March 20, 2020
Dear Fellow Stockholders:
We are pleased to report that 2019 was another excellent year for SP+.
Our successful integration of the Bags acquisition has been transformational for our long-term growth
opportunities. Throughout the year, we introduced SP+’s capabilities to Bags’ key clients and Bags’
capabilities to key SP+ clients, which produced several cross-selling wins.
We also made great progress on our growth-focused initiatives. We increased our national accounts
business, our penetration in higher growth verticals (such as hospitality, healthcare and municipal) and
the number of commercial locations we serve. Moreover, we improved our location retention rate
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exceeded all key guidance measures.
SP+ at its core is a company that leverages technology to develop and implement solutions to help clients
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the end-consumer’s experience while at the same time adding to our clients’ bottom lines.
We continue to invest in programs that enable us to maintain the high level of customer service that
has become synonymous with the SP+ brand. Complementing a well-trained and motivated workforce
are technology solutions we’ve brought to the industry, such as Parking.com™, our proprietary online
distribution channel that enables consumers to locate and purchase daily or monthly parking from their
mobile devices, and Insight Valet System®, our proprietary valet management tool. We believe tools
like these, as well as the utilization of our remote management capabilities, are becoming increasingly
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Finally, none of this could be accomplished without the dedication and commitment of our 23,000+
employees.
continued success.
We are very enthusiastic about building upon our 2019 momentum to propel our
Sincerely,
G Marc Baumann
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Cautionary Note Regarding Forward-Looking Statements
Some of the information we provide in this document is forward-looking and therefore could change over time.
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forward-looking statements. We do not undertake to update our forward-looking statements.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-50796
____________________________________________________________________________
SP PLUS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
16-1171179
(I.R.S. Employer Identification No.)
200 E. Randolph Street, Suite 7700
Chicago, Illinois 60601-7702
(Address of Principal Executive Offices, Including Zip Code)
(312) 274-2000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
SP
The NASDAQ Stock Market LLC
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
No
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
No
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
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
Non-accelerated Filer
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
As of June 28, 2019, 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 $730.2 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.
Class
Common Stock, $0.001 par value per share
Outstanding at February 19, 2020
22,997,061 Shares
____________________________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
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 6, 2020 are incorporated by reference into Part III of this Form 10-K. The 2019 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.
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
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9
17
17
17
18
18
20
21
37
38
38
38
39
39
39
40
40
40
40
85
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87
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
SP Plus Corporation, a Delaware corporation, which operates through its subsidiaries (collectively referred to as "we", "us", "our")
facilitates the efficient movement of people, vehicles and personal belongings with the goal of enhancing the consumer experience
while improving bottom line results for our clients. We provide professional parking management, ground transportation, remote
baggage check-in and handling, facility maintenance, security, event logistics, and other technology-driven mobility solutions to
aviation, commercial, hospitality, healthcare and government clients across North America.
Acquisitions, Investment in Joint Venture and Sale of Business
On November 30, 2018, we acquired the outstanding shares (the "Acquisition") of ZWB Holdings, Inc. and Rynn's Luggage
Corporation, and their subsidiaries and affiliates (collectively, "Bags"), for an all-cash purchase price of $277.9 million, net of $5.9
million of cash acquired. Bags is a leading provider of baggage services, remote airline check-in, and other related services, primarily
to airline, airport and hospitality clients. Bags provides these services by combining exceptional customer service with innovative
technologies. Based in Orlando, Florida, Bags operates in over 250 cities in North America with approximately 3,000 employees.
Its clients include major airlines, airports, sea ports, cruise lines, and leading hotels and resorts. Bags handles more than 5.0 million
checked bags annually.
In October 2014, we entered into an agreement to establish a joint venture with Parkmobile USA, Inc. ("Parkmobile USA"), pursuant
to which we 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"). On January 3, 2018, we closed a
transaction to sell our entire 30% Parkmobile interest to Parkmobile USA, Inc. for a gross sale price of $19.0 million. As a result of
this sale, in the first quarter of 2018 we recognized a pre-tax gain of $10.1 million, net of closing costs, which is included in Equity
in (earnings) losses from investment in unconsolidated entity within the Consolidated Statements of Income for the year ended
December 31, 2018. We historically accounted for our investment in the Parkmobile joint venture under the equity method of
accounting.
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. We
received $0.6 million for the final earn-out consideration from the buyer in the second quarter of 2017, for which we recognized an
additional gain of $0.1 million for the year ended December 31, 2017. The pre-tax profit for the operations of the security business
was not significant to the periods presented herein.
Our Operations
Our history and resulting experience has 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 services that facilitate the movement of people, vehicles
and personal belongings. We serve a variety of industries and have industry vertical specific specialization in commercial real estate,
residential communities, hotels and resorts, airports, airlines, cruise lines, healthcare facilities, municipalities and government
facilities, retail operations, large event venues, and colleges and universities.
We operate under two primary types of arrangements: management type contracts and lease type contracts.
• Under a management type contract, we typically receive a fixed and/or variable monthly fee for providing our services,
and we may also receive an incentive fee based on the achievement of certain performance objectives. We also receive
fees for ancillary services. Typically, all of the underlying revenue and expenses under a standard management type
contract flow through to our client rather than to us.
2
• Under a lease type contract, we generally pay to the client either a fixed annual rent, a percentage of gross customer
collections, or a combination of both. Under a lease type contract, 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.
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 and governments, managers and developers of major
office buildings, residential properties, commercial properties, shopping centers and other retail properties, healthcare facilities and
medical centers, sports and special event complexes, hotels and resorts, airlines and cruise lines. No single client accounted for
more than 5% of our revenue, net of reimbursed management type contract revenue, or more than 7% of our gross profit for the
year ended December 31, 2019. Additionally, we have built a diverse geographic footprint that spans operations in 45 states, the
District of Columbia and Puerto Rico, 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 clients in a single market.
Services
As a professional service provider, we provide comprehensive, turn-key service offering packages to our clients. Under a typical
management type contract structure, we are responsible for providing and supervising all personnel necessary to facilitate daily
operations, which may include cashiers, porters, baggage handlers, valet attendants, managers, bookkeepers, and a variety of
ground transportation services, maintenance, marketing, customer service, and accounting and revenue control functions.
Beyond the conventional management services described above, we also offer an expanded range of ground transportation services,
baggage delivery and handling services and other ancillary services. For example, we provide:
•
•
•
•
shuttle bus vehicles and the drivers to operate them serving locations such as on-airport car rental operations and private
off-airport parking locations;
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;
baggage services, including delivery of delayed luggage and baggage handling services;
remote airline check-in services;
• wheelchair assist services to airports and airline passengers;
•
•
•
•
•
•
baggage repair and replacement services;
on-street parking meter collection and other forms of parking enforcement services;
valet services, including vehicle staging, doorman/bellman services and valet tracking systems with text-for-car capabilities;
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);
innovative and environmentally compliant facility maintenance services, including power sweeping and washing, painting
and general repairs, as well as cleaning and seasonal services;
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; and
• 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 management, ground transportation services and baggage service industries are large and fragmented. A substantial
number of companies in these industries offer parking management services, ground transportation services and baggage services
as non-core operations, and companies in these industries are large national competitors or small, private and operate in limited
markets and geographies. Additionally, technological advancements are having an impact on both consumer behavior and
information technology in these industries. 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 and the increasing
demands of clients. We expect this trend to continue and will provide larger professional service companies with greater 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 in the past.
3
Industry Operating Arrangements
Professional service businesses operate primarily under two general types of arrangements, which include:
Management Type Contracts
Under management type contracts, the professional service operator generally receives a fixed and/or variable monthly fee for
providing services and may receive an incentive fee based on the achievement of certain performance objectives. Professional
service operators also generally charge fees for various ancillary services such as accounting support services, equipment leasing
and consulting. Primary responsibilities under a management type contract include hiring, training and staffing personnel, and
providing revenue collection, accounting, record-keeping, insurance and marketing services. The client is usually responsible for
operating expenses associated with the client's operations, such as taxes, license and permit fees, insurance costs, payroll and
accounts receivable processing and wages of personnel assigned to the operation, although some management type contracts,
typically referred to as "reverse" management type contracts, require the professional service operator to pay certain of these cost
categories but provide for payment to the operator of a larger management fee. Under a management type contract, the client
usually is responsible for non-routine maintenance and repairs and capital improvements of the operation facility or location, such
as structural and significant mechanical repairs. Management type contracts are typically for a term of one to three years (although
the contracts may be terminated and may contain renewal clauses).
Lease Type Contracts
Under lease type contracts, the services operator generally pays to the client or property owner a fixed base rent or fee, percentage
rent that is tied to the financial performance of the operation, or a combination of both. The professional services 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 type contracts, lease type contracts typically have longer terms of
three to ten years, and often contain a renewal term and provide for a fixed payment to the client regardless of the facility's operating
earnings. Many of these lease type contracts 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. Lease type
contracts generally require larger capital investment by the services operator than do management type contracts and therefore
tend to have longer contract periods.
General Business Trends
We believe that our clients recognize the potential for parking services, parking management, ground transportation services,
baggage services and other ancillary services to be a profit generator and/or a service differentiator to their respective customers.
By outsourcing these services, they are able to capture additional profit and enhance the customer experience by leveraging the
unique operational skills and controls that an experienced services company can offer. Our ability to consistently deliver a uniformly
high level of services to our clients, including the use of various technological enhancements, allows us to maximize the profit and
enhance the customer experience for our clients, thereby improving our ability to win contracts and retain existing clients.
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 services, baggage services and other ancillary services to commercial, hospitality, institutional,
municipal and government, airports, airlines and cruise line clients across North America. These services include on-site
parking management, valet parking, ground transportation services, facility maintenance, event logistics, baggage related
services, remote airline check-in services, security services, municipal meter revenue collection and enforcement services,
and consulting services. We market and offer many of our services under our SP+ and Bags® brands, which reflect our
ability to provide customized solutions and meet the varied demands of our diverse client base. We can augment our
parking services by providing our clients with related services through our SP+ Parking, SP+ Facility Maintenance, SP
+ GAMEDAY, SP+ Transportation, SP+ Event Logistics, Bags® 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 financial operations and
customer experience.
• 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. The ability to use our scale and purchasing power with vendors drives cost savings and benefits to our client
base.
Client Base. 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 resorts, healthcare facilities
and medical centers, airports, airlines and cruise lines.
4
Industry Vertical Markets. We believe that our industry vertical market diversification, such as commercial real
estate, residential communities, hotels and resorts, airports, airlines, cruise lines, healthcare facilities and medical
centers, seaports, municipalities and government facilities, commercial real estate, residential communities, retail
operations, large event venues, and colleges and universities, allows us to minimize our exposure to industry-
specific seasonality and volatility. We believe that the breadth of end-markets we serve and the depths and
diversity of services we offer to those end-markets provide us with a broader base of clients 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, 2019.
•
•
•
Stable Client Relationships. We have a track record of providing our clients with consistent, value-added and high quality
services and customer experience. We continue to see a trend in outsourcing to professional service 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 local service operations very quickly, from
the simplest to the most complex operation, and have experience working with incumbent professional service operators
to implement smooth and efficient takeovers and integrate new local professional service operations seamlessly into our
existing 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 locations operate on management type contracts that, for the most
part, are not dependent upon the financial performance of the client's operation.
• 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 operations. This focus is reflected in our ability to deliver
to our clients professional, high-quality services 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.
Focus on Operational Compliance and Safety Initiatives. Our culture and training programs continue to focus on various
compliance and safety initiatives and disciplines throughout the organization, as we implement 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, on-site training 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 Business in Existing Geographic Markets. A component of our strategy is to capitalize on economies of scale
and operating efficiencies by expanding our business 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. The concentration of our 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 airports and aviation, colleges and universities,
healthcare, municipalities, hospitality and event services. In order to effectively target these 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+ and Bags® designations to highlight the specialized expertise, competencies and services that we provide to
meet the needs of each particular industry and customer. Our recognized 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,
and SP+ University Services, that further highlight the market-specific subject matter expertise that enables our
professionals to meet the varied demands of our clients.
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•
Expand and Cross-Sell Additional Services to Drive Incremental Revenue. We believe we have significant opportunities
to further strengthen our relationships with existing clients, and to attract new clients, by continuing to cross-sell value-
added services that complement our core service operations.
• Grow and Expand Cross-Selling Bags Services. Bags® is a leading provider of baggage services, remote airline check-
in services, and other related services, primarily to airline, airport, sea ports, cruise lines and hotels and resorts. Bags
combines exceptional customer service with innovative technologies to provide these value-add client and customer
services. We believe the acquisition of Bags allows us to further cross-sell the aforementioned services that Bags provides
to our existing clients within the aviation, hospitality and commercial markets and to cross-sell parking services and ground
transportation services and other ancillary services to our existing Bags® clients. Our emphasis on these innovative services
will continue to drive value with our clients and allow us to expand our footprint into multiple markets.
•
•
•
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 that outsource the management of their
operations and professional services often have a presence in a variety of urban markets and seek to outsource the
management of their operations 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 regularly 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 management services, whereby personnel are able to monitor revenue
and other aspects of an operation and provide 24-hour-a-day customer assistance (including remedying equipment
malfunctions at a facility) by using off-site personnel and equipment. We have begun expanding the facilities where our
remote management technology is installed. We expect this business to grow as clients focus on improving the profitability
of their operations by decreasing labor costs at their locations through remote management services.
Pursue Opportunistic, Strategic Acquisitions. The outsourced professional services industry remains 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 such as Bags. 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 Services is a leader in the hospitality and valet industries,
and management continues to believe there is significant opportunity to use SP+'s capabilities to further develop a national
hospitality business. Our objective is to focus on the most important aspects of the 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 associates deliver
excellent service every day. To accomplish this objective, our SP+ University Services™ provides training to its valet
associates. SP+ University Services™ 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. 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 operations, and
maximizing our clients' profits, enhancing customer experience, and increasing our own profitability.
We also place a specific focus on marketing and relationship efforts that pertain to those clients or prospective clients having a
large regional or national presence. Accordingly, we assign dedicated executives to these clients or prospective clients to manage
the overall relationship, 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 competition from large national competitors and numerous smaller, locally owned independent professional service
providers and operators, offering an array of services and professional service solutions, which may include developers, hotels and
resorts, airports, airlines, cruise lines, national services companies and other institutions that may elect to internally manage their
own professional service offerings. Additionally, technological factors that improve ride-sharing capabilities and the increase the
use of parking aggregators can impact our parking and parking management 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. 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.
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We believe that we compete for management contract type 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, providing high
quality customer service and customer experience, and the ability to anticipate and respond to industry changes. Factors that affect
our ability to compete for lease contract type 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. These offices serve as the centralized
locations through which we provide the employees to staff our professional services as well as the on-site and support management
staff to oversee those operations. Our administrative staff accountants are primarily based in those same offices and facilitate the
efficient, accurate and timely production and delivery of client deliverables, such as monthly reporting, invoicing, 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 professional services for new and existing clients 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 technology are based in our Chicago corporate office and the Nashville and Orlando
support offices.
Employees
As of December 31, 2019, we employed approximately 23,900 individuals, including 14,700 full-time and 9,200 part-time employees.
Approximately 28% of our employees are covered by collective bargaining agreements and represented by labor unions, which
include various local operational employees. Various union locals represent local operational employees in the following cities:
Akron (OH), Arlington, Baltimore, Birmingham, Boston, Buffalo, Burbank, Chicago, Cincinnati, Cleveland, Dallas, Denver, Detroit,
Kansas City, Las Vegas, Los Angeles, Manchester (NH), Meadowlands, Miami, New York City, Newark, Oakland, Ontario (Canada),
Orlando, Oxon Hill, Philadelphia, Pittsburgh, Portland, Richmond, San Diego, San Francisco, San Jose, San Juan (Puerto Rico),
Santa Monica, Seattle, Washington, D.C. 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 our clients on a stand-alone basis. The clients for whom we provide professional
services pursuant to management type 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 type contracts, we
charge those clients 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 type contracts, we charge those clients insurance-related costs.
Regulation
Our business is subject to numerous federal, state and local laws and regulations, and in some cases, municipal and state authorities
directly regulate or impose extensive governmental restrictions concerning automobile capacity, pricing, structural integrity and
certain prohibited practices. Additionally, 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.
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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, New York City 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 ground transportation services and certain airline and cruise line transportation, baggage services and remote
airline check-in services provided to our clients, the U.S. Department of Transportation, including the Transportation Security
Administration (the "TSA"), the Federal Aviation Administration (the "FAA") and Department of Homeland Security, and various
federal and state agencies, exercise broad powers over these certain transportation services, including shuttle bus operations,
baggage delivery services, and remote airline check-in, licensing and authorizations, safety, training and insurance requirements.
Our employees must also comply with the various safety and fitness regulations promulgated by the U.S. Department of
Transportation and other federal agencies, including those related to minimum training hours and requirements, drug and alcohol
testing and service hours. We may become subject to new and more restrictive federal and state regulations. Compliance with such
regulations may increase our operating costs.
Regulations by 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 type contracts.
Various other governmental regulations affect our operation of property or facility, 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 type contracts and lease type contracts with clients, we generally
require that the property owner contractually assume responsibility for any ADA liability in connection with the property or facility.
There can be no assurance, however, that the property owner has assumed such liability for any given property or 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.
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 industry standards impose substantial financial penalties for non-compliance.
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®, Allright
Parking® and Bags®, 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 and maketraveleasier.com. We deem our registered service marks to be important, but not critical, to our
business and marketing efforts.
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 (the “Exchange Act”) are available free
of 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.
Competition is intense in the parking facility management, valet, ground transportation services, event management and baggage
delivery businesses including other ancillary services that we offer. Providers of similar services have traditionally competed on
the basis of cost and quality of service. As we have worked to establish ourselves as a leader 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 elect to self-manage the services we provide.
The low cost of entry into these businesses has 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 and companies that can perform themselves, one or more of the services we provide. Regional and local-
owned and operated companies may have additional insights into local or smaller markets and significantly lower labor and overhead
costs, providing them with a competitive advantage in those regards. Competitors may also 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 technology.
We provide nearly all of our services under contracts, many of which are obtained through competitive bidding, and many of our
contracts require that our clients pay certain costs at specified rates. Our management type contracts are typically for a term of
one to three years, although the contracts may be terminated by the client, 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 may experience higher operating costs related to
changes in laws and regulations regarding employee benefits, employee minimum wage, and other entitlements promulgated by
federal, state and local governments or as a result of increased local wages necessary to attract employees due to changes in the
unemployment rate. If actual costs exceed the rates specified in the contacts or we are unable to renegotiate our specified rates
in our contracts, our profitability may be negatively affected. Furthermore, these strong competitive pressures could impede our
success in bidding for profitable business and our ability to maintain or increase prices even as costs rise, thereby reducing margins.
Changing consumer preferences and legislation 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 analyzing and
responding to consumer preference and changes in the markets in which we operate, consumer preferences cannot be predicted
with certainty and can change rapidly. 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 which may have an impact on the price customers are willing
to pay. Additionally, urban congestion and congestion pricing due to the aforementioned ride sharing services, or state and local
laws that have been or may be passed encouraging carpooling and use of mass transit systems, may negatively impact parking
demand and pricing that a customer would be willing to pay. 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 have a material and adverse impact on our business, financial condition and results of operations.
In addition, several state and local laws have been passed in recent years that encourage the use of carpooling and mass transit.
In the future, local, state and federal environmental regulatory authorities may pursue or continue to pursue, measures related to
climate change and greenhouse gas emissions which may have the effect of decreasing the number of cars being driven. Such
laws or regulations could adversely impact the demand for our services and ultimately our business.
9
Our business success depends on our ability to preserve client relationships.
We primarily provide services pursuant to agreements that are cancelable by either party upon 30-days’ notice. As we generally
incur initial costs on new contracts, our business associated with long-term client relationships is generally more profitable than
short-term client relationships. Managing our existing client relationships, including those client relationships acquired as part of a
business acquisition, is an important factor in contributing to our business success. If we lose a significant number of existing
clients, or fail to win new clients, our profitability could be negatively impacted, even if we gain equivalent revenues from new clients
or through client relationships acquired by acquisition.
We may have difficulty obtaining coverage for certain insurable risks or coverage for certain insurable risks at a
reasonable cost.
We use a combination of insured and self-insured programs to cover workers' compensation, general/garage liability, automobile
liability, property damage, healthcare and other insurable risks and we provide liability and workers' compensation insurance
coverage, consistent with our obligations to our clients under our various contracts. 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. If our insurance
proves to be inadequate or unavailable our business may be negatively affected.
Recent consolidation within 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 occurrence of catastrophic uninsured claims or the inability or refusal of our
insurance carriers to pay otherwise insured claims.
We are subject to volatility associated with our high deductible and high retention insurance programs, including the
possibility that changes in estimates of ultimate insurance losses could result in material charges against our
operating results.
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
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 our actual
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 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 performance 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 our results of operations, causing 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 increases.
Further, to the extent that we self-insure our losses, deterioration in our loss control and/or our 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
the frequency of claims, the severity of claims, the costs of excess/umbrella premiums, regulatory changes, or consolidation within
the insurance industry could have a material adverse effect on our financial position, results of operations, or cash flows.
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 clients on a stand-alone basis. The clients for whom we provide
professional services pursuant to management type contracts have the option of purchasing their own liability insurance policies
(provided that we are named as an additional insured party). 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 type
contracts, we charge those clients an allocated portion of our insurance-related costs. Our inability to purchase such policies at
competitive rates or charge clients for such insurance-related costs, 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 third party 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. 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
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damages. In addition, there can be no assurance that we will not sustain material losses resulting from an event or occurrence
where our insurance coverage is believed to be sufficient, but such coverage is either inadequate or we cannot access the coverage.
Either of these scenarios may result in a material adverse impact on our results of operations.
Our risk management and safety programs may not have the intended effect of allowing us to reduce our insurance costs.
We attempt to mitigate our business and operating risks through the implementation of Company-wide safety and loss control
programs designed to decrease the incidence of accidents or events that might increase our exposure or liability. However, there
can be no assurance that our insurance coverage may be inadequate despite the implementation of Company-wide safety and
loss control efforts or may not be accessible in certain instances any of which would result in additional costs to us and may adversely
impact our results of operations.
Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved could adversely
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 and any
other 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. Because our business employs a significant number of employees, we incur risks that these individuals will make
claims against us for violating various employment-related federal, state and local laws. Some or all of these claims may lead to
litigation, including class action litigation, and there may be negative publicity with respect to any alleged claims. Additionally, we
are subject to risks in the states where we have employees, including, for example, if there are new or unanticipated judicial
interpretations of existing laws and of those interpretations are applied to employers on a retroactive basis.
We operate in a highly regulated environment and our compliance with laws and regulations, including any changes
thereto, or our non-compliance with such laws and regulations, 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 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 certain costs as a result of such previous and current ownership. In addition, from time to time we are subject to
legal claims and regulatory actions involving 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 connection with ground transportation services and certain transportation and baggage services provided to our clients, including
shuttle bus operations, baggage handling and delivery services and remote airline check-in services, the U.S. Department of
Transportation, including the Transportation Security Administration (TSA) and Department of Homeland Security, and various
federal and state agencies exercise broad powers over these transportation and baggage related services, including, licensing and
authorizations, safety, training and insurance requirements. Our employees must also comply with the various safety and fitness
regulations promulgated by the U.S. Department of Transportation and other federal agencies, including those related to minimum
training hours and requirements, 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. There can be no assurance that our compliance with new rules and regulations, directives, anticipated rules
or other forms of regulatory oversight will not have a material adverse effect on us.
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 data privacy, 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. Any such changes may pose additional regulatory burden and costs on our business or otherwise
adversely affect our results of operations.
11
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, including Bags, will provide us with any of the benefits that we anticipated
or anticipate when entering into a transaction, particularly acquisitions in adjacent professional services. 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:
•
•
failure of the acquired business to perform in-line with management expectations or acquisition models;
revenue synergies and our ability to cross-sell service offerings to existing clients may be different than management's
expectations;
•
costs of integrating the business or synergies anticipated could be different than management's expectations;
• management time and focus may be diverted from operating our business to acquisition integration;
•
•
•
•
•
•
•
the time frame for integration could be delayed and the related costs may exceed management's expectations;
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;
an acquired entity may not have in place all the necessary controls as required by the SEC and the Public Accounting
Oversight Board, and implementing such controls, procedures, and policies may fail;
integrating financial reporting policies in compliance with the SEC's requirements and the requirements of other regulatory
bodies may result in increased costs, time and resources spent on or by our financial personnel;
integrating an acquired entity into our internal control over financial reporting may require and continue to require significant
time and resources from our management and other personnel and may increase our compliance costs;
additional indebtedness incurred as a result of an acquisition may adversely impact our financial position, results of
operations, and cash flows;
• we may be subject to additional compliance and other regulatory requirements as a result of the acquired business as a
result of any new products or services we offer; and
•
unanticipated or unknown liabilities may arise relating to the acquired business.
Our management type contracts and lease type contracts expose us to certain risks.
The loss or renewal on less favorable terms of a substantial number of management type contracts or lease type contracts 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 type contracts and lease type contracts could have
a material adverse effect on our business, financial condition and results of operations. Our management type contracts are typically
for a term of one to three years, although the contracts may 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 lease type contracts 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 our 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. Adverse economic
conditions may result in client's customers reducing their discretionary spending, which includes travel and leisure spending. Because
a portion of our revenue is tied to the volume of airline passengers, hotel guests, retail shoppers and sports event attendees, our
business could be adversely impacted by the curtailment of business travel, personal travel or discretionary spending caused by
unfavorable changes in economic conditions and/or consumer confidence. Adverse changes in local, regional, national and
international economic conditions could depress prices for our services or cause clients to cancel agreements for the services we
provide to our clients and their customers.
12
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 or who use services in the travel and leisure industry. Our business
could be materially adversely affected to the extent that weak economic conditions or demographic factors could result in the
elimination of jobs and high unemployment in the large urban areas where our business operations are concentrated. 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.
We are increasingly dependent on information technology, and potential disruption, cyber-attacks, cyber-terrorism and
security breaches to our technology, or our third-party providers and clients, or the compromise of our data, 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, disruption of operations, unauthorized malware,
computer or system viruses, or the compromise of data, such as theft of intellectual property or inappropriate disclosure of confidential,
proprietary or personal information.
Furthermore, while we continue to devote significant resources to monitoring and updating our systems and implementing information
security measures to protect our systems, there can be no assurance that any controls or procedures that we have in place will be
sufficient to protect us from security breaches. 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 they have been deployed against a target. Accordingly, we
may be unable to anticipate these techniques or implement adequate preventative measures.
Additionally, our systems could be 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. 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 disruptions to our information technology
systems, breaches or compromise of data and/or misappropriation of information could result in lost sales, negative publicity,
litigation, violation of privacy laws or business interruptions or damage to our reputation that, in turn, 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 any damage to our reputation.
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 of individuals
associated with our company, our clients or our client's customers, or that any such incident will be discovered and remedied in a
timely manner.
The phase-out of the London Interbank Offered Rate (“LIBOR”) could affect interest rates under our existing credit facility
agreement, hedging activity, as well as our ability to seek future debt financing.
LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a
reference for setting the interest rates on loans globally. We generally use LIBOR as a reference rate to calculate interest rates
under our Senior Credit Facility and to establish the floor and ceiling ranges for the interest rate collar contracts that we entered
into to manage interest rate risk associated with the Senior Credit Facility.
In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase
out LIBOR by the end of 2021. Regulators in various jurisdictions have been working to replace LIBOR and other interbank
offered rates with reference interest rates that are more firmly based on actual transactions. The U.S. Federal Reserve, in
conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions,
has identified the Secured Overnight Financing Rate (“SOFR”) that is calculated using short-term repurchase agreements
backed by Treasury securities, as its preferred alternative to LIBOR. The Financial Accounting Standards Board ("FASB") added
the Overnight Index Swap Rate based on the SOFR to the list of U.S. benchmark interest rates eligible to be hedged under US
GAAP and has issued a proposal for consideration that would help facilitate the market transition from existing reference interest
rates to alternatives.
It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next
few years. If a published LIBOR is unavailable after 2021, the interest rates under our Senior Credit Facility will be determined
using various alternative methods, any of which may not be as favorable to us as those in effect prior to any LIBOR phase-
out. In addition, the transition process to an alternative method may involve, among other things, increased volatility or illiquidity
13
in markets for instruments that currently rely on LIBOR and may also result in reductions in the value of certain instruments or
the effectiveness of related transactions such as our interest rate collars and any other hedges, increased borrowing costs,
uncertainty under applicable documentation, or difficult and costly consent processes. Any such effects of the transition away
from LIBOR, as well as other unforeseen effects, may result in expenses, difficulties, complications or delays in connection with
future financing efforts, which could have a material adverse impact on our business, financial condition and results of
operations.
We have incurred indebtedness, and we may incur indebtedness in the future, that could adversely affect our financial
condition.
Our Senior Credit Facility provides for a senior secured $325.0 million revolving credit facility and a $225.0 million term loan that
is scheduled to mature in November 2023. The facility is secured by a lien on all of our assets. Failure to comply with
covenants or to meet payment obligations under our Senior 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 provide assurance that we will be able to
refinance any of our indebtedness, including indebtedness under our Senior 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. If adequate capital is not available to us and our internal sources of liquidity prove to be insufficient, or if future
financings require more restrictive covenants, such combination of events could adversely affect our ability to (i) acquire new
businesses or enter new markets, (ii) service or refinance our existing debt, (iii) make necessary capital investments and (iv) make
other expenditures necessary for the ongoing conduct of our business.
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 credit facility (the "Senior 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 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 doubtful accounts, 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 lease type contracts or management type contracts by clients in bankruptcy.
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 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, 2019, approximately 28% of our employees were represented by labor unions and
approximately 38% of our collective bargaining contracts are up for renewal in 2020, representing approximately 26% of our
employees. In addition, at any given time, we may face a number of union organizing drives. When one or more of our major
collective bargaining agreements becomes subject to renegotiation or when we face union organizing drives, we and the union
may disagree on important issues that could lead employees to strike, work slowdown, or other job actions. In a market where we
are unionized but our competitors are not unionized, we may lose clients as a result. A strike, work slowdown, or other job actions
could disrupt our ability to provide services to our clients, resulting in reduced revenues or contract cancellations. Moreover,
negotiating first-time collective bargaining agreements or renewing existing agreements, could result in substantial increases in
labor and benefit costs that we may not be able to pass through to clients.
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.
14
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 part, 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.
Additionally, we must attract, train and retain a large and growing number of qualified employees while controlling labor costs. Our
ability to control labor costs is subject to numerous internal and external factors, including changes in immigration policy, regulatory
changes, prevailing wage rates, and competition we face from other companies to attract and retain qualified employees. There
can be no assurance that we will be able to attract and retain qualified employees in the future, which could have a material adverse
effect on our business, financial condition and results of operations.
Weather conditions, including natural disasters, pandemic outbreaks 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, pandemic outbreaks such as the coronavirus, or acts of
terrorism may cause economic dislocations throughout the country, lead to reduced levels of travel and result in an increase in
certain costs of providing parking and remote bag check-in and handling services, any 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 the imposition of minimum distances between parking facilities and terminals, resulting in the elimination of
parking facilities we manage. We derive a significant percentage of our gross profit from parking facilities and parking related
services in and around airports. The FAA 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 be
reinstated again in the future. 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 from both our leased facilities and those facilities and contracts we operate under management type 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 our
services; and
•
increased cost of services, such as snow removal and longer delivery times for our baggage delivery services.
These factors have typically had negative impacts to our gross profit and could cause gross profit reductions in the future. 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.
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. October 1st is 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
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 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.
15
State and municipal government clients may sell or enter into long-term lease type contracts 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 lease
type contracts 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 through a lease type
contract or operate through a management type 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 lease type contracts and those
facilities or contracts we operate under management type contracts.
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.
We provide health care and other benefits to employees. In certain circumstances, we charge our clients insurance-related
costs. Costs for health care have increased more rapidly than the general inflation in the U.S. economy. If this trend in health
care continues and we are unable to raise the rates we charge our clients to cover expenses incurred due to the Patient
Protection and Affordable Care Act or other 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,
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. We regularly assess 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.
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:
•
•
additional operating losses and expenses in the businesses acquired or joint ventures in which we have made investments;
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;
•
potential unknown liabilities associated with a company we may acquire or in which we invest;
16
•
•
requirements or obligations to commit and provide additional capital, equity, or credit support as required by the joint
venture agreements;
inability of the joint venture partner to (1) perform its obligations as a result of financial or other difficulties or (2) provide
additional capital, equity or credit support under the joint venture agreements; and
•
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 that 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 responding to such
proposals. 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.
Item 2. Properties
Our principal support office is located at 200 East Randolph Street, Suite 7700, Chicago, Illinois 60601.
Principal Properties as of December 31, 2019
Location
Character of Office
Approximate Square Feet
Lease Expiration Date
Segment
Chicago, Illinois
Chicago Support Office
Nashville, Tennessee
Nashville Support Office
Orlando, Florida
Orlando Support Office
41,000
25,000
20,100
September 2025
June 2024
November 2024
Other
Other
Other
In addition to the above properties, we have other offices, warehouses and parking facilities in various locations in the United States,
Canada and Puerto Rico. We believe that these properties are well maintained, in good operating condition, and suitable for the
purposes for which they are used.
Item 3. Legal Proceedings
General
We are subject to claims and litigation in the normal course of our business, including those related to labor and employment,
contracts, personal injury and other related matters, some of which allege substantial monetary damages and claims. Some of
these actions may be brought as class actions on behalf of a class or purported class of employees. While the outcomes of claims
and legal proceedings brought against us are subject to significant uncertainty, our management believes the final outcome will not
have a material adverse effect on our financial position, results of operations or cash flows.
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.
17
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the NASDAQ Stock Market LLC under the symbol "SP".
Holders
As of February 12, 2020, we estimate that there were approximately 7,000 registered holders of our common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
On December 31, 2019 we had an amended and restated long-term incentive plan (the "Plan") that was adopted in conjunction
with our initial public offering in 2004. On March 7, 2018, the Board approved an amendment and restatement of the Plan that
increased the number of shares of common stock available under the Plan from 2,975,000 to 3,775,000. Company stockholders
approved the Plan amendment and restatement on May 8, 2018. Under the Plan, we have granted stock options, stock grants and
issued restricted stock units (RSUs) and performance stock units (PSUs) awards to certain employees. Forfeited and expired options
under the Plan generally become available for reissuance. Additional information regarding the Plan appears in Note 1. Significant
Accounting Policies and Practices and Note 7. Stock-Based Compensation to our Consolidated Financial Statements.
The status of the Plan on December 31, 2019 is as follows:
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)
365,085
$
—
365,085
$
—
—
—
746,816
—
746,816
Plan Category
Equity compensation plans approved by securities
holders (a)
Equity compensation plans not approved by securities
holders
Total
(a) Securities to be issued upon exercise comprise of 153,442 RSUs and 211,623 PSUs. The weighted average exercise price does not take these awards into
account. There were no stock options or grants outstanding as of December 31, 2019.
Stock Repurchases
The following table provides information about purchases we made during the quarter ended December 31, 2019 of equity
securities that are registered by us pursuant Section 12 of the Exchange Act:
(millions, except for share and
per share data)
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
Approximate Dollar
Value of Shares
That May Yet be
Purchased Under
the Plan (a)
10/01/2019 through 10/31/2019
11/01/2019 through 11/30/2019
12/01/2019 through 12/31/2019
Total
172,175
$
60,955
143,995
377,125
$
38.20
44.17
43.49
41.19
172,175
$
60,955
143,995
377,125
$
33.7
31.0
24.7
24.7
(a) In May 2016, our Board of Directors authorized us to repurchase in the open market shares of our outstanding common stock in an amount not to exceed $30.0
million. Under this program, the entire authorized amount was applied to repurchase 988,767 shares of common stock at an average price of $30.30 resulting in completion
of the program in August 2019. No repurchases were made during the year ended December 31, 2018. In July 2019, our Board of Director's authorized a new program
to repurchase, on the open market, shares of our outstanding common stock in an amount not to exceed $50.0 million in aggregate. Under this program we repurchased
652,000 shares of common stock through December 31, 2019, at an average price of $38.88, resulting in $25.3 million in program-to-date repurchases.
18
As of December 31, 2019, $24.7 million remained available for repurchase under the July 2019 stock repurchase program. Under
the program, repurchases 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 Rules 10b-18, to the extent relied upon, and 10b5-1
under the Exchange Act at time and prices considered to be appropriate at our discretion. The stock repurchase program does not
obligate us to repurchase any particular amount of common stock and has no fixed termination date, and may be suspended at
any time at our discretion
Stock Performance Graph
Company / Index
SP Plus Corporation
S&P 500 Index
S&P SmallCap 600 Commercial &
Professional Services
$
$
$
Years Ended December 31,
2014
2015
2016
2017
2018
2019
100.00 $
94.73 $
111.57 $
147.05 $
117.08 $
100.00 $
101.38 $
113.51 $
138.29 $
132.23 $
168.17
173.86
100.00 $
101.29 $
125.55 $
140.44 $
136.77 $
175.63
The performance graph above shows the cumulative total stockholder return of our common stock for the period starting on December
31, 2014 to December 31, 2019. 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, 2014, $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.
19
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" of this Annual Report on Form 10-K.
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
Services revenue
Lease type contracts (2)
Management type contracts
Reimbursed management type contract revenue
Total services revenue
Cost of services
Lease type contracts (2)
Management type contracts
Reimbursed management type contract expense
Total cost of services
Gross profit
Lease type contracts
Management type 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 (earnings) losses from investment in unconsolidated
entity
Total other expense (income)
Earnings before income taxes
Income tax expense
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 (3)
Total debt (4)
Total stockholders' equity
2019
2018 (1)
2017
2016
2015
Year Ended December 31,
$
408.9
$
413.9
$
563.1
$
545.0
$
526.0
934.9
728.8
361.5
775.4
693.0
348.2
911.3
679.2
346.8
891.8
676.6
570.9
350.3
921.2
650.6
1,663.7
1,468.4
1,590.5
1,568.4
1,571.8
366.9
339.9
706.8
728.8
377.6
213.8
591.4
693.0
518.4
207.6
726.0
679.2
505.6
209.8
715.4
676.6
532.8
218.3
751.1
650.6
1,435.6
1,284.4
1,405.2
1,392.0
1,401.7
42.0
186.1
228.1
109.0
29.4
89.7
18.9
(0.3)
—
—
18.6
71.1
19.4
51.7
2.9
48.8
2.21
2.20
24.1
1,479.6
369.0
$
$
$
$
36.3
147.7
184.0
91.0
17.9
75.1
9.6
(0.4)
—
(10.1)
(0.9)
76.0
19.6
56.4
3.2
53.2
2.38
2.35
39.9
1,072.3
386.7
$
$
$
$
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
$
$
$
$
373.9
$
368.6
$
313.1
$
268.4
$
$
$
$
$
$
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
250.1
(1) On November 30, 2018, we completed the Acquisition. Our consolidated operations for the year ended December 31, 2018 includes Bags operating results for the
period of November 30, 2018 through December 31, 2018. Our consolidated results for the years ended December 31, 2017, 2016, 2015 and 2014 do not include the
operating results of Bags. See Note 3. Acquisition, which is included in Part IV, Item 15. "Exhibits and Financial Statement Schedules" for further discussion of the
Acquisition.
(2) Reduction of Services revenue - lease type contracts due to the adoption of Accounting Standards Update ("ASU") No. 2017-10, Service Concession Arrangements
(Topic 853): Determining the Customer of the Operation Services ("Topic 853"), which required rental expense for the periods after January 1, 2018 be presented as a
reduction of Services revenue - lease type contracts for that business (and corresponding contracts) that meet the criteria and definition of a service concession
arrangement. See Note 5. Revenue of the Consolidated Financial Statements, which is included in Part IV, Item 15. "Exhibits and Financial Statement Schedules," for
further discussion regarding the adoption of Topic 853.
(3) Includes right-of-use assets resulting from the adoption of ASU No. 2016-02 Leases (Topic 842), ("Topic 842"), on January 1, 2019. See Note 2. Leases of the
Consolidated Financial Statements, which is included in Part IV, Item 15. "Exhibits and Financial Statement Schedules" for further discussion regarding the adoption of
Topic 842.
(4) Includes finance lease obligations.
20
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 IV, Item 15. "Exhibits and Financial Statement Schedules" 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.
Explanatory Note
On November 30, 2018, we completed the Acquisition. Our consolidated results of operations for the year ended December 31,
2018 includes the results of operations for the period of November 30, 2018 through December 31, 2018. Our consolidated results
of operations for the year ended December 31, 2017 does not include amounts related to Bags. See Note 3. Acquisition, which is
included in Part IV, Item 15. "Exhibits and Financial Statement Schedules" for further discussion of the Acquisition.
General Overview
In evaluating our financial condition and operating performance, management’s primary focus is on our gross profit and total general
and administrative expenses. Revenue from lease type contracts includes all gross customer collections derived from our lease
type contracts (net of local parking taxes), whereas revenue from management type contracts only includes our contractually agreed
upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management
type contracts, therefore, are not included in our revenue. Additionally, revenue from lease type contracts also includes a reduction
of Services revenue - lease type contracts due to the adoption of ASU No. 2017-10, Service Concession Arrangements (Topic 853):
Determining the Customer of the Operation Services, which requires rental expense for the periods after January 1, 2018 be
presented as a reduction of Services revenue - lease type contracts for that business (and corresponding contracts) that meet the
criteria and definition of a service concession arrangement. Accordingly, while a change in the proportion of our operating agreements
that are structured as lease type contracts versus management type contracts may cause significant fluctuations in reported revenue
and expense of services that change will not artificially affect our gross profit. For example, as of December 31, 2019, 81% of our
business was operating under management type contracts and 82% of our gross profit for the year ended December 31, 2019 was
derived from management type contracts. Only 56% of total revenue (excluding reimbursed management type contract revenue)
for the year ended December 31, 2019, however, was from management type contracts because, under those contracts, the revenue
collected from customers belongs to our clients. Therefore, gross profit and total general and administrative expense, rather than
revenue, are management's primary focus.
We believe that sophisticated clients (which also include property owners) recognize the potential for parking services, parking
management, ground transportation services, baggage handling services and other ancillary services to be a profit generator and/
or a service differentiator to their customers. By outsourcing these services, they are able to capture additional profit and customer
experience by leveraging the unique operational skills and controls that an experienced services company can offer. Our ability to
consistently deliver a uniformly high level of services to our clients, including the use of various technological enhancements, allows
us to maximize the profit and/or customer experience to our clients and improves our ability to win contracts and retain existing
clients. Our focus on customer service and satisfaction is a key driver of our high retention rate, which was approximately 93% and
88% for the years ended December 31, 2019 and 2018, respectively. This retention rate captures facilities for the Commercial
segment.
Commercial Segment Facilities
The following table reflects our Commercial facilities (by contractual type) operated at the end of the years indicated:
Leased facilities (1)
Managed facilities
Total Commercial segment facilities
(1)
Includes partial ownership in one leased facility for 2019, 2018 and 2017.
2019
609
2,560
3,169
December 31,
2018
628
2,514
3,142
2017
644
2,722
3,366
21
Revenue
We recognize services revenue from lease and management type contracts as the related services are provided. Substantially all
of our revenue comes from the following two sources:
Lease type contracts. Consists of all revenue received at lease type locations, including gross receipts (net of local taxes),
consulting and real estate development fees, gains on sales of contracts and payments for exercising termination rights. Revenue
from lease type contracts includes a reduction of Services revenue - lease type contracts due to the adoption of Topic 853, which
requires rental expense for the periods after January 1, 2018 be presented as a reduction of Services revenue - lease type
contracts for that business (and corresponding contracts) that meet the criteria and definition of a service concession arrangement.
Management type contracts. Consists of management fees, including fixed, variable and/or performance-based fees, and
amounts attributable to ancillary services such as accounting, equipment leasing, baggage services, payments received for
exercising termination rights, consulting, developmental fees, gains on sales of contracts, insurance and other value-added
services with respect to managed type contracts. We believe we generally purchase required insurance at lower rates than our
clients can obtain on their own because we effectively self-insure for all liability and worker’s compensation 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 type contracts by focusing on our risk management efforts and controlling losses. Management type
contract revenues do not include gross customer collections at managed type contracts as these revenues belong to the client
rather than to us. Management type contracts generally provide us with a management fee regardless of the operating
performance of the underlying management type contract.
Reimbursed Management Type Contract Revenue. Consists of the direct reimbursement from the client for operating expenses
incurred under a management type contract, which are reflected in our revenue.
Cost of Services
Our cost of services consists of the following:
Lease type contracts. Consists of contractual rents or fees paid to the client and all operating expenses incurred in connection
with operating the leased facility. Contractual rents or fees paid to the client are generally based on either a fixed contractual
amount or a percentage of gross revenue or a combination thereof. Generally, under a lease type arrangement we are not
responsible for major capital expenditures or real estate taxes. Cost of services from lease type contracts includes a reduction
of Cost of services revenue - lease type contracts due to the adoption of Topic 853, which requires rental expense for the periods
after January 1, 2018 be presented as a reduction of Services revenue - lease type contracts (and corresponding contracts)
that meet the criteria and definition of a service concession arrangement.
Management type contracts. The cost of services under a management type contract is generally the responsibility of the client.
As a result, these costs are not included in our results of operations. However, our reverse management type contracts, which
typically provide for larger management fees, do require us to pay for certain costs and those costs are included in our results
of operations.
Reimbursed Management Type Contract Expense. Consists of direct reimbursed costs incurred on behalf of a client under a
management type contract, which are reflected in our cost of services.
Gross Profit
Gross profit equals our revenue less the cost of generating such revenue. This is the key metric we use to examine our performance
because it captures the underlying economic benefit to us of both lease and management type contracts.
General and Administrative Expenses
General and administrative expenses include salaries, wages, payroll taxes, insurance, travel and office related expenses for our
headquarters, field offices, supervisory employees, and board of directors.
Depreciation and Amortization
Depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes, or in the case
of leasehold improvements, over the initial term of the operating lease or its useful life, whichever is shorter. Intangible assets
determined to have finite lives are amortized over their remaining estimated useful lives.
22
Segments
In December 2019, we changed our internal reporting segment information and certain locations previously reported under
Commercial are now included in Other. All prior periods presented have been reclassified to conform to our internal reporting
structure.
• 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 ground transportation services, valet services, taxi and livery dispatch
services and event planning, including shuttle and transportation services.
•
•
Aviation encompasses our services in aviation (e.g., airports, airline and certain hospitality clients with baggage and parking
services) as well as ancillary services, which includes ground transportation services, valet services, baggage handling,
baggage repair and replacement, remote air check-in services and other services.
"Other" consists of ancillary revenue that is not specifically identifiable to Commercial or Aviation and certain unallocated
items, such as and including prior year insurance reserve adjustments/costs and other corporate items.
Analysis of Results of Operations
2019 Compared to 2018
The following tables are a summary of service revenues (excluding reimbursed management type contract revenue), cost of services
(excluding reimbursed management type contract expense) and gross profit by segment for the comparable years ended
December 31, 2019 and 2018.
Existing business represents business that has been operating for at least one year and operating for the entire period in the
comparative period being presented. Expired business relates to contracts that have expired but where we were operating the
business in the comparative period presented. The Other segment amounts in existing business represent amounts not specifically
allocated and/or identifiable to Commercial or Aviation.
Services revenue by segment is summarized as follows:
(millions)
Lease type contracts
Commercial
Aviation
Other
Total
Variance
2019
2018
2019
2018
2019
2018
2019
2018
Amount
%
Year Ended December 31,
New/Acquired business
$
38.0
$
29.1
$
3.1
$
— $
— $
— $
41.1
$
29.1
$
12.0
41.2 %
Expired business
Existing business
Conversions
10.7
306.4
22.2
37.2
297.9
22.0
4.9
22.7
—
5.3
21.7
—
—
0.9
—
—
0.7
—
15.6
330.0
22.2
42.5
320.3
22.0
(26.9)
(63.3)%
9.7
0.2
3.0 %
0.9 %
Total lease type contracts
$
377.3
$
386.2
$
30.7
$
27.0
$
0.9
$
0.7
$
408.9
$
413.9
$
(5.0)
(1.2)%
Management type contracts
New/Acquired business
$
39.0
$
14.9
$
184.1
$
22.3
$
— $
— $
223.1
$
37.2
$
185.9
499.7 %
Expired business
Existing business
Conversions
9.7
203.1
1.1
29.8
203.8
0.9
3.5
75.8
0.1
1.1
77.7
0.1
—
9.6
—
—
10.9
—
13.2
288.5
1.2
30.9
292.4
1.0
(17.7)
(57.3)%
(3.9)
0.2
(1.3)%
20.0 %
Total management type contracts
$
252.9
$
249.4
$
263.5
$
101.2
$
9.6
$
10.9
$
526.0
$
361.5
$
164.5
45.5 %
Lease type contracts
Lease type contract revenue decreased $5.0 million, or 1.2%, to $408.9 million for the year ended December 31, 2019, compared
to $413.9 million for the prior year. The decrease in lease type contract revenue resulted primarily from a decrease of $26.9 million
from expired business, partially offset by an increase of $9.7 million from existing business, $12.0 million from new/acquired business,
and $0.2 million from business that converted from management type contracts during the periods presented. Existing business
revenue increased $9.7 million, or 3.0%, primarily due to an increase in fees for transient revenue.
From a reporting segment perspective, lease type contract revenue decreased primarily due to expired business in Commercial
and Aviation, partially offset by increases from existing business in Commercial, Aviation, and Other, new/acquired business in
Commercial and Aviation, and conversions in Commercial.
Management type contracts
Management type contract revenue increased $164.5 million, or 45.5%, to $526.0 million for the year ended December 31, 2019,
compared to $361.5 million for the prior year. The increase in management type contract revenue resulted primarily from increases
of $185.9 million from new/acquired business primarily due to the Acquisition and $0.2 million from business that converted from
lease type contracts during the periods presented, partially offset by a decrease of $17.7 million from expired business and $3.9
million from existing business. Existing business revenue decreased $3.9 million, or 1.3%, primarily due to change in contract terms
23
for certain management type contracts, whereby the contract terms converted from a "reverse" management type contract to a
management type contract, which typically has lower management fees from the facility owner but do not require us to pay certain
operating costs associated with the facilities operation, partially offset by increased management fees.
From a reporting segment perspective, management type contract revenue increased primarily due to increases from new/acquired
business for Aviation and Commercial, expired business in Aviation, and conversions in Commercial, partially offset by decreases
from expired business in Commercial and existing business for Aviation, Other, and Commercial.
Reimbursed management type contract revenue
Reimbursed management type contract revenue increased $35.8 million, or 5.2%, to $728.8 million for the year ended December 31,
2019, compared to $693.0 million in the prior year. The increase resulted primarily from an increase in reimbursements for costs
incurred on behalf of a client.
Cost of services by segment is summarized as follows:
(millions)
Lease type contracts
Commercial
Aviation
Other
Total
Variance
2019
2018
2019
2018
2019
2018
2019
2018
Amount
%
Year Ended December 31,
New/Acquired business
$
34.9
$
26.6 $
2.3
$
— $
— $
— $
37.2
$
26.6
$
10.6
39.8 %
Expired business
Existing business
Conversions
9.6
282.8
20.6
37.5
275.6
20.7
3.0
17.1
—
3.2
16.5
—
—
(3.4)
—
—
(2.5)
—
12.6
296.5
20.6
40.7
289.6
20.7
(28.1)
(69.0)%
6.9
(0.1)
2.4 %
(0.5)%
Total lease type contracts
$
347.9
$
360.4 $
22.4
$
19.7
$
(3.4)
$
(2.5)
$
366.9
$
377.6
$
(10.7)
(2.8)%
Management type contracts
New/Acquired business
$
23.4
$
8.9 $
144.6
$
17.7
$
— $
— $
168.0
$
26.6
$
141.4
531.6 %
Expired business
Existing business
Conversions
6.6
19.8
121.4
122.2
0.4
0.2
1.2
48.5
—
0.5
51.1
—
—
(6.2)
—
—
(6.6)
—
7.8
163.7
0.4
20.3
166.7
0.2
(12.5)
(61.6)%
(3.0)
(1.8)%
0.2
100.0 %
Total management type contracts
$
151.8
$
151.1 $
194.3
$
69.3
$
(6.2)
$
(6.6)
$
339.9
$
213.8
$
126.1
59.0 %
Lease type contracts
Cost of services for lease type contracts decreased $10.7 million, or 2.8%, to $366.9 million for the year ended December 31, 2019,
compared to $377.6 million for the prior year. The decrease in cost of services for lease type contracts resulted primarily from
decreases of $28.1 million from expired business and $0.1 million from business that converted from management type contracts
during the periods presented, partially offset by an increase of $10.6 million from new/acquired business and $6.9 million from
existing business. The increase in existing business was primarily due to an increase in rent expense as a result of higher revenues
for existing business and an increase in compensation and benefits costs, primarily offset by a decrease in overall net operating
costs.
From a reporting segment perspective, cost of services for lease type contracts decreased primarily from expired business in
Commercial and Aviation, existing business in Other, and conversions in Commercial, partially offset by new/acquired business in
Commercial and Aviation, and existing business in Commercial and Aviation.
Management type contracts
Cost of services for management type contracts increased $126.1 million, or 59.0%, to $339.9 million for the year ended December 31,
2019, compared to $213.8 million for the prior year. The increase in cost of services for management type contracts resulted primarily
from an increase of $141.4 million from new/acquired business, primarily due to the Acquisition, and $0.2 million from business that
converted from lease type contracts during the periods presented, partially offset by decreases of $12.5 million from expired business
and $3.0 million from existing business. Existing business costs decreased $3.0 million, or 1.8%, primarily due to a decrease in
overall net operating costs and change in contract terms for certain management type contracts, whereby the contract terms
converted from a "reverse" management type contract to a management type contract, which typically has lower management fees
from the facility owner but do not require us to pay certain operating costs associated with the facilities operation, partially offset by
an increase in compensation and benefits costs.
From a reporting segment perspective, cost of services for management type contracts increased primarily from new/acquired
business in Aviation and Commercial, expired business in Aviation, Existing business in Other, and conversions in Commercial,
partially offset by decreases in expired business in Commercial and existing business in Aviation and Commercial.
24
Reimbursed management type contract expense
Reimbursed management type contract expense increased $35.8 million, or 5.2%, to $728.8 million for the year ended December 31,
2019, compared to $693.0 million in the prior year. The slight increase resulted primarily from an increase in reimbursements for
costs incurred on behalf of a client.
Segment gross profit/gross profit percentage information is summarized as follows:
Commercial
Aviation
Other
Total
Variance
2019
2018
2019
2018
2019
2018
2019
2018
Amount
%
Year Ended December 31,
(millions)
Lease type contracts
New/Acquired business
$
Expired business
Existing business
Conversions
3.1
1.1
23.6
1.6
$
2.5
$
(0.3)
22.3
1.3
0.8
1.9
5.6
—
8.3
$
$
—
2.1
5.2
—
7.3
Total lease type contracts
$
29.4
$
25.8
$
Gross profit percentage lease type contracts
New/Acquired business
Expired business
Existing business
Conversions
Total gross profit percentage
Management type contracts
8.2%
10.3%
7.7%
7.2%
7.8%
8.6 %
(0.8)%
7.5 %
5.9 %
6.7 %
25.8%
38.8%
24.7%
—%
—%
39.6%
24.0%
—%
27.0%
27.0%
New/Acquired business
$
15.6
$
6.0
$
39.5
$
Expired business
Existing business
Conversions
3.1
81.7
0.7
10.0
81.6
0.7
2.3
27.3
0.1
4.6
0.6
26.6
0.1
$
$
$
—
—
4.3
—
4.3
$
$
—
—
3.2
—
3.2
$
$
3.9
3.0
33.5
1.6
$
2.5
1.8
30.7
1.3
$
42.0
$
36.3
$
1.4
1.2
2.8
0.3
5.7
56.0 %
66.7 %
9.1 %
23.1 %
15.7 %
(Percentages)
—%
—%
—%
—%
477.8%
457.1%
—%
—%
—%
—%
9.5%
19.2%
10.2%
7.2%
10.3%
8.6%
4.2%
9.6%
5.9%
8.8%
—
—
15.8
—
$
—
—
17.5
—
$
55.1
$
10.6
$
44.5
419.8 %
5.4
124.8
0.8
10.6
125.7
0.8
(5.2)
(0.9)
—
(49.1)%
(0.7)%
— %
26.0 %
Total management type contracts
$
101.1
$
98.3
$
69.2
$
31.9
$
15.8
$
17.5
$
186.1
$
147.7
$
38.4
(Percentages)
Gross profit percentage management type
contracts
New/Acquired business
Expired business
Existing business
Conversions
Total gross profit percentage
Lease type contracts
40.0%
32.0%
40.2%
63.6%
40.0%
40.3 %
33.6 %
40.0 %
21.5%
65.7%
36.0%
20.6%
54.5%
34.2%
—%
—%
—%
—%
164.6%
160.6%
77.8 %
100.0%
100.0%
—%
—%
39.4 %
26.3%
31.5%
164.6%
160.6%
24.7%
40.9%
43.3%
66.7%
35.4%
28.5%
34.3%
43.0%
80.0%
40.9%
Gross profit for lease type contracts increased $5.7 million, or 15.7%, to $42.0 million for the year ended December 31, 2019,
compared to $36.3 million for the prior year. Gross profit percentage for lease type contracts increased to 10.3% for the year ended
December 31, 2019, compared to 8.8% for the prior year. Gross profit for lease type contracts increased as a result of increases
in gross profit for existing business, new/acquired business, expired business, and business that converted from management type
contracts during the periods presented. Gross profit for existing business increased primarily due to increases in transient revenue,
partially offset by an increase in compensation and benefits costs and rent expense.
From a reporting segment perspective, gross profit for lease type contracts increased primarily due to increases in existing business
in Commercial, Other and Aviation, new/acquired business in Aviation and Commercial, expired business in Commercial, and
conversions in Commercial, partially offset by decreases in expired business in Aviation.
Management type contracts
Gross profit for management type contracts increased $38.4 million, or 26.0%, to $186.1 million for the year ended December 31,
2019, compared to $147.7 million for the prior year. Gross profit percentage for management type contracts decreased to 35.4%
for the year ended December 31, 2019, compared to 40.9% for the year ago period. Gross profit for management type contracts
increased as a result of increases in gross profit for new/acquired business, primarily due to the Acquisition, partially offset by
decreases in expired business and existing business. Gross profit for existing business increased primarily due to decreases in net
operating costs and increased management fees.
From a reporting segment perspective, gross profit for management type contracts increased primarily due to new/acquired business
in Aviation and Commercial, expired business in Aviation, and existing business in Commercial and Aviation. This was partially offset
by decreases in expired business in Commercial and existing business in Other.
25
General and administrative expenses
General and administrative expenses increased $18.0 million, or 19.8%, to $109.0 million for year ended December 31, 2019,
compared to $91.0 million for the prior year. The increase in General and administrative expenses primarily related to the Acquisition,
a one-time $1.7 million cost recovery (reduction of expense) from a vendor partner recognized in 2018 and higher compensation
and benefit costs, including costs associated with our performance-based compensation program, partially offset by a reduction in
acquisition, restructuring and integration related costs.
Interest expense
Interest expense increased $9.3 million, or 96.9%, to $18.9 million for the year ended December 31, 2019, as compared to $9.6
million for the prior year. This increase resulted primarily from an increase in borrowings as a result of the Acquisition on November
30, 2018 (lower average borrowings under our credit facility prior to the Acquisition) and an increase in average borrowing rates.
Interest income
Interest income was $0.3 million and $0.4 million for the years ended December 31, 2019 and 2018, respectively.
Equity in (earnings) losses from investment in unconsolidated entity
Equity in earnings from investment in unconsolidated entity was $10.1 million for the year ended December 31, 2018, which was
related to the net gain recognized on the sale of our entire 30% equity interest in Parkmobile.
Income tax expense
For the year ended December 31, 2019, we recognized income tax expense of $19.4 million on earnings before income taxes of
$71.1 million compared to a $19.6 million income tax expense on earnings before income taxes of $76.0 million for the year ended
December 31, 2018. Our effective tax rate was 27.3% for the year ended December 31, 2019 compared to 25.8% for the year
ended December 31, 2018. The $0.2 million decrease in income tax expense was primarily due to an increase in estimated income
tax credits, a reduction in state taxes as a result of one-time unfavorable 2018 audit settlements, and a smaller increase in the
valuation allowance as compared to 2018 due to impacts of the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") in 2018.
26
2018 Compared to 2017
The following tables are a summary of service revenues (excluding reimbursed management type contract revenue), cost of services
(excluding reimbursed management type contract expense) and gross profit by segment for the comparable years ended
December 31, 2018 and 2017.
Existing business represents business that has been operating for at least one year and operating for the entire period in the
comparative period being presented. Expired business relates to contracts that have expired but where we were operating the
business in the comparative period presented. The Other segment amounts in existing business represent amounts not specifically
allocated and/or identifiable to Commercial or Aviation.
Services revenue by segment is summarized as follows:
(millions)
Lease type contracts
Commercial
Aviation
Other
Total
Variance
2018
2017
2018
2017
2018
2017
2018
2017
Amount
%
Year Ended December 31,
New/Acquired business (a) (b)
$
42.3
$
33.7
$
1.2
$
Expired business (c)
Existing business (d) (e)
Conversions
15.8
302.6
25.5
61.5
311.1
27.5
—
25.8
—
3.0
—
126.3
—
Total lease type contracts
$
386.2
$
433.8
$
27.0
$
129.3
$
— $
— $
43.5
$
36.7
$
6.8
18.5 %
—
0.7
—
0.7
—
—
—
15.8
329.1
25.5
61.5
437.4
27.5
(45.7)
(74.3)%
(108.3)
(24.8)%
(2.0)
(7.3)%
— $
413.9
$
563.1
$
(149.2)
(26.5)%
Management type contracts
New/Acquired business (f)
$
49.3
$
33.0
$
31.1
$
15.3
$
— $
— $
80.4
$
48.3
$
32.1
66.5 %
Expired business
Existing business
Conversions
15.0
184.1
1.0
34.6
179.1
1.4
0.8
69.2
0.1
3.7
70.1
—
—
10.9
—
—
11.0
—
15.8
264.2
1.1
38.3
260.2
1.4
(22.5)
(58.7)%
4.0
1.5 %
(0.3)
(21.4)%
Total management type contracts
$
249.4
$
248.1
$
101.2
$
89.1
$
10.9
$
11.0
$
361.5
$
348.2
$
13.3
3.8 %
(a) The year ended December 31, 2018 new/acquired business in Commercial includes a $8.9 million reduction of Services revenue - lease type contracts due to the
adoption of Topic 853, which requires rental expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and
corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(b) The year ended December 31, 2018 new/acquired business in Aviation includes a $2.3 million reduction of Services revenue - lease type contracts due to the adoption
of Topic 853, which requires rental expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and
corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(c) The year ended December 31, 2018 expired business in Commercial includes a $0.3 million reduction of Services revenue - lease type contracts due to the adoption
of Topic 853, which requires rental expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and
corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(d) The year ended December 31, 2018 existing business in Commercial includes a $14.9 million reduction of Services revenue - lease type contracts due to the adoption
of Topic 853, which requires rental expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and
corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(e) The year ended December 31, 2018 existing business in Aviation includes a $107.1 million reduction of Services revenue - lease type contracts due to the adoption
of Topic 853, which requires rental expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and
corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(f) On November 30, 2018, we completed the Acquisition. The year ended December 31, 2018 new/acquired business in Aviation includes Bags Services revenue -
management type contracts, for the period of November 30, 2018 through December 31, 2018. See Note 3. Acquisition, which is included in Part IV, Item 15. "Exhibits
and Financial Statement Schedules" for further discussion of the Acquisition.
Lease type contracts
Lease type contract revenue decreased $149.2 million, or 26.5%, to $413.9 million for the year ended December 31, 2018, compared
to $563.1 million for the prior year. The decrease in lease type contract revenue resulted primarily from deceases of $108.3 million
from existing business, $45.7 million from expired business, and $2.0 million from business that converted from management type
contracts during the year, partially offset by an increase of $6.8 million from new/acquired business. The decrease in expired business
includes earnings of $8.5 million from our proportionate share of the net gain on the equity method investee's sale of assets
recognized during the year ended December 31, 2017. Existing business revenue decreased $108.3 million, or 24.8%, primarily
due to the adoption of ASU No. 2017-10, Service Concession Arrangements (Topic 853), which requires rental expense to be
presented as a reduction of Services revenue - lease type contracts versus the comparative period presentation of recording rent
expense as an increase to Cost of services - lease type contracts for that business (and corresponding contracts) meeting the
criteria and definition of a service concession arrangement, as discussed in Note 5. Revenue to the Consolidated Financial
Statements included in Item 15. "Exhibits and Financial Statement Schedules", partially offset by net increases in short-term parking
revenue, monthly parking revenue and transient parking revenue.
From a reporting segment perspective, lease type contract revenue decreased primarily due to expired business in Commercial,
existing business in Commercial and Aviation, conversions in Commercial, and new/acquired business in Aviation, partially offset
by increases from new/acquired business in Commercial and existing business in Other.
27
Management type contracts
Management type contract revenue increased $13.3 million, or 3.8%, to $361.5 million for the year ended December 31, 2018,
compared to $348.2 million for the prior year. The increase in management type contract revenue resulted primarily from increases
of $32.1 million from new/acquired business, and $4.0 million from existing business, partially offset by a decrease of $22.5 million
from expired business and $0.3 million from business that converted from lease type contracts during the periods presented. Existing
business revenue increased $4.0 million, or 1.5%, primarily due to change in contract terms for certain management type contracts,
whereby the contract terms converted from a management type contract to a "reverse" management type contract, which typically
has higher management fees from the client but require us to pay certain operating costs associated with the operation, and increased
management fees.
From a reporting segment perspective, management type contract revenue increased primarily due to increases in new/acquired
business for Commercial and Aviation, existing business for Commercial and Other, and conversions in Aviation, partially offset by
decreases in expired business in Commercial and Aviation, existing business for Aviation, and conversions in Commercial.
Reimbursed management type contract revenue
Reimbursed management type contract revenue increased $13.8 million, or 2.0%, to $693.0 million for the year ended December 31,
2018, compared to $679.2 million in the prior year. The slight increase resulted primarily from an increase in reimbursements for
costs incurred on behalf of a client.
Segment cost of services information is summarized as follows:
(millions)
Lease type contracts
Commercial
Aviation
Other
Total
Variance
2018
2017
2018
2017
2018
2017
2018
2017
Amount
%
Year Ended December 31,
New/Acquired business (a) (b)
$
39.0
$
32.0
$
0.7
$
Expired business (c)
Existing business (d) (e)
Conversions
15.9
281.4
24.0
46.5
289.8
29.1
—
19.1
—
2.7
—
119.9
—
$
— $
— $
39.7
$
34.7
$
5.0
14.4 %
—
(2.5)
—
—
(1.6)
—
15.9
298.0
24.0
46.5
(30.6)
(65.8)%
408.1
(110.1)
(27.0)%
29.1
(5.1)
(17.5)%
Total lease type contracts
$
360.3
$
397.4
$
19.8
$
122.6
(2.5)
$
(1.6)
$
377.6
$
518.4
$
(140.8)
(27.2)%
Management type contracts:
New/Acquired business (f)
$
29.5
$
18.5
$
25.9
$
14.7
$
— $
— $
55.4
$
33.2
$
22.2
66.9 %
Expired business
Existing business
Conversions
9.8
111.6
0.2
20.1
109.0
0.4
0.5
42.9
—
2.6
45.6
—
—
(6.6)
—
—
(3.3)
—
10.3
147.9
0.2
22.7
151.3
0.4
(12.4)
(54.6)%
(3.4)
(0.2)
(2.2)%
(50.0)%
Total management type contracts
$
151.1
$
148.0
$
69.3
$
62.9
$
(6.6)
$
(3.3)
$
213.8
$
207.6
$
6.2
3.0 %
(a) The year ended December 31, 2018 new/acquired business in Commercial includes a $8.9 million reduction of Cost of services - lease type contracts due to the
adoption of Topic 853, which requires rent expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and
corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(b) The year ended December 31, 2018 new/acquired business in Aviation includes a $2.3 million reduction of Cost of services - lease type contracts due to the adoption
of Topic 853, which requires rent expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and corresponding
contracts) that meet the criteria and definition of a service concession arrangement.
(c) The year ended December 31, 2018 expired business in Commercial includes a $0.3 million reduction of Cost of services - lease type contracts due to the adoption
of Topic 853, which requires rental expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and
corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(d) The year ended December 31, 2018 existing business in Commercial includes a $14.9 million reduction of Cost of services - lease type contracts due to the adoption
of Topic 853, which requires rent expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and corresponding
contracts) that meet the criteria and definition of a service concession arrangement.
(e) The year ended December 31, 2018 existing business in Aviation includes a $107.1 million reduction of Cost of services - lease type contracts due to the adoption
of Topic 853, which requires rent expense for the current period be presented as a reduction of Services revenue - lease type contracts for that business (and corresponding
contracts) that meet the criteria and definition of a service concession arrangement.
(f) On November 30, 2018, we completed the Acquisition. The year ended December 31, 2018 new/acquired business in Aviation includes Bags Cost of Services -
management type contracts, for the period of November 30, 2018 through December 31, 2018. See Note 3. Acquisition, which is included in Part IV, Item 15. "Exhibits
and Financial Statement Schedules" for further discussion of the Acquisition.
Lease type contracts
Cost of services for lease type contracts decreased $140.8 million, or 27.2%, to $377.6 million for the year ended December 31,
2018, compared to $518.4 million for the prior year. The decrease in cost of services for lease type contracts resulted primarily from
decreases of $110.1 million from existing business, $30.6 million from expired business and $5.1 million from business that converted
from management type contracts during the periods presented, partially offset by an increase of $5.0 million from new/acquired
business. Existing business decreased $110.1 million, or 27.0%, primarily due to the adoption of ASU No. 2017-10, Service
28
Concession Arrangements (Topic 853) which requires rental expense to be presented as a reduction of Services revenue - lease
type contracts versus the comparative period presentation of recording rent expense as an increase to Cost of services - lease type
contracts for that business (and corresponding contracts) meeting the criteria and definition of a service concession arrangement,
as discussed in Note 5. Revenue to the Consolidated Financial Statements included in Item 15. "Exhibits and Financial Statement
Schedules", an overall decrease in net operating costs, increased favorability related to unallocated insurance reserve adjustments/
costs and other corporate items and a decrease in rent expense.
From a reporting segment perspective, cost of services for lease type contracts decreased primarily due to decreases from expired
business in Commercial, existing business in Commercial, Aviation and Other, conversions in Commercial and new/acquired
business in Aviation, offset by increases in new/acquired business in Commercial.
Management type contracts
Cost of services for management type contracts increased $6.2 million, or 3.0%, to $213.8 million for the year ended December 31,
2018, compared to $207.6 million for the prior year. The increase in cost of services for management type contracts resulted primarily
from an increase of $22.2 million from new/acquired business, partially offset by decreases of $12.4 million from expired business,
$3.4 million from existing business and $0.2 million from business that converted from lease type contracts during the periods
presented. Existing business costs decreased $3.4 million, or 2.2%, primarily due to a decrease in overall net operating costs.
From a reporting segment perspective, cost of services for management type contracts increased primarily from new/acquired
business in Commercial and Aviation, and existing business in Commercial, partially offset by decreases from expired business in
Commercial and Aviation, existing business in Aviation and Other, and conversions in Commercial.
Reimbursed management type contract expense
Reimbursed management type contract expense increased $13.8 million, or 2.0%, to $693.0 million for the year ended December 31,
2018, compared to $679.2 million in the prior year. The slight increase resulted primarily from an increase in reimbursements for
costs incurred on behalf of a client.
29
Segment gross profit/gross profit percentage information is summarized as follows:
(millions)
Lease type contracts
Commercial
Aviation
Other
Total
Variance
2018
2017
2018
2017
2018
2017
2018
2017
Amount
%
Year Ended December 31,
New/Acquired business
$
3.3
$
1.7
$
Expired business
Existing business
Conversions
(0.1)
21.2
1.5
15.0
21.3
(1.6)
Total lease type contracts
$
25.9
$
36.4
$
Gross profit percentage lease type contracts
New/Acquired business (a)
Expired business
Existing business (b)
Conversions
Total gross profit percentage
Management type contracts
7.8%
-0.6%
7.0%
5.9%
6.7%
5.0%
24.4%
6.8%
-5.8%
8.4%
New/Acquired business (c)
$
19.8
$
14.5
$
Expired business
Existing business
Conversions
5.2
72.5
0.8
14.5
70.1
1.0
0.5
—
6.7
—
7.2
$
$
0.3
—
6.4
—
6.7
(Percentages)
41.7%
10.0%
—%
26.0%
—%
26.7%
5.2
0.3
26.3
0.1
—%
5.1%
—%
5.2%
$
0.6
1.1
24.5
—
$
$
—
—
3.2
—
3.2
$
$
—
—
1.6
—
1.6
$
3.8
$
2.0
$
1.8
90.0 %
(0.1)
31.1
1.5
15.0
29.3
(1.6)
(15.1)
(100.7)%
1.8
3.1
6.1 %
(193.8)%
$
36.3
$
44.7
$
(8.4)
(18.8)%
—%
—%
—%
—%
—%
—
—
17.5
—
—%
—%
—%
—%
—%
—
—
14.3
—
8.7%
-0.6%
9.5%
5.9%
8.8%
5.4%
24.4%
6.7%
-5.8%
7.9%
$
25.0
$
15.1
$
9.9
65.6 %
5.5
116.3
0.9
15.6
108.9
1.0
(10.1)
(64.7)%
7.4
(0.1)
6.8 %
—
5.0 %
Total management type contracts
$
98.3
$
100.1
$
31.9
$
26.2
$
17.5
$
14.3
$
147.7
$
140.6
$
7.1
(Percentages)
Gross profit percentage management type
contracts
New/Acquired business
Expired business
Existing business
Conversions
Total gross profit percentage
40.2%
34.7%
39.4%
80.0%
39.4%
43.9%
41.9%
39.1%
71.4%
40.3%
16.7%
37.5%
38.0%
—%
3.9%
29.7%
35.0%
—%
—%
—%
—%
—%
160.6%
130.0%
—%
—%
31.5%
29.4%
160.6%
130.0%
31.1%
34.8%
44.0%
81.8%
40.9%
31.3%
40.7%
41.9%
71.4%
40.4%
(a) The year ended December 31, 2018 new/acquired business in Commercial and Aviation includes an increase in gross profit percentage due to the reduction of
Services revenue - lease type contracts due to the adoption of Topic 853, which requires rent expense for the current period be presented as a reduction of Services
revenue - lease type contracts for that business (and corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(b) The year ended December 31, 2018 existing business in Aviation includes an increase in gross profit percentage due to the reduction of Services revenue - lease
type contracts due to the adoption of Topic 853, which requires rent expense for the current period be presented as a reduction of Services revenue - lease type contracts
for that business (and corresponding contracts) that meet the criteria and definition of a service concession arrangement.
(c) On November 30, 2018, we completed the Acquisition. The year ended December 31, 2018 new/acquired business in Aviation includes Bags Gross profit - management
type contracts, for the period of November 30, 2018 through December 31, 2018. See Note 3. Acquisition, which is included in Part IV, Item 15. "Exhibits and Financial
Statement Schedules" for further discussion of the Acquisition.
Lease type contracts
Gross profit for lease type contracts decreased $8.4 million, or 18.8%, to $36.3 million for the year ended December 31, 2018,
compared to $44.7 million for the prior year. Gross profit percentage for lease type contracts increased to 8.8% for the year ended
December 31, 2018, compared to 7.9% for the prior year. Gross profit for lease type contracts decreased as a result of a decrease
in gross profit for expired business, partially offset by increases in existing business, new/acquired business and business that
converted from management type contracts during the periods presented. The gross profit decrease in expired business includes
earnings of $8.5 million from our proportionate share of the net gain on the equity method investee's sale of assets recognized
during the year ended December 31, 2017. Gross profit for existing business increased primarily due to short-term parking revenue,
monthly parking revenue and transient parking revenue and increased favorability relating to certain unallocated insurance reserve
adjustments/costs and other unallocated corporate items.
From a reporting segment perspective, gross profit for lease type contracts decreased primarily due to decreases in expired business
in Commercial and existing business in Commercial, partially offset by increases in new/acquired business in Commercial and
Aviation, existing business in Aviation and Other and conversions in Commercial.
Management type contracts
Gross profit for management type contracts increased $7.1 million, or 5.0%, to $147.7 million for the year ended December 31,
2018, compared to $140.6 million for the prior year. Gross profit percentage for management type contracts increased to 40.9% for
the year ended December 31, 2018, compared to 40.4% for the year ago period. Gross profit for management type contracts
increases were primarily the result of new/acquired business and existing business, partially offset by decreases in expired business
and business that converted from lease type contracts during the year. Gross profit for management type contracts increased on
existing business primarily due to net increases in management fees and unallocated insurance reserve adjustments/costs and
30
other unallocated corporate items, partially offset by net increases in compensation and benefit costs and overall net increase in
operating costs.
From a reporting segment perspective, gross profit for management type contracts increased primarily due to new/acquired business
in Commercial and Aviation, existing business in Commercial, Aviation and Other and conversions in Aviation. This was partially
offset by decreases in expired business in Commercial and Aviation and conversions in Commercial.
General and administrative expenses
General and administrative expenses increased $8.1 million, or 9.8%, to $91.0 million for year ended December 31, 2018, compared
to $82.9 million for the prior year. The increase in General and administrative expenses primarily related to the Acquisition, an
increase in acquisition, restructuring and integration costs, compensation and benefit costs, and expected pay-out under our
performance based compensation and long-term incentive compensation programs, partially offset by a $1.7 million cost recovery
(reduction of expense) from a vendor partner and overall better expense control.
Interest expense
Interest expense increased $0.4 million, or 4.3%, to $9.6 million for the year ended December 31, 2018, as compared to $9.2
million for the prior year. This increase resulted primarily from an increase in borrowings as a result of the Acquisition on November
30, 2018 and an increase in average borrowing rates, partially offset by lower average borrowings under our credit facility prior to
the Acquisition.
Interest income
Interest income was $0.4 million and $0.6 million for the years ended December 31, 2018 and 2017, 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 (earnings) losses from investment in unconsolidated entity
Equity in earnings from investment in unconsolidated entity relates to our investment in the joint venture with Parkmobile, which
was accounted for under the equity method of accounting, and our share of equity earnings in the Parkmobile joint venture. Equity
in earnings from investment in unconsolidated entity was $10.1 million for the year ended December 31, 2018, as compared to a
loss of $0.7 million in the prior year. The increase in earnings from investment in unconsolidated entity for the year ended
December 31, 2018 is primarily related to our $10.1 million net gain recognized on the sale of our entire 30% equity interest in
Parkmobile.
Income tax expense
For the year ended December 31, 2018, we recognized income tax expense of $19.6 million on earnings before income taxes of
$76.0 million compared to a $27.7 million income tax expense on earnings before income taxes of $72.2 million for the year ended
December 31, 2017. Our effective tax rate was 25.8% for the year ended December 31, 2018 compared to 38.4% for the year
ended December 31, 2017. The $8.1 million decrease in income tax expense was primarily due to the reduction in the statutory
federal income tax rate to 21% per the 2017 Tax Act and the finalization of the tax accounting for the effects of the 2017 Tax Act,
partially offset by adjustments to the state tax provision for a state tax examination.
On December 22, 2017, the 2017 Tax Act was signed into law. The 2017 Tax Act significantly revised U.S. corporate income taxes
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 repatriation tax on deemed repatriated earnings of foreign subsidiaries. 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 were expected to reverse in the future
was $1.6 million income tax benefit, which included 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 a $1.8 million income tax expense based on the cumulative foreign earnings of $14.1 million and our current best estimates.
Additionally, we recognized a tax charge of $0.6 million as an additional provision for withholding taxes on undistributed earnings
not considered to be permanently reinvested.
During the year ended December 31, 2018, we recorded a current tax benefit of $1.5 million for the finalization of our accounting
for the transition tax on the mandatory deemed repatriation of foreign earnings. The current year benefit was the result of finalizing
our analysis of foreign earnings and profits and eligible foreign tax credits to be claimed to offset the tax liability. We finalized our
accounting for the income tax effects of the 2017 Tax Act in the fourth quarter 2018.
31
Analysis of Financial Condition
Liquidity and Capital Resources
General
On an ongoing basis, we estimate anticipated cash requirements for our operating, investing, and financing needs as well as cash
flows to be generated from operating activities available to meet these needs. Our operating needs can include, among other items,
commitments for cost of 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, 2019, we had total indebtedness of approximately $369.0 million, a decrease of $17.7 million from $386.7
million as of December 31, 2018. The $369.0 million included:
•
•
$345.9 million under our Senior Credit Facility (as defined below); and
$23.1 million of other debt including finance lease obligations and other indebtedness.
Senior Credit Facility
On November 30, 2018 (the "Closing Date"), in connection with the Acquisition, we entered into a credit agreement (the “Credit
Agreement”) with Bank of America, N.A. (“Bank of America”), as Administrative Agent, swing-line lender and a letter of credit issuer;
Wells Fargo Bank, N.A., as syndication agent; BMO Harris Bank N.A., JPMorgan Chase Bank, N.A., KeyBank National Association
and U.S. Bank National Association, as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells
Fargo Securities, LLC, as joint lead arrangers and joint bookrunners; and the lenders party thereto (the “Lenders”). Pursuant to the
terms, and subject to the conditions, of the Credit Agreement, the Lenders made available to us a new senior secured credit facility
(the “Senior Credit Facility”) that permits aggregate borrowings of $550 million consisting of (i) a revolving credit facility of up to
$325 million at any time outstanding, which includes a letter of credit facility that is limited to $100 million at any time outstanding,
and (ii) a term loan facility of $225 million. The Senior Credit Facility matures on November 30, 2023.
The entire amount of the term loan portion of the Senior Credit Facility was drawn on the Closing Date and is subject to scheduled
quarterly amortization of principal in installments equal to 1.25% of the initial aggregate principal amount of such term loan. We
also borrowed $174.8 million under the revolving credit facility on the Closing Date. The proceeds from these borrowings were used
to pay the purchase price for the Acquisition (See Note 3. Acquisition), to pay other costs and expenses related to the Acquisition
and the related financing and to repay in full the obligations under our previous credit facility. In addition, proceeds from the Senior
Credit Facility may be used to finance working capital, capital expenditures and other acquisitions, payments and general corporate
purposes.
Borrowings under the Senior Credit Facility bear interest, at our option, (i) at a rate per annum based on our consolidated total debt
to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance
with the applicable pricing levels set forth in the Credit Agreement (the “Applicable Margin”) for London Interbank Offered Rate
("LIBOR") (or a comparable or successor rate approved by Bank of America) loans, plus the applicable LIBOR rate, or (ii) the
Applicable Margin for base rate loans plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate
and (z) a daily rate equal to the applicable LIBOR rate plus 1.0%.
Under the terms of the Credit Agreement, we are required to maintain a maximum consolidated total debt to EBITDA ratio of not
greater than 4.00:1.0 (with certain step-downs described in the Credit Agreement). In addition, we are required to maintain a
minimum consolidated fixed charge coverage ratio of not less than 3.50:1.0 (with certain step-ups described in the Credit Agreement).
Events of default under the Credit Agreement include failure to pay principal or interest when due, failure to comply with the financial
and operational covenants, the occurrence of any cross default event, non-compliance with other loan documents, the occurrence
of a change of control event, and bankruptcy or other insolvency events. If an event of default occurs and is continuing, the
Administrative Agent can, with the consent of the required Lenders, among others (i) terminate the commitments under the Credit
Agreement, (ii) accelerate and require us to repay all the outstanding amounts owed under the Credit Agreement, and (iii) require
us to cash collateralize any outstanding letters of credit
Each of our wholly-owned domestic subsidiaries (subject to certain exceptions set forth in the Credit Agreement) have guaranteed
all existing and future indebtedness and liabilities of the other guarantors and us arising under the Credit Agreement. Our obligations
under the Credit Agreement and such domestic subsidiaries’ guaranty obligations are secured by substantially all of their respective
assets.
We were in compliance with our debt covenants as of December 31, 2019.
As of December 31, 2019, we had $139.8 million of borrowing availability under the Credit Agreement, of which we could have
borrowed $139.8 million on December 31, 2019 and remained in compliance with the above described covenants as of such date.
Our borrowing availability under the Credit Agreement is limited only as of our fiscal quarter-end by the covenant restrictions described
above. At December 31, 2019, we had $50.2 million letters of credit outstanding under the Senior Credit Facility and borrowings
32
against the Senior Credit Facility aggregated $348.7 million (excluding debt discount of $1.2 million and deferred financing costs
of $1.6 million).
Stock Repurchases
In May 2016, our Board of Directors authorized us to repurchase in the open market shares of our outstanding common stock in
an amount not to exceed $30.0 million. In July 2019, our Board of Director's authorized a new program to repurchase, on the open
market, shares of its outstanding common stock in an amount not to exceed $50.0 million in aggregate.
Under the May 2016 program, the entire authorized amount was applied to repurchase 988,767 shares of common stock at an
average price of $30.30 resulting in completion of the program in August 2019. No repurchases were made during the year ended
December 31, 2018.
Under the July 2019 program we repurchased 652,000 shares of common stock during the year-ended December 31, 2019, at an
average price of $38.88, resulting in $25.4 million in program-to-date repurchases.
As of December 31, 2019, $24.7 million remained available for repurchase under the July 2019 stock repurchase program. 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 Rules 10b-18 and 10b5-1 under the Securities Exchange Act of 1934 at time
and prices considered to be appropriate at our discretion. The share repurchase program does not obligate us to repurchase any
particular amount of common stock, has no fixed termination date and the program may be suspended at any time at our discretion.
Letters of Credit
We provided letters of credit totaling $17.2 million and $24.9 million to our casualty insurance carriers to collateralize our casualty
insurance program as of December 31, 2019 and 2018, respectively.
We provided $33.0 million and $26.2 million in letters of credit to collateralize other obligations as of December 31, 2019 and 2018,
respectively.
Interest Rate Collars
In May 2019, we entered into three-year interest rate collar contracts with an aggregate $222.3 million notional amount. Interest
rate collars are used to manage interest rate risk associated with variable interest rate borrowings under the Credit Agreement. The
collars establish a range where we will pay the counterparties if the one-month U.S. dollar LIBOR rate falls below the established
floor rate, and the counterparties will pay us if the one-month U.S. dollar LIBOR rate exceeds the established ceiling rate of 2.5%.
The collars settle monthly through the termination date of April 2022. No payments or receipts are exchanged on the interest rate
collar contracts unless interest rates rise above or fall below the pre-determined ceiling or floor rates. The notional amount amortizes
consistent with pay down of the term loan portion of the Senior Credit Facility. These interest rate collars are classified as cash flow
hedges, and we calculate the effectiveness of the hedge on a monthly basis. As of December 31, 2018, we had no ongoing derivative
transactions.
We do not enter into derivative instruments for any speculative purposes.
Deficiency Payments and Repayments
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. During the year
ended December 31, 2019, we had made $0.1 million of cumulative deficiency payments to the trustee, net of reimbursements.
Deficiency payments made are recorded as increases to cost of services and deficiency repayments are recorded as reductions
to cost of 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.
The total deficiency repayments (net of deficiency payments), interest and premium received and recorded for the years ended
2019, 2018 and 2017 are as follows:
(millions)
Deficiency repayments
Interest
Premium
Year Ended December 31
2018
2017
2019
$
$
3.8
1.0
0.4
$
3.9
0.9
0.3
2.0
0.6
0.2
33
Daily Cash Collections
As a result of day-to-day operations, we collect significant amounts of cash. Lease type 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 type 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 $24.1 million at December 31, 2019, compared to $39.9 million at December 31, 2018. 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 were $0.5 million and $1.7 million as of December 31,
2019 and 2018, respectively, 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.
Summary of Cash Flows
(millions)
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash (used in) provided by financing activities
Operating Activities
Years ended December 31,
2018
2017
2019
$
$
$
76.0
$
(12.5) $
(79.4) $
$
70.9
(268.4) $
$
215.2
45.2
2.3
(47.2)
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 $76.0 million for 2019, compared to $70.9 million for 2018. Cash provided during
2019 included $91.7 million from operations, partially offset by changes in operating assets and liabilities that resulted in a use of
$15.7 million. The net increase in operating assets and liabilities was a result of (i) an increase in notes and accounts receivable
of $12.7 million primarily related to timing of collections; (ii) a $5.2 million increase in accounts payable primarily due to timing of
payments to our clients as described under "Daily Cash Collections"; (iii) an increase in prepaid and other assets of $11.7 million
primarily due to increases in prepaid insurance and the value of Company-owned life insurance policies; and (iv) a $3.5 increase
in accrued liabilities primarily due to timing of payments.
Net cash provided by operating activities totaled $70.9 million for 2018, compared to $45.2 million for 2017. Cash provided during
2018 included $70.7 million from operations, partially offset by changes in operating assets and liabilities that resulted in a cash
source of $0.2 million. The net increase in operating assets and liabilities resulted primarily from: (i) a net increase in accounts
payable and accrued liabilities of $14.7 million, which primarily resulted from timing of payments to our clients as described under
"Daily Cash Collections", partially offset by recognizing a contract liability upon the adoption of Topic 606 (effective January 1, 2018);
(ii) a net decrease in prepaid expenses and other of $2.2 million, primarily due to a decrease in prepaid taxes; offset by (iii) a net
increase in notes and accounts receivable of $16.7 million due to recognizing a contract asset upon adoption of Topic 606 (effective
January 1, 2018) and timing of collections.
Investing Activities
Net cash used in investing activities totaled for $12.5 million for 2019, compared to net cash used in of $268.4 million in 2018. Cash
used in investing activities in 2019 included (i) $10.2 million for capital investments needed to secure and/or extend leased and
managed facilities and investments in information system enhancements and infrastructure; (ii) $2.6 million for cost of contract
purchases; offset by (iii) $0.3 million of proceeds from the sale of assets and contract terminations.
Net cash used in investing activities totaled for $268.4 million for 2018, compared to net cash provided of $2.3 million in 2017. Cash
used in investing activities in 2018 included (i) $277.9 million for the Acquisition, net of cash acquired; (ii) $8.9 million for capital
investments needed to secure and/or extend leased and managed facilities and investments in information system enhancements
and infrastructure; (iii) $1.1 million for cost of contract purchases; offset by (iv) $19.3 million in proceeds received from the sale of
an equity method investee's sale of assets; and (v) $0.2 million of proceeds from the sale of assets and contract terminations.
34
Financing Activities
Net cash used in financing activities totaled $79.4 million in 2019, compared to net cash provided by of $215.2 million in 2018. Cash
used in financing activities for 2019 included (i) net payments on the credit facility of $26.3; (ii) payments for the repurchase of
common stock of $47.6 million; (iii) distributions to noncontrolling interests of $3.2 million; and (iv) payments on other long-term
borrowings of $2.3 million.
Net cash provided by financing activities totaled $215.2 million in 2018, compared to a use of $47.2 million in 2017. Cash provided
by financing activities for 2018 included net proceeds from the credit facility of $222.2 (primarily due to the Acquisition); partially
offset by (i) payments of debt issuance costs and original discount on borrowings of $3.2 million; (ii) distributions to noncontrolling
interests of $3.3 million; and (iii) payments on other long-term borrowings of $0.5 million.
Summary Disclosures about Contractual Obligations and Commercial Commitments
The following summarizes certain of our contractual obligations at December 31, 2019 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)
Finance leases
Service concession arrangements (2)
Total contractual obligations
Other Long-Term Liabilities
Deferred Compensation
Other long-term liabilities (3)
Total other long-term liabilities
Commercial Commitments
Senior Credit Facility (4)
Other Debt (4)
Interest payments on debt
Letters of credit (5)
Total commercial commitments
Total
Total
2020
2021 - 2022
2023 - 2024
2025 and
thereafter
Payments Due by Period
$
$
$
$
$
$
$
513.2
21.4
285.6
820.2
5.8
48.8
54.6
348.7
4.3
54.3
50.2
457.5
1,332.3
$
$
$
$
$
$
$
133.7
4.0
95.3
233.0
0.5
18.6
19.1
11.2
4.3
15.2
50.2
80.9
333.0
$
$
$
$
$
$
$
187.7
7.5
72.3
267.5
1.1
11.4
12.5
22.5
—
27.8
50.3
330.3
$
$
$
$
$
$
$
94.9
3.9
51.0
149.8
1.3
10.9
12.2
315.0
—
11.3
326.3
488.3
$
$
$
$
$
$
$
96.9
6.0
67.0
169.9
2.9
7.9
10.8
—
—
—
—
—
180.7
(1) Represents minimum rental commitments, excluding (i) contingent rent provisions under all non-cancelable leases; and (ii) sublease income of $5.5 million.
(2) Represents lease type contracts that meet the definition of service concession arrangements under Topic 853.
(3) Represents customer deposits, insurance claims and obligation related to acquisitions.
(4) Represents principal amounts and excludes debt issuance and discount costs. See Note 13. Borrowing Arrangements to the Consolidated Financial Statements
included in Part IV, Item 15. "Exhibits and Financial Statements Schedules."
(5) 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 $3.8 million, $3.9 million
and $2.0 million for the years ended December 31, 2019 and 2018 and 2017, 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.
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.
35
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 evaluate goodwill 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 October 1 or at an interim date if there is an event or change in circumstances
indicating the carrying value may not be recoverable. The goodwill impairment test is performed at the reporting unit level; the
Company's reporting units represent its operating segments, consisting of Commercial and Aviation. 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.
If we do not elect to perform a qualitative assessment, we can voluntarily proceed directly to Step 1. In Step 1, we perform a
quantitative analysis to compare the fair value of the reporting unit to its carrying value including goodwill. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired, and we are
not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value
of the reporting unit, then we must perform Step 2 of the impairment test in order to determine the implied fair value of the reporting
unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, then we would record an impairment
loss equal to the difference.
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 its intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors,
including external factors such as industry and economic trends, and internal factors, such as changes in its business strategy and
internal forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, different
assumptions and estimates could materially impact its reported financial results.
Long-Lived Assets
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 those assets underperform 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 covering certain claims that arise in connection with its operations. In addition, we
purchase umbrella/excess liability coverage. Under the 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 its general/
garage liability, automobile, workers' compensation and garage keepers legal liability policies. As a result, we are in effect, self-
insured for all claims within the deductible / retention amount of each loss. Any loss over the deductible / retention is the responsibility
of the third-party insurer. We apply 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 us. The expense recognition is based upon our
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. We utilize historical claims experience along with actuarial methods
performed quarterly by a third party actuarial adviser in determining the required level of insurance reserves. As of December 31,
2019, the insurance reserve for general, garage, automobile and workers’ compensation liabilities is recorded in Accrued insurance
and Other long-term liabilities in the Consolidated Balance Sheets for short term and long term balances, respectively. 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
36
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 US GAAP 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 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 our operating performance along with these
considerations may significantly impact the amount of net operating losses ultimately recovered, and its assessment of their
recoverability.
When evaluating our tax positions, 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
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 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. 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. We completed our analysis of the
income tax effects of the 2017 Tax Act in the fourth quarter of 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 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 Senior Credit Facility,
discussed previously, to finance our operations. This Senior 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. Additional information
regarding our borrowings appears in Note 13. Borrowing Arrangements to our Consolidated Financial Statements.
If we were to borrow the entire $140.1 million available under the revolving credit facility, a one percent (1%) increase in the average
market rate would result in an increase in our annual interest expense of $1.4 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.
37
Borrowings under the Senior Credit Facility bear interest, at our option, (i) at a rate per annum based on our consolidated total debt
to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance
with the applicable pricing levels set forth in the Credit Agreement (the “Applicable Margin”) for London Interbank Offered Rate (or
a comparable or successor rate approved by Bank of America) (“LIBOR”) loans, plus the applicable LIBOR rate or (ii) the Applicable
Margin for base rate loans plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a daily
rate equal to the applicable LIBOR rate plus 1.0%.
Interest Rate Collars
In May 2019, we entered into three-year interest rate collar contracts with an aggregate $222.3 million notional amount. Interest
rate collars are used to manage interest rate risk associated with variable interest rate borrowings under the Credit Agreement. The
collars establish a range where we will pay the counterparties if the one-month U.S. dollar LIBOR rate falls below the established
floor rate, and the counterparties will pay us if the one-month U.S. dollar LIBOR rate exceeds the established ceiling rate of 2.5%.
The collars settle monthly through the termination date of April 2022. No payments or receipts are exchanged on the interest rate
collar contracts unless interest rates rise above or fall below the pre-determined ceiling or floor rates. The notional amount amortizes
consistent with the term loan portion of the Senior Credit Facility. These interest rate collars are classified as cash flow hedges, and
we calculate the effectiveness of the hedge on a monthly basis. See Note 12. Fair Value Measurement, which is included in Part
IV, Item 15. "Exhibits and Financial Statement Schedules," for additional disclosure on interest rate collar contract transactions. As
of December 31, 2018, we had no ongoing derivative transactions.
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
$2.9 million of Canadian dollar denominated cash instruments at December 31, 2019, and no debt instruments denominated in
Canadian dollar at December 31, 2019. 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, 2019 and under the supervision and
with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (the "Evaluation") 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 and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2019, our
disclosure controls and procedures were effective to promote reasonable assurance that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and
within the time frames specified in the SEC's rules and forms and accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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;
38
(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 and Chief Financial Officer, does not expect that our internal controls will prevent
or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to
the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation
and fair presentation of our published financial statements.
Prior to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, 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 (2017 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, 2019. Management's
assessment of internal control over financial reporting as of December 31, 2019 includes internal control over financial reporting
related to Bags, which the Company acquired on November 30, 2018.
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 have been no significant changes in our internal control over financial reporting that occurred during the quarter
ended December 31, 2019, that were identified in connection with management’s evaluation required by paragraph (d) of Rules
13a-15 and 15d-15 under the Exchange Act, 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 "Delinquent Section 16(a)
Reports" included in our 2020 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 "Board Committees and
Meetings-Committees of the Board-Compensation Committee-Compensation Committee Interlocks and Insider Participation,"
"Compensation Discussion and Analysis," "Compensation Committee Report," "Executive Compensation," and "Non-Employee
Director Compensation" included in our 2020 Proxy Statement.
39
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 2020 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 2020
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 Independent Registered Public Accounting Firm" included in our 2020 Proxy Statement.
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, 2019 and 2018
For the years ended December 31, 2019, 2018 and 2017
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
44
46
47
48
49
50
51
52
The following financial statement schedule is included in this report and should be read in conjunction with the financial statements
and Reports of Independent Registered Public Accounting Firm referred to above.
Schedule II—Valuation and Qualifying Accounts
87
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
2.1
Incorporated by Reference
Form Exhibit
8-K
2.1
Filing Date/Period
End Date
October 17, 2018
Description
Stock Purchase Agreement dated as of October 16, 2018, by and among
Craig Mateer, ZWB Holdings, Inc., Rynn's Luggage Corporation and the
Company. The schedules and exhibits to the Stock Purchase Agreement
have been omitted from this filing pursuant to Item 601(b)(2) of Regulation
S-K but will be provided supplementally to the Securities and Exchange
Commission upon request.
40
3.1
Second Amended and Restated Certificate of Incorporation of the Company
filed on June 2, 2004.
10-K
3.1
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
10-Q
3.1.3
June 30, 2010
Incorporation of the Company effective as of April 29, 2010.
3.1.3 Certificate of Amendment of Second Amended and Restated Certificate of
10-Q
3.1.4
June 30, 2010
Incorporation of the Company effective as of May 6, 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
4.1
Specimen common stock certificate.
10-K
4.1
December 31, 2015
4.2 * Description of the Securities of the Registrant
10.1
Credit Agreement, dated as of November 30, 2018, by and among the
Company, as the borrower; certain subsidiaries of the Company, as
guarantors; Bank of America, N.A., as administrative agent, swing-line
lender and a letter of credit issuer; Wells Fargo Bank, N.A., as syndication
agent; BMO Harris Bank N.A., JPMorgan Chase Bank, N.A., KeyBank
National Association, and U.S. Bank National Association, as co-
documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated,
and Wells Fargo Securities LLC, as joint lead arrangers and joint
bookrunners, and the lenders party thereto.
8-K
10.1
November 30, 2018
10.1.1 *
First Amendment to Credit Agreement, dated as of February 4, 2019, entered
into among the Company, the Guarantors and Bank of America, N.A., as
Administrative Agent, Swingline Lender and L/C Issuer.
10-K
10.1.1
February 27, 2019
10.1.2
Second Amendment to Credit Agreement, dated as of October 30, 2019, by
and among the Company, as the borrower; certain subsidiaries of the
Company, as guarantors; Bank of America, N.A., as administrative agent,
swing-line lender and a letter of credit issuer; Wells Fargo Bank, N.A., as
syndication agent; BMO Harris Bank N.A., JPMorgan Chase Bank, N.A.,
KeyBank National Association, and U.S. Bank National Association, as co-
documentation agents.
10-Q
10.1
October 31, 2019
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.
41
10.2.4 + Fourth Amendment to Employment Agreement dated as of December 29,
10-K
10.7.4
December 31, 2008
2008 between the Company and Robert N. Sacks.
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
10-K
10.6.6
December 31, 2016
between the Company and Robert N. Sacks.
10.3 + Amended and Restated Executive Employment Agreement dated as of
10-K
10.22.2 December 31, 2012
December 1, 2002 between the Company and John Ricchiuto.
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 Employment Agreement by and between SP Plus
Corporation and G Marc Baumann effective as of June 1, 2019.
10-Q
10.1
August 1, 2019
10.5 + Executive Employment Agreement dated March 17, 2005 between the
10-K
10.14
December 31, 2009
Company and Gerard M. Klaisle.
10.5.1 + First Amendment to Executive Employment Agreement dated December 29,
10-K
10.14.1 December 31, 2009
2008 between the Company and Gerard M. Klaisle.
10.5.2 + Second Amendment to Executive Employment Agreement dated July 28,
10-Q
10.3
September 30, 2011
2011 between the Company and Gerald M. Klaisle.
10.5.3 + 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.
10.6 + 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
10.6.1 + 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-K
10.7.1
December 31, 2017
10.6.2 + Second Amendment to Employment Agreement dated February 15, 2017
10-K
10.12.1 December 31, 2016
between the Company and Rob Toy.
10.7 + Amended and Restated Executive Employment Agreement between SP
8-K/A
10.1
September 27, 2019
Plus Corporation and Kristopher H. Roy dated as of September 1, 2019
10.8 + SP Plus Corporation Second Amended and Restated Long-Term Incentive
10-K
10.8
February 27, 2019
Plan, dated as of February 11, 2019.
10.9 + Form of Performance Share Agreement between the Company and
10-K
4.1
December 31, 2015
Recipient.
10.10 + Form of the Company's Restricted Stock Unit Agreement dated as of July 1,
8-K
10.1
July 2, 2008
2008.
42
10.10.1 + First Amendment to Form of the Company's Restricted Stock Unit
8-K
10.1
August 6, 2009
Agreement.
10.10.2 + Second Amendment to Form of the Company's Restricted Stock Unit
8-K
10.1
June 2, 2011
Agreement dated May 27, 2011.
10.10.3
Third Amendment to Form of the Company's Restricted Stock Unit
Agreement dated March 2, 2017.
10-Q
10.1
May 6, 2019
10.11 Office Lease dated as of October 31, 2012 between the Company and
10-K
10.23
December 31, 2013
Piedmont—Chicago Center Owner, LLC.
10.12 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.
10.13
Form of Property Management Agreement.
10-K
10.30
December 31, 2005
10.14 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
10.15 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
10.16
Trust Indenture dated March 1, 2000 between State of Connecticut and First
Union National Bank as Trustee.
10-K
10.29
December 31, 2008
21 * Subsidiaries of the Company.
23 * Consent of Independent Registered Public Accounting Firm dated as of
February 20, 2020.
31.1 * Section 302 Certification dated February 20, 2020 for G Marc Baumann,
Director, President and Chief Executive Officer (Principal Executive Officer).
31.2 * Section 302 Certification dated February 20, 2020 for Kristopher H. Roy,
Chief Financial Officer (Principal Financial Officer, 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 20, 2020.
101.INS * XBRL Instance Document - the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL 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.
43
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 (the Company) as of December 31,
2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2019, and 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, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 20, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in
2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Goodwill impairment
Description of
the Matter
At December 31, 2019, the Company’s goodwill was $586 million. As discussed in Note 1 to the
consolidated financial statements, goodwill is tested for impairment at least annually at the reporting
unit level.
Auditing management’s annual goodwill impairment assessment was complex and highly judgmental
due to the significant estimation required to determine the fair value of the reporting units. In
particular, the fair value estimate was based on significant assumptions, including the weighted
average cost of capital, gross profit growth rate and terminal values, which are affected by
expectations about future market or economic conditions.
44
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s goodwill impairment review process, including controls over
management’s review of the significant assumptions described above.
Description of
the Matter
To test the estimated fair value of the Company’s reporting units, we performed audit procedures that
included, among others, assessing methodologies and testing the significant assumptions discussed
above and the underlying data used by the Company in its analysis. We involved our valuation
specialists to assist in evaluating the Company’s valuation models and the reasonableness of the
significant assumptions described above. We compared the significant assumptions used by
management to current industry and economic trends and evaluated whether any changes to the
Company’s business model, customer base and other factors would affect the significant
assumptions. We assessed the historical accuracy of management’s estimates and reviewed
sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the
reporting units that would result from changes in the assumptions. In addition, we tested
management’s reconciliation of the fair value of the reporting units to the overall market capitalization
of the Company.
Valuation of insurance reserves incurred but not reported
As discussed in Note 1 to the consolidated financial statements, the Company purchases
comprehensive liability insurance covering certain claims that occur in its operations, importantly
including coverage for general liability, garage liability and automobile liability. In addition, the
Company purchases workers' compensation insurance coverage for all eligible employees and
umbrella/excess liability insurance coverage. Under these various insurance policies, the Company is
effectively self-insured for all claims up to the deductible / retention amount of each loss. Any loss
over the deductible / retention is the responsibility of the third-party insurer. The Company’s insurance
reserves for claims that have been incurred but not reported (IBNR) are based upon historical claims
experience and actuarial methods performed quarterly by a third party actuarial advisor. As of
December 31, 2019, the insurance reserve for general, garage, automobile and workers’
compensation liabilities is recorded in Accrued insurance and Other long-term liabilities in the
Consolidated Balance Sheets for the short term and long term portions, respectively.
Auditing management's estimate of insurance reserves involved a high degree of subjectivity because
the estimate was sensitive to changes in assumptions, including management's assumptions for IBNR
claims which includes estimating reporting and payment patterns for losses and the count of IBNR
claims, as well as expected loss rates, benefit levels, and inflationary trends.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s IBNR process, including controls over management’s review of the
significant assumptions described above.
To test the insurance reserves, we performed audit procedures over the completeness and accuracy
of the underlying claims data provided to management’s third party actuarial advisers, which is the
basis used to estimate total ultimate dollar value of claims and expected amount of IBNR claims.
Furthermore, we involved our actuarial specialist to assist in our evaluation of the methodologies and
assumptions applied by management’s third party actuarial advisers in determining the actuarially
determined reserve. We compared the Company’s recorded reserves to a range which our actuarial
specialist developed based on independently selected assumptions. We also reconciled
management’s third party actuarial advisers’ report to the Company’s insurance liability reserve per
the general ledger.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 1989.
Chicago, Illinois
February 20, 2020
45
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, 2019, 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 (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2019, 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 consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated
statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15 and our
report dated February 20, 2020 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 the effectiveness of internal control over financial reporting included in the accompanying Management's Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We 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.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 20, 2020
46
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 and construction in progress, net
Right-of-use assets
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
Short-term lease liabilities
Current portion of long-term obligations under Senior Credit Facility and other long-term borrowings
Total current liabilities
Long-term borrowings, excluding current portion
Obligations under Senior Credit Facility
Other long-term borrowings
Long-term lease liabilities
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, 2019 and
2018, respectively; no shares issued or outstanding
Common stock, par value $0.001 per share; 50,000,000 shares authorized as of December 31, 2019 and
2018; 24,591,127 issued and 22,950,360 outstanding as of December 31, 2019 and 23,089,159 issued
and 22,783,976 outstanding as of December 31, 2018, respectively
Treasury stock at cost, 1,640,767 and 305,183 shares at December 31, 2019 and 2018, respectively
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.
December 31,
2019
2018
$
24.1
$
$
$
$
$
162.3
24.7
211.1
47.9
431.7
4.0
152.2
—
10.2
21.6
10.6
4.3
586.0
788.9
1,479.6
115.3
18.1
28.7
6.8
19.2
48.6
115.2
17.9
369.8
335.5
15.6
351.1
327.7
—
57.1
735.9
—
—
(55.3)
262.6
(2.7)
169.5
374.1
(0.2)
373.9
39.9
150.7
17.2
207.8
40.3
—
4.2
166.0
17.6
9.8
17.3
14.6
9.2
585.5
824.2
1,072.3
110.1
23.5
25.8
9.5
19.7
45.1
—
13.2
246.9
360.9
12.6
373.5
—
24.7
58.6
456.8
—
—
(7.5)
257.7
(2.4)
120.7
368.5
0.1
368.6
$
1,479.6
$
1,072.3
47
SP Plus Corporation
Consolidated Statements of Income
(millions, except for share and per share data)
2019
2018
2017
Years Ended December 31,
Services revenue
Lease type contracts
Management type contracts
Reimbursed management type contract revenue
Total services revenue
Cost of services
Lease type contracts
Management type contracts
Reimbursed management type contract expense
Total cost of services
Gross profit
Lease type contracts
Management type 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 (earnings) 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.
$
408.9
$
413.9
$
526.0
934.9
728.8
1,663.7
366.9
339.9
706.8
728.8
361.5
775.4
693.0
1,468.4
377.6
213.8
591.4
693.0
563.1
348.2
911.3
679.2
1,590.5
518.4
207.6
726.0
679.2
1,435.6
1,284.4
1,405.2
42.0
186.1
228.1
109.0
29.4
89.7
18.9
(0.3)
—
—
18.6
71.1
19.4
51.7
2.9
36.3
147.7
184.0
91.0
17.9
75.1
9.6
(0.4)
—
(10.1)
(0.9)
76.0
19.6
56.4
3.2
$
$
$
48.8
$
53.2
$
2.21
2.20
$
$
2.38
2.35
$
$
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
22,080,025
22,208,032
22,394,542
22,607,223
22,195,350
22,508,288
48
SP Plus Corporation
Consolidated Statements of Comprehensive Income
(millions)
Net income
Other comprehensive (loss) income
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,
2019
2018
2017
51.7
$
56.4
$
(0.3)
51.4
2.9
(0.6)
55.8
3.2
48.5
$
52.6
$
44.5
0.2
44.7
3.3
41.4
$
$
49
SP Plus Corporation
Consolidated Statements of Stockholders' Equity
Balances at January 1, 2017
22,356,586
$
— $
251.5
$
(1.4) $
25.6
$
(7.5) $
—
—
0.3
—
(0.3)
—
(millions, except for share and
per share data)
Balances at December 31,
2016
Cumulative effect adjustment
upon adoption of ASU No.
2016-09 on 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
Balances at December 31,
2017
Cumulative effect adjustment
upon adoption of ASU No.
2018-02 on January 1, 2018
Balances at January 1, 2018
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
Balances at December 31,
2018
Net income
Foreign currency translation
Effective portion of cash flow
hedge
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
Treasury stock
Distribution to noncontrolling
interest
Balances at December 31,
2019
Common Stock
Number
of
Shares
Par
Value
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury
Stock
Noncontrolling
Interest
Total
22,356,586
$
— $
251.2
$
(1.4) $
25.9
$
(7.5) $
0.2
$
268.4
—
—
27,632
61,599
96,855
—
—
—
—
—
—
—
—
—
—
—
0.9
—
—
2.2
—
—
0.2
—
—
—
—
—
41.2
—
—
—
—
—
—
—
—
—
—
—
—
$
—
0.2
3.3
—
—
—
—
—
(3.2)
—
268.4
44.5
0.2
0.9
—
—
2.2
(3.2)
22,542,672
$
— $
254.6
$
(1.2) $
67.0
$
(7.5) $
0.2
$
313.1
—
22,542,672
—
—
20,757
161,495
59,052
—
—
—
—
—
—
—
—
—
—
—
—
254.6
—
—
0.7
—
—
2.4
—
(0.6)
(1.8)
—
(0.6)
—
—
—
—
—
0.6
67.6
53.2
—
—
—
—
—
—
—
(7.5)
—
—
—
—
—
—
—
22,783,976
$
— $
257.7
$
(2.4) $
120.7
$
(7.5) $
—
—
—
14,076
90,214
62,094
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.8
—
—
4.1
—
—
—
0.1
(0.4)
—
—
—
—
—
—
48.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(47.9)
—
—
0.2
3.2
—
—
—
—
—
(3.3)
0.1
2.9
—
—
—
—
—
—
—
(3.2)
—
313.1
56.4
(0.6)
0.7
—
—
2.4
(3.3)
$
368.6
51.7
0.1
(0.4)
0.8
—
—
4.1
(47.8)
(3.2)
22,950,360
$
— $
262.6
$
(2.7) $
169.5
$
(55.3) $
(0.2) $
373.9
Note: Amounts may not foot due to rounding.
See Notes to Consolidated Financial Statements.
50
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 on sale of equipment
Net equity in earnings of unconsolidated entities (net of distributions)
Gain on sale of equity method investment in unconsolidated entity
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
Deferred income taxes
Changes in operating assets and liabilities
Notes and accounts receivable
Prepaid expenses and other
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 of cash disposed
Proceeds from sale of equity method investee's sale of assets
Cost of contracts purchased
Acquisition of business, net of cash acquired
Net cash (used in) provided by investing activities
Financing activities
Proceeds from credit facility revolver
Payments on credit facility revolver
Proceeds from credit facility term loan
Payments on credit facility term loan
Payments of debt issuance costs and original discount on borrowings
Payments on other long-term borrowings
Distribution to noncontrolling interest
Repurchase of common stock
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) 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
See Notes to Consolidated Financial Statements.
$
$
$
51
Year Ended December 31,
2019
2018
2017
$
51.7
$
56.4
$
29.3
—
—
(0.4)
—
—
0.5
0.4
4.9
1.1
4.2
(12.7)
(6.9)
(4.8)
5.2
3.5
76.0
(10.2)
0.3
—
—
(2.6)
—
(12.5)
455.6
(470.6)
—
(11.3)
—
(2.3)
(3.2)
(47.6)
(79.4)
0.1
(15.8)
39.9
24.1
17.9
15.3
$
$
$
18.8
(1.1)
—
(0.4)
(10.1)
—
0.7
0.5
3.1
1.5
1.3
(16.7)
0.1
2.1
0.8
13.9
70.9
(8.9)
0.2
—
19.3
(1.1)
(277.9)
(268.4)
333.5
(186.3)
225.0
(150.0)
(3.2)
(0.5)
(3.3)
—
215.2
(0.6)
17.1
22.8
39.9
8.5
15.3
$
$
$
44.5
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
386.6
(410.1)
—
(20.0)
—
(0.5)
(3.2)
—
(47.2)
0.3
0.6
22.2
22.8
8.0
26.5
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") facilitates the efficient movement of people, vehicles and personal belongings with the goal
of enhancing the consumer experience while improving bottom line results for our clients. The Company provides professional
parking management, ground transportation, remote baggage check-in and handling, facility maintenance, security, event logistics,
and other technology-driven mobility solutions to aviation, commercial, hospitality, healthcare and government clients across North
America. The Company typically enters into contractual relationships with property owners or managers as opposed to owning
facilities.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and Variable Interest
Entities ("VIEs") in which the Company is the primary beneficiary. All significant intercompany profits, transactions and balances
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.
GAAP") 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 Canadian operations is the Canadian dollar. 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 were $0.5 million and $1.7 million as of December 31, 2019 and 2018,
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, 2019 and 2018, the Company's allowance for doubtful accounts
was $1.9 million and $1.0 million, respectively.
Leasehold Improvements, Equipment 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 4.6 years).
Certain costs associated with directly obtaining, developing or upgrading internal-use software are capitalized and amortized over
the estimated useful life of software.
Cost of Contracts
Cost of contracts represents the cost of obtaining contractual rights associated with a managed type or lease-type contract. 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 life of the contract. Effective January 1, 2019, cost of contracts associated with
leases within the scope of ASU No. 2016-02 Leases (Topic 842) are included in the right-of-use assets balance.
52
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 evaluates goodwill 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 October 1 or at an interim date if there is an event or
change in circumstances indicate the carrying value may not be recoverable. The goodwill impairment test is performed at the
reporting unit level; the Company's reporting units represent its operating segments, consisting of Commercial and Aviation. 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.
If the Company does not elect to perform a qualitative assessment, it can voluntarily proceed directly to Step 1. In Step 1, the
Company performs a quantitative analysis to compare the fair value of the reporting unit to its carrying value including goodwill. If
the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered
impaired, and the Company's is not required to perform further testing. If the carrying value of the net assets assigned to the reporting
unit exceeds the fair value of the reporting unit, then the Company must perform Step 2 of the impairment test in order to determine
the implied fair value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value,
then the Company would record an impairment loss equal to the difference.
Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment when circumstances
change that would indicate the carrying value may not be recoverable. Intangible assets with finite lives are amortized on a straight-
line basis over their estimated useful lives. The Company evaluates the remaining useful life of the other intangible assets on a
periodic basis to determine whether events or circumstances warrant a revision to the remaining useful life. Assumptions and
estimates about future values and remaining useful lives of its intangible and other long-lived assets are complex and subjective.
They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors,
such as changes in its business strategy and internal forecasts. Although management believes the historical assumptions and
estimates are reasonable and appropriate, different assumptions and estimates could materially impact reported financial results.
See Note 10. Other Intangible Assets, net and Note 11. Goodwill for further discussion.
Long-Lived Assets
The Company evaluates long-lived assets, primarily including Leasehold improvements, equipment and construction in progress,
right-of use-assets and finite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying
value of an asset or asset group may not be recoverable. The Company groups assets at the lowest level for which cash flows are
separately identified in order to measure an impairment. Events or circumstances that would result in an impairment review 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.
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 $29.3 million and $34.0 million are included within Accounts payable within the
Consolidated Balance Sheets as of December 31, 2019, and 2018, respectively. Long-term debt has a carrying value that
approximates fair value because the 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, automobile, workers' compensation and garage keepers legal liability policies.
As a result, the Company is, in effect, self-insured for all claims within the deductible / retention amount of each loss. Any loss over
the deductible / retention is the responsibility of the third-party insurer. 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 actuarial methods performed quarterly
53
by a third party actuarial adviser in determining the required level of insurance reserves. As of December 31, 2019, the insurance
reserve for general, garage, automobile and workers’ compensation liabilities is recorded in Accrued insurance and Other long-
term liabilities in the Consolidated Balance Sheets for short term and long term balances, respectively. 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.
Services Revenue
The Company's revenues are primarily derived from management type and lease type contracts; whereby the Company provides
parking services, parking management, ground transportation services, baggage handling services and other ancillary services to
commercial, hospitality, institutional, municipal and aviation clients. Ancillary services include on-site parking management, facility
maintenance, ground transportation services, event logistics, remote airline check-in, security services, municipal meter revenue
collection and enforcement services, scheduling and supervising all service personnel as well as providing customer service,
marketing, and accounting and revenue control functions necessary to complete such services, 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, entities are required to
recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the
consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company recognizes gross
receipts (net of taxes collected from customers) as revenue from leased type contracts, and management fees for 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.
Reimbursed Management Type Contract Revenue and Expense
The Company recognizes both revenues and expenses, in equal amounts, that are directly reimbursed for operating expenses
incurred under a management type contract. The Company has determined it is the principal in these transactions as the nature
of our performance obligations is for the Company to provide the services on behalf of the customer. As the principal to these related
transactions, the Company has control of the promised services before they are transferred to the customer.
Cost of Services
The Company recognizes costs for lease type contracts, non-reimbursed costs from management type contracts and reimbursed
management type contract expenses as cost of services. Cost of services consists primarily of rent and payroll related costs.
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.
Equity Investment in Unconsolidated Entities
The Company has ownership interests in 30 active partnerships, joint ventures or similar arrangements that operate parking facilities,
of which 25 are consolidated under the VIE or voting interest models and 5 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 Services revenue - lease type
contracts within the Consolidated Statements of Income. Included in equity earnings for the year ended December 31, 2017 are
earnings of $8.5 million from the Company's proportionate share of the net gain of an equity method investees' sale of assets. The
equity earnings in these related investments were $3.2 million, $2.7 million, and $11.3 million for the year ended December 31,
2019, 2018 and 2017, respectively.
In 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”). On January 3, 2018, the Company sold its 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
recognized a pre-tax gain of $10.1 million, net of closing costs, and included in Equity in (earnings) losses from investment in
unconsolidated entity within the Consolidated Statements of Income for the year ended December 31, 2018. The Company
historically accounted for its investment in the Parkmobile joint venture using the equity method of accounting, and its underlying
share of equity in Parkmobile was included in Equity investments in unconsolidated entities within the Consolidated Balance
54
Sheets. The equity (earnings) losses in the Parkmobile joint venture were historically included in Equity in (earnings) losses from
investment in unconsolidated entity within the Consolidated Statements of Income.
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
In August 2015, the Company sold portions of the Company’s security business primarily operating in the Southern California market
to a third-party for a gross sales price of $1.8 million, which resulted in a gain on sale of business of $0.5 million, net of legal and
other expenses. The assets under the sale agreement met the definition of a business as defined by ASU 805-10-55-4. Cash
consideration received during 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 in February 2017. The
contingent consideration was valued at fair value as of the date of sale of the business and resulted in the Company recognizing
a contingent receivable from the buyer in the amount of $0.5 million. 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.
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 US GAAP 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. 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.
When evaluating our tax positions, the Company accounts for uncertainty in income taxes in our 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 included
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. 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. The Company completed its analysis of the income tax effects of the 2017 Tax Act in the fourth quarter of 2018 (within
the measurement period not to extend beyond one year) in accordance with SAB 118.
55
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Topic 842 requires lessees to record most leases on
the balance sheet and recognize expense on the income statement. Additionally, the classification criteria and the accounting for
sales-type and direct financing leases is modified for lessors. Under Topic 842, all entities are required to recognize "right-of-
use" ("ROU") assets and lease liabilities on the balance sheet for all leases classified as either operating or finance leases. Lease
classification will determine recognition of lease-related revenue and expense. Since the release of Topic 842, the FASB also issued
the following additional ASUs updating the topic:
•
•
•
•
•
In January 2018, the FASB issued ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842
In July 2018, the FASB issued ASU No. 2018-11, Lease (Topic 842): Targeted Improvements
In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases
In December 2018, the FASB issued ASU No. 2018-20, Narrow Scope Improvements for Lessors
In March 2019, the FASB issued ASU No. 2019-01, Codification Improvements
Topic 842 and its related ASUs were effective for interim and annual reporting periods beginning after December 15, 2018.
The Company adopted the provisions of Topic 842 on January 1, 2019 under the modified retrospective approach and has used
the effective date as the initial application date. Therefore, comparative periods have not been recast and continue to be reported
under the accounting standards in effect for those prior periods presented. In addition, the Company elected the package of practical
expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to
carry forward the historical lease classification.
The standard had a material impact in the Company's Consolidated Balance Sheet, but did not have a material impact in the
Company's Consolidated Income Statements and no impact in the Consolidated Statements of Cash Flow. The most significant
impact was the recognition of ROU assets and lease liabilities for operating leases, while the Company's accounting for finance
leases remained substantially unchanged.
The impact of the standard on the Consolidated Balance Sheet as of December 31, 2019 is as follows:
(millions)
Assets
Prepaid expenses and other (a)
Right-of-use assets (b)
Favorable acquired lease contracts, net (c)
Cost of contracts, net (d)
Liabilities
Accrued rent (e)
Short-term lease liabilities (f)
Long-term lease liabilities (g)
Unfavorable lease contracts, net (h)
Other long-term liabilities (i)
Impact of Changes in Accounting Policies as
of December 31, 2019
Balances
without
Adoption of
Topic 842
Impact of
Adoption
Increase/
(Decrease)
As Reported
$
24.7
$
25.3
$
431.7
—
4.3
—
14.1
8.3
(0.6)
431.7
(14.1)
(4.0)
$
18.1
$
26.8
$
(8.7)
115.2
327.7
—
57.1
—
—
19.2
61.3
115.2
327.7
(19.2)
(4.2)
(a) Represents prepaid rent reclassified to Right-of-use assets
(b) Represents capitalization of operating lease assets and reclassification of prepaid and deferred rent, lease incentives, favorable
and unfavorable acquired lease contracts, net and cost of contract balances on operating leases
(c) Represents favorable acquired lease contracts, net reclassified to Right-of-use assets
(d) Represents cost of contract, net reclassified to Right-of-use assets
(e) Represents short-term deferred rent reclassified to Right-of-use assets
(f) Represents the recognition of short-term operating lease liabilities
(g) Represents the recognition of long-term operating lease liabilities
(h) Represents unfavorable acquired lease contracts, net reclassified to Right-of-use assets
(i) Represents long-term deferred rent reclassified to Right-of-use assets
56
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. Under existing guidance, the accounting for nonemployee share-based payments differs from
that applied to employee awards, particularly with regard to the measurement date and the impact of performance conditions. This
ASU provides that existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is
not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost
of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the
contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The
Company adopted the standard as of January 1, 2019. The standard did not have an impact on the Company’s financial position,
results of operations, cash flows or financial statement disclosures.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities. This Update modifies accounting guidance for hedge accounting by making more hedge strategies eligible
for hedge accounting, amending presentation and disclosure requirements, and changing how companies assess ineffectiveness.
The intent is to simplify the application of hedge accounting and increase transparency of information about an entity’s risk
management activities. The Company adopted the standard as of January 1, 2019. The standard did not have an impact on the
Company’s financial position, results of operations, cash flows or financial statement disclosures.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing
Rate (SOFR) Overnight Index Swap (OIS) Rate as Benchmark Interest Rate for Hedge Accounting Purposes. This Update permits
use of the OIS rate based on the SOFR as a U.S. benchmark interest rate for hedge accounting purposes. The Company adopted
the standard as of January 1, 2019. The standard did not have an impact on the Company’s financial position, results of operations,
cash flows or financial statement disclosures.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income. The ASU provides guidance that permits companies to reclassify disproportionate tax effects in
accumulated other comprehensive income (AOCI) caused by the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") to retained
earnings. The FASB refers to these amounts as "stranded tax effects." Companies that elect to reclassify the effects associated
with the change in US federal corporate income tax rate must do so for all items within AOCI. The new guidance also required all
companies to include certain new disclosures in their financial statements, regardless of whether a company opts to make the
reclassification. Companies were allowed to adopt the new guidance using one of two transition methods: (1) retrospective to each
period (or periods) in which the income tax effects of the 2017 Tax Act related to items remaining in AOCI are recognized, or (2) at
the beginning of the period of adoption. ASU No. 2018-02 was effective for all companies for fiscal years beginning after December
15, 2018 and interim periods within those fiscal years.
The Company adopted the provisions of ASU 2018-02 in the fourth quarter of 2018. The impact to the Company's financial position,
results of operations, cash flow and financial statement disclosures are as follows:
•
•
At the beginning of the twelve months ended December 31, 2018, as allowed by ASU 2018-02, the Company elected to
reclassify the "stranded tax effects" from AOCI to retained earnings. As a result, beginning retained earnings includes a
$0.6 million adjustment related to the recognition of stranded tax effects previously not recognized as a reduction of expense
by the Company as of December 31, 2017.
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, 2018, as a result of the adoption.
Accounting Pronouncements to be Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for
Goodwill Impairment. The new guidance simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill
impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a
reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment
guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine
if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units,
even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units
with zero or negative carrying amounts. ASU No. 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal
years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests. The standard
is not expected to have an impact 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, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. 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
57
periods beginning after December 15, 2019. The standard is not expected to have an impact on the Company’s financial position,
results of operations, cash flows and financial statement disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal - Use Software (Subtopic 350-40):
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The
standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance
in Accounting Standards Codification (ASC) 350-40 to determine which implementation costs to capitalize as assets. Capitalized
implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting
arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The standard is
effective for interim and annual reporting periods beginning after December 15, 2019. The standard is not expected to have an
impact on the Company’s financial position, results of operations, cash flows and financial statement disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). This standard modifies the disclosures
on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and
Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for
Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive
income. The standard is effective for interim and annual reporting periods beginning after December 15, 2019. The standard is not
expected to have an impact on the Company’s financial position, results of operations, cash flows and financial statement disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
This standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating
income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard is effective
for interim and annual reporting periods beginning after December 15, 2020. The Company is currently assessing the impact of
adopting the standard on the Company's financial position, results of operations, cash flows and financial statement disclosures.
2. Leases
The Company leases parking facilities, office space, warehouses, vehicles and equipment and determines if an arrangement is a
lease at inception. The Company rents or subleases certain real estate to third parties. The Company's sublease portfolio consists
of operating leases for space within its leased parking facilities.
Prior to January 1, 2019, the Company recognized lease expense related to operating leases on a straight-line basis over the terms
of the leases and, accordingly, recorded the difference between cash rent payments and recognition of rent expense as a deferred
rent liability or prepaid rent. Landlord-funded leasehold improvements were also recorded as deferred rent liabilities and were
amortized as a reduction of rent expense over the noncancelable term of the related operating lease. For leases that included one
or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. Certain
of the Company's lease agreements include variable rent consisting primarily of payments that are a percentage of parking services
revenue based on contractual levels and rental payments adjusted periodically for inflation.
Upon adoption of Topic 842, ROU assets represent the Company's "right-of-use" over an underlying asset for the lease term and
lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets
and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The
ROU asset includes cumulative prepaid or accrued rent on adoption date, unamortized lease incentives, unamortized initial direct
costs, unamortized favorable acquired lease contracts, net and unfavorable acquired lease contracts, net initially recognized prior
to adoption of Topic 842. The short term lease exception has been applied to leases with an initial term of 12 months or less and
these leases are not recorded on the balance sheet.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining
the present value of lease payments. The Company uses the implicit rate when readily determinable. Lease expense is recognized
on a straight-line basis over the lease term.
For leases that include one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or
mutual agreement. Equipment and vehicle leases also include options to purchase the leased property. The depreciable lives of
assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option
reasonably certain of exercise.
Variable lease components comprising of payments that are a percentage of parking services revenue based on contractual levels
and rental payments adjusted periodically for inflation are not included in the lease liability. The Company's lease agreements do
not contain any material residual value guarantees or material restrictive covenants.
Consistent with other long-lived assets or asset groups that are held and used, the Company tests right-of-use assets when
impairment indicators are present as detailed in Note 1. Significant Accounting Policies and Practices.
Service concession arrangements within the scope of ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining
the Customer of the Operation Services, are excluded from the scope of Topic 842. Lease costs associated with these arrangements
are recorded as a reduction of revenue. See Note 5. Revenue for further discussion. Upon adoption of Topic 842, favorable and
58
unfavorable acquired lease contracts, net that represented the fair value of acquired lease contracts, arising from the October 2,
2012 acquisition of KCPC Holdings, Inc. the ultimate parent of Central Parking Corporation, are now included in the right-of-use
assets balance. See Note 1. Significant Accounting Policies and Practices for the favorable and unfavorable acquired lease contracts,
net balance reclassified to right-of-use assets upon adoption of Topic 842.
The components of leased assets and liabilities and classification on the Consolidated Balance Sheet as of December 31, 2019
were as follows:
(millions)
Assets
Operating
Finance
Total leased assets
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Finance
Total lease liabilities
Classification
Right-of-use assets
Leasehold improvements, equipment and construction in progress, net
Short-term lease liabilities
Current portion of long-term obligations under credit facility and other long-
term borrowings
Long-term lease liabilities
Other long-term borrowings
2019
431.7
18.6
450.3
115.2
3.1
327.7
15.6
461.6
$
$
$
$
The components of lease cost and classification on the Consolidated Statement of Income for the year ended December 31, 2019
were as follows:
(millions)
Operating lease (a)
Short-term lease (a)
Variable lease
Operating lease cost
Finance lease cost
Classification
Cost of services - lease type contracts
Cost of services - lease type contracts
Cost of services - lease type contracts
Amortization of leased
assets
Depreciation and amortization
Interest on lease liabilities
Interest expense
Net lease cost
2019
150.9
33.1
58.1
242.1
2.3
0.9
245.3
$
$
(a) Includes $6.0 million operating lease costs related to leases for office space, classified in General and administrative expenses
Sublease income during the year ended December 31, 2019 was $5.5 million.
The Company has entered into operating lease arrangements as of December 31, 2019 that commence in future periods. The total
amount of right-of-use assets and lease liabilities related to these arrangements are immaterial.
59
Maturities, lease term, and discount rate information of lease liabilities as of December 31, 2019 were as follows:
(millions)
2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments
Less: Imputed interest
Total
$
Operating
Leases
Finance
Leases
$
133.7
$
104.0
83.7
56.8
38.1
96.9
513.2
70.3
4.0
4.0
3.5
2.5
1.4
6.0
21.4
2.7
Present value of lease liabilities
$
442.9
$
18.7
$
Weighted-average remaining lease term (years)
Weighted-average discount rate
5.6
4.9%
6.9
4.9%
Future sublease income for the above periods shown was excluded as the amounts are not material.
Supplemental cash flow information related to leases was as follows:
(millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows related to operating leases
Operating cash outflows related to finance leases
Financing cash outflows related to finance leases
Leased assets obtained in exchange for new operating liabilities
Leased assets obtained in exchange for new finance lease liabilities
3. Acquisition
2019
$
137.7
108.0
87.2
59.3
39.5
102.9
534.6
73.0
461.6
179.0
0.9
2.3
68.6
6.8
On November 30, 2018, the Company acquired the outstanding shares (the "Acquisition") of ZWB Holdings, Inc. and Rynn's Luggage
Corporation, and their subsidiaries and affiliates (collectively, "Bags"). Bags is a leading provider of baggage delivery, remote airline
check in, and other related services, primarily to airline, airport and hospitality clients. Subject to the terms and conditions of the
Stock Purchase Agreement, as consideration for the Acquisition, SP Plus paid to the seller total consideration of approximately
$283.6 million. The consideration was comprised of $275.0 million of contractual cash consideration, $8.1 million related to the net
working capital and cash acquired and $0.5 million for certain individual taxes to be paid by the seller (the “Cash Consideration”).
As described in Note 20. Domestic and Foreign Operations, the Company integrated the Bags' operations into the Aviation segment,
effective November 30, 2018.
The Acquisition has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at
their estimated fair values. Goodwill as of the date of the Acquisition (the "acquisition date") is measured as the excess of consideration
transferred, which is also generally measured at fair value or the net acquisition date fair values of the assets acquired and the
liabilities assumed. The results of operations are reflected in the consolidated financial statements of the Company from the
acquisition date.
The Company incurred certain acquisition and integration costs associated with the transaction that were expensed as incurred
and are reflected in the Consolidated Statements of Income. See Note 4. Acquisition, Restructuring and Integration Costs.
60
The fair values of assets acquired and liabilities assumed are as follows:
(millions)
Cash and cash equivalents
Notes and accounts receivable
Prepaid expenses and other
Advances and deposits
Leasehold improvements, equipment and construction in progress, net
Other intangible assets, net
Goodwill
Accounts payable
Accrued expenses
$
Other long-term liabilities
Measurement
Period
Adjustments
Final
Initial
5.9
13.2
2.0
0.2
1.5
118.0
154.1
(6.5)
(4.1)
(0.7)
$
0.3
(0.3)
5.9
13.2
2.0
0.2
1.5
118.0
154.4
(6.5)
(4.4)
(0.7)
283.6
Net assets acquired and liabilities assumed
$
283.6 $
— $
Goodwill amounting to $154.4 million represents the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized. The goodwill recognized is attributable primarily to
expanded revenue synergies and opportunities in the aviation and hospitality businesses, and other benefits that the Company
believes will result from combining its operations with the operations of Bags. The goodwill acquired is deductible for tax purposes.
Other Intangibles assets, net acquired consist of the following:
(millions)
Trade name
Customer relationships
Existing technology
Non-compete agreement
Estimated fair value of identified intangibles
Estimated Life
5.0 Years
12.4 - 15.8 Years
5.0 - 6.0 Years
5.0 Years
Fair Value
$
$
5.6
100.4
10.4
1.6
118.0
The fair value for all identifiable intangible assets is based on assumptions that market participants would use in pricing an asset,
based on the most advantageous market for the asset (i.e., its highest and best use). The fair value of trade names was determined
with the relief from royalty savings method, which is a commonly-used variation of the income approach. The Company considered
the return on assets and market comparable methods when estimating an appropriate royalty rate for the trade names. The fair
value of acquired customer relationships was determined with the excess earnings method, which is a variation of the income
approach. This approach calculates the excess of the future cash inflows (i.e., revenue from customers generated from the
relationships) over the related cash outflows (i.e., customer servicing expenses) generated over the useful life of the relationship.
The fair value of developed or existing technology was determined utilizing the relief from royalty savings method under the income
approach with additional consideration given to asset deterioration rates.
Unaudited Pro forma financial information
The following unaudited pro forma results of operations for the years ended December 31, 2019 and 2018, assumes the Acquisition
was completed on January 1, 2018, and as such Bags pre-acquisition results have been added to the Company’s historical results.
The historical consolidated financial information of the Company and the Acquisition have been adjusted to give effect to pro forma
events that are (1) directly attributable to the transaction, (2) factually supportable and (3) expected to have a continuing impact on
the combined results. The pro forma results contained in the table below include adjustments for (i) amortization of acquired
intangibles, (ii) reduced general and administrative expenses related to non-routine transaction expenses, (iii) increased interest
expense related to the financing of the Acquisition, and (iv) estimated income tax effect.
The unaudited pro forma condensed combined financial information is presented solely for informational purposes and is not
necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or
dates indicated, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed
combined financial statements do not give effect to the potential impact of any anticipated benefits from any revenue synergies,
cost savings or operating synergies that may result from the Acquisition or to any disynergies and integration related costs. Also,
the unaudited pro forma condensed combined financial information does not reflect possible adjustments related to potential
restructuring or integration activities that have yet to be determined or transaction or other costs following the combination that are
not expected to have a continuing impact on the business of the combined company. Further, one-time transaction-related expenses
anticipated to be incurred prior to, or concurrent with, the closing of the transaction are not included in the unaudited pro forma
61
condensed combined statement of income as such transaction costs were determined not to be significant. Additionally, the unaudited
pro forma financial information does not reflect the costs that the company has incurred or may incur to integrate Bags.
(millions)
Total services revenue
Net income attributable to SP Plus Corporation
2018
$
1,617.7
55.1
Services revenue and net income related to Bags that are included in the Consolidated Statements of Income are $175.2 million
and $12.4 million in 2019 and $14.2 million and $1.3 million in 2018, respectively, which are included in Services revenue -
Management type contracts and Net income attributable to SP Plus Corporation, respectively.
4. Acquisition, Restructuring and Integration Costs
Acquisition, Restructuring and Integration Costs
The Company has incurred certain acquisition, restructuring, and integration costs that were expensed as incurred, which include:
•
•
•
•
transaction costs and other acquisition related costs (primarily professional and advisory services) primarily related to the
Acquisition (included within General and administrative expenses within the Consolidated Statements of Income);
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
2019, 2018 and 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
consulting costs for integration-related activities related to the Acquisition (included within General and administrative
expenses within the Consolidated Statements of Income);
The aggregate costs associated with the acquisition, restructuring, and integration related costs for the years ended December 31,
2019, 2018 and 2017 are summarized in the following table:
(millions)
General and administrative expenses
Year Ended December 31,
2018
2017
2019
$
1.3
$
8.1
$
1.2
An accrual for acquisition, restructuring and integration costs of $0.1 million (of which, $0.1 million is included in Compensation and
payroll withholdings within the Consolidated Balance Sheets) and $3.3 million (of which, $1.0 million is included in Compensation
and payroll withholdings, $2.1 million is included in Accrued Expenses, and $0.5 million in Other long-term liabilities within the
Consolidated Balance Sheets) as of December 31, 2019 and 2018, respectively. As of December 31, 2019, all accruals for acquisition,
restructuring, and integration are short term in nature.
5. Revenue
The Company accounts for revenue in accordance with Topics 606 and 853. Topic 606 requires entities to recognize revenue when
control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity
expects to be entitled to in exchange for those goods or services. See also Note 1. Significant Accounting Policies and Practices
for further discussion. The Company adopted Topics 606 and 853 on January 1, 2018, using the modified retrospective method of
adoption.
Contracts with customers and clients
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified,
payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Once a contract
is identified, the Company evaluates whether the combined or single contract should be accounted for as more than one performance
obligation. Substantially all of the Company's revenues come from the following two types of arrangements: Lease type and
Management type contracts.
Lease type contracts
Under lease type arrangements, the Company pays the property owner a fixed base rent or payment, percentage rent or payment
that is tied to the facility’s financial performance, or a combination of both. The Company operates the parking facility and is
62
responsible for most operating expenses, but typically is not responsible for major maintenance, capital expenditures or real estate
taxes. Performance obligations related to lease type contracts include parking for transient and monthly parkers. Revenue is
recognized over time as the Company provides services. As noted in Note 1. Significant Accounting Policies and Practices and in
accordance with Topic 853, certain expenses, primarily rental expense for the contractual arrangements that meet the definition of
service concession arrangements, are recorded as a reduction of revenue for the year ended December 31, 2019 and 2018,
respectively.
Management type contracts
Management type contract revenue consists of management fees, including both fixed, variable and/or performance-based fees.
In exchange for this consideration, the Company has a bundle of performance obligations that include services such as managing
the facilities and providing certain services to a client. The Company believes that it can generally purchase required insurance
for the location at lower rates than clients can obtain on their own because the Company is effectively self-insured for all liability,
workers' compensation and health care claims by maintaining a large per-claim deductible. As a result, the Company generates
operating income on the insurance provided under its management type contracts by focusing on our risk management efforts and
controlling losses. Management type contract revenues do not include gross customer collections at the managed facilities or for
providing certain services to a client, as these revenues belong to the clients rather than to the Company. Management type contracts
generally provide the Company with management fees regardless of the operating performance of the underlying facilities. Revenue
is recognized over time as the Company provides services.
Service concession arrangements
Service concession agreements within the scope of Topic 853 include both lease type and management type contracts. Upon the
adoption of Topic 853, revenue generated from service concession arrangements, is accounted for under the guidance of Topics
606 and Topic 853. Certain expenses (primarily rental expense) related to service concession arrangements, previously recorded
within Cost of services - lease type contracts and Depreciation and amortization, have been recorded as a reduction of Services
revenue - lease type contracts upon adoption of Topic 853.
Contract modifications and taxes
Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract
modifications to exist when the modification either changes the consideration due to the Company or creates new performance
obligations or changes the existing scope of the contract and related performance obligations. Most of our contract modifications
are for services that are not distinct from the existing contract due to the fact that the Company is providing a bundle of performance
obligations that are highly inter-related in the context of the contract, and are therefore accounted for as if they were part of that
existing contract. Typically, modifications are accounted for prospectively as part of the existing contract.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction,
which are collected by the Company from a customer, are excluded from revenue.
Reimbursed management type contract revenue and expense
The Company recognizes both revenues and expenses, in equal amounts, that are directly reimbursed operating expenses
incurred under a management type contract. The Company has determined it is the principal in these transactions as the nature
of its performance obligations is for the Company to provide the services on behalf of the customer. As the principal to these
related transactions, the Company has control of the promised services before they are transferred to the customer.
Disaggregation of revenue
The Company disaggregates its revenue from contracts with customers by type of arrangement for each of our reportable segments.
The Company has concluded that such disaggregation of revenue best depicts the overall economic nature, timing and uncertainty
of the Company's revenue and cash flows affected by the economic factors of the respective contractual arrangement. See Note
20. Domestic and Foreign Operations for further information on disaggregation of the Company's revenue by segment.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer or client, and is the unit of
account in Topic 606. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue
when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation that is not
separately identifiable from other promises in the contract and therefore not distinct, comprising the promise to provide a bundle
of monthly performance obligations or services for transient or monthly parkers.
The contract price is generally deemed to be the transaction price. Some management type contracts include performance incentives
that are based on variable performance measures. These incentives are constrained at contract inception and recognized once
the customer has confirmed that the Company has met the contractually agreed upon performance measures as defined in the
contract.
63
Our performance obligations are primarily satisfied over time as the Company provides the related services. Typically, revenue is
recognized over time on a straight-line basis as the Company satisfies the related performance obligation. There are certain
management type contracts where revenue is recognized based on costs incurred to date plus a reasonable margin. The Company
has concluded this is a faithful depiction of how control is transferred to the customer. Performance obligations satisfied at a point
in time for the year ended December 31, 2019 and 2018, respectively, were not significant.
The time between completion of the performance obligation and collection of cash is typically not more than 30 - 60 days. In certain
contractual arrangements, such as monthly parker contracts, cash is collected in advance of the Company commencing its
performance obligations under the contractual arrangement.
As of December 31, 2019, the Company had $152.9 million related to performance obligations that were unsatisfied or partially
unsatisfied for which the Company expects to recognize revenue. This amount excludes variable consideration primarily related to
contracts where the Company and customer share the gross revenues or operating profit for the location and contracts where
transaction prices include performance incentives that are constrained at contract inception. These performance incentives are
based on measures that are ascertained exclusively by future performance and therefore cannot be estimated at contract inception
by the Company. The Company applies the practical expedient that permits exclusion of information about the remaining performance
obligations that have original expected durations of one year or less.
The Company expects to recognize remaining performance obligations as revenue in future periods as follows:
(millions)
2020
2021
2022
2023
2024
2025 and thereafter
Total
Contract balances
Remaining
Performance
Obligations
62.8
39.5
21.5
14.2
8.0
6.9
152.9
$
$
The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets and contract liabilities.
Accounts receivable represent amounts where the Company has an unconditional right to the consideration and therefore only the
passage of time is required for the Company to receive consideration due from the customer. Both lease type and management
type contracts have customers and clients where amounts are billed as work progresses or in advance in accordance with agreed-
upon contractual terms. Billing may occur subsequent to or prior to revenue recognition, resulting in contract assets and contract
liabilities. The Company, on occasion, receives advances or deposits from customers and clients, on both lease and management
type contracts, before revenue is recognized, resulting in the recognition of contract liabilities.
Contract assets and liabilities are reported on a contract-by-contract basis and are included in Notes and accounts receivable, net
and Accrued expenses, respectively, on the Consolidated Balance Sheet as of December 31, 2019 and 2018. Impairment charges
related to accounts receivable for the years ended December 31, 2019, 2018 and 2017, were not significant. There were no
impairment charges recorded on contract assets and liabilities for the years ended December 31, 2019, 2018 and 2017. Information
about contract assets and contract liabilities with customers and clients as of December 31, 2019 and 2018 is presented below:
(millions)
Accounts receivable
Contract asset
Contract liability
$
2019
2018
151.3 $
11.0
19.4
139.3
11.4
19.1
Changes in contract assets include recognition of additional consideration due from the customer or client once the Company
obtains an unconditional right to the consideration offset by reclassifications of contract asset balances to accounts receivable when
the Company obtains an unconditional right to consideration, thereby establishing an accounts receivable. Information about changes
to contract asset balances for the year ended December 31, 2019 and 2018 are presented below:
(millions)
Balance as of January 1
Additional contract assets
Reclassification to accounts receivable
Balance as of December 31
2019
2018
$
$
11.4 $
11.0
(11.4)
11.0 $
12.2
11.4
(12.2)
11.4
64
Changes in contract liability primarily include additional contract liabilities and liquidation of contract liabilities when revenue is
recognized. The entire contract liability balance as of January 1, 2019 was recognized as revenue during the year ended December
31, 2019 and the Company expects the balance as of December 31, 2019 to be recognized as revenue over the next twelve months.
Information about changes to contract liability balances for the year ended December 31, 2019 and 2018 are presented below:
(millions)
Balance as of January 1
Additional contract liabilities
Recognition of revenue from contract liabilities
Balance as of December 31
Cost of contracts, net
2019
2018
$
$
(19.1) $
(19.4)
19.1
(19.4) $
(20.5)
(19.1)
20.5
(19.1)
Cost of contracts, net represents the cost of obtaining contractual rights associated with providing services for lease or management
type contracts. Incremental costs incurred to obtain parking contracts are amortized on a straight line basis over the estimated life
of the contracts, including anticipated renewals and terminations. This is consistent with the timing of when the Company satisfies
the related performance obligations. Estimated lives are based on the contract life or anticipated lives of the contract.
See Note 9. Cost of Contracts, net for amortization expense related to cost of contracts. Amortization expense of cost of contracts
related to service concession arrangements within the scope of Topic 853 is recorded as a reduction of revenue and was not
significant for the years ended December 31, 2019, 2018 and 2017, respectively.
As of December 31, 2019 and 2018, cost of contracts net of accumulated amortization included on the Consolidated Balance Sheets
was $4.3 million and $9.2 million, respectively. No impairment charges were recorded for the year ended December 31, 2019, 2018
and 2017, respectively.
6. 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,
2018
2019
$
48.8
22,080,025
128,007
22,208,032
$
53.2
22,394,542
212,681
22,607,223
2017
41.2
22,195,350
312,938
22,508,288
2.21
2.20
$
$
2.38
2.35
$
$
1.86
1.83
$
$
$
For all years presented above, unvested performance share units were excluded from the computation of weighted average diluted
common share outstanding because the number of shares ultimately issuable is contingent on the Company's performance goals,
which were not achieved as of the reporting date.
There are no additional securities that could dilute basic earnings per share in the future that were not included in the computation
of diluted earnings per share, other than those disclosed.
7. 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. On March 7, 2018, the Board approved an amendment and restatement of the Plan that increased the
number of shares of common stock available under the Plan from 2,975,000 to 3,775,000. Company stockholders approved the
65
Plan amendment and restatement on May 8, 2018. Forfeited and expired options under the Plan become generally available for
reissuance. At December 31, 2019, 746,816 shares remained available for award under the Plan.
Stock Grants
The following is a summary of Company authorized vested stock grants to certain directors for the year ended December 31, 2019,
2018 and 2017. 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,
2018
2017
2019
14,076
0.5
$
12,736
0.5
$
16,428
0.5
$
During the year ended December 31, 2019, the Company authorized certain one-time grants of 37,235 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.
During the year ended December 31, 2018, the Company authorized certain one-time grants of 48,663 and 8,426 restricted stock
units to certain executives that vest three years and five years from date of issuance, respectively. The restricted stock unit agreements
are designed to reward performance over three or five-year periods.
No grants of restricted stock units were authorized during the year ended December 31, 2017.
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, 2019, and changes during the years ended December 31,
2019, 2018 and 2017, are presented below:
Nonvested as of December 31, 2016
Issued
Vested
Forfeited
Nonvested as of December 31, 2017
Issued
Vested
Forfeited
Nonvested as of December 31, 2018
Issued
Vested
Forfeited
Nonvested as of December 31, 2019
Shares
Weighted
Average
Grant-Date
Fair Value
334,197
22,000
(26,399)
(4,537)
325,261
57,089
(173,240)
(6,456)
202,654
37,235
(78,469)
(7,978)
153,442
$
$
$
$
19.45
18.25
18.98
21.92
19.37
35.28
19.67
21.57
23.53
33.61
19.41
35.35
27.46
The table below shows the Company's stock-based compensation expense related to the restricted stock units for the years ended
December 31, 2019, 2018 and 2017, and is included in General and administrative expenses within the Consolidated Statements
of Income.
(millions)
Stock-based compensation expense
Year Ended December 31,
2018
2017
2019
$
1.1
$
0.9
$
0.9
66
Unrecognized stock-based compensation expense related to the restricted stock units and the respective weighted average periods
in which the expense will be recognized for the years ended December 31, 2019, 2018 and 2017, is shown in the table below.
(millions)
Unrecognized stock-based compensation
Weighted average (years)
Performance Share Units
Year Ended December 31,
2018
2017
2019
$
1.7
1.8 years
$
1.8
2.3 years
$
0.9
2.1 years
In September 2014, the Board of Directors authorized a performance-based incentive program under the Plan ("Performance-
Based Incentive Program"), whereby the Company issues 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 is 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 2019, the Board of Directors authorized a performance-based incentive program under the Company's Long-Term Incentive
Plan ("2019 Performance-Based Incentive Program"). The 2019 Performance-Based Incentive Program is similar to the 2017 and
2018 Performance-Based Incentive Program, with the exception of the number of shares ultimately to be issued is based on the
achievement of free cash flow before cash tax and interest payments over the cumulative three-year period of 2019 through 2021.
During 2019, certain participating executives became vested in 3,631 Performance-Based Incentive Program shares based on
retirement eligibility. Stock-based compensation related to these shares was not significant and has been recognized in General
and administrative expenses. 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 2017 through 2019. As a result,
40,214 shares were vested to these participating executives as of December 31, 2019.
In March 2018, the Board of Directors authorized a performance-based incentive program under the Company's Long-Term Incentive
Plan ("2018 Performance-Based Incentive Program"). The 2018 Performance-Based Incentive Program is similar to the 2016 and
2017 Performance-Based Incentive Program, with the exception of the number of shares ultimately to be issued is based on the
achievement of free cash flow before cash tax and interest payments over the cumulative three-year period of 2018 through 2020.
During 2018, 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 15,497 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 2016 through 2018. As a result, 51,160 shares
were vested to these participating executives as of December 31, 2018.
In March 2017, the Board of Directors authorized another 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
2016 Performance-Based Incentive Program, with the exception of the number of shares ultimately to be issued is based on the
achievement of free cash flow before cash tax payments 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.
67
A summary of the status of the performance share units as of December 31, 2019, and changes during the years ended December 31,
2019, 2018 and 2017 are presented below:
Nonvested as of December 31, 2016
Issued (1)
Vested
Forfeited
Nonvested as of December 31, 2017
Issued (2)
Vested
Forfeited
Nonvested as of December 31, 2018
Issued (3)
Vested
Forfeited
Nonvested as of December 31, 2019
Shares
Weighted
Average
Grant-Date
Fair Value
159,477
29,494
(61,919)
(11,770)
115,282
55,640
(66,657)
(10,572)
93,693
173,594
(43,845)
(11,819)
211,623
$
$
22.99
29.51
22.63
25.86
28.01
36.49
25.42
29.70
35.92
33.80
33.15
35.13
34.62
(1) Includes a reduction of 59,091 shares of performance adjustments made at a weighted average grant-date fair value of $26.07.
(2) Includes a reduction of 45,075 shares of performance adjustments made at a weighted average grant-date fair value of $35.86.
(3) Includes an increase of 48,632 shares of performance adjustments made at a weighted average grant-date fair value of $36.05.
The table below shows the Company's stock-based compensation expense related to the Performance-Based Incentive Program
for the years ended December 31, 2019, 2018 and 2017, which is included in General and administrative expenses within the
Consolidated Statements of Income.
(millions)
Stock-based compensation expense
Year Ended December 31,
2018
2017
2019
$
3.3
$
1.4
$
1.3
Future compensation expense for currently outstanding awards under the Performance-Based Incentive Program could reach a
maximum of $11.3 million. Stock-based compensation for the Performance-Based Incentive Program is expected to be recognized
over a weighted average period of 1.8 years.
8. Leasehold Improvements, Equipment and Construction in Progress, net
Leasehold improvements, equipment, and construction in progress and related accumulated depreciation and amortization is as
follows:
(millions)
Equipment
Software
Vehicles
Other
Leasehold improvements
Construction in progress
Accumulated depreciation and amortization
Leasehold improvements, equipment and
construction in progress, net
Ranges of Estimated Useful Life
1 - 10 Years
2 - 5 Years
1 - 10 Years
3 Years
Shorter of lease term or economic life
up to 10 years
$
December 31
2019
2018
$
45.2
39.7
30.0
0.6
18.8
6.3
140.6
(92.7)
$
47.9
$
41.5
34.7
23.6
0.6
17.7
4.4
122.5
(82.2)
40.3
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,
68
whichever is shorter, and depreciated on the straight-line basis. 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, 2019, 2018 and 2017, and is included in Depreciation and amortization
expense within the Consolidated Statements of Income.
(millions)
Depreciation expense
9. 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)
2020
2021
2022
2023
2024
2025 and Thereafter
Total
Year Ended December 31,
2018
2017
2019
$
12.8
$
9.6
$
11.3
December 31,
2019
2018
$
$
26.0
(21.7)
4.3
$
$
33.8
(24.6)
9.2
Cost of
Contract
1.2
0.8
0.7
0.6
0.5
0.5
4.3
$
$
The table below shows the Company's amortization expense related to costs of contracts for the years ended December 31, 2019,
2018 and 2017, and is primarily included in Depreciation and amortization within the Consolidated Statements of Income.
(millions)
Amortization expense
Weighted average life (years)
Year Ended December 31,
2018
2017
2019
$
$
1.9
10.0
$
3.0
9.4
3.2
9.8
Effective January 1, 2019, cost of contracts associated with leases within the scope of ASU No. 2016-02 Leases (Topic 842) are
included in the right-of-use assets balance. See Note 1. Significant Accounting Policies and Practices for the Cost of contract, net
balance reclassified to right-of-use assets upon adoption of Topic 842. Additionally, see Note. 2 Leases for further discussion.
69
10. Other Intangible Assets, net
The following presents a summary of other intangible assets:
(millions)
Weighted
Average
Life
(Years)
Acquired
Intangible
Assets,
Gross
Accumulated
Amortization
Acquired
Intangible
Assets,
Net
Acquired
Intangible
Assets,
Gross
Accumulated
Amortization
Acquired
Intangible
Assets,
Net
December 31,
2019
2018
Covenant not to compete
2.9
$
2.9
$
(0.3) $
2.6
$
1.6
$
— $
3.9
4.7
9.0
13.9
5.6
10.4
81.0
100.4
(1.2)
(2.0)
(37.4)
(7.2)
4.4
8.4
43.6
93.2
6.3
11.0
81.0
100.4
(0.7)
(0.8)
(32.2)
(0.6)
1.6
5.6
10.2
48.8
99.8
Trade names and
trademarks
Proprietary know how
Management contract
rights
Customer relationships
Acquired intangible
assets, net (1)
11.5
$
200.3
$
(48.1) $
152.2
$
200.3
$
(34.3) $
166.0
(1) Intangible assets have estimated remaining lives between 2 and 14 years.
The table below shows the amortization expense related to intangible assets for the years ended December 31, 2019, 2018 and
2017, and is included in Depreciation and amortization within the Consolidated Statements of Income.
(millions)
Amortization expense
Year Ended December 31,
2018
2017
2019
$
15.1
$
6.1
$
7.2
The expected future amortization of intangible assets as of December 31, 2019 is as follows:
(millions)
2020
2021
2022
2023
2024
2025 and thereafter
Total
11. Goodwill
The amounts for goodwill and changes to carrying value by reportable segment are as follows:
(millions)
Balance as of December 31, 2017
Goodwill acquired
Foreign currency translation
Balance as of December 31, 2018
Purchase price adjustments
Foreign currency translation
Balance as of December 31, 2019
Commercial
369.0
$
—
(0.3)
368.7
—
0.2
368.9
$
$
Intangible asset
amortization
15.7
15.7
15.1
14.9
13.1
77.7
152.2
$
$
Aviation
Total
$
$
$
62.7
154.1
—
216.8
0.3
—
217.1
$
$
$
431.7
154.1
(0.3)
585.5
0.3
0.2
586.0
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. The reporting units
70
are also its reportable segments of Commercial and Aviation. See Note 1. Significant Accounting Policies and Practices for additional
detail on the Company's policy for assessing goodwill for impairment.
The Company completed a quantitative test (Step One) of goodwill impairment as of October 1, 2019 and concluded that the
estimated fair values of each of the Company’s reporting units exceeded its carrying amount of net assets assigned to each reporting
unit and therefore no further testing was required (Step Two). In conducting the October 1, 2019 goodwill impairment quantitative
test (Step One), the Company analyzed actual and projected growth trends of the reporting units, gross margin, operating expenses
and Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (which also includes forecasted five-year income
statement and working capital projection, a market-based weighted average cost of capital and terminal values after five years).
The Company also assesses critical areas that may impact its business including economic conditions, market related exposures,
competition, changes in service offerings and changes in key personnel. As part of the October 1, 2019 goodwill assessment, the
Company engaged a third-party to evaluate its reporting units’ fair values. No impairment was identified as a result of the goodwill
impairment test performed for such period.
12. Fair Value Measurement
Fair Value Measurements-Recurring Basis
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. Fair value
measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. Applicable
accounting literature establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs
and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The fair value
hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable
inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from
independent sources while unobservable inputs reflect a reporting entity's pricing based upon its own market assumptions. Applicable
accounting literature defines levels within the hierarchy based on the reliability of inputs as follows:
•
•
•
Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar
assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-
corroborated inputs, which are derived principally from or corroborated by observable market data.
Level 3: Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are
unobservable.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and the
basis of measurement at December 31, 2019 and December 31, 2018:
(millions)
Assets
Fair Value Measurement
December 31, 2019
December 31, 2018
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Cash and cash equivalents
$
24.1 $
— $
— $
39.9 $
— $
Liabilities
Accrued expenses
Interest rate collars
Total
Interest Rate Collars
—
$
24.1 $
(0.6)
(0.6) $
—
—
— $
39.9 $
—
— $
—
—
—
The Company seeks to minimize risks from interest rate fluctuations through the use of interest rate collar contracts and hedge
only exposures in the ordinary course of business. Interest rate collars are used to manage interest rate risk associated with the
Company's floating rate debt. Effective May 2019, the Company entered into three zero cost interest rate collar contracts with an
aggregate notional amount of $222.3 million with maturity dates of April 2022. The notional amount amortizes consistent with the
term loan portion of the Senior Credit Facility. See Note 13. Borrowing Arrangements for additional disclosure on interest rate collar
contract transactions. The Company accounts for its derivative instruments at fair value. Derivatives held by the Company are
designated as hedges of specific exposures at inception, with an expectation that changes in the fair value will essentially offset
the change in the underlying exposure. Discontinuance of hedge accounting is required whenever it is subsequently determined
that an underlying transaction is not going to occur, with any gains or losses recognized in the Consolidated Statements of Income
at such time, with any subsequent changes in fair value recognized currently in earnings.
71
The fair value of interest rate collars is a Level 2 fair value measurement, based on quoted prices of similar items in active markets.
The effective portion of the change in fair value of the interest rate collars is reported in Accumulated other comprehensive income
and is recognized as an adjustment to interest expense or other (expense) income, respectively, over the same period the related
expenses are recognized in earnings. Gains and losses from cash flow hedging instruments reclassified from Accumulated other
comprehensive income to earnings are reported as Cash provided by operating activities on the Consolidated Statements of Cash
Flows. The Company did not enter into derivative transactions during the year ended December 31, 2018.
See Note 18. Accumulated Other Comprehensive Income (Loss) for the amount of gain (loss) recognized in Other
Comprehensive loss on the interest rate collars. No gain (loss) was reclassified from Accumulated Other Comprehensive loss
during the year ended December 31, 2019. No gain (loss) was recognized in income on the interest rate collars resulting from
hedge ineffectiveness or exclusion from the assessment of hedge effectiveness.
The following table presents summarized information about the Company's interest rate collars:
(millions)
Collar 1
Collar 2
Collar 3
Total
Interest Rate Collars
December 31, 2019
Maturity Date
Notional Amount
LIBOR Ceiling
LIBOR Floor
Interest Rate Parameters
April 2022
April 2022
April 2022
$
$
74.1
74.1
74.1
222.3
2.5%
2.5%
2.5%
1.2%
1.3%
1.4%
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 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 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 using certain assumptions, which are further
discussed in Note 3. Acquisition. There were no impairment charges for the years ended December 31, 2019, 2018 and 2017.
Financial Instruments Not Measured at Fair Value
The fair value of the Restated Credit Facility and Other obligations approximates the carrying amount due to variable interest rates
and would be classified as a Level 2. See Note 13. Borrowing Arrangements, for further information.
13. Borrowing Arrangements
Long-term borrowings, in order of preference, consisted of the following:
Amount Outstanding
December 31,
(millions)
Maturity Date
2019
2018
Senior Credit Facility, net of original discount on borrowings and
deferred financing costs
Other borrowings
Total obligations under Senior Credit Facility and other
borrowings
Less: Current portion of obligations under Senior Credit Facility
and other borrowings
Total long-term obligations under Senior Credit Facility and
other borrowings
November 30, 2023
Various
$
$
345.9
23.1
369.0
17.9
371.2
15.5
386.7
13.2
$
351.1
$
373.5
72
Aggregate minimum principal maturities of long-term borrowings for the fiscal years following December 31, 2019, are as
follows:
(millions)
2020
2021
2022
2023
2024
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
$
$
18.7
15.5
14.2
317.2
1.1
5.1
371.8
17.9
1.2
1.6
351.1
On November 30, 2018 (the "Closing Date") and in connection with the Acquisition, the Company entered into a credit agreement
(the “Credit Agreement”) with Bank of America, N.A. (“Bank of America”), as Administrative Agent, swing-line lender and a letter of
credit issuer; Wells Fargo Bank, N.A., as syndication agent; BMO Harris Bank N.A., JPMorgan Chase Bank, N.A., KeyBank National
Association and U.S. Bank National Association, as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Wells Fargo Securities, LLC, as joint lead arrangers and joint bookrunners; and the lenders party thereto (the “Lenders”).
Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders made available to the Company a new
senior secured credit facility (the “Senior Credit Facility”) that permits aggregate borrowings of $550 million consisting of (i) a
revolving credit facility of up to $325 million at any time outstanding, which includes a letter of credit facility that is limited to $100
million at any time outstanding, and (ii) a term loan facility of $225 million. The Senior Credit Facility matures on November 30,
2023.
The entire amount of the term loan portion of the Senior Credit Facility was drawn by the Company on the Closing Date and is
subject to scheduled quarterly amortization of principal in installments equal to 1.25% of the initial aggregate principal amount of
such term loan. The Company also borrowed $174.8 million under the revolving credit facility on the Closing Date. The proceeds
from these borrowings were used by the Company to pay the purchase price for the Acquisition (See Note 3. Acquisition), to pay
other costs and expenses related to the Acquisition and the related financing and to repay in full the obligations under the previous
credit facility. In addition, proceeds from the Senior Credit Facility may be used to finance working capital, capital expenditures and
other acquisitions, payments and general corporate purposes.
Borrowings under the Senior Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s
consolidated total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter,
determined in accordance with the applicable pricing levels set forth in the Credit Agreement (the “Applicable Margin”) for London
Interbank Offered Rate (or a comparable or successor rate approved by Bank of America) (“LIBOR”) loans, plus the applicable
LIBOR rate or (ii) the Applicable Margin for base rate loans plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of
America prime rate and (z) a daily rate equal to the applicable LIBOR rate plus 1.0%.
Under the terms of the Credit Agreement, the Company is required to maintain a maximum consolidated total debt to EBITDA ratio
of not greater than 4.00:1.0 with certain step-downs described in the Credit Agreement. In addition, the Company is required to
maintain a minimum consolidated fixed charge coverage ratio of not less than 3.50:1.0 (with certain step-ups described in the Credit
Agreement).
Events of default under the Credit Agreement include failure to pay principal or interest when due, failure to comply with the financial
and operational covenants, the occurrence of any cross default event, non-compliance with other loan documents, the occurrence
of a change of control event, and bankruptcy and other insolvency events. If an event of default occurs and is continuing, the
Administrative Agent can, with the consent of the required Lenders, among others (i) terminate the commitments under the Credit
Agreement, (ii) accelerate and require the Company to repay all the outstanding amounts owed under the Credit Agreement, and
(iii) require the Company to cash collateralize any outstanding letters of credit.
Each wholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Credit Agreement) has
guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Credit
Agreement. The Company’s obligations under the Credit Agreement and such domestic subsidiaries’ guaranty obligations are
secured by substantially all of their respective assets.
The Company was in compliance with its debt covenants as of December 31, 2019.
73
At December 31, 2019, the Company had $50.2 million of letters of credit outstanding under the Senior Credit Facility, and borrowings
against the Senior Credit Facility aggregated to $369.0 million.
The weighted average interest rate on the Company's Senior Credit Facility and Former Restated Credit Facility was 3.4% and
4.0% for the years ended December 31, 2019 and 2018, respectively. The rate includes all outstanding LIBOR contracts and letters
of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 3.6% and 4.3%,
respectively, at December 31, 2019 and December 31, 2018.
In connection with and effective upon the execution and delivery of the Credit Agreement on November 30, 2018, the Company
recognized losses on extinguishment of debt relating to debt discount and debt issuance costs on the former credit facility. These
losses were not significant.
Interest Rate Collars
In May 2019, the Company entered into three-year interest rate collar contracts with an aggregate $222.3 million notional amount.
Interest rate collars are used to manage interest rate risk associated with variable interest rate borrowings under the Credit
Agreement. The collars establish a range where the Company will pay the counterparties if the one-month U.S. dollar LIBOR rate
falls below the established floor rate, and the counterparties will pay the Company if the one-month U.S. dollar LIBOR rate exceeds
the established ceiling rate of 2.5%. The collars settle monthly through the termination date of April 2022. No payments or receipts
are exchanged on the interest rate collar contracts unless interest rates rise above or fall below the pre-determined ceiling or floor
rates. The notional amount amortizes consistent with the term loan portion of the Senior Credit Facility. These interest rate collars
are classified as cash flow hedges, and the Company calculates the effectiveness of the hedge on a monthly basis. See Note 12.
Fair Value Measurement for additional disclosure on interest rate collar contract transactions. As of December 31, 2018, the Company
had no ongoing derivative transactions.
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, 2019 and 2018, respectively. The approximate redemption value of
the Convertible Debentures outstanding at December 31, 2019 and December 31, 2018 was $1.1 million for both years.
14. Stock Repurchase Program
In May 2016, the Board of Directors authorized the Company to repurchase in the open market shares of the Company's outstanding
common stock in an amount not to exceed $30.0 million. Under this program, the entire authorized amount was applied to repurchase
988,767 shares of common stock at an average price of $30.30 resulting in completion of the program in August 2019. No repurchases
were made during the year ended December 31, 2018.
In July 2019, the Board of Directors authorized a new program to repurchase, on the open market, shares of the Company's
outstanding common stock in an amount not to exceed $50.0 million in aggregate. Under this program the Company repurchased
652,000 shares of common stock through December 31, 2019, at an average price of $38.88, resulting in $25.3 million in program-
to-date repurchases.
As of December 31, 2019, $24.7 million remained available for repurchase under the July 2019 stock repurchase program. Under
the program, repurchases 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 Rules 10b-18, to the extent relied upon,
and 10b5-1 under the Exchange Act at time and prices considered to be appropriate at our discretion. The stock repurchase program
does not obligate the Company to repurchase any particular amount of common stock and has no fixed termination date, and may
be suspended at any time at the Company's discretion.
The table below summarizes stock repurchase activity under the May 2016 and the July 2019 repurchase programs during the
year ended December 31, 2019:
(millions, except for share and per share data)
Total number of stock repurchased
Average price paid per share
Total value of stock repurchased
December 31,
2019
1,335,584
35.83
47.9
$
$
74
The following table summarizes the remaining authorized repurchase amounts in the aggregate under the May 2016 and the
July 2019 repurchase programs as of December 31, 2019:
(millions)
Total authorized repurchase amount
Total value of stock repurchased
Total remaining authorized repurchase amount
15. Income Taxes
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
December 31,
2019
$
$
80.0
55.3
24.7
Year Ended December 31,
2018
2017
2019
69.7
1.4
71.1
$
$
74.9
1.1
76.0
$
$
70.0
2.2
72.2
Year Ended December 31,
2018
2017
2019
9.6
0.9
4.7
15.2
2.9
(0.1)
1.4
4.2
19.4
$
$
9.9
1.0
7.4
18.3
1.3
(0.3)
0.3
1.3
19.6
$
$
21.5
1.0
3.3
25.8
2.6
0.6
(1.3)
1.9
27.7
$
$
$
$
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for
U.S. GAAP purposes and the amount used for income tax purposes.
75
Components of the Company's deferred tax assets and liabilities are as follows:
(millions)
Deferred tax assets
Net operating loss carry forwards and tax credits
Lease liability
Accrued expenses
Accrued compensation
Unfavorable acquired lease contracts
Other
Total gross deferred tax assets
Valuation allowances
Total deferred tax assets
Deferred tax liabilities
Prepaid expenses
Right of use asset
Undistributed foreign earnings
Depreciation and amortization
Goodwill amortization
Favorable acquired lease contracts
Equity investments in unconsolidated entities
Total deferred tax liabilities
Net deferred tax asset
December 31,
2019
2018
$
$
20.8
119.5
15.0
9.2
—
1.4
165.9
(8.3)
157.6
(0.1)
(114.9)
—
(0.7)
(26.2)
—
(5.1)
(147.0)
10.6
$
$
21.6
—
17.4
7.1
6.4
0.9
53.4
(8.1)
45.3
(0.1)
—
(0.1)
1.3
(22.3)
(4.6)
(4.9)
(30.7)
14.6
The accounting guidance for accounting for income taxes requires that the Company assess the realizability 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
$8.3 million and $8.1 million at December 31, 2019 and 2018, respectively, primarily related to our state Net Operating Loss
carryforwards ("NOLs"), foreign tax credits and state tax credits that the Company believes are not likely to be realized based on
upon its estimates of future state taxable income, limitations on the uses of its state NOLs, and the carryforward life over which the
state tax benefit is realized.
As of December 31, 2019, the Company recognized approximately $5.2 million of Canadian foreign and $6.4 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 $0.3 million and $0.6 million of Canadian and Puerto Rico
withholding taxes, respectively. No U.S. taxes will be incurred on future distributions of foreign earnings due to the participation
exemption under the 2017 Tax Act.
Due to the adoption of ASU 2016-09 in 2017, the Company recognized excess tax benefits of $0.5 million and $1.0 million as income
tax benefit for the year ended December 31, 2019 and 2018, respectively, and as a result of the required adoption of ASU 2016-09,
the Company's effective tax rate may have increased volatility.
The Company has $18.2 million of tax effected state NOLs as of December 31, 2019, which will expire in the years 2020 through
2039. As noted above, the utilization of NOLs of the Company are limited due to the ownership change in June 2004 and due to
the Central Merger.
The Company adopted Topic 842 as of January 1, 2019. The Company has recorded deferred taxes to include the associated
deferred tax assets and liabilities for the corresponding right of use asset and lease liability accounts. The adjustments represent
a change in the deferred tax categories only and the net deferred tax asset as of January 1, 2019 remained $14.6 million.
76
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:
(millions)
Tax at statutory rate
Permanent differences
State taxes, net of federal benefit
Effect of foreign tax rates
Effect of 2017 Tax Act
Noncontrolling interest
Current year adjustment to deferred taxes
Recognition of tax credits
Other
Change in valuation allowance (1)
Income tax expense
Effective tax rate
Year Ended December 31,
2018
2017
2019
$
$
14.9
0.8
4.5
0.6
—
(0.6)
0.8
(1.8)
—
19.2
0.2
19.4
27.3%
$
$
16.0
0.2
6.3
0.6
(1.5)
(0.7)
0.4
(2.7)
—
18.6
1.0
19.6
25.8%
25.3
0.3
2.5
—
(1.0)
(1.1)
1.6
(1.5)
1.1
27.2
0.5
27.7
38.4%
$
$
(1) The year ended December 31, 2017 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.
Taxes paid were $15.3 million, $15.3 million, and $26.5 million in the years ended December 31, 2019, 2018 and 2017, respectively.
The Company finalized its accounting for the income tax effects of the 2017 Tax Act during the year ended December 31, 2018 and
recorded a tax benefit of $1.5 million for the transition tax on the mandatory deemed repatriation of foreign earnings. The tax benefit
is the result of the Company finalizing its analysis of foreign earnings and profits and eligible foreign tax credits to be claimed to
offset the tax liability.
The 2017 Tax Act also included a provision designed to tax Global Intangible Low Taxed Income (“GILTI”). The Company has elected
the period cost method to account for any tax liability subject to GILTI. The GILTI amount recognized during the year ended December
31, 2019 was not significant.
As of December 31, 2019 the Company had not identified any uncertain tax positions that would have a material impact on the
Company's financial position.
The Company would recognize 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, 2019 are shown below:
2016 - 2019
2007 - 2019
2015 - 2019
16. Benefit Plans
Deferred Compensation Arrangements
United States - federal income tax
United States - state and local income tax
Foreign - Canada and Puerto Rico
The Company offers deferred compensation arrangements for certain key executives. Subject to their continued employment by
the Company, certain employees are offered supplemental pension arrangements in which the employees will receive a defined
monthly benefit upon attaining age 65. At December 31, 2019 and 2018, the Company has accrued $3.6 million and $3.7 million,
respectively, representing the present value of the future benefit payments. Expenses related to these plans amounted to $0.2
million, $0.4 million and $nil in 2019, 2018 and 2017, 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, 2019 was $0.3 million, $0.2 million and
$0.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company has recorded a liability of $2.3
million and $2.4 million associated with these agreements as of December 31, 2019 and 2018, respectively.
Life insurance contracts with a face value of approximately $5.4 million and $6.2 million as of December 31, 2019 and 2018 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 was approximately $3.8 million and $3.6 million as of December 31, 2019 and 2018, respectively,
77
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.
Defined Contribution Plans
The Company sponsors 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 $2.0 million, $2.1 million, and $2.1 million in 2019, 2018 and 2017, 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, 2019 and 2018, the cash surrender value of the COLI
policies was $17.3 million and $13.0 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 $20.4 million and $15.0 million as of December 31, 2019 and 2018, respectively.
Multi-Employer Defined Benefit and Contribution Plans
The Company contributes to a number of multiemployer defined benefit plans under the terms of collective-bargaining agreements
that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer
plans in the following aspects:
•
•
•
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining
participating employers.
If the Company chooses to stop participating in one of its multiemployer plans, it may be required to pay the plan an amount
based on the underfunded status of the plan, referred to as withdrawal liability.
The Company's contributions represented more than 5% of total contributions to the Teamsters Local Union No. 727 and Local 272
Labor Management Benefit Funds for the plan year ending February 28, 2019 and November 30, 2019, 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, 2019, 2018 and 2017, 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
Contributions (millions)
2019
2018
2017
FIP/FR
Pending
Implementation
2019
2018
2017
Surcharge
Imposed
Zone
Status
as of
the
Most
Recent
Annual
Report
Expiration
Date of
Collective
Bargaining
Agreement
36-61023973 Green Green Green
N/A
$ 3.1
$ 3.2
$ 3.4
No
2019
10/31/2021
13-5673836 Green Green Green
N/A
$ 1.3
$ 1.5
$ 1.6
No
2019
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, $2.1 million and $2.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.
In the event that the Company decides to cease participating in these plans, the Company would 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.
78
17. 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, 2019 and 2018 was $12.0 million and $11.8 million, respectively.
All of the cash flows 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 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 payments, net of repayments received, as of December 31, 2019, 2018 and 2017 were as follows:
(millions)
Balance at beginning of year
Deficiency payments made
Deficiency repayment received
Balance at end of year
2019
December 31,
2018
2017
$
$
3.9
—
(3.8)
0.1
$
$
7.8
0.1
(4.0)
3.9
$
$
9.9
0.2
(2.3)
7.8
The total deficiency repayments (net of payments made), interest and premium received and recorded for the years ended
December 31, 2019, 2018 and 2017 were as follows:
(millions)
Deficiency repayments
Interest
Premium
2019
$
Year Ended December 31
2018
2017
$
3.8
1.0
0.4
$
3.9
0.9
0.3
2.0
0.6
0.2
Deficiency payments made are recorded as an increase in Cost of services-management type contracts and deficiency repayments,
interest and premium received are recorded as reductions to cost of services. The reimbursement of principal, interest and premium
is recognized when received.
There were no amounts of estimated deficiency payments accrued as of December 31, 2019 or 2018, as the Company concluded
that the potential for future deficiency payments did not meet the criteria of both probable and estimable.
79
In addition to the recovery of certain general and administrative expenses incurred, the Bradley Agreement provides for an annual
management fee payment, which is based on operating profit tiers. The annual management fee is further apportioned 60% to the
Company and 40% to an unaffiliated entity and the annual management fee is 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 $19.7 million and $18.7 million had not
been recognized as of December 31, 2019 and 2018, respectively, and no management fees were recognized as revenue during
2019, 2018 or 2017.
18. 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, 2016
Change in other comprehensive income
Balance as of December 31, 2017
Change in other comprehensive loss
Cumulative effect of change in accounting principle (1)
Balance as of December 31, 2018
Change in other comprehensive income (loss)
Balance as of December 31, 2019
Foreign
Currency
Translation
Adjustments
Effective
Portion
of Unrealized
Loss on
Derivative
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
$
(1.4) $
0.2
(1.2)
(0.6)
(0.6)
(2.4)
0.1
(2.3) $
— $
—
—
—
—
—
(0.4)
(0.4) $
(1.4)
0.2
(1.2)
(0.6)
(0.6)
(2.4)
(0.3)
(2.7)
(1) Refer to Note 1, Significant Accounting Policies and Practices for additional information on the Company's adoption of ASU 2018-02.
19. Legal Proceedings
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 such "normal course"
matters that separately or in the aggregate, would, in the opinion of management, have a material adverse effect on its results of
operations, financial condition or cash flows.
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.
80
20. 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 ("CODM") for making decisions and assessing performance as the source of the Company's
reportable segments. The Company's segments are organized in a manner consistent with which separate financial information is
available and evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and 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 segments administered by executive vice presidents.
Each of the operating segments is directly responsible for revenue and expenses related to their operations including direct segment
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 December 2019, the Company changed its internal reporting segment information reported to the CODM. Certain locations
previously reported under Commercial are now included in Other. All prior periods presented have been reclassified to reflect the
new internal reporting to the CODM.
• Commercial encompasses the Company's 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 ground transportation services, valet services,
taxi and livery dispatch services and event planning, including shuttle and transportation services.
•
•
Aviation encompasses the Company's services in aviation (i.e., airports, airline and certain hospitality clients with baggage
and parking services) as well as ancillary services, which includes shuttle and ground transportation services, valet services,
baggage handling, baggage repair and replacement, remote air check-in services, wheelchair assist services and other
services.
"Other" consists of ancillary revenue that is not specifically identifiable to Commercial or Aviation and certain unallocated
items, such as and including prior year insurance reserve adjustments and other corporate items.
[INTENTIONALLY LEFT BLANK]
81
The following is a summary of revenues and gross profit by operating segment for the years ended December 31, 2019, 2018
and 2017:
(millions)
Services revenue
Commercial
Lease type contracts (2)
$
Management type contracts
Total Commercial
Aviation
Lease type contracts (2)
Management type contracts
Total Aviation
Other
Lease type contracts
Management type contracts
Total Other
Reimbursed management type contract
revenue
2019
Gross Margin
Percentage
2018 (1)
Gross Margin
Percentage
2017
Gross Margin
Percentage
Year Ended December 31,
377.3
252.9
630.2
30.7
263.5
294.2
0.9
9.6
10.5
728.8
$
386.2
249.4
635.6
27.0
101.2
128.2
0.7
10.9
11.6
693.0
$
433.8
248.1
681.9
129.3
89.1
218.4
—
11.0
11.0
679.2
Total services revenue
$
1,663.7
$
1,468.4
$
1,590.5
Gross Profit
Commercial
Lease type contracts
Management type contracts
Total Commercial
Aviation
Lease type contracts
Management type contracts
Total Aviation
Other
Lease type contracts
Management type 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 (earnings) 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 $
8.3%
38.8%
5.2%
29.2%
N/M
N/M
29.4
101.1
130.5
8.3
69.2
77.5
4.3
15.8
20.1
228.1
109.0
47.8%
29.4
89.7
18.9
(0.3)
—
—
18.6
71.1
19.4
51.7
2.9
48.8
7.8%
40.0%
27.0%
26.3%
N/M
N/M
$
25.8
98.3
124.1
7.3
31.9
39.2
3.2
17.5
20.7
184.0
91.0
49.5%
17.9
75.1
9.6
(0.4)
—
(10.1)
(0.9)
76.0
19.6
56.4
3.2
53.2
6.6%
37.8%
26.3%
31.5%
N/M
N/M
$
36.4
100.1
136.5
6.7
26.2
32.9
1.6
14.3
15.9
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
(1) On November 30, 2018, we completed the Acquisition. Our consolidated operations for the year ended December 31, 2018 includes Bags operating results for the
period of November 30, 2018 through December 31, 2018. Our consolidated results for the year ended December 31, 2017 does not include the operating results of
Bags. See Note 3. Acquisition for additional information.
(2) Includes reduction of Services revenue - lease type contracts due to the adoption of Topic 853, which required rental expense for the periods after January 1, 2018
be presented as a reduction of Services revenue - lease type contracts for that business (and corresponding contracts) that meet the criteria and definition of a service
concession arrangement. See Note 5. Revenue for further discussion regarding the adoption of Topic 853.
N/M - Not Meaningful
82
21. Unaudited Quarterly Results
The following table sets forth the Company's unaudited quarterly consolidated statement of income data for the years ended
December 31, 2019 and December 31, 2018. 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 type contracts to management type contracts; conversion of management type contracts to lease
type 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.
[INTENTIONALLY LEFT BLANK]
83
(millions, except for share
and per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (1)
(Unaudited)
(Unaudited)
2019
2018
Services revenue
Lease type contracts
$
97.8
$
105.2
$
104.6
$
101.3
$
99.5
$
107.4
$
104.7
$
102.3
Management type
contracts
Reimbursed management
type contract revenue
Total revenue
Cost of services
Lease type contracts
Management type
contracts
Reimbursed management
type contract expense
Total cost of services
Gross profit
Lease type contracts
Management type
contracts
Total gross profit
General and administrative
expenses
Depreciation and
amortization
Operating income
Other expense (income)
Interest expense
Interest income
Equity in (income) 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 (2)
Basic
Diluted
Weighted average shares
outstanding
Basic
Diluted
$
$
$
132.9
129.9
132.6
130.6
94.4
87.7
82.6
96.8
178.7
409.4
89.7
87.8
178.7
356.2
8.1
45.1
53.2
27.1
7.2
18.9
5.0
(0.1)
—
4.9
14.0
3.1
10.9
0.3
179.1
414.2
91.8
81.4
179.1
352.3
13.4
48.5
61.9
27.7
7.3
26.9
4.9
(0.1)
—
4.8
22.1
5.8
16.3
1.1
181.4
418.6
93.0
85.5
181.4
359.9
11.6
47.1
58.7
26.0
7.3
25.4
4.8
(0.1)
—
4.7
20.7
5.7
15.0
0.8
189.6
421.5
92.4
85.2
189.6
367.2
8.9
45.4
54.3
28.2
7.6
18.5
4.2
—
—
4.2
14.3
4.8
9.5
0.7
172.9
366.8
94.6
59.9
172.9
327.4
4.9
34.5
39.4
22.3
4.0
13.1
2.1
(0.1)
(10.1)
(8.1)
21.2
5.3
15.9
0.6
167.1
362.2
94.5
49.5
167.1
311.1
12.9
38.2
51.1
22.3
4.5
24.3
2.2
(0.1)
—
2.1
22.2
6.0
16.2
0.9
174.8
362.1
94.2
48.1
174.8
317.1
10.5
34.5
45.0
18.7
4.2
22.1
2.1
(0.1)
—
2.0
20.1
5.6
14.5
1.0
10.6
$
15.2
$
14.2
$
8.8
$
15.3
$
15.3
$
13.5
$
178.2
377.3
94.3
56.3
178.2
328.8
8.0
40.5
48.5
27.7
5.2
15.6
3.2
(0.1)
—
3.1
12.5
2.7
9.8
0.7
9.1
0.47
0.47
$
$
0.68
0.68
$
$
0.64
0.64
$
$
0.41
0.41
$
$
0.69
0.68
$
$
0.68
0.68
$
$
0.60
0.60
$
$
0.40
0.40
22,509,050
22,382,139
21,945,129
21,490,882
22,308,694
22,370,923
22,439,884
22,465,834
22,667,539
22,532,213
22,038,905
21,600,568
22,557,326
22,644,884
22,626,746
22,607,102
(1) The Company began including Bags operations within its consolidated operating results on November 30, 2018. See also Note 3. Acquisition for additional information.
(2) Basic and diluted net income per share are computed independently for each of the quarters presented. As a result, the sum of quarterly basic and diluted net income
per share information may not equal annual basic and diluted net income per share.
84
Item 16. Form 10-K Summary
None.
85
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 20, 2020
By:
/s/ KRISTOPHER H. ROY
SP PLUS CORPORATION
Kristopher H. Roy
Chief Financial Officer
(Principal Financial Officer, Principal Accounting
Officer and Duly Authorized 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/ ALICE M. PETERSON
Alice M. Peterson
/s/ GREGORY A. REID
Gregory A. Reid
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 20, 2020
February 20, 2020
February 20, 2020
February 20, 2020
February 20, 2020
February 20, 2020
Douglas R. Waggoner
/s/ KRISTOPHER H. ROY
Kristopher H. Roy
Chief Financial Officer
(Principal Financial Officer, Principal Accounting
Officer and Duly Authorized Officer)
February 20, 2020
86
SP PLUS CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Description
(millions)
Allowance for doubtful accounts
Year ended December 31, 2019
Year ended December 31, 2018
Year ended December 31, 2017
Deferred tax valuation allowance
Year ended December 31, 2019
Year ended December 31, 2018
Year ended December 31, 2017
Balance at
Beginning
of Year
Additions
Charged
to Costs
and
Expenses
Reductions (1)
Balance at
End of
Year
$
$
$
$
1.0
0.7
0.4
8.1
7.1
6.6
$
$
2.1
1.7
0.7
0.2
1.0
0.5
(1.2) $
(1.4)
(0.4)
— $
—
—
1.9
1.0
0.7
8.3
8.1
7.1
(1) Represents uncollectible accounts written off and reversal of provision.
87
(PAGE INTENTIONALLY LEFT BLANK)
As of March 20, 2020
Directors
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)(cid:86)
Karen M. Garrison,
Non-Executive Chairman (b)(c)(d)
President,
Pitney Bowes Business Services
(retired)
G Marc Baumann
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)(cid:3)(cid:9)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)
Kristopher H. Roy
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)(cid:3)(cid:9)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:85)
G Marc Baumann, Director
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)(cid:3)(cid:9)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
SP Plus Corporation
Robert A. Miles
President, Bags
John Ricchiuto
President, Airport Division
Robert M. Toy
President, Commercial Division
Alice M. Peterson, Director (a)(d)
Executive Vice President of
Operations,
Fluresh LLC
Gregory A. Reid, Director (a)(c)
President,
BoomDeYada, LLC
Wyman T. Roberts, Director (b)(c)(d)
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)(cid:15)
Brinker International, Inc.
Douglas R. Waggoner, Director (a)
(b)(d)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)(cid:15)
Echo Global Logistics, Inc.
(a) Audit Committee
Chair: Alice M. Peterson
(b) Nominating and Corporate
Governance Committee
Chair: Douglas R. Waggoner
Compensation Committee
Chair: Wyman T. Roberts
Executive Committee
Chair: Karen M. Garrison
(d)
(c)
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
Connie H. Jin
Senior Vice President, Corporate
Development
Telephone: (312) 274-2105
Investor_Relations@spplus.com
Independent Registered Public
Accounting Firm
(cid:40)(cid:85)(cid:81)(cid:86)(cid:87)(cid:3)(cid:9)(cid:3)(cid:60)(cid:82)(cid:88)(cid:81)(cid:74)(cid:3)(cid:47)(cid:47)(cid:51)
155 North Wacker Drive
Chicago, IL 60606
Transfer Agent
(cid:38)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:55)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:72)(cid:85)(cid:3)(cid:9)
Trust Company
1 State Street
30th Floor
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 2019. The
closing price of our common stock
at December 31, 2019 was $42.43.
HIGH LOW
First Quarter
$38.64
Second Quarter $35.00
$38.06
Third Quarter
Fourth Quarter
$47.33
$29.01
$30.66
$32.01
$36.71
Annual Meeting of Stockholders
Our Annual Stockholders Meeting
will be held on May 6, 2020 at
1:00 p.m., local time, at AON Center,
200 East Randolph Street, 70th Floor,
Chicago, IL 60601.