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STAN > SEC Filings for STAN > Form 10-K on 18-Mar-2013All Recent SEC Filings

Show all filings for STANDARD PARKING CORP

Form 10-K for STANDARD PARKING CORP


18-Mar-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our results of operations should be read in conjunction with the "Selected Financial Data" and our consolidated financial statements and the related notes included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth in Item 1A "Risk Factors" and elsewhere herein.

Explanatory Note

On October 2, 2012, we completed our acquisition (the "Central Merger") of Central Parking Corporation ("Central"). Central, together with its affiliates, was a leading provider of parking and related services, which operated parking facilities in 38 states, the District of Columbia and Puerto Rico and provided ancillary products and services, including parking consulting, shuttle, valet, on-street and parking meter enforcement and billing and collection services. Our consolidated results of operations for the twelve months ended December 31, 2012 include Central's results of operations for the period October 2, 2012 through December 31, 2012. Our consolidated results of operations for the twelve months ended December 31, 2011 and 2010 do not include amounts related to Central's results of operations.

Overview

Our Business

We manage parking facilities in urban markets and at airports across the United States, Puerto Rico and in four Canadian provinces. We typically enter into contractual relationships with property owners or managers as opposed to owning facilities.

We operate our clients' properties through two types of arrangements:
management contracts and leases. Under a management contract, we typically receive a base monthly fee for managing the facility, and we may also receive an incentive fee based on the achievement of facility performance objectives. We also receive fees for ancillary services. Typically, all of the underlying revenues and expenses under a standard management contract flow through to our clients rather than to us. However, some management contracts, which are referred to as "reverse" management contracts, usually provide for larger management fees and require us to pay various costs. Under lease arrangements, we generally pay to the property owner either a fixed annual rent, a percentage of gross customer collections or a combination thereof. We collect all revenues under lease arrangements and we are responsible for most operating expenses, but we are typically not responsible for major maintenance, capital expenditures or real estate taxes. Margins for lease contracts vary significantly, not only due to operating performance, but also due to variability of parking rates in different cities and varying space utilization by parking facility type and location. As of December 31, 2012, we operated 78% of our locations under management contracts and 22% under leases.

In evaluating our financial condition and operating performance, management's primary focus is on our gross profit, total general and administrative expense and general and administrative expense as a percentage of our gross profit. Although the underlying economics to us of management contracts and leases are similar, the manner in which we are required to account for them differs. Revenue from leases includes all gross customer collections derived from our leased locations (net of parking tax), whereas revenue from management contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management contracts, therefore, are not included in our revenue. Accordingly, while a change in the proportion of our operating agreements that are structured as leases versus management contracts may cause significant fluctuations in reported revenue and expense of parking services, that change will not


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artificially affect our gross profit. For example, excluding Central as of December 31, 2012, 91% of our locations were operated under management contracts and 86.4% of our gross profit for the year ended December 31, 2012 was derived from management contracts. Excluding Central, only 52.7% of total revenue (excluding reimbursed management contract revenue), however, was from management contracts because under those contracts the revenue collected from parking customers belongs to our clients. Therefore, gross profit and total general and administrative expense, rather than revenue, are management's primary focus.

Business Developments

In addition to the Central Merger completed on October 2, 2012, recent business developments included the following:

We have significant operations in New Jersey, New York and other areas that have been impacted by Hurricane Sandy. Although it is premature to quantify the total reduction in revenues or net income related to Hurricane Sandy, we expect that our business and financial results will be adversely impacted. We have engaged forensic accountants to assist in the process of identifying and quantifying the total revenue reduction and property damage that we have sustained from the hurricane. As of March 6, 2013, no amounts have been recorded related to the deductible portion of our casualty insurance program that we expect to incur in connection with the hurricane-related insurance claim that we will file.

On September 26, 2012, the United States Department of Justice filed suit in the United District Court for the District of Columbia challenging the Central Merger under U.S. antitrust law. Simultaneously with the filing of the lawsuit, DOJ filed papers settling the case. The terms of the settlement were set forth in an Asset Preservation Stipulation and Order, which was signed by the Court, and a Proposed Final Judgment, which was subsequently entered as a Final Judgment by the Court. Under the terms of those documents we are divesting (or have already divested) contracts covering 107 off-street parking facilities. As of March 12, 2013, 100 divestitures had been completed. The contracts, which include both leases and management agreements, have been or will be sold, terminated or permitted to expire without renewal. The divestitures of the contracts required by these agreements could have an adverse effect on our revenues.

General Business Trends

We believe that sophisticated commercial real estate developers and property managers and owners recognize the potential for parking and related services to be a profit generator rather than a cost center. Often, the parking experience makes both the first and the last impressions on their properties' tenants and visitors. By outsourcing these services, they are able to capture additional profit by leveraging the unique operational skills and controls that an experienced parking management company can offer. Our ability to consistently deliver a uniformly high level of parking and related services and maximize the profit to our clients improves our ability to win contracts and retain existing locations. Our location retention rate, excluding Central, for the twelve-month periods ended December 31, 2012 and December 31, 2011 was approximately 89% and 91%, respectively, which also reflects our decision not to renew, or terminate, unprofitable contracts and sales required to be made by the Department of Justice in connection with the Central Merger.

Excluding Central, for the year ended December 31, 2012 compared to the year ended December 31, 2011, average gross profit per location did not change significantly from $41.1 thousand in 2011 compared to $41.7 thousand in 2012.


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     Summary of Operating Facilities

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

                                December 31,    December 31,    December 31,
                                   2012(1)          2011            2010
           Managed facilities           3,325           1,953           1,907
           Leased facilities              939             201             212

           Total facilities             4,264           2,154           2,119


(1)
Includes 1,388 Managed facilities, 754 Leased facilities and 2,142 Total facilities acquired in the Central Merger. We have partial ownership interest in four Lease facilities and two Managed facilities acquired in the Central Merger.

Revenue

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


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


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

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

Reimbursed Management Contract Revenue

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


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Cost of Parking Services

Our cost of parking services consists of the following:


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


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

Reimbursed Management Contract Expense

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

Gross Profit

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

General and Administrative Expenses

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

Depreciation and Amortization

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

Results of Operations

Fiscal 2012 Compared to Fiscal 2011

As noted previously, the financial results for the year ended December 31, 2012 include only approximately three months of operations related to the acquired Central operations due to the timing of the closing of the Central Merger on October 2, 2012. The financial results for the year ended December 31, 2011 do not include any amounts related to Central. To help understand the operating results for the periods, the term "Central operations" refers to the results of Central on a stand-alone basis for the period from October 2, 2012 to December 31, 2012 and the term "Standard operations" refers to the results of Standard on a stand-alone basis and not inclusive of results from the acquired operations of Central for the twelve months ended December 31, 2012.


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Segments

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by our chief operating decision maker, in deciding how to allocate resources. Our chief operating decision maker is our president and chief executive officer.

Our business is managed based on regions administered by executive vice presidents. The following is a summary of revenues (excluding reimbursed management contract revenue) by region for the years ended December 31, 2012 and 2011. Information related to prior years has been recast to conform to the current regional alignment.

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

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

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

Region Four encompasses all major airport and transportation operations nationwide.

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

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

The following tables present the material factors that impact our financial statements on an operating segment basis.

Segment revenue information is summarized as follows:

                                                                           Year Ended December 31,
                 Region One        Region Two       Region Three       Region Four       Region Five         Other              Total              Variance
               2012      2011     2012    2011     2012      2011     2012     2011     2012     2011     2012    2011     2012      2011     Amount       %
                                                                                (In millions)
Lease
contract
revenue:
New
location      $   2.6   $  0.3   $    -   $   -    $  4.0   $  0.7   $  0.2   $    -   $ 10.1   $    -   $    -   $   -   $  16.9   $   1.0   $  15.9     1590.0
Contract
expirations       0.8      3.4        -       -       0.2      2.2      0.4      0.6      1.2      1.8        -       -       2.6       8.0      (5.4 )    (67.5 )
Same
location         70.2     66.8        -       -      18.8     17.5     41.4     38.0     14.8     13.8        -       -     145.2     136.1       9.1        6.7
Conversions       1.1      1.5        -       -         -        -      0.9      0.9        -        -        -       -       2.0       2.4      (0.4 )    (16.7 )
Acquisition      59.1        -      1.4       -       7.7        -        -        -     15.6        -     (0.1 )     -      83.7         -      83.7          -

Total lease
contract
revenue       $ 133.8   $ 72.0   $  1.4   $   -    $ 30.7   $ 20.4   $ 42.9   $ 39.5   $ 41.7   $ 15.6   $ (0.1 ) $   -   $ 250.4   $ 147.5   $ 102.9       69.8

Management
contract
revenue:
New
location      $   6.5   $  1.5   $  6.4   $ 0.1       7.0   $  1.9   $  2.7   $  0.9   $  2.0   $  0.8   $    -   $   -   $  24.6   $   5.2   $  19.4      373.1
Contract
expirations       2.6      8.8      1.2     0.3       3.6      8.8        -      1.2      0.5      1.5        -       -       7.9      20.6     (12.7 )    (61.7 )
Same
location         41.0     39.2      8.6     8.8      43.2     43.1     45.7     45.4     13.5      9.8      1.2     1.0     153.2     147.3       5.9        4.0
Conversions       0.7      0.6        -       -         -        -        -        -        -        -        -       -       0.7       0.6       0.1       16.7
Acquisition      15.1        -      5.4       -       5.4        -     13.0        -      6.2        -     (1.0 )     -      44.1         -      44.1          -

Total
management
contract
revenue       $  65.9   $ 50.1   $ 21.6   $ 9.2    $ 59.2   $ 53.8   $ 61.4   $ 47.5   $ 22.2   $ 12.1   $  0.2   $ 1.0   $ 230.5   $ 173.7   $  56.8       32.7

Parking services revenue-lease contracts. Lease contract revenue increased $102.9 million, or 69.8%, to $250.4 million for the year ended December 31, 2012, compared to $147.5 million for the year-ago period. The increase in lease contract revenue consisted of an increase from the Standard


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operations of $19.2 million, or 13.0%, and $83.7 million from the Central operations. The increase resulted primarily from increases in revenue from new locations and acquisitions, partially offset by decreases in revenue from contract expirations and fewer locations that converted from management contracts during the current year. Same location revenue for those facilities, which as of December 31, 2012 are the comparative periods for the two years presented, increased 6.7%. The increase in same location revenue was due to increases in short-term parking revenue of $7.9 million, or 8.0%, and increases in monthly parking revenue of $1.2 million, or 3.0%. Revenue associated with contract expirations relates to contracts that expired during the current period.

Parking services revenue-management contracts. Management contract revenue increased $56.8 million, or 32.7%, to $230.5 million for the year ended December 31, 2012, compared to $173.7 million for the year-ago period. The increase in management contact revenue consisted of an increase from the Standard operations of $12.7 million, or 7.3%, and $44.1 million from the Central operations. The increase resulted primarily from increases in revenue from new locations, acquisitions and conversions, which was partially offset by the decrease in contract expirations. Same location revenue for those facilities, which as of December 31, 2012 are the comparative periods for the two years presented, increased 5.9%, primarily due to increased fees from reverse management locations and ancillary services.

Reimbursed management contract revenue. Reimbursed management contract revenue increased $64.7 million, or 15.8%, to $473.1 million for the year ended December 31, 2012, compared to $408.4 million in the year-ago period. This increase resulted from an increase in reimbursements for costs incurred on behalf of owners.

Lease contract revenue increased primarily due to new locations and same locations in regions one, three, four and five, combined with acquisitions in regions one, two, three and five. This was partially offset by decreases in contract expirations in regions one, three, four and five. Same location revenue increases for the aforementioned regions were primarily due to increases in short-term and monthly parking revenue.

Management contract revenue increased primarily due to new locations and acquisitions in all five operating regions, combined with same location revenue in regions one, three, four, five and other. This was partially offset by contract expirations in all five operating regions and same locations in region two. The increases in same location revenue were primarily due to an increase in fees from reverse management locations and ancillary services. For comparability purposes, revenue associated with contract expirations relate to the contracts that expired during the current period.


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Segment cost of parking services information is summarized as follows:

                                                                            Year Ended December 31,
                 Region One        Region Two       Region Three       Region Four       Region Five          Other              Total              Variance
               2012      2011     2012    2011     2012      2011     2012     2011     2012     2011     2012     2011     2012      2011     Amount       %
                                                                                 (In millions)
Cost of
parking
services
lease
contracts:
New
location      $   2.3   $  0.3   $    -   $   -    $  4.1   $  0.7   $  0.2   $    -   $  9.6   $    -   $    -   $    -   $  16.2   $   1.0    $ 15.2     1520.0
Contract
expirations       0.8      3.2        -       -       0.2      2.2      0.4      0.7      1.1      1.7        -        -       2.5       7.8      (5.3 )    (67.9 )
Same
location         66.1     61.5        -       -      16.8     15.6     38.5     35.3     13.8     13.0     (1.1 )   (0.1 )   134.1     125.3       8.8        7.0
Conversions       1.0      1.6        -       -         -        -      0.8      0.8        -        -        -        -       1.8       2.4      (0.6 )    (25.0 )
Acquisition      56.4        -      1.3       -       7.4        -     (0.2 )      -     12.3        -     (1.5 )      -      75.7         -      75.7          -

Total cost
of parking
services
lease
contracts     $ 126.6   $ 66.6   $  1.3   $   -    $ 28.5   $ 18.5   $ 39.7   $ 36.8   $ 36.8   $ 14.7   $ (2.6 ) $ (0.1 ) $ 230.3   $ 136.5    $ 93.8       68.7

Cost of
parking
services
management
contracts:
New
location      $   3.4   $  0.9   $  5.4   $   -    $  4.5   $  1.1   $  3.1   $  1.6   $  0.9   $  0.3   $    -   $    -   $  17.3   $   3.9    $ 13.4      343.6
Contract
expirations       1.1      5.0      0.9     0.4       2.0      5.3        -      1.0      0.9      0.4        -        -       4.9      12.1      (7.2 )    (59.5 )
Same
location         18.6     17.2      6.8     6.8      25.0     24.2     29.5     28.7      8.8      4.9     (1.0 )   (1.7 )    87.7      80.1       7.6        9.5
Conversions       0.1      0.1        -       -         -        -        -        -        -        -        -        -       0.1       0.1         -          -
Acquisition      10.3        -      4.7       -       4.5        -     10.9        -      3.6        -     (3.2 )      -      30.8         -      30.8          -

Total cost
of parking
services
management
contracts     $  33.5   $ 23.2   $ 17.8   $ 7.2    $ 36.0   $ 30.6   $ 43.5   $ 31.3   $ 14.2   $  5.6   $ (4.2 ) $ (1.7 ) $ 140.8   $  96.2    $ 44.6       46.4

Cost of parking services-lease contracts. Cost of parking services for lease contracts increased $93.8 million, or 68.7%, to $230.3 million for the year ended December 31, 2012, compared to $136.5 million for the year-ago period. The increase in cost of parking services for lease contracts consisted of an increase from the Standard operations of $18.1 million, or 13.3%, and $75.7 million from the Central operations. The increase resulted primarily from increases in costs from new locations and acquisitions, which was partially offset by decreases in contract expirations and fewer locations that converted from management contracts during the current year. Same location costs for those facilities, which as of December 31, 2012 are the comparative for the two years presented, increased 7.0%. Same location costs increased $9.4 million due to rent expense, primarily as a result of contingent rental payments on the increase in revenue for same locations, payroll and payroll related costs of $0.4 million, $0.1 million related to other operating costs, offset by $1.1 million due to a favorable health insurance dividend related to prior years.

Cost of parking services-management contracts. Cost of parking services for management contracts increased $44.6 million, or 46.4%, to $140.8 million for the year ended December 31, 2012, compared to $96.2 million for the year-ago period. The increase in cost of parking services for management contracts consisted of an increase from the Standard operations of $13.8 million, or 14.3%, and $30.8 million from the Central operations. The increase resulted from increases in costs related to new reverse management locations and acquisitions, which was partially offset by decreases in contract expirations. Same location costs for those facilities, which as of December 31, 2012 are the comparative for the two years presented, increased 9.5%. Same location increase in operating expenses for management contracts primarily resulted from increases in costs associated with reverse management contracts and the cost of providing management services. Same location cost also includes an unfavorable change in net insurance loss experience reserve estimates relating to prior years of $0.6 million and a favorable health insurance dividend related to prior years of $0.9 million.


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Reimbursed management contract expense. Reimbursed management contract revenue increased $64.7 million, or 15.8%, to $473.1 million for the year ended December 31, 2012, compared to $408.4 million in the year-ago period. This increase resulted from an increase in reimbursements for costs incurred on behalf of owners.

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