rico. Our services include a comprehensive
set of on-site parking management and ground transportation services, which include facility maintenance, event logistics services,
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 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. 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, 2017, 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 expenses. 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, 2017, 82% of our locations
were operated under management contracts and 76% of our gross profit for the year ended December 31, 2017 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.
Investment in Joint Venture and Sale of Business
In October 2014, we entered into an agreement to establish a joint venture with Parkmobile USA and contributed all of the assets
and liabilities of our proprietary Click and Park® parking prepayment business in exchange for a 30% interest in the newly formed
legal entity called Parkmobile, LLC. 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. On January 3, 2018, we closed a transaction to sell our entire 30% interest in Parkmobile
to Parkmobile USA, Inc. for a gross sales price of $19.0 million and in the first quarter of 2018 we expect to recognize a pre-tax
gain of approximately $10.1 million, net of closing costs.
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. We received $0.6 million
24
for the final earn-out consideration from the buyer during the second quarter of 2017, for which we recognized an additional gain
on sale of business of $0.1 million for the year ended December 31, 2017.
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) (3)
Total facilities
2017
667
2,956
3,623
December 31,
2016
688
2,966
3,654
2015
713
3,129
3,842
(1)
Includes partial ownership in one leased facility for 2017 and two leased facilities for 2016 and 2015.
(2) Adjusted to exclude managed facilities related to the security business primarily operating in the Southern California market for December 31, 2015.
(3) December 31, 2016 and 2015 facilities are adjusted for Click and Park locations due to the termination of the transition service agreement.
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. 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.
25
Gross Profit
Gross profit equals our revenue less the cost of generating such revenue. This is the key metric we use to examine our performance
because it captures the underlying economic benefit to us of both lease contracts and management contracts.
General and Administrative Expenses
General and administrative expenses include salaries, wages, 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.
Results of Operations
Segments
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue
and incur expenses, and about which separate financial information is regularly evaluated by our chief operating decision maker
(“CODM”), in deciding how to allocate resources. Our CODM is our chief executive officer.
In the first quarter of 2017, we changed the internal reporting segment information reported to our CODM. The operating segments
are internally reported as region one (Commercial) and region two (Airports). All prior periods presented have been restated to
reflect the new internal reporting to the CODM.
• Region one (Commercial) encompasses our services in healthcare facilities, municipalities, including meter revenue
collection and enforcement services, government facilities, hotels, commercial real estate, residential communities, retail,
colleges and universities, as well as ancillary services such as shuttle and transportation services, valet services, taxi and
livery dispatch services and event planning, including shuttle and transportation services.
• Region two (Airports) encompasses our services at all major airports as well as ancillary services, which includes shuttle
and transportation services and valet services.
•
"Other" consists of ancillary revenue that is not specifically identifiable to a region and certain unallocated items, such as
and including prior year insurance reserve adjustments/costs and other corporate items.
26
Fiscal 2017 Compared to Fiscal 2016
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,
2017 and 2016.
Segment revenue information is summarized as follows:
Region One
Region Two
Other
Total
Variance
2017
2016
2017
2016
2017
2016
2017
2016
Amount
%
Year Ended December 31,
(millions)
Lease contract revenue
New locations
Contract expirations
Same locations
Conversions
$
39.8
$
7.1
$
3.0
$
$
— $
— $
42.8
$
8.0
$
34.8
435.0 %
28.2
347.0
18.8
51.2
344.1
17.9
0.9
4.5
—
126.3
119.3
—
—
—
—
—
—
—
—
28.2
473.3
18.8
55.7
463.4
17.9
— $
— $
563.1
$
545.0
$
18.1
Total lease contract revenue
$
433.8
$
420.3
$
129.3
$
124.7
Management contract revenue
New locations
Contract expirations
Same locations
Conversions
$
39.7
$
16.4
$
15.3
$
9.9
199.5
0.9
30.9
200.1
0.9
2.6
71.2
—
7.0
21.9
59.1
—
$
$
— $
— $
55.0
$
23.4
$
31.6
135.0 %
—
9.1
—
—
10.5
—
12.5
279.8
0.9
52.8
269.7
0.9
Total management contract revenue
$
250.0
$
248.3
$
89.1
$
88.0
$
9.1
$
10.5
$
348.2
$
346.8
$
(27.5)
(49.4)%
9.9
0.9
2.1 %
5.0 %
3.3 %
(40.3)
(76.3)%
10.1
—
1.4
3.7 %
— %
0.4 %
Revenue associated with same locations represents locations that have been operating for at least one year and operating for the
entire period in the comparative period being presented. 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—lease contract
Lease contract revenue increased $18.1 million, or 3.3%, to $563.1 million for the year ended December 31, 2017, compared to
$545.0 million for the year-ago period. The increase resulted primarily from increases in revenue from new locations, same locations
and locations that converted from management contracts during the year, partially offset by decreases in revenue from contract
expirations. Revenue from contract expirations includes earnings of $8.5 million for our proportionate share of the net gain on an
equity method investee's sale of assets. Same location revenue increased $9.9 million, or 2.1%, primarily due to an increase in
monthly parking revenue, short term revenue, rental revenue and transient revenue.
From a reporting segment perspective, lease contract revenue increased primarily due to increases in revenue from new locations
in regions one and two, same locations in regions one and two and conversions in region one. This was partially offset by decreases
in revenue from contract expirations in regions one and two.
Parking services revenue—management contract
Management contract revenue increased $1.4 million, or 0.4%, to $348.2 million for the year ended December 31, 2017, compared
to $346.8 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 $10.1 million, or 3.7%, primarily due to a change in contract terms for certain management
contracts, whereby the contract terms converted from a management contract to a "reverse" management contract, which typically
has higher management fees from the facility owner but requires us to pay certain operating costs associated with the facilities
operation and net increases in management fees, partially offset by a decrease in other ancillary services.
From a reporting segment perspective, management contract revenue increased primarily due to increases in revenue from new
locations in regions one and two and same locations in regions two. This was partially offset by decreases in revenue from contract
expirations in regions one and two, same locations in region one and other and conversions in region one. Other amounts in same
locations represent revenue not specifically identifiable to a region.
Reimbursed management contract revenue
Reimbursed management contract revenue increased $2.6 million, or 0.4%, to $679.2 million for the year ended December 31,
2017, compared to $676.6 million in the year-ago period. The slight increase resulted primarily from an increase in reimbursements
for costs incurred on behalf of owners.
27
Segment cost of parking services information is summarized as follows:
(millions)
2017
2016
2017
2016
2017
2016
2017
2016
Amount
%
Region One
Region Two
Other
Total
Variance
Year Ended December 31,
Cost of parking services lease contracts:
New locations
Contract expirations
Same locations
Conversions
$
38.1
$
6.7 $
2.7
$
$
— $
— $
40.8
$
7.5
$
33.3
444.0 %
15.8
323.6
20.5
45.5
—
316.1
119.9
114.1
19.4
—
—
—
(2.2)
—
—
(1.1)
—
15.8
441.3
20.5
49.6
429.1
19.4
0.8
4.1
(33.8)
(68.1)%
12.2
1.1
2.8 %
5.7 %
2.5 %
(2.2)
$
(1.1)
$
518.4
$
505.6
$
12.8
Total cost of parking services lease contracts
Cost of parking services management
contracts:
New locations
$
$
Contract expirations
Same locations
Conversions
398.0
$
387.7 $
122.6
$
119.0
23.2
$
9.7 $
14.7
$
6.0
123.7
0.2
19.3
123.4
0.2
2.1
46.1
—
6.7
20.3
36.4
—
$
$
— $
— $
37.9
$
16.4
$
21.5
131.1 %
—
(8.4)
—
—
(6.2)
—
8.1
161.4
0.2
39.6
153.6
0.2
(31.5)
(79.5)%
7.8
—
5.1 %
— %
Total cost of parking services management
contracts
$
153.1
$
152.6 $
62.9
$
63.4
$
(8.4)
$
(6.2)
$
207.6
$
209.8
$
(2.2)
(1.0)%
Cost of parking services associated with same locations represents locations that have been operating for at least one year and
operating for the entire period in the comparative period being presented. 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—lease contracts
Cost of parking services for lease contracts increased $12.8 million, or 2.5%, to $518.4 million for the year ended December 31,
2017, compared to $505.6 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, partially offset by decreases in costs
contract expirations. Same location costs increased $12.2 million, or 2.8%, primarily due to compensation and benefit costs and
overall net operating costs and an increase in rent expense as a result of higher revenues for same locations, partially offset by
unallocated insurance reserve adjustments/costs and other unallocated corporate items.
From a reporting segment perspective, cost of parking services for lease contracts increased primarily due to increases in costs
from new locations in regions one and two, same locations in regions one and two and conversions in region one. This was partially
offset by a decrease in costs from contract expirations in regions one and two and same locations in other. The other region amounts
in same location represent costs not specifically identifiable to a region. Other amounts in same locations represent costs not
specifically identifiable to a region.
Cost of parking services—management contracts
Cost of parking services for management contracts decreased $2.2 million, or 1.0%, to $207.6 million for the year ended
December 31, 2017, compared to $209.8 million for the year-ago period. The decrease resulted primarily from decreases in costs
from contract expirations, partially offset by increases in new locations and same locations. Same locations costs increased $7.8
million, or 5.1%, primarily due to a change in contract terms for certain management contracts, whereby the contract terms converted
from a management contract to a "reverse" management contract, which typically have higher operating costs associated with the
facilities operation but allow us to have a higher management fee from the owner, compensation and benefit costs and overall net
operating costs, partially offset by lower costs related to ancillary services and unallocated insurance reserve adjustments/costs
and other unallocated corporate items.
From a reporting segment perspective, cost of parking services for management contracts decreased primarily due to decreases
in costs from contract expirations in regions one and two and same locations in other . This was partially offset by increases in costs
from new locations in regions one and two and same locations in regions one and two. Other amounts in same locations represent
costs not specifically identifiable to a region.
Reimbursed management contract expense
Reimbursed management contract expense increased $2.6 million, or 0.4%, to $679.2 million for the year ended December 31,
2017, compared to $676.6 million in the year-ago period. The slight increase resulted primarily from an increase in reimbursements
for costs incurred on behalf of owners.
28
Segment gross profit/gross profit percentage information is summarized as follows:
(millions)
2017
2016
2017
2016
2017
2016
2017
2016
Amount
%
Region One
Region Two
Other
Total
Variance
Year Ended December 31,
Gross profit lease contracts:
New locations
Contract expirations
Same locations
Conversions
$
1.7
$
12.4
23.4
(1.7)
$
0.4
5.7
28.0
(1.5)
Total gross profit lease contracts
$
35.8
$
32.6
$
0.3
—
6.4
—
6.7
$
$
0.1
0.4
5.2
—
5.7
Gross profit percentage lease contracts:
New locations
Contract expirations
Same locations
Conversions
Total gross profit percentage
Gross profit management contracts:
New locations
Contract expirations
Same locations
Conversions
4.3 %
5.6 %
10.0%
11.1%
44.0 %
11.1 %
6.7 %
(9.0)%
8.3 %
8.1 %
(8.4)%
7.8 %
—%
5.1%
—%
5.2%
8.9%
4.4%
—%
4.6%
$
16.5
$
6.7
$
3.9
75.8
0.7
11.6
76.7
0.7
0.6
0.5
25.1
—
$
0.3
1.6
22.7
—
$
$
$
—
—
2.2
—
2.2
$
$
—
—
1.1
—
1.1
(Percentages)
$
2.0
$
12.4
32.0
(1.7)
0.5
6.1
34.3
(1.5)
$
1.5
6.3
(2.3)
(0.2)
$
44.7
$
39.4
$
5.3
300.0 %
103.3 %
(6.7)%
13.3 %
13.5 %
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
4.7 %
6.3 %
44.0 %
11.0 %
6.8 %
(9.0)%
7.9 %
7.4 %
(8.4)%
7.2 %
$
17.1
$
7.0
$
10.1
144.3 %
—
—
17.5
—
$
—
—
16.7
—
4.4
118.4
0.7
13.2
116.1
0.7
(8.8)
(66.7)%
2.3
—
3.6
2.0 %
— %
2.6 %
Total gross profit management contracts
$
96.9
$
95.7
$
26.2
$
24.6
$
17.5
$
16.7
$ 140.6
$ 137.0
$
(Percentages)
Gross profit percentage management
contracts:
New locations
Contract expirations
Same locations
Conversions
41.6 %
40.9 %
39.4 %
37.5 %
38.0 %
38.3 %
77.8 %
77.8 %
3.9%
19.2%
35.3%
—%
4.3%
7.3%
—%
—%
—%
—%
31.1 %
29.9 %
35.2 %
25.0 %
38.4%
192.3%
159.0%
42.3 %
43.0 %
—%
—%
—%
77.8 %
77.8 %
Total gross profit percentage
38.8 %
38.5 %
29.4%
28.0%
192.3%
159.0%
40.4 %
39.5 %
Gross profit associated with same locations represents locations that have been operating for at least one year and operating for
the entire period in the comparative period being presented. 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—lease contracts
Gross profit for lease contracts increased $5.3 million, or 13.5%, to $44.7 million for the year ended December 31, 2017, compared
to $39.4 million for year-ago period. Gross profit for lease contracts increased primarily due to contract expirations and new locations,
partially offset by same locations and locations that converted from management contracts during the year. Gross profit on contract
expirations includes earnings of $8.5 million for our proportionate share of the net gain of an equity method investee's sale of assets.
Gross profit on same locations decreased primarily due to a net increase in rent expense as a result of higher revenues for same
locations, net increases in compensation and benefit costs and overall net operating costs, partially offset by net increases in monthly
parking revenue, short term revenue, rental revenue, transient revenue and unallocated insurance reserve adjustments/costs and
other unallocated corporate items.
From a reporting segment perspective, gross profit for lease contracts increased primarily due to new locations in regions one and
two, contract expirations in region one and same locations in region two and other. This was partially offset by decreases in contract
expirations in region two, same locations in region one and conversions in region one. Other amounts in same locations represent
costs not specifically identifiable to a region.
Gross profit—management contracts
Gross profit for management contracts increased $3.6 million, or 2.6%, to $140.6 million for the year ended December 31, 2017,
compared to $137.0 million in 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 for management contracts increased on same locations primarily due to net increases in
management fees and unallocated insurance reserve adjustments/costs and other unallocated corporate items, partially offset by
net increases in compensation and benefit costs and overall net operating costs.
From a reporting segment perspective, gross profit for management contracts increased primarily due new locations in regions one
and two and same locations in region two and other. This was partially offset by decreases in contract expirations in regions one
and two, same locations in region one and conversions in region one. Other amounts in same locations represent costs not
specifically identifiable to a region.
29
General and administrative expenses
General and administrative expenses decreased $7.1 million, or 7.9%, to $82.9 million for year ended December 31, 2017, compared
to $90.0 million for the year-ago period. The decrease in General and administrative expenses primarily related to a decrease in
compensation and benefit costs, restructuring, merger and integration costs, expected pay-out under our performance based
compensation and long-term incentive compensation programs and overall better expense control.
Interest expense
Interest expense decreased $1.3 million, or 12.4%, to $9.2 million for the year ended December 31, 2017, as compared to $10.5
million for the year-ago period. This decrease resulted primarily from a decrease in average borrowing rates and reductions in
borrowings under our Restated Credit Facility and Senior Credit Facility.
Interest income
Interest income was $0.6 million and $0.5 million for the years ended December 31, 2017 and 2016, respectively.
Gain on sale of a business
During 2017, we recognized a $0.1 million gain on the sale of a portion of our security business primarily operating in the Southern
California market. We received $0.6 million for the final earn-out consideration from the buyer during the second quarter of 2017,
for which we recognized an additional gain on sale of business of $0.1 million, as our historical estimate for the fair value of the
earn-out consideration receivable was $0.5 million.
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 $0.7 million for the year ended December 31, 2017, as compared to $0.9 million in the
year-ago period.
Income tax expense
For the year ended December 31, 2017, we recognized income tax expense of $27.7 million on earnings before income taxes of
$72.2 million compared to a $15.8 million income tax expense on earnings before income taxes of $41.8 million for the year ended
December 31, 2016. Our effective tax rate was 38.4%for the year ended December 31, 2017 compared to 37.8% for the year ended
December 31, 2016. The $11.9 million increase in income tax expense was primarily due to an increase in earnings before income
taxes for the year ended December 31, 2017, compared to December 31, 2016, and the net effect of changes to U.S. tax law.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") was signed into law. The Tax Act significantly
revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35.0% to 21.0%
effective January 1, 2018, while also implementing a territorial tax system and imposing a repatriation tax on deemed repatriated
earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law
was enacted. As a result of the 2017 Tax Act, we recorded $0.2 million of income tax expense in the fourth quarter of 2017. The
provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are
expected to reverse in the future was a $1.6 million income tax benefit, which includes $1.2 million income tax expense related to
an increase in the valuation allowance. The provisional amount related to the one-time transition tax on the mandatory deemed
repatriation of foreign earnings was $1.8 million income tax expense based on the cumulative foreign earnings of $14.1 million and
our current best estimates. Additionally, we recorded a tax charge of $0.6 million as an additional provision for withholding taxes
on undistributed earnings not considered to be permanently reinvested.
30
Fiscal 2016 Compared to Fiscal 2015
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 2016 and 2015.
Segment revenue information is summarized as follows:
(millions)
Lease contract revenue:
New locations
Contract expirations
Same locations
Conversions
Total lease contract revenue
Management contract revenue:
New locations
Contract expirations
Same locations
Conversions
Region One
Region Two
Other
Total
Variance
2016
2015
2016
2015
2016
2015
2016
2015
Amount
%
Year Ended December 31,
$
20.1
$
4.2
$
75.5
$
71.8
$
— $
— $
95.6
$
76.0
$
19.6
25.8 %
$
$
15.3
366.8
18.1
63.7
358.3
20.9
1.6
47.6
—
5.4
46.6
—
420.3
$
447.1
$
124.7
$
123.8
—
—
—
—
—
—
—
16.9
414.4
18.1
69.1
404.9
20.9
(52.2)
(75.5)%
9.5
(2.8)
2.3 %
(13.4)%
— $
545.0
$
570.9
$
(25.9)
(4.5)%
40.5
$
9.7
$
13.7
$
0.9
$
— $
— $
54.2
$
10.6
$
43.6
411.3 %
11.6
195.3
0.9
36.1
192.2
0.7
16.0
58.3
—
45.4
54.2
—
—
10.5
—
—
11.1
—
27.6
264.1
0.9
81.5
257.5
0.7
(53.9)
(66.1)%
6.6
0.2
2.6 %
28.6 %
Total management contract revenue
$
248.3
$
238.7
$
88.0
$
100.5
$
10.5
$
11.1
$
346.8
$
350.3
$
(3.5)
(1.0)%
Revenue associated with same locations represents locations that have been operating for at least one year and operating for the
entire period in the comparative period being presented. 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—lease contracts
Lease contract revenue decreased $25.9 million, or 4.5%, to $545.0 million for the year ended December 31, 2016, compared to
$570.9 million for the year-ago period. The decrease resulted primarily from decreases in revenue from contract expirations and
locations that converted from management contracts during the year, partially offset by increases in revenue from new locations
and same locations. Same locations revenue increased $9.5 million, or 2.3%, primarily due to net increases in monthly parking
revenue and transient revenue.
From a reporting segment perspective, lease contract revenue decreased primarily due to contract expirations in regions one and
two and conversions in region one. This was partially offset by increases from new locations in regions one and two and same
locations in regions one and two.
Parking services revenue—management contracts
Management contract revenue decreased $3.5 million, or 1.0%, to $346.8 million for the year ended December 31, 2016, compared
to $350.3 million for the year-ago period. The decrease resulted primarily from decreases in revenue from contract expirations,
partially offset by increases in revenue from new locations, same locations and locations that converted from lease contracts during
the year. Same locations revenue increased $6.6 million, or 2.6%, primarily due to a net increase in management fees and other
ancillary fees.
From a reporting segment perspective, management contract revenue decreased primarily due to decreases in revenue from
contract expirations in regions one and two and same locations in other. This was partially offset by increases from new locations
in regions one and two, same locations in regions one and two and conversions in region one. Other amounts in same locations
represent revenue not specifically identifiable to a region.
Reimbursed management contract revenue
Reimbursed management contract revenue increased $26.0 million, or 4.0%, to $676.6 million for the year ended December 31,
2016, compared to $650.6 million in the year-ago period. This increase resulted primarily from an increase in reimbursements for
costs incurred on behalf of owners.
31
Segment cost of parking services information is summarized as follows:
(millions)
2016
2015
2016
2015
2016
2015
2016
2015
Amount
%
Region One
Region Two
Other
Total
Variance
Year Ended December 31,
Cost of parking services lease contracts:
New locations
Contract expirations
Same locations
Conversions
Total cost of parking services lease contracts
Cost of parking services management
contracts:
New locations
Contract expirations
Same locations
Conversions
$
$
$
19.6
$
3.9
$
73.8
$
70.2
$
— $
— $
93.4
$
74.1
$
19.3
26.0 %
15.2
336.0
16.9
60.5
327.5
19.4
1.6
43.6
—
5.2
43.0
—
—
(1.1)
—
—
3.1
—
16.8
378.5
16.9
65.7
373.6
19.4
(48.9)
(74.4)%
4.9
(2.5)
1.3 %
(12.9)%
387.7
$
411.3
$
119.0
$
118.4
(1.1)
$
3.1
$
505.6
$
532.8
$
(27.2)
(5.1)%
25.5
$
6.2
$
12.5
$
0.6
$
— $
— $
38.0
$
6.8
$
31.2
458.8 %
8.5
118.3
0.3
24.5
114.1
0.2
16.1
34.8
—
44.5
30.5
—
—
(6.2)
—
—
(2.3)
—
24.6
146.9
0.3
69.0
142.3
0.2
(44.4)
(64.3)%
4.6
0.1
3.2 %
50.0 %
Total cost of parking services management
contracts
$
152.6
$
145.0
$
63.4
$
75.6
$
(6.2)
$
(2.3)
$
209.8
$
218.3
$
(8.5)
(3.9)%
Cost of parking services associated with same locations represents locations that have been operating for at least one year and
operating for the entire period in the comparative period being presented. 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—lease contracts
Cost of parking services for lease contracts decreased $27.2 million, or 5.1%, to $505.6 million for the year ended December 31,
2016, compared to $532.8 million for the year-ago period. The decrease resulted primarily due to decreases in costs from contract
expirations and locations that converted from management contracts during the year, partially offset by an increase in costs from
new locations and same locations. Same location costs increased $4.9 million, or 1.3%, primarily due to net increases in rent
expense as a result of higher revenues for same locations, partially offset by a decrease in structural and 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 and two, same locations in other and conversions in region one. This was partially offset by increases from new
locations in regions one and two and same locations in regions one and two. Other amounts represent costs not specifically
identifiable to a region.
Cost of parking services—management contracts
Cost of parking services for management contracts decreased $8.5 million, or 3.9%, to $209.8 million for the year ended
December 31, 2016, compared to $218.3 million for the year-ago period. The decrease resulted primarily from decreases in costs
from contract expirations, partially offset by increases in costs from new locations, same locations and locations that converted from
lease contracts during the year. Same locations costs increased $4.6 million, or 3.2%, primarily due to increased revenues from
ancillary services, partially offset by decreased costs relating to unallocated insurance reserve adjustments/costs and other
unallocated corporate items.
From a reporting segment perspective, cost of parking services for management contracts decreased primarily due to contract
expirations in regions one and two and same locations in other. This was partially offset by increases from new locations in regions
and one two, same locations in regions one and two and conversions in region one. Other amounts represent costs not specifically
identifiable to a region.
Reimbursed management contract expense
Reimbursed management contract expense increased $26.0 million, or 4.0%, to $676.6 million for the year ended December 31,
2016, compared to $650.6 million in the year-ago period. This increase resulted from an increase in reimbursements for costs
incurred on behalf of owners.
32
Segment gross profit/gross profit percentage information is summarized as follows:
(millions)
2016
2015
2016
2015
2016
2015
2016
2015
Amount
%
Region One
Region Two
Other
Total
Variance
Year Ended December 31,
Gross profit lease contracts:
New locations
Contract expirations
Same locations
Conversions
$
$
0.5
0.1
30.8
1.2
$
0.3
3.2
30.8
1.5
Total gross profit lease contracts
$
32.6
$
35.8
$
1.7
—
4.0
—
5.7
$
$
1.6
0.2
3.6
—
5.4
(Percentages)
$
$
—
—
1.1
—
1.1
$
$
—
—
(3.1)
—
2.2
0.1
35.9
1.2
$
1.9
3.4
31.3
1.5
$
0.3
(3.3)
4.6
(0.3)
$
(3.1)
$
39.4
$
38.1
$
1.3
15.8 %
(97.1)%
14.7 %
(20.0)%
3.4 %
Gross profit percentage lease contracts:
New locations
Contract expirations
Same locations
Conversions
Total gross profit percentage
Gross profit management contracts:
New locations
Contract expirations
Same locations
Conversions
2.5%
0.7%
8.4%
6.6%
7.8%
7.1%
5.0%
8.6%
7.2%
7.9%
2.3 %
— %
8.4 %
— %
4.6 %
$
15.0
$
3.5
$
1.2
$
3.1
77.0
0.6
11.6
78.1
0.5
(0.1)
23.5
—
2.2%
3.7%
7.7%
—%
4.4%
0.3
0.9
23.7
—
—%
—%
—%
—%
—%
—
—
16.7
—
—%
—%
—%
—%
—%
—
—
13.4
—
2.3%
0.6%
8.7%
6.6%
7.2%
2.5%
4.9%
7.7%
7.2%
6.7%
$
16.2
$
3.8
$
12.4
326.3 %
3.0
117.2
0.6
12.5
115.2
0.5
(9.5)
(76.0)%
2.0
0.1
5.0
1.7 %
20.0 %
3.8 %
Total gross profit management contracts
$
95.7
$
93.7
$
24.6
$
24.9
$
16.7
$
13.4
$
137.0
$
132.0
$
(Percentages)
Gross profit percentage management
contracts:
New locations
Contract expirations
Same locations
Conversions
Total gross profit percentage
37.0%
26.7%
39.4%
66.7%
38.5%
36.1%
32.1%
40.6%
71.4%
39.3%
8.8 %
(0.6)%
40.3 %
— %
33.3%
2.0%
43.7%
—%
—%
—%
—%
—%
159.0%
120.7%
—%
—%
28.0 %
24.3%
159.0%
125.2%
29.9%
10.9%
44.4%
66.7%
39.5%
35.8%
15.3%
44.7%
71.4%
37.7%
Gross profit associated with same locations represents locations that have been operating for at least one year and operating for
the entire period in the comparative period being presented. 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—lease contracts
Gross profit for lease contracts increased $1.3 million, or 3.4%, to $39.4 million for the year ended December 31, 2016, compared
to $38.1 million for year-ago period. Gross profit for lease contracts increased primarily due to new locations and same locations,
partially offset by decreases from contract expirations and locations that converted from management contracts during the year.
Gross profit on same locations increased primarily due to an increase in revenue by monthly parkers and transient, partially offset
by an increase in net operating costs, primarily driven by an increase in rent costs.
From a reporting segment perspective, gross profit for lease contracts increased primarily due to new locations in regions one and
two and same locations in regions one and two and other, partially offset by decreases from contract expirations in regions one and
two and conversions in region one.
Gross profit—management contracts
Gross profit for management contracts increased $5.0 million or 3.8%, to $137.0 million for the year ended December 31, 2016,
compared to $132.0 million for the year-ago period. Gross profit for management contracts increased primarily due to new locations,
same locations and locations that converted from lease contracts during the year, partially offset by decreases from contract
expirations. Gross profit for same locations increased primarily due to net increases in revenues, partially offset by increased net
operating costs.
From a reporting segment perspective, gross profit for management contracts increased primarily due to new locations in regions
one and two and same locations in region two and other and conversions in region one, partially offset by decreases from contract
expirations in regions one and two and same locations in region one.
33
General and administrative expenses
General and administrative expenses decreased $7.3 million, or 7.5%, to $90.0 million for year ended December 31, 2016, compared
to $97.3 million for the year-ago period. The decrease in General and administrative expenses primarily related to a decrease in
compensation and benefit costs, restructuring, merger and integration costs, and overall better expense control, partially offset by
increases in expected pay-out under our performance based compensation and long-term incentive compensation programs, a
$0.8 million charge related to the settlement of all outstanding matters between the Company and Central's former stockholders
relating to the Central Merger and a $1.5 million charge, net of insurance recoveries, related to settling previous litigation with former
indirect controlling shareholder of the Company.
Interest expense
Interest expense decreased $2.2 million, or 17.3%, to $10.5 million for the year ended December 31, 2016, as compared to $12.7
million for the year-ago period. This decrease resulted primarily from a decrease in average borrowing rates and reductions in
borrowings under our Restated Credit Facility and Senior Credit Facility.
Interest income
Interest income was $0.5 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively.
Gain on sale of a business
During 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 Parkmobile joint venture 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 $0.9 million for the year ended December 31, 2016, as compared to $1.7 million for the
year ended December 31, 2015.
Income tax expense
For the year ended December 31, 2016, we recognized income tax expense of $15.8 million on earnings before income taxes of
$41.8 million compared to a $4.8 million income tax expense on earnings before income taxes of $25.1 million for the year ended
December 31, 2015. Our effective tax rate was 37.8% for the year ended December 31, 2016, compared to 19.1% for the year
ended December 31, 2015. The $11.0 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, 2015, when compared to the year ended
December 31, 2016, and an increase in pre-tax income of the Company for the year ended December 31, 2016, compared to the
year ended December 31, 2015.
34
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 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 and payments on our outstanding indebtedness.
Outstanding Indebtedness
As of December 31, 2017, we had total indebtedness of approximately $153.8 million, a decrease of $41.3 million from $195.1
million as of December 31, 2016. The $153.8 million includes:
•
•
$151.0 million under our Restated Credit Facility (as defined below); and
$2.8 million of other debt including capital lease obligations, obligations on seller notes and other indebtedness.
Senior Credit Facility
On October 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.
The Credit Agreement provided us with a secured Senior Credit Facility (the "Senior Credit Facility") that permitted aggregate
borrowings of $450.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which included
a letter of credit facility that 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.
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 "Applicable Margin"), plus LIBOR
or (ii) the Applicable Margin plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a
daily rate equal to LIBOR plus 1.0%. (the highest of (x), (y) and (z), the "Base Rate"), except that all swing-line loans will bear
interest at the Base Rate plus the Applicable Margin.
Under the terms of the Restated Credit Agreement, the Company is required to maintain a maximum consolidated total debt to
EBITDA ratio of not greater than 4.0 to 1.0 as of the end of any fiscal quarter ending during the period from the Restatement Date
through September 30, 2015, (ii) 3.75 to 1.0 as of the end of any fiscal quarter ending during the period from October 1, 2015
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
35
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, 2017.
As of December 31, 2017, we had $148.7 million of borrowing availability under the Restated Credit Agreement, of which we could
have borrowed $148.7 million on December 31, 2017 and remained in compliance with the above described covenants as of such
date. Our 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, 2017, we had $48.5 million letters of credit outstanding under the Restated Credit
Facility and borrowings against the Restated Credit Facility aggregated $152.8 million (excluding debt discount of $0.8 million and
deferred financing costs of $1.0 million).
Interest Rate Swaps
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 effectively fixed 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 was subject
to scheduled quarterly amortization that coincided with quarterly prepayments of principal under our credit agreements. These
Interest Rate Swaps were classified as cash flow hedges, and we calculated the effectiveness of the hedge on a monthly basis.
The ineffective portion of the cash flow hedge was recognized in earnings as an increase of interest expense. As of December 31,
2017, no ineffective portion of the cash flow had been recognized in earnings within interest expense. The fair value of the Interest
Rate Swaps at December 31, 2016 was a $0.1 million asset and included in the line item "Other assets, net" within the Consolidated
Balance Sheets, included in Part IV, Item 15. "Exhibits and Financial Statement Schedules". The Interest Rate Swaps expired on
September 30, 2017.
We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.
Stock Repurchases
In May 2016, our Board of Directors authorized us to repurchase, on the open market, shares of our outstanding common stock in
an amount not to exceed $30.0 million in aggregate. Purchases of our common stock may be made in open market transactions
effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with Rule 10b-18
and 10b5-1under the Exchange Act. The share repurchase program does not obligate us to repurchase any particular amount of
common stock, and has no fixed termination date. Under this program, we repurchased 305,183 shares of common stock through
December 31, 2017 at an average price of $24.43 per share, resulting in $7.5 million in program-to-date repurchases. No repurchases
were made during the year ended December 31, 2017.
Letters of Credit
We provided letters of credit totaling $33.4 million and $52.6 million to our casualty insurance carriers to collateralize our casualty
insurance program as of December 31, 2017 and 2016, respectively.
We provided $15.1 million and $7.0 million in letters of credit to collateralize other obligations as of December 31, 2017 and 2016,
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, 2017, we had made $7.8 million of cumulative deficiency payments to the trustee, net of reimbursements. Deficiency
payments made are recorded as increases to cost of parking services and deficiency repayments 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.
36
The total deficiency repayments (net of payments made), interest and premium received and recorded for the years ended 2017,
2016 and 2015 are as follows:
(millions)
Deficiency repayments
Interest
Premium
Lease Commitments
Year Ended December 31
2016
2015
2017
$
$
$
2.0
0.6
0.2
$
$
$
1.7
0.5
0.2
$
$
$
1.7
0.4
0.2
We have minimum lease commitments of $230.7 million for fiscal 2018. 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, 2017, 2016 and 2015, we recorded $0.1 million, $0.7 million, and $4.6 million,
respectively, of costs (net of our expected recoveries through the applicable indemnity discussed further in Note 2. Central Merger
and Restructuring, Merger and Integration Costs 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 these lease contracts, whereby,
we have expensed repair costs and engaged third-party general contractors to complete structural and other repair projects, and
other indemnity-related costs. Based on information available at this time, the Company believes that it has completed and incurred
all additional costs for certain structural and other repair costs for certain lease contracts acquire in the Central Merger ("Structural
and Repair Costs").
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.
Cash and Cash Equivalents
We had cash and cash equivalents of $22.8 million at December 31, 2017, compared to $22.2 million at December 31, 2016. The
cash balances reflect our ability to utilize funds deposited into our local bank accounts. Cash and cash equivalents that are restricted
as to withdrawal or use under the terms of certain contractual agreements was $0.3 million as of December 31, 2017 and 2016 and
are included within Cash and cash equivalents within the Consolidated Balance Sheets. Availability, timing of deposits and the
subsequent movement of cash into our corporate bank accounts may result in significant changes to our cash balances.
37
Summary of Cash Flows
(millions)
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Operating Activities
Years ended December 31,
2016
2015
2017
$
$
$
45.2
2.3
47.2
$
$
$
59.7
$
(13.8) $
$
42.1
43.6
(11.8)
30.6
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 $45.2 million for 2017, compared to $59.7 million for 2016. Cash provided during
2017 included $62.4 million from operations, partially offset by changes in operating assets and liabilities that resulted in a cash
use of $17.2 million. The net decrease in operating assets and liabilities resulted primarily from: (i) a net decrease in accounts
payable and accrued liabilities of $10.5 million, which primarily resulted from the timing of payments to our clients, as described
under "Daily Cash Collection" and vendors and decreases in the amount of book overdrafts included in accounts payable; (ii) a net
increase in prepaid expenses and other of $4.1 million; and (iii) a net increase in notes and accounts receivable of $2.6 million due
to the timing of collections.
Net cash provided by operating activities totaled $59.7 million for 2016, compared to $43.6 million for 2015. Cash provided during
2016 included $61.6 million from operations, partially offset by changes in operating assets and liabilities that resulted in a cash
use of $1.9 million. The net decrease in operating assets and liabilities resulted primarily from: (i) a net increase in notes and
accounts receivable of $15.9 million due to timing of collections; (ii) a net increase in prepaid expenses and other of $2.0 million;
partially offset by (iii) a net increase in accounts payable and accrued liabilities of $16.0 million, which primarily resulted from the
timing of payments to our clients as described under "Daily Cash Collections" and vendors and increases in amount of book overdrafts
included in accounts payable.
Investing Activities
Net cash provided by investing activities totaled for $2.3 million for 2017, compared to a use of $13.8 million in 2016. Cash provided
by investing activities in 2017 included (i) $8.4 million in proceeds received from the sale of an equity method investee's sale of
assets; (ii) $0.8 million of proceeds from the sale of assets and contract terminations; and (iii) $0.6 million of proceeds received and
relating to the final earn-out payment from buyer for the security business sold in 2015; offset by (iv) $6.8 million for capital investments
needed to secure and/or extend leased facilities and investments in information system enhancements and infrastructure; and (v)
$0.7 million for cost of contract purchases.
Net cash used in investing activities totaled $13.8 million for 2016, compared to $11.8 million in 2015. Cash used in investing
activities in 2016 included (i) capital expenditures of $13.0 million for capital investments needed to secure and/or extend leased
facilities and investments in information system enhancements and infrastructure; and (ii) $3.8 million for cost of contract purchases;
partially offset by (iii) $3.0 million of proceeds from the sale of assets and contract terminations.
Financing Activities
Net cash used in financing activities totaled $47.2 million in 2017, compared to $42.1 million in 2016. Cash used in financing activities
for 2017 included (i) net payments on the Restated Credit Facility of $43.5 million; (ii) distributions to noncontrolling interests of $3.2
million; and (iii) payments on other long-term borrowings of $0.5 million.
Net cash used in financing activities totaled $42.1 million in 2016, compared to $30.6 million in 2015. Cash used in financing activities
for 2016 included (i) net payments on the Restated Credit Facility of $31.0 million; (ii) distributions to noncontrolling interests of $3.3
million; (iii) payments on other long-term borrowings of $0.3 million; and (iv) $7.5 million on the repurchase of common stock.
38
Summary Disclosures about Contractual Obligations and Commercial Commitments
The following summarizes certain of our contractual obligations at December 31, 2017 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
Restated Senior Credit Facility (3)
Other Debt (3)
Interest payments on debt and long-term liabilities
Letters of credit (4)
Total commercial commitments
Total
Total
2018
2019 - 2020
2021 - 2022
2023 and
thereafter
Payments Due by Period
$
$
$
$
$
$
$
875.1
1.7
876.8
6.7
53.2
59.9
152.8
1.2
11.2
48.5
213.7
1,150.4
$
$
$
$
$
$
$
230.7
0.4
231.1
0.6
19.7
20.3
20.0
1.2
5.7
48.5
75.4
326.8
$
$
$
$
$
$
$
318.1
0.7
318.8
1.7
19.5
21.2
132.8
—
5.5
—
138.3
478.3
$
$
$
$
$
$
$
159.8
0.6
160.4
1.4
10.6
12.0
$
$
$
$
— $
—
—
—
— $
$
172.4
166.5
—
166.5
3.0
3.4
6.4
—
—
—
—
—
172.9
(1) Represents minimum rental commitments, excluding (i) contingent rent provisions under all non-cancelable leases; and (ii) sublease income of $35.0 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 Part IV, Item 15. "Exhibits and Financial
Statements Schedules."
(4) Represents aggregate amount of currently issued letters of credit at their maturities.
We received deficiency repayments (net of deficiency payments made) related to the Bradley Agreement of $2.0 million, $1.7 million
and $1.7 million for the years ended December 31, 2017 and 2016 and 2015, respectively.
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.
Payments related to the provisional one-time transition tax liability recorded in connection with the enactment of the 2017 Tax Act
are also excluded. The provisional transition tax liability was $1.8 million at December 31, 2017 and is payable over a period of up
to eight years. See Note 14. Income Taxes to the Consolidated Financial Statements included in Part IV, Item 15. "Exhibits and
Financial Statements Schedules" for further discussion.
39
Critical Accounting Policies and Estimates
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 and estimates 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 IV, Item 15. "Exhibits and Financial Statement Schedules."
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. For our fourth quarter 2017 goodwill impairment test, we utilized the option
to evaluate various qualitative factors to determine the likelihood of impairment and if it was more likely than not that the fair value
of the reporting units were less than the carrying value of the reporting unit. We concluded there was no impairment of goodwill at
any of the reporting units.
If we do not elect to perform a qualitative assessment, we can voluntarily proceed directly to Step 1. We performed a Step 1 goodwill
test as of January 1, 2017 due to a change in reporting units. 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 two operating segments. 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 assessments, we analyze 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 January 1, 2017 goodwill assessment, we engaged a third party to evaluate
our reporting units' fair values. We concluded there was no impairment of Goodwill at any of the reporting units as part of the January
1, 2017 Goodwill assessment.
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.
40
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 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, but not limited to, 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 deductible / retention amount of each loss covered by our general/garage liability, automobile liability
policies, and workers' compensation and garage keepers legal liability policies. As a result, we are effectively self-insured for all
claims up to the deductible / retention amount for each loss. 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 2036. 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. The first step is to 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
processes, based on only the technical merits of the position and the weight of available evidence. If a tax position does not meet
the more-likely-than-not threshold, which is more than 50% likely of being realized, the benefit of that position is not recognized in
our financial statements. The second step is measurement of the tax benefit. The tax position is measured as the largest amount
41
of benefit that is more-likely-than-not of being realized, which is more than 50% likely of being realized upon ultimate resolution with
a taxing authority.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law. The 2017 Tax Act includes
significant changes to the corporate income tax system in the United States, including a federal corporate rate reduction
from 35% to 21% and the transition of United States international taxation from a worldwide tax system to a territorial tax system,
and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The 2017 Tax Act requires complex
computations to be performed that were not previously required in U.S tax law, significant judgments to be made in interpretation
of the provisions of the 2017 Tax Act and significant estimates in calculations, and the preparation and analysis of information not
previously relevant or regularly produced. The U.S. Department of Treasury, the Internal Revenue Service (IRS), foreign and state
jurisdictions and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied
or otherwise administered that is different than our interpretation. We are required to recognize the effect of the tax law changes
in the period of enactment, which include determining the transition tax, remeasuring our deferred tax assets and liabilities as well
as reassessing the net realizability of our deferred tax assets and liabilities.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts
and Jobs Act of 2017 (SAB 118), as issued to address the application of US GAAP in situations when a registrant does not have
the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete accounting
for certain income tax effects of the 2017 Tax Act. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary
data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may
materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. We expect
to complete our analysis by the fourth quarter 2018 (within the measurement period not to extend beyond one year) in accordance
with SAB 118.
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 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.
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 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 had an effective date of October 31, 2012 and a termination date of September 30, 2017. The
Interest Rate Swaps effectively fixed 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 was subject to scheduled
quarterly amortization that coincided with quarterly prepayments of principal under our credit agreements. The Interest Rate Swaps
were classified as cash flow hedges, and we calculated the effectiveness of the hedge on a monthly basis. The ineffective portion
of the cash flow hedge was recognized in earnings as an increase of interest expense. For the years ended December 31, 2017
and 2016, no ineffective portion of the cash flow was recognized as interest expense. See Note 10. Fair Value Measurement to the
Consolidated Financial Statements included in Part IV, Item 15. "Exhibits and Financial Statement Schedules" for the fair value of
the Interest Rate Swaps for the year ended December 31, 2016. The interest rate swaps expired on September 30, 2017.
We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.
In February 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 our Consolidated Financial Statements included in Part
IV, Item 15, "Exhibits and Financial Statement Schedules", 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 $148.7 million available
42
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 $1.5 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
$0.4 million of Canadian dollar denominated cash instruments at December 31, 2017, and no debt instruments denominated in
Canadian dollar at December 31, 2017. We do not hold any hedging instruments related to foreign currency transactions.
We monitor foreign currency positions and may enter into certain hedging instruments in the future should we determine that
exposure to foreign exchange risk has increased.
Item 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 Statement Schedules" 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, 2017 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 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, 2017.
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.
43
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, 2017, 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, 2017.
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 2017, 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.
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—Nomination Process," "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 2018 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 "Non-Employee Director Compensation,"
included in our 2018 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 2018 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—Nomination
Process—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 2018
Proxy Statement.
Item 14. Principal Accountant 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 2018 Proxy Statement.
44
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report
1. All Financial Statements
Index to Consolidated 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, 2017 and 2016
For the years ended December 31, 2017, 2016 and 2015
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
91
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.
3. Exhibits
Exhibit
Number
Description
3.1 Second Amended and Restated Certificate of Incorporation of the Company
filed on June 2, 2004.
Incorporated by Reference
Form Exhibit
10-K
3.1
Filing Date/Period
End Date
December 31, 2008
3.1.1 Certificate of Amendment of Second Amended and Restated Certificate of
10-K
3.1.1
December 31, 2008
Incorporation of the Company effective as of January 7, 2008.
3.1.2 Certificate of Amendment of Second Amended and Restated Certificate of
Incorporation of the Company effective as of April 29, 2010.
10-Q
3.1.3
June 30, 2010
3.1.3 Certificate of Amendment of Second Amended and Restated Certificate of
Incorporation of the Company effective as of May 6, 2010.
10-Q
3.1.4
June 30, 2010
3.1.4 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.
8-K
3.1
December 2, 2013
3.2
Fourth Amended and Restated Bylaws of the Company dated January 1,
2010.
10-Q
3.1
September 30, 2016
3.2.1
3.2.2
Amendment to Fourth Amended and Restated Bylaws of the Company dated
February 19, 2016.
10-Q
3.1.1
September 30, 2016
Amendment to Fourth Amended and Restated Bylaws of the Company dated
August 5, 2016.
10-Q
3.1.2
September 30, 2016
45
4.1
Specimen common stock certificate.
10-K
4.1
December 31, 2015
10.1 ^ 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;
Incorporated, Wells Fargo
Merrill Lynch, Pierce, Fenner & Smith
Securities LLC and J.P. Morgan Securities LLC, as joint lead arrangers and
joint book managers, and the lenders party thereto.
10.1.1 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.
10-K
10.1.2
December 31, 2014
8-K
10.1
May 1, 2015
10.2 + Employment Agreement dated May 18, 1998 and made effective on March
10-K
10.24
December 31, 2001
30, 1998 between the Company and Robert N. Sacks.
10.2.1 + First Amendment to Employment Agreement dated as of November 7, 2001
10-K
10.25
December 31, 2001
between the Company and Robert N. Sacks.
10.2.2 + Second Amendment to Employment Agreement dated as of August 1, 2003
S-1
10.7.2
February 10, 2004
between the Company and Robert N. Sacks.
10.2.3 + Third Amendment to Employment Agreement dated as of April 1, 2005
10-K
10.7.3
December 31, 2008
between the Company and Robert N. Sacks.
10.2.4 + Fourth Amendment to Employment Agreement dated as of December 29,
2008 between the Company and Robert N. Sacks.
10-K
10.7.4
December 31, 2008
10.2.5 + Fifth Amendment to Employment Agreement dated as of January 28, 2009
10-K
10.7.5
December 31, 2008
between the Company and Robert N. Sacks.
10.2.6 + Sixth Amendment to Employment Agreement dated as of February 16, 2017
between the Company and Robert N. Sacks.
10-K
10.6.6
December 31, 2016
10.3 + Amended and Restated Executive Employment Agreement dated as of
December 1, 2002 between the Company and John Ricchiuto.
10-K
10.22.2 December 31, 2012
10.3.1 + First Amendment to Amended and Restated Executive Employment
Agreement dated as of April 11, 2005, between the Company and John
Ricchiuto.
8-K
10.3
March 7, 2005
10.3.2 + Second Amendment to Employment Agreement dated as of December 28,
10-K
10.10.2 December 31, 2012
2008 between the Company and John Ricchiuto.
10.3.3 + Third Amendment to Employment Agreement dated as of April 2, 2012
10-Q
10.8
June 30, 2012
between the Company and John Ricchiuto.
10.4 + Amended and Restated Executive Employment Agreement between the
Company and G Marc Baumann dated November 19, 2014 effective as of
January 1, 2015.
10-K
10.12
December 31, 2014
10.5 + Amended and Restated Executive Employment Agreement dated as of
March 1, 2005, between the Company and Thomas L. Hagerman.
8-K
10.1
March 7, 2005
46
10.5.1 + First Amendment to Amended and Restated Executive Employment
Agreement dated October 1, 2007 between the Company and Thomas
Hagerman.
10-Q
10.1
September 30, 2007
10.5.2 + Second Amendment to Employment Agreement dated as of December 29,
10-K
10.14.2 December 31, 2012
2008 between the Company and Thomas L. Hagerman.
10.5.3 + Third Amendment to Employment Agreement dated as of April 2, 2012
10-Q
10.7
June 30, 2012
between the Company and Thomas L. Hagerman.
10.6 + Executive Employment Agreement dated March 17, 2005 between the
10-K
10.14
December 31, 2009
Company and Gerard M. Klaisle.
10.6.1 + First Amendment to Amended and Restated Executive Employment
Agreement dated December 29, 2008 between the Company and Gerard
M. Klaisle.
10-K
10.14.1 December 31, 2009
10.6.2 + Second Amendment to Amended and Restated Executive Employment
Agreement dated July 28, 2011 between the Company and Gerald M.
Klaisle.
10-Q
10.3
September 30, 2011
10.6.3 + Third Amendment to Executive Employment Agreement dated February 16,
10-K
10.10.3 December 31, 2016
2017 between the Company and Gerald M. Klaisle.
10.7 + Executive Employment Agreement dated as of September 10, 2012 and
made effective as of October 2, 2012 between the Company and Rob Toy.
10-Q
10.9
September 30, 2012
10.7.1 +
*
First Amendment to Employment Agreement dated as of November 17,
2014 and made effective as of January 1, 2015 between the Company and
Rob Toy.
10.7.2 + Second Amendment to Employment Agreement dated February 15, 2017
between the Company and Rob Toy.
10-K
10.12.1 December 31, 2016
10.8 + Executive Employment Agreement dated March 25, 2014 and made
effective as of March 3, 2014 by and between the Company and Vance C.
Johnston.
8-K/A
10.1
March 31, 2014
10.9 + Executive Employment Agreement dated July 14, 2014 and made effective
as of July 1, 2014 between the Company and Hector Chevalier.
8-K
10.1
July 17, 2014
10.10 + Long-Term Incentive Plan dated as of May 1, 2004.
S-1
10.12
May 10, 2004
10.10.1 + Long-Term Incentive Plan Amendment effective as of April 22, 2008.
10.10.2 + Second Amendment
to
the Company's Long-Term
Incentive Plan
Amendment effective as of April 24, 2013.
DEF14
A
DEF14
A
App B
April 1, 2008
App E
April 1, 2013
10.11 + Form of Performance Share Agreement between the Company and
10-K
4.1
December 31, 2015
Recipient.
10.12 + Form of the Company's Restricted Stock Unit Agreement dated as of July 1,
2008.
8-K
10.1
July 2, 2008
10.12.1 + First Amendment to Form of the Company's Restricted Stock Unit
Agreement.
8-K
10.1
August 6, 2009
10.12.2 + Second Amendment to Form of the Company's Restricted Stock Unit
8-K
10.1
June 2, 2011
Agreement dated May 27, 2011.
47
10.13 Office Lease dated as of October 31, 2012 between the Company and
10-K
10.23
December 31, 2013
Piedmont—Chicago Center Owner, LLC.
10.14 Office Lease dated as of October 17, 2013 between the Company and
10-K
10.24
December 31, 2013
Riverview Business Center I & II, LLC.
10.15
Form of Property Management Agreement.
10-K
10.30
December 31, 2005
10.16 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.
10-K
10.27
December 31, 2008
10.17 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.
10-K
10.28
December 31, 2008
10.18
Trust Indenture dated March 1, 2000 between State of Connecticut and First
Union National Bank as Trustee.
10-K
10.29
December 31, 2008
14.1 Code of Ethics.
10-K
14.1
December 31, 2002
21 * Subsidiaries of the Company.
23 * Consent of Independent Registered Public Accounting Firm dated as of
February 22, 2018.
31.1 * Section 302 Certification dated February 22, 2018 for G Marc Baumann,
Director, President and Chief Executive Officer (Principal Executive Officer).
31.2 * Section 302 Certification dated February 22, 2018 for Vance C. Johnston,
Executive Vice President, Chief Financial Officer and Treasurer (Principal
Financial Officer).
31.3 * Section 302 Certification dated February 22, 2018 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 February 22, 2018.
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.
* 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.
48
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of SP Plus Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SP Plus Corporation as of December 31, 2017 and 2016, the
related consolidated statements of income, comprehensive income, and stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2017, the related notes and the financial statement schedule listed in the Index at Item
15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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 February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 1989.
Chicago, Illinois
February 22, 2018
/s/ ERNST & YOUNG LLP
49
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of SP Plus Corporation
Opinion on Internal Control over Financial Reporting
We have audited SP Plus Corporation’s internal control over financial reporting as of December 31, 2017, 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). In our opinion, SP Plus Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2017 consolidated financial statements of the Company and our report dated February 22, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of effectiveness of the internal control over financial reporting included in the accompanying Management’s Annual Report on
Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Chicago, Illinois
February 22, 2018
/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
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
Deferred taxes
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 Restated Credit Facility and other long-term
borrowings
Total current liabilities
Long-term borrowings, excluding current portion
Obligations under Restated 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,
2017 and 2016; no shares issued
Common stock, par value $0.001 per share; 50,000,000 shares authorized as of
December 31, 2017 and 2016; 22,542,672 and 22,356,856 shares issued and outstanding as
of December 31, 2017 and 2016, respectively
Treasury stock, 305,183 at cost; shares at December 31, 2017 and December 31, 2016
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total SP Plus Corporation stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
See Notes to Consolidated Financial Statements.
51
December 31,
2017
2016
$
$
$
22.8
122.3
15.5
160.6
27.4
4.1
54.1
23.3
18.6
18.3
15.9
8.9
431.7
574.9
762.9
102.8
23.2
22.2
6.8
18.9
25.5
20.6
220.0
132.0
1.2
133.2
31.5
65.1
229.8
22.2
120.7
13.7
156.6
30.9
4.3
61.3
30.0
18.5
16.3
17.9
11.4
431.4
591.1
778.6
109.9
21.7
25.7
7.6
18.1
25.5
20.4
228.9
174.5
0.2
174.7
40.2
66.4
281.3
—
—
—
(7.5)
254.6
(1.2)
67.0
312.9
0.2
313.1
762.9
$
—
(7.5)
251.2
(1.4)
25.9
268.2
0.2
268.4
778.6
$
$
$
$
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 parking services 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
Equity in losses from investment in unconsolidated entity
Total other expenses (income)
Earnings before income taxes
Income tax expense
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,
2016
2015
2017
563.1
348.2
911.3
679.2
1,590.5
518.4
207.6
726.0
679.2
1,405.2
44.7
140.6
185.3
82.9
21.0
81.4
9.2
(0.6)
(0.1)
0.7
9.2
72.2
27.7
44.5
3.3
41.2
1.86
1.83
$
$
$
$
545.0
346.8
891.8
676.6
1,568.4
505.6
209.8
715.4
676.6
1,392.0
39.4
137.0
176.4
90.0
33.7
52.7
10.5
(0.5)
—
0.9
10.9
41.8
15.8
26.0
2.9
23.1
1.04
1.03
$
$
$
$
570.9
350.3
921.2
650.6
1,571.8
532.8
218.3
751.1
650.6
1,401.7
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
0.78
0.77
22,195,350
22,508,288
22,238,021
22,528,122
22,189,140
22,511,759
52
SP Plus Corporation
Consolidated Statements of Comprehensive Income
(millions)
Net income
Other comprehensive income (loss)
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,
2016
2015
2017
$
44.5
0.2
44.7
3.3
$
26.0
(0.3)
25.7
2.9
41.4
$
22.8
$
20.3
(0.9)
19.4
2.9
16.5
53
SP Plus Corporation
Consolidated Statements of Stockholders' Equity
Common Stock
(millions, except for share and
per share data)
Balance (deficit) at December
31, 2014
Net income
Foreign currency translation
adjustments
Effective portion of cash flow
hedge
Issuance of stock grants
Issuance of 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 exercise of
stock options
Distribution to noncontrolling
interest
Balance (deficit) at December
31, 2015
Net income
Foreign currency translation
adjustments
Effective portion of cash flow
hedge
Issuance of stock grants
Issuance of restricted stock
units
Non-cash stock-based
compensation related to
restricted stock units and
performance share units
Treasury stock
Distribution to noncontrolling
interest
Balance (deficit) at December
31, 2016
Cumulative effect adjustment
upon adoption of new
accounting standard on
January 1, 2017
Balance (deficit) at January 1,
2017
Net income
Foreign currency translation
adjustments
Issuance of stock grants
Issuance of restricted stock
units
Issuance of performance stock
units
Non-cash stock-based
compensation related to
restricted stock units and
performance share units
Distribution to noncontrolling
interest
Balance (deficit) at December
31, 2017
Number
of
Shares
Par
Value
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Accumulated
Deficit)
Treasury
Stock
Noncontrolling
Interest
Total
22,127,725
$
— $
243.9
$
(0.2) $
(14.6) $
— $
—
—
—
29,305
164,447
7,101
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.7
—
—
3.0
0.3
—
—
(0.7)
(0.2)
—
—
—
—
—
—
17.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
22,328,578
$
— $
247.9
$
(1.1) $
2.8
$
— $
—
—
—
26,593
1,415
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.6
—
2.7
—
—
—
(0.2)
(0.1)
—
—
—
—
—
23.1
—
—
—
—
—
—
—
—
—
—
—
—
(7.5)
—
$
0.7
2.9
229.8
20.3
—
—
—
—
—
—
—
(0.7)
(0.2)
0.7
—
—
3.0
0.3
(3.1)
(3.1)
$
0.5
2.9
250.1
26.0
—
—
—
—
—
—
(3.3)
(0.2)
(0.1)
0.6
—
2.7
(7.5)
(3.3)
22,356,586
$
— $
251.2
$
(1.4) $
25.9
$
(7.5) $
0.2
$
268.4
—
—
0.3
22,356,586
$
— $
251.5
—
—
27,632
61,599
96,855
—
—
—
—
—
—
—
—
—
—
—
0.9
—
—
2.2
—
—
(1.4)
—
0.2
—
—
—
—
—
(0.3)
25.6
41.2
—
—
—
—
—
—
—
(7.5)
—
—
—
—
—
—
—
—
0.2
3.3
—
—
—
—
—
268.4
44.5
0.2
0.9
—
—
—
(3.2)
2.2
(3.2)
22,542,672
$
— $
254.6
$
(1.2) $
67.0
$
(7.5) $
0.2
$
313.1
Note: Amounts may not foot due to rounding.
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 of acquired lease contracts
Loss (gain) on sale of equipment
Net equity in (earnings) losses of unconsolidated entities (net of
distributions)
Net gain on sale of a 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
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 a business, net
Proceeds from sale of equity method investee's sale of assets
Cost of contracts purchased
Net cash provided by (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 (Restated Credit Facility)
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
Repurchase of common stock
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase 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
Non cash transactions
Capital lease obligations incurred to acquire equipment
See Notes to Consolidated Financial Statements.
Year Ended December 31,
2017
2016
2015
$
44.5
$
26.0
$
21.7
(2.2)
0.2
(8.5)
(0.1)
0.7
0.5
3.1
0.7
—
1.8
(2.6)
(1.8)
(2.3)
(7.2)
(3.3)
45.2
(6.8)
0.8
0.6
8.4
(0.7)
2.3
—
(410.1)
386.6
—
(20.0)
(0.5)
(3.2)
—
—
—
(47.2)
0.3
0.6
22.2
22.8
8.0
26.5
1.5
$
$
$
$
34.2
(1.8)
(0.3)
0.5
—
0.8
0.5
3.4
0.4
—
(2.1)
(15.9)
(1.0)
(1.0)
14.8
1.2
59.7
(13.0)
3.0
—
—
(3.8)
(13.8)
—
(401.0)
385.0
—
(15.0)
(0.3)
(3.3)
—
—
(7.5)
(42.1)
(0.3)
3.5
18.7
22.2
9.2
17.6
$
$
$
— $
$
$
$
$
20.3
34.1
(0.9)
0.4
1.6
(0.5)
1.1
1.0
3.7
0.7
(0.3)
(9.7)
3.5
3.7
2.8
(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
—
55
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, Canada and Puerto Rico.
These services include a comprehensive set of on-site parking management and ground transportation services, which include
facility maintenance, event logistics services, 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
clients' facilities. The Company also provides 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.
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.
Reclassifications
Certain reclassifications having no effect on the Consolidated Balance Sheets, Statements of Income, Comprehensive Income,
earnings per share, total assets, or total liabilities have been made to the previously issued Consolidated Statements of Cash Flows
to conform to the current period presentation of the Company's Consolidated Financial Statements. Specifically, the Company
reclassified its equity in earnings (losses) of unconsolidated entities from Other assets within the changes in operating assets and
liabilities of the operating activities section of the Consolidated Statements of Cash Flows to Net equity in (earnings) losses of
unconsolidated entities (net of distributions), which is a separate line within operating activities section of the Consolidated
Statements of Cash Flows.
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 $0.3 million and $0.3 million as of December 31, 2017 and 2016,
respectively, and are included within Cash and cash equivalents within the Consolidated Balance Sheets.
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, 2017 and 2016, the Company's allowance for doubtful accounts
was $0.7 million and $0.4 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 1 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 8.5 years).
56
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.
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. For the fourth quarter 2017 and 2016 goodwill impairment tests, the Company
utilized the option to evaluate various qualitative factors to determine the likelihood of impairment and if it was more likely than not
that the fair value of the reporting units were less than the carrying value of the reporting unit. The Company concluded there was
no impairment of goodwill at any of the reporting units.
If the Company does not elect to perform a qualitative assessment, it can voluntarily proceed directly to Step 1. The Company
performed a Step 1 goodwill test as of January 1, 2017 due to a change in reporting units. 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 Region One (Commercial) and Region Two (Airport Transportation) reporting units. The December 31, 2017 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 analyzes 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 units. As part of the January 1, 2017 goodwill
assessment, the Company engaged a third party to evaluate its reporting unit's fair values. The Company concluded there was no
impairment of goodwill at any of the reporting units as part of the January 1, 2017 Goodwill assessment.
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, and 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; and 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
57
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
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 $1.0 million and $1.6 million at December 31, 2017, and 2016, 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 $9.7 million and $9.0 million respectively. Amortization expense related to
debt issuance costs and included in interest expense within the Consolidated Statements of Income was $0.7 million, $0.8 million
and $0.9 million for the years ended December 31, 2017, 2016 and 2015, 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 $29.0 million and $36.5 million are included within Accounts payable within the
Consolidated Balance Sheets as of December 31, 2017, and 2016, 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 the various liability and workers' compensation
insurance policies, the Company is obligated to pay directly or reimburse the insurance carrier for the deductible / retention amount
of each loss covered by its general/garage liability or automobile liability policies and its workers' compensation and garage keepers
legal liability policies. As a result, the Company is, in effect, self-insured for all claims up to the deductible / retention amount of
each loss. 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 $0.1 million, $0.7 million and $4.6 million for the year ended December 31,
2017, 2016 and 2015 respectively, of costs (net of expected recoveries of the total cost recognized by the Company through the
applicable indemnity discussed further in Note 2. Central Merger and Restructuring, Merger and Integration Costs) 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. Based on
information available at this time, the Company believes it has completed and incurred all additional costs for certain structural and
58
other repair costs pursuant to the contractual requirements of certain lease contracts acquired in the Central Merger ("Structural
and Repair Costs").
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 effectively fixed 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 was subject to scheduled quarterly amortization that coincided with quarterly prepayments of
principal under the credit agreements. These Interest Rate Swaps were classified as cash flow hedges, and the Company calculated
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, 2017, no ineffective portion of cash flow hedges had been recognized in interest
expense. See Note 10. Fair Value Measurement for the fair value of the Interest Rate Swaps for the year ended December 31,
2016. The Interest Rate Swaps expired on September 30, 2017.
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.
During 2017, the Company corrected reimbursed management contract revenue and reimbursed management contract expense
for the previous periods presented, whereby, the Company had been overstating reimbursed management contract revenue and
reimbursed management contract expense included within the Consolidated Statements of Income in equal and off-setting amounts.
This correction resulted in a reduction of reimbursed management contract revenue of $47.1 million and $44.1 million and a reduction
of reimbursed management contract expense by $47.1 million and $44.1 million for the year ended December 31, 2016 and 2015,
respectively. The correction had no impact to the Consolidated Balance Sheets, Statements of Income, Comprehensive Income
or Cash Flows, except as described above and as it relates to reimbursed management contract revenue and reimbursed
management contract expense. Management has evaluated the effects of the previous misstatements, both qualitatively and
quantitatively, and concluded that these corrections were immaterial to any current or prior annual periods that were affected.
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 $1.5 million, $1.2 million, and $1.6 million for 2017, 2016, and 2015,
respectively.
Stock-Based Compensation
Stock-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. The
Company accounts for forfeitures of stock-based awards as they occur.
59
Equity Investment in Unconsolidated Entities
The Company has ownership interests in 31 active partnerships, joint ventures or similar arrangements that operate parking facilities,
of which 24 are consolidated under the VIE or voting interest models and 7 are unconsolidated where the Company’s ownership
interests range from 30-50 percent and for which there are no indicators of control. The Company accounts for such investments
under the equity method of accounting, and its underlying share of each investee’s equity is included in Equity investments in
unconsolidated entities within the Consolidated Balance Sheets. As the operations of these entities are consistent with the Company’s
underlying core business operations, the equity in earnings of these investments are included in Parking services revenue—Lease
contracts within the Condensed Consolidated Statements of Income. The equity earnings in these related investments, which
includes earnings of $8.5 million from our proportionate share of the net gain of an equity method investees' sale of assets, were
$11.3 million, $2.4 million, and $2.0 million for the year ended December 31, 2017, 2016 and 2015, respectively.
In October 2014, the Company entered into an agreement to establish a joint venture with Parkmobile USA, Inc. and contributed
all of the assets and liabilities of its proprietary Click and Park parking prepayment business in exchange for a 30% interest in the
newly formed legal entity called Parkmobile, LLC ("Parkmobile"). The joint venture of Parkmobile provides on-demand and prepaid
transaction processing for on- and off-street parking and transportation services. The contribution of the Click and Park business
in the joint venture resulted in a loss of control of the business, and therefore it was deconsolidated from the Company's financial
statements. 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% interest in Parkmobile less the carrying amount of the former business'
net assets, including goodwill. The pre-tax gain was reflected in Gain on sale of business within the Consolidated Statements of
Income. The Company accounts for its investment in the Parkmobile joint venture 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.
On January 3, 2018, the Company closed a transaction to sell the entire 30% interest in Parkmobile to Parkmobile USA, Inc. for a
gross sale price of $19.0 million and in the first quarter of 2018, the Company expects to recognize a pre-tax gain of approximately
$10.1 million, net of closing costs. See Note 21. Subsequent Event.
Noncontrolling 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 a 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. Per the sale
agreement, the contingent consideration was based on the performance of the business and retention of current customers over
an eighteen-month period ending on 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 receivable from the buyer in the amount of $0.5 million. The
buyer had sixty days from February 2017 to calculate and remit the remaining consideration. The Company received $0.6 million
for the final earn-out consideration from the buyer during 2017, which resulted in the Company recognizing an additional gain on
sale of business of $0.1 million for the year ended December 31, 2017. 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, 2016.
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 2036. 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.
60
When evaluating our tax positions, the Company accounts for uncertainty in income taxes in its Consolidated Financial Statements.
The evaluation of a tax position by the Company is a two-step process, the first step being recognition. The first step is to 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 processes, based on only the technical merits of the position and the weight of available evidence. If a tax
position does not meet the more-likely-than-not threshold, which is more than 50% likely of being realized, the benefit of that position
is not recognized in our financial statements. The second step is measurement of the tax benefit. The tax position is measured as
the largest amount of benefit that is more-likely-than-not of being realized, which is more than 50% likely of being realized upon
ultimate resolution with a taxing authority.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was signed into law. The 2017 Tax Act includes
significant changes to the corporate income tax system in the United States, including a federal corporate rate reduction
from 35% to 21% and the transition of United States international taxation from a worldwide tax system to a territorial tax system,
and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The 2017 Tax Act requires complex
computations to be performed that were not previously required in U.S tax law, significant judgments to be made in interpretation
of the provisions of the 2017 Tax Act and significant estimates in calculations, and the preparation and analysis of information not
previously relevant or regularly produced. The U.S. Department of Treasury, the Internal Revenue Service (IRS), foreign jurisdictions,
state jurisdictions and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will
be applied or otherwise administered that is different than our interpretation. The Company is required to recognize the effect of
the tax law changes in the period of enactment, which include determining the transition tax, remeasuring our deferred tax assets
and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts
and Jobs Act of 2017 (SAB 118), as issued to address the application of US GAAP in situations when a registrant does not have
the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete accounting
for certain income tax effects of the 2017 Tax Act. As the Company completes its analysis of the 2017 Tax Act, collect and prepare
necessary data, and interpret any additional guidance, the Company may make adjustments to provisional amounts that have been
recorded that may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are
made. The Company expects to complete its analysis by the fourth quarter 2018 (within the measurement period not to extend
beyond one year) in accordance with SAB 118.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09
simplifies several aspects of the accounting for share-based payment award transactions and their presentation in the financial
statements. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards
vest or are settled, eliminating additional paid in capital ("APIC") pools. The guidance will also require companies to elect whether
to account for forfeitures of share-based payments by (1) recognizing forfeitures of awards as they occur (e.g., when an award
does not vest because the employee leaves the company) or (2) estimating the number of awards expected to be forfeited and
adjusting the estimate when it is likely to change, as is currently required. These and other requirements of ASU 2016-09 were
effective for interim and annual reporting periods beginning after December 15, 2016.
The Company adopted the provisions of ASU 2016-09 in the first quarter of 2017. The impact to the Company's financial position,
results of operations, cash flow and financial statement disclosures are as follows:
• On a modified retrospective basis, as allowed by ASU 2016-09, the Company elected to account for forfeitures of share-
based awards as they occur. As a result, beginning retained earnings includes a $0.3 million adjustment related to the
recognition of estimated forfeitures previously not recognized as expense by the Company as of December 31, 2016.
•
•
•
The Company recognized excess tax benefits of $0.9 million for the twelve months ended December 31, 2017 related to
shares issued and settled with employees during the period.
ASU 2016-09 also requires the presentation of excess tax benefits on the statement of cash flows as an operating activity
on either a prospective or retrospective basis. The Company elected to apply this guidance on a prospective basis. Prior
periods have not been adjusted to reflect this adoption.
There was no significant impact to diluted weighted average shares outstanding for purposes of calculating net income
per common share-diluted for the twelve months ended December 31, 2017, as a result of the adoption.
In March 2016, the FASB issued ASU No. 2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the
Transition to Equity Method of Accounting, which eliminates the requirements to apply the equity method of accounting retrospectively
when a reporting entity obtains significant influence over a previously held investment. Under ASU 2016-08, the equity method of
accounting should be applied prospectively from the date significant influence is obtained. The new standard also provides specific
guidance for available-for-sale securities that become eligible for the equity method of accounting. In those cases, any unrealized
61
gain or loss recorded within accumulated other comprehensive income should be recognized in earnings at the date the investment
initially qualifies for the use of the equity method. The new standard is effective for interim and annual periods beginning after
December 15, 2016. The Company adopted this standard as of January 1, 2017. The standard did not have an impact on the
Company's financial position, results of operation, cash flows and financial statement disclosures.
In March 2016, the FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations
on Existing Hedge Accounting Relationships. The new guidance clarifies that a change in the counterparty to a derivative contract,
in and of itself, does not require the dedesignation of a hedging relationship. An entity will, however, still need to evaluate whether
it is probable that the counterparty will perform under contract as part of its ongoing effectiveness assessment for hedge accounting.
Therefore, a novation of a derivative to a counterparty with a sufficiently high credit risk could still result in the dedesignation of the
hedging relationship. ASU 2016-05 is effective in fiscal years beginning after December 15, 2016, including interim periods within
those years. The Company adopted this standard as of January 1, 2017. The standard did not have an impact on the Company's
financial position, results of operation, cash flows and financial statement disclosures.
Accounting Pronouncements to be Adopted
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities. The ASU provides new guidance about income statement classification and eliminates the requirement to
separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments included in
the effectiveness will be recorded in other comprehensive income (OCI) and amounts deferred in OCI will be reclassified to earnings
in the same income statement line item in which the earnings effect of the hedged item is reported. The new guidance also amends
the presentation and disclosure requirements. The intention is to more closely align hedge accounting with companies' risk
management strategies, simplify the application of hedge accounting and increase transparency as to the scope and results of
hedging programs. ASU 2017-12 is effective in fiscal years beginning after December 15, 2018, including interim periods within
those years. 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 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment
(Topic 350). ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 under current
goodwill impairment test rules) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based
on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the Step 1 analysis under
current guidance). The standard will be applied prospectively and is effective for annual and interim impairment tests performed
in periods beginning after December 15, 2019 for public business entities (PBEs) that meet the definition of a Securities and
Exchange Commission (SEC) filer (i.e., for any impairment test performed by calendar-year entities in 2020), December 15, 2020
for PBEs that are not SEC filers (i.e., for any impairment test performed by calendar-year entities in 2021), and December 15, 2021
for all other entities (i.e., for any impairment test performed by calendar-year entities in 2022). Early adoption is permitted for annual
and interim goodwill impairment testing dates after January 1, 2017. The Company is currently assessing the impact of adopting
this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations - Clarifying the Definition of a Business (Topic 805). Under
ASU 2017-01, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a
single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If it’s not met, the
entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create outputs. Under current guidance, a business consists of (1)
inputs, (2) processes applied to those inputs and (3) the ability to create outputs. ASU 2017-01 is effective for public business
entities for fiscal years beginning after December 15, 2017, and interim periods within those years. For all other entities, it is effective
for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The
ASU will be applied prospectively to any transactions occurring within the period of adoption. 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash (Topic 230). ASU 2016-18
clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. The guidance
requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the
statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted
cash and restricted cash equivalents in the statement of cash flows. The guidance, which is based on a consensus of the Emerging
Issues Task Force (EITF), is effective for fiscal years beginning after December 15, 2017, and interim periods within those years.
For all other entities, it is effective for interim and annual reporting periods beginning after December 15, 2018. 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 August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash
Payments (Topic 230). ASU 2016-15 amends the guidance in ASC 230 related to the classification of certain cash receipts and
payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted
from the lack of consistent principles on this topic. The amendment adds or clarifies several statement of cash flow classification
62
issues including: (i) debt prepayment or debt extinguishment costs, (ii) settlement of certain zero-coupon debt instruments, (iii)
contingent consideration payments, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of
corporate-owned life insurance policies, (vi) distributions received from equity method investments, (vii) beneficial interest in
securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. The standard
is effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the
impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement
disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic
326). The standard significantly changes how entities will measure credit losses for most financial assets and certain other
instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with
an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required
to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model.
Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance is effective. The standard is effective for interim and annual reporting periods beginning after
December 15, 2019. The Company is currently assessing the impact of adopting this standard on the Company’s financial position,
results of operations, cash flows and financial statement disclosures.
In February 2016, the FASB issued ASU No. 2016-02, 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. Since the release of ASU 2016-02, the FASB issued
an additional ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842 which has the same effective date
as ASU no. 2016-02. The Company has commenced the process of implementing Topic 842 and assessing the impact of these
and other changes to the Company's financial position, results of operations, cash flows and financial statement disclosures.
In January 2016, the FASB issued ASU No. 2016-01, 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. The Company does not expect the adoption
of this ASU to have a material impact on the financial position, results of operations, cash flows and financial statement disclosures.
In May 2017, the FASB issued ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the
Operation Services. ASU 2017-10 clarifies how operating entities should determine the customer of operation services for
transactions within the scope of this guidance. US GAAP does not currently address how an operating entity should determine the
customer of the operation services for transactions within the scope of Topic 853. The amendment eliminates diversity in practice
by clarifying that the grantor is the customer of the operation services in all cases for those arrangements. The amendments in this
update should be adopted at the same time as adoption of Topic 606, as defined further below. Early adoption is permitted. The
Company has assessed the impact of adopting this standard on the Company's financial position, results of operations, cash flows
and financial statement disclosures, in conjunction with the adoption of ASU No. 2014-09, Revenue from Contracts with Customers
(Topic 606) which is discussed below.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Since the release of ASU
2014-9, the FASB has issued the following additions ASUs updating the topic:
•
•
•
•
In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue
from Contracts with Customers
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net)
63
•
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the
Effective Date
Collectively these standards create new accounting guidance for revenue recognition that supersedes most existing revenue
recognition rules, including most industry specific revenue recognition guidance. 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. Topic 606 also provides new
guidance on the recognition of certain costs related to customer contracts, and changes the FASB guidance for revenue-related
issues, such as how an entity is required to consider whether revenue should be reported gross or net basis. The amendments are
effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2017.
The Company's process for implementing Topic 606 includes, but is not limited to, identifying contracts within the scope of the
standard, identifying distinct performance obligations within each contract, and applying the new guidance for measuring and
recognizing revenue, to each performance obligation. The Company has finalized contract reviews and is currently evaluating new
disclosure requirements and identifying appropriate changes to business processes and controls to support recognition and
disclosure under the new guidance. Based on our evaluation, the Company will adopt the requirements of Topic 606 in the first
quarter of 2018 using the modified retrospective method.
The Company is in the process of completing its analysis of adoption impacts of Topics 606 and 853 and does not believe there
are any remaining significant implementation topics associated with the adoption of Topics 606 and 853 that have not yet been
addressed.
ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services issued in
May 2017, clarified how operating entities should determine the customer of operation services for transactions within the scope
of this guidance. The Company has determined that revenue generated from service concession arrangements, which are currently
accounted for as leasing type of arrangements, will be accounted for under the guidance of Topic 606 upon adoption of Topic 853
and will be adopted concurrently with Topic 606. As a result of adoption of Topic 853 and based on amounts included in the
Consolidated Statements of Income for the year ended December 31, 2017, the Company expects the following impacts to the
Consolidated Statements of Income during the first year of adopting Topic 606:
• Costs (rent expense) of approximately $124.4 million previously classified as Cost of parking services - lease contracts
will be classified as a reduction of revenue and included in Parking services revenue - lease contracts.
• Certain expenses related to service concession arrangements of approximately $0.2 million, previously recorded within
depreciation and amortization will be classified as a reduction of revenue and included in Parking services revenue - lease
contracts.
• Certain expenses related to service concession arrangements of approximately $0.1 million previously recorded within
depreciation and amortization will be classified as a reduction of revenue and included in Parking services revenue -
management contracts.
The adoption of Topic 606 will not have a change to revenue recognition for all other revenue arrangements.
The Company does not expect the standard to have a material impact on our Consolidated Balance Sheets. The immaterial impact
primarily relates to classifications among financial statement accounts to align with the new standard. Most notably, where the
Company has a contractual right to invoice a receivable will be recognized and a corresponding contract liability recorded for the
performance obligation that will be subsequently satisfied.
There will be no cumulative effect on our opening retained earnings as a result of adoption of Topic 606 and the standard will not
have an impact to the Company's Consolidated Statements of Cash Flows.
2. Central Merger and Restructuring, Merger and Integration Costs
Central Merger
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") provided that Central's former stockholders were 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 was not used to satisfy indemnity obligations pursuant to the Merger Agreement.
64
Pursuant to the Merger Agreement, the Company was 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 were required to satisfy certain indemnity obligations, which were
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 were not capped at the Cash Consideration Amount (the
"Uncapped Items"), including the Net Debt Working Capital indemnity obligations described above, Central's former stockholders
had the ability to satisfy any amount payable pursuant to such indemnity obligations as follows (provided that the Company reserved
the right to reject the cash and stock alternatives available to the Company and choose to reduce the Cash Consideration):
• Central's former stockholders elect to pay such amount with cash;
• Central's former stockholders 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 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, were ultimately subject
to resolution through binding arbitration or, in the case of a dispute as to the calculation of Net Debt Working Capital, resolution by
an independent public accounting firm.
Since the Closing Date, the Company periodically provided Central’s former stockholders notice regarding indemnification matters,
including with respect to the calculation of Net Debt Working Capital, and made adjustments for known matters as they arose,
although Central’s former stockholders did not agree to the aggregate of such adjustments made by the Company. During such
time, Central’s former stockholders continually requested additional documentation supporting the Company’s indemnification
claims, including with respect to the Company’s calculation of Net Debt Working Capital. Furthermore, following the Company's
notices of indemnification matters, the representative of Central's former stockholders indicated that they may make additional
inquiries and raise issues with respect to the Company's indemnification claims (including, specifically, as to Structural and Repair
Costs) and that they may assert various claims of their own relating to the Merger Agreement.
The Company previously determined and submitted notification to Central’s former stockholders, that (i) the Net Debt Working
Capital was $296.3 million as of September 30, 2012 and that, accordingly, the Net Debt Working Capital exceeded the Upper
Threshold by $11.3 million; and (ii) the Company had indemnity claims of $23.4 million for certain defined adverse consequences
(including indemnity claims with respect to Structural and Repair Costs incurred through December 31, 2015) and as set forth in
an October 1, 2015 notification letter to Central's former stockholders' that certain indemnification claims for Structural and Repair
Costs yet to be incurred met the requirements of the indemnification provisions established in the Merger Agreement.
In early 2015, the Company and Central’s former stockholders engaged an independent public accounting firm for ultimate resolution,
through binding arbitration, regarding its dispute as to the Company’s calculation of Net Debt Working Capital. On April 30, 2015,
with respect to the Company's Net Debt Working Capital calculation, the representative of Central's former stockholders submitted
specific objections to the Company's calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $270.8
million ($4.2 million below the Lower Threshold) and on September 21, 2015 submitted a revised calculation, asserting that the Net
Debt Working Capital as of September 30, 2012 was $278.0 million ($3.0 million above the Lower Threshold) and therefore no
amounts 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
65
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, and therefore the
independent public accounting firm’s decision to disallow these claims had no impact to the Company's Consolidated Financial
Statements as of and for the year ended December 31, 2015.
As a result of the independent public accounting firm’s decision on the calculation of Net Debt Working Capital, the Company revised
its indemnity claims for certain defined adverse consequences from $23.4 million to $24.9 million. On March 11, 2016, the Company
provided notification to Central's former stockholders of an additional indemnity claim of $1.6 million and further provided notification
that its indemnity claims for certain defined adverse consequences aggregated to $26.5 million. The additional $1.6 million of
indemnity claim made by the Company in the March 11, 2016 letter was not recognized as a cost recovery given the contingent
nature and since this claim was not previously recognized by the Company as an expense.
As previously discussed in Note 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 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 September 30, 2016. Additionally, the Company
submitted $7.7 million of additional indemnity claims for certain adverse consequences (including but not limited to Structural and
Repair Costs) to Central's former stockholders, including claims as set forth in the March 11, 2016 letter, but did not recognize these
indemnity claims as a receivable or offset to the Cash Consideration Amount with a corresponding gain or reduction of costs incurred
by the Company, as these claims were contingent in nature or represent costs which the Company had not yet incurred but which
met the requirements of the indemnification provisions established in the Merger Agreement.
On September 27, 2016, the Company and Central's former stockholders agreed-upon non-binding terms to settle all outstanding
matters between the parties relating to the Central Merger ("Settlement Terms") and on December 15, 2016 the Company and
Central's former stockholders executed a settlement agreement ("Settlement Agreement") to settle all outstanding matters between
the parties relating to the Central Merger (including the Company's claims as described above). Pursuant to the Settlement
Agreement, the Company paid Central's former stockholders $2.5 million in aggregate, which effectively reduced the $27.0 million
of Cash Consideration that would have been payable by the Company to Central's former stockholders under the Merger Agreement
by $24.5 million. As a result of the Settlement Terms, the Company recorded $0.8 million ($0.5 million, net of tax) in General and
administrative expenses within the Consolidated Statements of Income in the third quarter 2016. Additionally and pursuant to the
Settlement Agreement, the parties fully released one another for claims relating to the Central Merger, and therefore the Company
has no further obligation to pay any additional Cash Consideration Amount to Central's former stockholders.
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 acquisition. The Company
finalized the purchase price allocation during the third quarter of 2013.
Restructuring, Merger and Integration Costs
Since the Central Merger, the Company has incurred certain restructuring, merger and integration costs associated with the
transaction that were expensed as incurred, which include:
•
•
•
costs (primarily severance and relocation costs) related to a series of Company initiated workforce reductions to increase
organizational effectiveness and provide cost savings that can be reinvested in the Company's growth initiatives, during
2016, second quarter 2017 and fourth quarter 2017 (included within General and administrative expenses within the
Consolidated Statements of Income);
costs related to the Selling Stockholders' underwritten public offerings of common stock of the Company incurred during
the second quarter 2017 (included within General and administrative expenses within the Consolidated Statements of
Income); and
costs related to the write off of certain fixed assets and the acceleration of certain software assets directly as a result of
the Central Merger (included within Depreciation and amortization expense within the Consolidated Statements of Income).
(millions)
General and administrative expenses
Depreciation and amortization
Total
Year Ended December 31,
2016
2015
2017
$
$
1.2
—
1.2
$
$
4.5
2.4
6.9
$
$
6.2
1.0
7.2
66
An accrual for restructuring, merger and integration costs of $2.3 million (of which, $1.8 million is included in Compensation and
payroll withholdings and $0.5 million in Other long-term liabilities within the Consolidated Balance Sheets) and $5.4 million (of which,
$3.6 million is included in Compensation and payroll withholdings, $0.3 million in Accrued expenses and $1.5 million in Other long-
term liabilities within the Consolidated Balance Sheets) as of December 31, 2017 and 2016, respectively.
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,
2016
2017
$
41.2
22,195,350
312,938
22,508,288
23.1
22,238,021
290,101
22,528,122
$
2015
17.4
22,189,140
322,619
22,511,759
1.86
1.83
$
$
1.04
1.03
$
$
0.78
0.77
$
$
$
As of December 31, 2017, the weighted average number of performance-based shares units related to the 2015 awards were
included for the purposes of determining diluted net income per share as all performance goals were achieved as of this date. The
2016 and 2017 performance-based awards have been excluded for purposes of determining diluted net income per share for the
year ended December 31, 2017, as all performance goals were not achieved relating to these awards as of December 31, 2017.
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. The Company accounts for forfeitures of stock-based awards as they occur.
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, 2017, 248,534 shares
remained available for award under the Plan.
Stock Options and Grants
There were no options granted during the years ended December 31, 2017, 2016 and 2015. The Company recognized no stock-
based compensation expense related to stock options for the years ended December 31, 2017, 2016 and 2015 as all options
previously granted are fully vested.
67
The following is a summary of Company authorized vested stock grants to certain directors for the year ended December 31, 2017,
2016 and 2015. Stock-based compensation expense related to vested stock grants are included in General and administrative
expenses within the Consolidated Statements of Income.
(millions, except stock grants)
Vested stock grants
Stock-based compensation expense
Restricted Stock Units
Year Ended December 31,
2016
2015
2017
16,428
0.5
$
32,180
0.7
$
32,357
0.7
$
No grants of restricted stock units were authorized during the year ended December 31, 2017.
During the year ended December 31, 2016, the Company authorized certain one-time grants of 4,020 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, 2015, the Company authorized one-time grants of 3,963 restricted stock units to certain
executives that vest three years from date of issuance. The restricted stock unit agreements are designed to reward performance
over a three-year period.
The fair value of restricted stock units is determined using the market value of the Company's common stock on the date of the
grant, and compensation expense is recognized over the vesting period.
A summary of the status of the restricted stock units as of December 31, 2017, and changes during the year ended December 31,
2017, 2016 and 2015, are presented below:
Nonvested as of December 31, 2014
Issued
Vested
Forfeited
Nonvested as of December 31, 2015
Issued
Vested
Forfeited
Nonvested as of December 31, 2016
Issued
Vested
Forfeited
Nonvested as of December 31, 2017
Shares
Weighted
Average
Grant-Date
Fair Value
555,700
12,589
(150,073)
(16,500)
401,716
4,020
(54,215)
(17,324)
334,197
22,000
(26,399)
(4,537)
325,261
$
$
$
$
19.57
23.65
20.77
19.45
19.25
24.87
18.33
19.68
19.45
18.25
18.98
21.92
19.37
The table below shows the Company's stock-based compensation expense related to the restricted stock units for the years ended
December 31, 2017, 2016 and 2015, and is included in General and administrative expenses within the Consolidated Statements
of Income.
(millions)
Stock-based compensation expense
Year Ended December 31,
2016
2015
2017
$
0.9
$
0.9
$
1.6
68
Unrecognized stock-based compensation expense related to the restricted stock units for the years ended December 31, 2017,
2016 and 2015, is shown in the table below, along with the weighted average periods in which the expense will be recognized.
(millions)
Unrecognized stock-based compensation
Weighted average (years)
Performance Share Units
Year Ended December 31,
2016
2015
2017
$
0.9
2.1 years
$
1.7
2.8 years
$
2.7
3.8 years
In September 2014, the Board of Directors authorized a performance-based incentive program under the 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.
In March 2017, the Board of Directors authorized a performance-based incentive program under the Company's Long-Term Incentive
Plan ("2017 Performance-Based Incentive Program"). The 2017 Performance-Based Incentive Program is similar to the 2015 and
2016 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 2017 through 2019.
During 2017, certain participating executives became vested in Performance-Based Incentive Program shares based on retirement
eligibility and as a result $0.2 million of stock-based compensation related to 7,529 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. Additionally, participating executives became vested in the Performance-Based Incentive Program shares based on
meeting eligibility for vesting at the end of the three-year performance period of 2015 through 2017. As a result, 54,390 shares
were vested to these participating executives as of December 31, 2017.
In April 2016, the Board of Directors authorized another performance-based incentive program under the Company's Long-Term
Incentive Plan ("2016 Performance-Based Incentive Program"). The 2016 Performance-Based Incentive Program is similar to the
2015 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 2016 through 2018.
During 2016, 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 2,083 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. Additionally, participating executives became vested in the Performance-Based Incentive Program shares based on
meeting eligibility for vesting at the end of the three-year performance period of 2014 through 2016. As a result, 82,334 shares
were vested to these participating executives as of December 31, 2016.
During 2015, certain participating executives became vested in the 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 within the Consolidated Statements of Income, and which continue to be subject to achieving cumulative
pre-tax free cash flow over the three-year period of 2015 through 2017.
69
A summary of the status of the performance share units as of December 31, 2017, and changes during the year ended December 31,
2017, 2016 and 2015 are presented below:
Nonvested as of December 31, 2014
Issued (1)
Vested
Forfeited
Nonvested as of December 31, 2015
Issued
Vested
Forfeited
Nonvested as of December 31, 2016
Issued (2)
Vested
Forfeited
Nonvested as of December 31, 2017
Shares
Weighted
Average
Grant-Date
Fair Value
79,430
125,392
(6,915)
(24,056)
173,851
99,466
(84,417)
(29,423)
159,477
29,494
(61,919)
(11,770)
115,282
$
$
18.96
21.64
19.91
20.30
20.63
23.72
19.15
22.52
22.99
29.51
22.63
25.86
28.01
(1) Includes an additional 19,855 shares of performance adjustments made at a weighted average grant-date fair value of $19.02.
(2) Includes a reduction of 59,091 shares of performance adjustments made at a weighted average grant-date fair value of $26.07.
The table below shows the Company's stock-based compensation expense related to the Performance-Based Incentive Program
for the years ended December 31, 2017, 2016 and 2015, and is included in General and administrative expenses within the
Consolidated Statements of Income.
(millions)
Stock-based compensation
Year Ended December 31,
2016
2015
2017
$
1.3
$
1.8
$
1.3
During the years ended December 31, 2017, 2016 and 2015, respectively, 11,770, 29,423 and 24,056 performance-based shares
were forfeited under the Long-Term Incentive Program and became available for reissuance.
Future compensation expense for currently outstanding awards under the Performance-Based Incentive Program could reach a
maximum of $7.3 million. Stock-based compensation for the Performance-Based Incentive Program is expected to be recognized
over a weighted average period of 1.7 years.
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:
Ranges of Estimated Useful Life
1 - 10 Years
3 Years
1 - 10 Years
3 Years
Shorter of lease term or economic life up to
10 years
$
(millions)
Equipment
Software
Vehicles
Other
Leasehold improvements
Construction in progress
Less accumulated depreciation and
amortization
Leasehold improvements, equipment, land
and construction in progress, net
December 31
2017
2016
$
39.6
31.9
9.1
0.5
20.8
2.7
104.6
(77.2)
38.6
30.9
8.8
0.5
21.7
3.3
103.8
(72.9)
30.9
$
27.4
$
70
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.
The table below shows the Company's depreciation and amortization expense related to Leasehold improvements, equipment and
construction in progress for the years ended December 31, 2017, 2016 and 2015, and is included in Depreciation and amortization
expense within the Consolidated Statements of Income.
(millions)
Depreciation expense
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)
2018
2019
2020
2021
2022
2023 and Thereafter
Total
Year Ended December 31,
2016
2015
2017
$
11.3
$
16.2
$
15.9
December 31,
2017
2016
$
$
30.5
(21.6)
8.9
$
$
30.4
(19.0)
11.4
Cost of
Contract
2.8
2.2
1.1
0.6
0.5
1.7
8.9
$
$
The table below shows the Company's amortization expense related to costs of contracts for the years ended December 31, 2017,
2016 and 2015, and is included in Depreciation and amortization within the Consolidated Statements of Income.
(millions)
Amortization expense
Weighted average life (years)
Year Ended December 31,
2016
2015
2017
$
$
3.2
9.8
$
3.4
9.6
3.1
9.0
71
7. Other Intangible Assets, net
The following presents a summary of other intangible assets:
December 31,
2017
2016
(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
1.0
$
0.9
$
(0.9) $
— $
0.9
$
(0.9) $
1.5
1.5
10.9
9.8
34.6
81.0
(9.7)
(34.5)
(27.1)
0.1
0.1
53.9
9.8
34.7
81.0
(9.6)
(32.6)
(22.0)
—
0.2
2.1
59.0
10.9
$
126.3
$
(72.2) $
54.1
$
126.4
$
(65.1) $
61.3
(1) Excludes the original cost and accumulated amortization on fully amortized intangible assets.
(2) Intangible assets have estimated remaining lives between one and 14 years.
The table below shows the amortization expense related to intangible assets for the years ended December 31, 2017, 2016 and
2015, and is included in Depreciation and amortization within the Consolidated Statements of Income.
(millions)
Amortization expense
Year Ended December 31,
2016
2015
2017
$
7.2
$
14.6
$
15.1
The expected future amortization of intangible assets as of December 31, 2017 is as follows:
(millions)
2018
2019
2020
2021
2022
2023 and Thereafter
Total
Intangible asset
amortization
5.3
5.2
5.2
5.2
5.1
28.1
54.1
$
$
8. Favorable and Unfavorable Acquired Lease Contracts, net
Favorable and unfavorable acquired 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
2017
2016
2017
2016
$
$
65.2
(41.9)
23.3
$
$
73.0
(43.0)
30.0
$
$
(81.3) $
49.8
(31.5) $
(82.6)
42.4
(40.2)
The table below shows the amortization expense for favorable acquired lease contracts, which is recognized as an increase to Cost
of parking services - Lease contracts within the Consolidated Statements of Income for the years ended December 31, 2017, 2016
and 2015, along with the weighted average remaining useful life.
72
(millions)
Amortization expense
Weighted average life (years)
Year Ended December 31,
2016
2015
2017
$
$
6.6
14.1
$
8.3
11.9
10.1
11.1
The table below shows the amortization expense for unfavorable acquired lease contracts, which is recognized as a decrease to
Cost of parking services - Lease contracts within the Consolidated Statements of Income, for the years ended December 31, 2017,
2016 and 2015, along with the weighted average remaining useful life.
(millions)
Amortization expense
Weighted average life (years)
Year Ended December 31,
2016
2015
2017
$
$
8.8
10.7
$
10.1
10.5
11.0
10.1
The expected future amortization (accretion) of acquired lease contracts is as follows:
(millions)
2018
2019
2020
2021
2022
2023 and Thereafter
Total
9. Goodwill
Favorable
Unfavorable
Unfavorable,
Net
$
$
4.0
3.6
3.0
2.3
1.6
8.8
23.3
$
$
(6.7) $
(5.6)
(3.7)
(2.8)
(2.6)
(10.1)
(31.5) $
(2.7)
(2.0)
(0.7)
(0.5)
(1.0)
(1.3)
(8.2)
The amounts for goodwill and changes to carrying value by reportable segment are as follows:
(millions)
Balance as of December 31, 2015
Foreign currency translation
Balance as of December 31, 2016
Foreign currency translation
Balance as of December 31, 2017
Region
One
Region
Two
Total
$
$
$
368.6
0.1
368.7
0.3
369.0
$
$
$
62.7
—
62.7
—
62.7
$
$
$
431.3
0.1
431.4
0.3
431.7
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, 2017, the goodwill allocated to certain previous reporting
units have been aggregated into a single operating segment. The reporting units are reported as Region One (Commercial) and
Region Two (Airport Transportation). See also Note 19. Domestic and Foreign Operations for further disclosure on the Company’s
change in reporting segments effective January 1, 2017.
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, 2017 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, 2017 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
73
key personnel. As part of the January 1, 2017 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, 2017, using a qualitative test (Step Zero), to determine
the likelihood of impairment and if it was more likely than not that the fair value of the reporting units were less than the carrying
value of the reporting unit. The Company 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 One). Generally,
the more-likely-than-not threshold is a greater than a 50% likelihood that the fair value of a reporting unit is greater than the carrying
value. As part of the October 1, 2017 goodwill assessment, the Company engaged a third-party to estimate a discount rate, which
is a primary driver in the valuation of the Company's reporting units' fair values.
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 measured at fair value on a recurring basis and the basis of measurement
at December 31, 2017 and 2016:
(millions)
Assets
Prepaid expenses and other
Contingent consideration
receivable
Interest Rate Swaps
Total
Interest Rate Swaps
Fair Value at
December 31, 2017
Level 2
Level 1
Level 3
Level 1
Fair Value at
December 31, 2016
Level 2
Level 3
$
$
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
0.1
0.1
$
0.5
—
0.5
The Company generally 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 previously 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 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 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 in earnings when incurred. No ineffectiveness was recognized during 2017, 2016 or 2015. The Interest Rate Swaps
expired on September 30, 2017.
74
Contingent Consideration Receivable
During 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 buyer had 60 days from this date to calculate and remit the remaining
consideration, with the contingent consideration being based on financial and operational performance of the business sold. During
the second quarter of 2017, the Company received $0.6 million from the buyer for the final earn-out consideration, which resulted
in the Company recognizing an additional gain on sale the business of $0.1 million. The significant inputs historically used to derive
the Level 3 fair value of the contingent consideration receivable were 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 2016 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 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 as of December 31, 2014
Increase related to new acquisitions
Payment of contingent consideration
Change in fair value
Balance as of December 31, 2015
Increase related to new acquisitions
Payment of contingent consideration
Change in fair value
Balance as of December 31, 2016
Increase related to new acquisitions
Payment of contingent consideration
Change in fair value
Balance as of December 31, 2017
Due to Seller
$
(0.3)
—
0.1
0.2
—
—
—
—
—
—
—
—
—
$
$
$
For the year ended December 31, 2015, the Company recognized an expense $0.2 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 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.
75
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 Sheets at December 31, 2017 and 2016:
(millions)
Cash and cash equivalents
Long-term borrowings
Restated Credit Facility, net of original discount on
borrowings and deferred financing costs
Other obligations
$
$
$
2017
2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
22.8
$
22.8
$
22.2
$
22.2
151.0
2.8
$
$
151.0
2.8
$
$
193.4
1.7
$
$
193.4
1.7
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 Restated Credit Facility and Other obligations were estimated
to not be materially different from the carrying amount and are generally measured using a discounted cash flow analysis based
on current market interest rates for similar types of financial instruments and would be classified as a Level 2.
11. Borrowing Arrangements
Long-term borrowings, in order of preference, consisted of the following:
Amount Outstanding
December 31,
(millions)
Maturity Date
2017
2016
Restated Credit Facility, net of original discount on borrowings
and deferred financing costs
Other borrowings
Total obligations under Restated Credit Facility and other
borrowings
Less: Current portion of obligations under Restated Credit
Facility and other borrowings
Total long-term obligations under Restated Credit Facility and
other borrowings
February 20, 2020
Various
$
$
151.0
2.8
153.8
20.6
193.4
1.7
195.1
20.4
$
133.2
$
174.7
Aggregate minimum principal maturities of long-term borrowings for the fiscal years following December 31, 2017, are as
follows:
(millions)
2018
2019
2020
2021
2022
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
Senior Credit Facility
$
$
21.6
20.3
113.1
0.3
0.3
—
155.6
20.6
0.8
1.0
133.2
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.
76
Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders made available to the Company a secured
senior credit facility (the "Senior Credit Facility") that permitted aggregate borrowings of $450.0 million consisting of (i) a revolving
credit facility of up to $200.0 million at any time outstanding, which included a letter of credit facility 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 Credit Agreement.
Pursuant to the terms, and subject to the conditions, of the Restated Credit Agreement, the Lenders have made available to the
Company a senior secured credit facility (the “Restated Credit Facility”) that permits aggregate borrowings of $400.0 million consisting
of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which includes a $100.0 million sublimit for letters of
credit and a $20.0 million sublimit for swing-line loans, and (ii) a term loan facility of $200.0 million (reduced from $250.0 million
under the Senior Credit Facility). The Company may request increases of the revolving credit facility in an aggregate additional
principal amount of $100.0 million. The Restated Credit Facility matures on February 20, 2020.
The entire amount of the term loan portion of the Restated Credit Facility had been drawn by the Company as of the Restatement
Date (including approximately $10.4 million drawn on such date) and is subject to scheduled quarterly amortization of principal as
follows: (i) $15.0 million in the first year, (ii) $15.0 million in the second year, (iii) $20.0 million in the third year, (iv) $20.0 million in
the fourth year, (v) $20.0 million in the fifth year and (vi) $110.0 million in the sixth year. The Company also had outstanding
borrowings of $147.3 million (including $53.4 million in letters of credit) under the revolving credit facility as of the Restatement
Date.
Borrowings under the Restated Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s
consolidated total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter,
determined in accordance with the pricing levels set forth in the Restated Credit Agreement (the “ Applicable Margin”), plus LIBOR
or (ii) the Applicable Margin plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a
daily rate equal to LIBOR plus 1.0% (the highest of (x), (y) and (z), the “Base Rate”), except that all swing-line loans will bear interest
at the Base Rate plus the Applicable Margin.
Under the terms of the Restated Credit Agreement, the Company is required to maintain a maximum consolidated total debt to
EBITDA ratio of not greater than 4.0 to 1.0 as of the end of any fiscal quarter ending during the period from the Restatement Date
through September 30, 2015, (ii) 3.75 to 1.0 as of the end of any fiscal quarter ending during the period from October 1, 2015
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, 2017.
The weighted average interest rate on our Senior Credit Facility and Restated Credit Facility was 2.9% and 2.8% for the years
ended December 31, 2017 and 2016, respectively. The rate includes all outstanding LIBOR contracts, cash flow hedge effectiveness
effect and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 3.3%
and 3.0%, respectively, at December 31, 2017 and December 31, 2016.
At December 31, 2017, the Company had $148.7 million of borrowing availability under the Restated Credit Agreement, of which
the Company could have borrowed $148.7 million on December 31, 2017 and remained in compliance with the above described
covenants as of such date. The Company's 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, 2017, the Company had $48.5 million
77
of letters of credit outstanding under the Restated Credit Agreement with aggregate borrowings against the Restated Credit
Agreement of $152.8 million (excluding debt discount of $0.8 million and deferred financing cost of $1.0 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 no redemptions of
Convertible Debentures during the years ended December 31, 2017 and 2016, respectively. The approximate redemption value of
the Convertible Debentures outstanding at December 31, 2017 and December 31, 2016 is $1.1 million and $1.1 million, respectively.
12. Share Repurchase Plan
In May 2016, the Company's Board of Directors authorized the Company to repurchase, on the open market, shares of its outstanding
common stock in an amount not to exceed $30.0 million in aggregate. Purchases of the Company's common stock may be made
in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in
accordance with Rule 10b-18 and 10b5-1 under the Exchange Act. The share repurchase program does not obligate the Company
to repurchase any particular amount of common stock, and has no fixed termination date.
Under this program, the Company repurchased 305,183 shares of common stock through December 31, 2016. No shares were
repurchased during the year ended December 31, 2017. The following tables summarize share repurchase activity during the year
ended December 31, 2017 and 2016 and the remaining authorized repurchase amount under the program as at December 31,
2017.
(millions, except for share and per share data)
Total number of shares repurchased
Average price paid per share
Total value of shares repurchased
(millions)
Total authorized repurchase amount
Total value of shares repurchased
Total remaining authorized repurchase amount
13. Leases and Contingencies
Twelve Months Ended
December 31,
2017
December 31,
2016
$
$
—
— $
— $
305,183
24.43
7.5
December 31,
2017
$
$
30.0
7.5
22.5
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.
78
At December 31, 2017, the Company's minimum rental commitments, excluding contingent rent provisions and sublease income
under all non-cancellable operating leases, are as follows:
(millions)
2018
2019
2020
2021
2022
2023 and thereafter
Total
$
$
230.7
196.4
121.7
94.2
65.7
166.5
875.2
(1) $24.5 is included in 2018 minimum commitments for leases that expire in less than one year.
Rent expense, including contingent rents, was $394.6 million, $384.0 million and $400.3 million in 2017, 2016 and 2015, respectively.
Contingent rent expense was $161.5 million, $140.0 million and $186.2 million in 2017, 2016 and 2015, 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 $35.0 million as of December 31, 2017.
The Company accrued no contingent payment obligations outstanding under the previous business combination accounting
pronouncement for the year ended December 31, 2017.
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.
14. 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 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
Year Ended December 31,
2016
2015
2017
70.0
2.2
72.2
$
$
38.9
2.9
41.8
$
$
21.7
3.4
25.1
Year Ended December 31,
2016
2015
2017
21.5
1.0
3.3
25.8
2.6
0.6
(1.3)
1.9
27.7
$
$
13.9
1.4
2.6
17.9
(2.5)
(0.4)
0.8
(2.1)
15.8
$
$
11.5
1.2
1.8
14.5
(4.9)
0.1
(4.9)
(9.7)
4.8
$
$
$
$
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.
79
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
Total deferred tax liabilities
Net deferred tax asset
December 31,
2017
2016
$
$
21.5
18.8
8.1
8.2
—
56.6
(7.1)
49.5
(0.1)
(0.3)
(3.8)
(18.2)
(6.1)
(5.1)
(33.6)
15.9
$
$
19.3
30.7
12.8
16.1
1.2
80.1
(6.6)
73.5
(0.4)
(0.9)
(6.4)
(28.0)
(11.9)
(8.0)
(55.6)
17.9
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") was signed into law. The 2017 Tax Act
significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35%
to 21% effective January 1, 2018, while also implementing a territorial tax system and imposing a repatriation tax on deemed
repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in
which the law was enacted. As a result of the 2017 Tax Act, the Company recorded $0.2 million of income tax expense in the fourth
quarter of 2017. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based on the
rates at which they are expected to reverse in the future was $1.6 million income tax benefit, which includes a $1.2 million income
tax expense related to an increase in the valuation allowance. The provisional amount related to the one-time transition tax on the
mandatory deemed repatriation of foreign earnings was $1.8 million income tax expense based on the cumulative foreign earnings
of $14.1 million and the Company's current best estimates. Additionally, the Company recorded a tax charge of $0.6 million as an
additional provision for withholding taxes on undistributed earnings not considered to be permanently reinvested.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations
when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable
detail to complete the accounting for certain income tax effects of the 2017 Tax Act. In accordance with SAB 118, the Company has
determined that the $1.6 million of deferred income tax benefit, which includes a $1.2 million related to an increase in the valuation
allowance, related to the remeasurement of certain deferred tax assets and liabilities and the $1.8 million of income tax expense
recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount
and a reasonable estimate as of December 31, 2017. Additional work is necessary to do a more detailed analysis of historical foreign
earnings, as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax
expense when the analysis is complete or the Company has a better estimate.
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
$7.1 million and $6.6 million at December 31, 2017 and 2016, respectively, primarily related to our state Net Operating Loss
carryforwards ("NOLs") and state tax credits 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 $0.5 million net expense for the recognition of a valuation allowance for deferred tax assets
established for the historical net operating losses, which includes $1.2 million related to an increase in the valuation allowance as
a result of the 2017 Tax Act.
As of December 31, 2017, the Company treats approximately $2.5 million of Canadian foreign and $9.2 million of Puerto Rico
foreign earnings as permanently reinvested to meet working capital requirements in each jurisdiction. The amount of tax that may
be payable on the future distribution of such earnings is approximately $0.1 million and $0.7 million of Puerto Rico withholding
taxes. No U.S. taxes will be incurred on future distributions of foreign earnings due to the participation exemption under the 2017
Tax Act.
80
Due to the adoption of ASU 2016-09 in 2017, the Company recognized excess tax benefits of $0.9 million as income tax benefit
for the year ended December 31, 2017. As a result of the adoption of ASU 2016-09, the Company's effective tax rate may have
increased volatility.
The Company has $20.6 million of tax effected state net operating loss carryforwards as of December 31, 2017, which will expire
in the years 2018 through 2037. As noted above, the utilization of 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.
A reconciliation of the Company's reported income tax provision to the amount computed by multiplying earnings before income
taxes by statutory United States federal income tax rate is as follows:
Tax at statutory rate
Permanent differences
State taxes, net of federal benefit
Effect of foreign tax rates
Effect of 2017 Tax Act
Minority interest
Current year adjustment to deferred taxes
Recognition of tax credits
Other
Change in valuation allowance (1)
Income tax (benefit) expense
Effective tax rate
$
$
2017
2016
2015
$
$
25.3
0.3
2.5
—
(1.0)
(1.1)
1.6
(1.5)
1.1
27.2
0.5
27.7
38.4%
$
$
14.6
0.8
1.3
—
—
(1.0)
1.3
(1.4)
0.4
16.0
(0.2)
15.8
37.8%
8.8
1.4
0.3
(0.1)
—
(1.0)
1.5
(1.2)
0.6
10.3
(5.5)
4.8
19.1%
(1) Includes $1.2 million of additional income tax expense related to an increase in the valuation allowance as a result of the 2017 Tax Act.
As of December 31, 2017, 2016 and 2015 the Company had not identified any uncertain tax positions that would have a material
impact on the Company's financial position.
The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense. The tax
years that remain subject to examination for the Company's major tax jurisdictions as of December 31, 2017 are shown below:
2014 - 2017
2007 - 2017
2013 - 2017
15. 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. The Company has accrued $3.6 million for the years ended December 31, 2017 and 2016,
representing the present value of the future benefit payments. Expenses related to these plans amounted to $nil, $0.2 million and
$0.2 million in 2017, 2016 and 2015, 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 cost for the year ended December 31, 2017 was $0.2 million, $0.6 million and
$0.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. The Company has recorded a liability of $2.6
million and $2.7 million associated with these agreements as of December 31, 2017 and 2016, respectively.
Life insurance contracts with a face value of approximately $6.7 million as of December 31, 2017 and 2016 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 $4.0 million and $3.9 million as of December 31, 2017 and 2016, respectively, and classified
as non-current assets and included in Other assets, net within the Consolidated Balance Sheets. The plan is a non-qualified plan
and is not subject to ERISA funding requirements.
81
Defined Contribution Plans
The Company sponsors a savings and retirement plans whereby the participants may elect to contribute a portion of their
compensation to the plans. 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, $1.9 million, and $2.1 million in 2017, 2016 and 2015, 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, 2017 and 2016, the cash surrender value of the COLI
policies is $14.1 million and $12.2 million, respectively, and classified as non-current assets in Other Assets, net within the
Consolidated Balance Sheets. The liability for the non-qualified deferred compensation plan is included in Other long-term liabilities
on the Consolidated Balance Sheets and was $16.3 million and $14.7 million as of December 31, 2017 and 2016, 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 29, 2017 and November 30, 2017, 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, 2017, 2016 and 2015, 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
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
2017
2016
2015
FIP/FR
Pending
Implementation
Contributions (millions)
2017
2016
2015
Surcharge
Imposed
Zone
Status
as of
the
Most
Recent
Annual
Report
Expiration
Date of
Collective
Bargaining
Agreement
36-61023973 Green Green Green
N/A
$ 3.4
$ 3.5
$ 3.5
No
2017
10/31/2021
13-5673836 Green Green Green
N/A
$ 1.6
$ 1.5
$ 2.2
No
2017
3/5/2021
Pension
Teamsters
Local Union
727
Local 272
Labor
Management
Net expenses for contributions not reimbursed by clients and related to multiemployer defined benefit and defined contribution
benefit plans were $2.0 million, $3.3 million and $4.6 million for the years ended December 31, 2017, 2016 and 2015, 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.
82
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 special facility revenue bonds and provides that the Company
deposits, with the trustee for the bondholders, all gross revenues collected from operations of the surface and garage parking. From
these gross revenues, the trustee pays debt service on the special facility revenue bonds outstanding, operating and capital
maintenance expense of the surface and garage parking facilities, and specific annual guaranteed minimum payments to the state.
Principal and interest on the Bradley special facility revenue bonds increase from approximately $3.6 million in contract year 2002
to approximately $4.5 million in contract year 2025. Annual guaranteed minimum payments to the State increase from approximately
$8.3 million 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, 2017 and 2016 was $11.5 million and $11.3 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 total deficiency repayments,
net of payments made, as of December 31, 2017, 2016 and 2015 are as follows:
Balance at beginning of year
Deficiency payments made
Deficiency repayment received
Balance at end of year
2017
December 31,
2016
2015
$
$
9.9
0.3
(2.3)
7.8
$
$
11.6
0.2
(1.9)
9.9
$
$
13.3
0.1
(1.8)
11.6
The total deficiency repayments (net of payments made), interest and premium received and recorded for the years ended
December 31, 2017, 2016 and 2015 are as follows:
(millions)
Deficiency repayments
Interest
Premium
2017
Year Ended December 31
2016
2015
$
$
$
2.0
0.6
0.2
$
$
$
1.7
0.5
0.2
$
$
$
1.7
0.4
0.2
Deficiency payments made are recorded as an increase in Cost of parking services-management contracts and deficiency
repayments, interest and premium received are recorded as reductions to cost of parking services. The reimbursement of principal,
interest and premium are recognized when received.
There were no amounts of estimated deficiency payments accrued as of December 31, 2017 and 2016, 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
83
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 $17.7 million and $16.7 million
have not been recognized as of December 31, 2017 and 2016, respectively, and no management fees were recognized as revenue
during 2017, 2016 or 2015.
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
tax, were as follows:
(millions)
Balance as of December 31, 2014
Change in other comprehensive income (loss)
Balance as of December 31, 2015
Change in other comprehensive income (loss)
Balance as of December 31, 2016
Change in other comprehensive income (loss)
Balance as of December 31, 2017
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)
$
$
$
(0.5) $
(0.7)
(1.2)
(0.2)
(1.4)
0.2
(1.2) $
0.3
(0.2)
0.1
(0.1)
—
—
— $
(0.2)
(0.9)
(1.1)
(0.3)
(1.4)
0.2
(1.2)
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 potential 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 potential loss or a range of potential loss involves significant estimation and
judgment.
Holten Settlement
In March 2010, John V. Holten, a former indirect controlling shareholder of the Company, filed a lawsuit against the Company in
the United States District Court, District of Connecticut. Mr. Holten was terminated as the Company's chairman in October 2009.
The lawsuit alleged breach of his employment agreement and claimed that the agreement entitled Mr. Holten to payments worth
more than $3.8 million. The Company filed an answer and counterclaim to Mr. Holten's lawsuit in 2010.
In March 2016, the Company and Mr. Holten settled all claims in connection with the original lawsuits ("Holten Settlement"). Per
the settlement, the Company paid Mr. Holten $3.4 million of which $1.9 million was recovered by the Company through the Company's
directors and officers liability insurance policies. The Company recognized an expense, net of insurance recoveries, related to the
Holten Settlement of $1.5 million for the year ended December 31, 2016.
84
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 ("CODM") 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 CODM. The CODM 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 two operating segments. The CODM assesses the performance of each operating segment using information about its
revenue and operating income (loss) before interest, taxes, and depreciation and amortization, but does not evaluate 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.
In the first quarter of 2017, the Company changed its internal reporting segment information reported to our CODM. The operating
segments are internally reported as region one (Commercial) and region two (Airports). All prior periods presented have been
restated to reflect the new internal reporting to the CODM.
• Region one (Commercial) encompasses our services in healthcare facilities, municipalities, including meter revenue
collection and enforcement services, government facilities, hotels, commercial real estate, residential communities, retail,
colleges and universities, as well as ancillary services such as shuttle and transportation services, valet services, taxi and
livery dispatch services and event planning, including shuttle and transportation services.
• Region two (Airports) encompasses our services at all major airports as well as ancillary services, which includes shuttle
and transportation services and valet services.
•
"Other" consists of ancillary revenue that is not specifically identifiable to a region and certain unallocated items, such as
and including prior year insurance reserve adjustments and other corporate items.
85
The following is a summary of revenues (excluding reimbursed management contract revenue) and gross profit by operating
segment for the years ended December 31, 2017, 2016 and 2015:
Year Ended December 31,
2017
Gross
Margin
2016
Gross
Margin
2015
Gross
Margin
Parking services revenue
Region One
Lease contracts
Management contracts
Total Region One
Region Two
Lease contracts
Management contracts
Total Region Two
Other
Lease contracts
Management contracts
Total Other
Reimbursed management contract
revenue
Total parking services revenue
Gross Profit
Region One
Lease contracts
Management contracts
Total Region One
Region Two
Lease contracts
Management contracts
Total Region Two
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 a business
Equity in losses from
investment in unconsolidated entity
Total other expenses
Earnings before income taxes
Income tax expense
Net income
Less: Net income attributable
to noncontrolling interest
Net income attributable
to SP Plus Corporation
$
$
433.8
250.0
683.8
129.3
89.1
218.4
—
9.1
9.1
679.2
$
420.3
248.3
668.6
124.7
88.0
212.7
—
10.5
10.5
676.6
$
447.1
238.7
685.8
123.8
100.5
224.3
—
11.1
11.1
650.6
$
1,590.5
$
1,568.4
$
1,571.8
8.0%
39.3%
4.4%
20.0%
11.8%
120.5%
32.6
95.7
128.3
5.7
24.6
30.3
1.1
16.7
17.8
176.4
90.0
51.0%
33.7
52.7
10.5
(0.5)
—
0.9
10.9
41.8
15.8
26.0
2.9
23.1
7.8%
38.5%
4.5%
28.0%
—%
159.0%
35.8
93.7
129.5
5.4
24.9
30.3
(3.1)
13.4
10.3
170.1
97.3
57.0%
34.0
38.8
12.7
(0.2)
(0.5)
1.7
13.7
25.1
4.8
20.3
2.9
17.4
$
35.8
96.9
132.7
6.7
26.2
32.9
2.2
17.5
19.7
185.3
82.9
44.7%
21.0
81.4
9.2
(0.6)
(0.1)
0.7
9.2
72.2
27.7
44.5
3.3
41.2
8.3%
38.8%
5.2%
29.2%
—%
192.3%
$
86
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, 2017 and December 31, 2016. 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.
87
(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)
2017
2016
Parking services revenue
Lease contracts (2)
$
130.8
$
150.9
$
140.9
$
140.5
$
138.5
$
135.7
$
136.1
$
Management contracts
92.1
84.0
86.7
85.4
91.2
86.7
84.1
179.0
401.9
125.8
56.6
179.0
361.4
5.0
35.5
40.5
21.2
6.6
12.7
2.6
(0.1)
—
0.2
2.7
10.0
3.3
6.7
168.6
403.5
130.2
47.2
168.6
346.0
20.7
36.8
57.5
22.5
4.8
30.2
2.3
(0.2)
(0.1)
0.2
2.2
28.0
10.7
17.3
165.1
392.7
131.0
50.7
165.1
346.8
9.9
36.0
45.9
19.6
4.9
21.4
2.2
(0.2)
—
0.1
2.1
19.3
7.3
12.0
166.5
392.4
131.4
53.1
166.5
351.0
9.1
32.3
41.4
19.6
4.7
17.1
2.1
(0.1)
—
0.2
2.2
14.9
6.4
8.5
0.7
1.1
0.8
0.7
156.7
386.4
130.6
60.7
156.7
348.0
7.9
30.5
38.4
24.6
9.2
4.6
2.8
(0.2)
—
0.5
3.1
1.5
0.9
0.6
0.6
168.1
390.5
124.0
51.4
168.1
343.5
11.7
35.3
47.0
22.1
9.8
15.1
2.6
(0.1)
—
0.3
2.8
12.3
4.9
7.4
177.0
397.2
125.8
50.5
177.0
353.3
10.3
33.6
43.9
20.3
7.8
15.8
2.7
(0.1)
—
0.4
3.0
12.8
5.1
7.7
0.9
0.7
6.0
$
16.2
$
11.2
$
7.8
$
— $
6.5
$
7.0
$
134.7
84.8
174.8
394.3
125.2
47.2
174.8
347.2
9.5
37.6
47.1
23.0
6.9
17.2
2.4
(0.1)
—
(0.3)
2.0
15.2
4.9
10.3
0.7
9.6
Reimbursed
management contract
revenue (1)
Total revenue
Cost of parking services
Lease contracts
Management contracts
Reimbursed
management contract
expense (1)
Total cost of parking
services
Gross profit
Lease contracts (2)
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
Equity in losses (income)
from investment in
unconsolidated entity
Total other expenses
(income)
Earnings before income
taxes
Income tax expense
Net income
Less: Net income
attributable to
noncontrolling interest
Net income attributable to
SP Plus Corporation
Common stock data
Net income per share (3)
Basic
Diluted
Weighted average
shares outstanding
Basic
Diluted
$
$
$
0.27
0.27
$
$
0.73
0.72
$
$
0.51
0.50
$
$
0.35
0.35
$
$
— $
— $
0.29
0.29
$
$
0.31
0.31
$
$
0.44
0.43
22,148,265
22,190,421
22,203,023
22,221,536
22,328,578
22,344,898
22,208,139
22,071,865
22,447,904
22,515,234
22,523,036
22,528,825
22,593,505
22,625,471
22,497,111
22,398,045
(1) The Company corrected reimbursed management contract revenue and reimbursed management contract expense for the previous periods presented. For 2017, the correction resulted in the
following: (i) a reduction of reimbursed management contract revenue of $12.6 million and $11.9 million for the quarters ended March 31, and June 30, respectively, and (ii) a reduction of reimbursed
management contract expense of $12.6 million and $11.9 million for the quarters ended March 31, and June 30, respectively. For 2016, the correction resulted in the following: (i) a reduction of
reimbursed management contract revenue of $11.2 million, $12.1 million, $11.9 million and $11.9 million for the quarters ended March 31, June 30, September 30 and December 31, respectively,
and (ii) a reduction of reimbursed management contract expense of $11.2 million, $12.1 million, $11.9 million and $11.9 million for the quarters ended March 31, June 30, September 30 and
December 31, respectively. See Note 1. Significant Accounting Policies and Practices for additional information.
(2) Revenue and Gross profit in the second quarter of 2017 includes earnings of $8.5 million for our proportionate share of the net gain of an equity method investee's sale of assets.
(3) Basic and diluted earnings per share are computed independently for each of the quarters presented. As a result, the sum of quarterly basic and diluted per share information may not equal
annual basic and diluted earnings per share.
88
21. Subsequent Event
On January 3, 2018, pursuant to the Unit Purchase Agreement dated December 15, 2017, the Company completed the sale of its
entire interest in Parkmobile, LLC ("Parkmobile") to Parkmobile USA, Inc. ("Parkmobile USA"). Prior to the sale of its 30% interest
in Parkmobile, the Company accounted for such interest as an equity method investment, see Note 1. Significant Accounting Policies
and Practices for further discussion of the Parkmobile investment under Equity Investment in Unconsolidated Entities.
Pursuant to the sale of Parkmobile, the Company received proceeds of $19.0 million and in the first quarter of 2018, the Company
expects to record a pre-tax gain of approximately $10.1 million, net of closing costs.
Item 16. Form 10-K Summary
None.
89
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
Date: February 22, 2018
By:
/s/ VANCE C. JOHNSTON
SP PLUS CORPORATION
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
Title
/s/ G MARC BAUMANN
G Marc Baumann
/s/ KAREN M. GARRISON
Karen M. Garrison
/s/ GREGORY A. REID
Gregory A. Reid
/s/ ROBERT S. ROATH
Robert S. Roath
Director, President and Chief Executive Officer
(Principal Executive Officer)
Director and Non-Executive Chairman
Director
Director
/s/ WYMAN T. ROBERTS
Director
Wyman T. Roberts
/s/ DOUGLAS R. WAGGONER
Director
Date
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
February 22, 2018
Douglas R. Waggoner
/s/ VANCE C. JOHNSTON
Vance C. Johnston
/s/ KRISTOPHER H. ROY
Kristopher H. Roy
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
February 22, 2018
Senior Vice President, Corporate Controller and
Assistant Treasurer (Principal Accounting Officer
and Duly Authorized Officer)
February 22, 2018
90
SP PLUS CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Description
(millions)
Allowance for doubtful accounts
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
Deferred tax valuation allowance
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
Balance at
Beginning
of Year
Additions
Charged
to Costs
and
Expenses
Reductions (1)
Balance at
End of
Year
$
$
$
$
$
$
0.4
0.9
1.0
6.6
6.8
12.3
$
$
$
$
$
$
0.7
0.5
0.7
$
$
$
0.5
$
— $
— $
(0.4) $
(1.0) $
(0.8) $
— $
(0.2) $
(5.5) $
0.7
0.4
0.9
7.1
6.6
6.8
(1) Represents uncollectible accounts written off and reversal of provision.
91
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As of March 8, 2018
Directors
Executive Officers
G Marc Baumann
President & Chief Executive Officer
Thomas L. Hagerman
Executive Vice President,
Operations
Vance C. Johnston
Executive Vice President,
Chief Financial Officer & Treasurer
Gerard M. Klaisle
Executive Vice President,
Chief Administrative Officer
Jack Ricchiuto
Executive Vice President,
Operations
Robert N. Sacks
Executive Vice President,
General Counsel & Secretary
Robert M. Toy
President of Commercial Operations
Karen M. Garrison,
Non-Executive Chairman (b)(c)(d)
President, Pitney Bowes Business
Services (retired)
G Marc Baumann, Director
President & Chief Executive Officer,
SP Plus Corporation
Alice M. Peterson, Director (a)
President
Loretto Group
Gregory A. Reid, Director (a)
President
BoomDeYada, LLC
Robert S. Roath, Director (a)(b)(c)(d)
Chief Financial Officer,
RJR Nabisco, Inc. (retired)
Wyman T. Roberts, Director (a)(c)
President & Chief Executive Officer,
Brinker International, Inc.
Douglas R. Waggoner, Director (a)(b)
Chief Executive Officer,
Echo Global Logistics, Inc.
(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: Karen M. Garrison
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 SP Plus common stock during
the periods indicated in 2017. The
closing price of our common stock
at December 29, 2017 was $37.10.
HIGH LOW
$38.55
First Quarter
Second Quarter $36.20
Third Quarter
$39.98
Fourth Quarter $41.25
$27.05
$28.10
$29.60
$35.50
Annual Meeting of Stockholders
Our Annual Stockholders Meeting
will be held on May 8, 2018 at
4:00 p.m., local time, at The Radisson
Blu Aqua, 221 North Columbus Drive,
Chicago, IL 60601.