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STAN > SEC Filings for STAN > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for STANDARD PARKING CORP

Form 10-Q for STANDARD PARKING CORP


10-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and the notes thereto included in our Annual Report on our Form 10-K for the year ended December 31, 2012.

Important Information Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding our merger with the parent of Central Parking Corporation ("Central"), and the other expectations, beliefs, plans, intentions and strategies of the Company. We have tried to identify these statements by using words such as "expect," "anticipate," "believe, "could," "should," "estimate," "expect," "intend," "may," "plan," "predict," "project," and "will" and similar terms and phrases, but such words, terms and phrases are not the exclusive means of identifying such statements. These forward-looking statements are made based on management's expectations and beliefs concerning future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict and many of which are beyond management's control. Actual results, performance and achievements could differ materially from those expressed in, or implied by, these forward-looking statements due to a variety of risks, uncertainties and other factors, including, but not limited to, the following: our ability to integrate Central into the business of the Company successfully and the amount of time and expense spent and incurred in connection with the integration; the risk that the economic benefits, cost savings and other synergies that we anticipate as a result of the Central Merger (defined below) are not fully realized or take longer to realize than expected; our substantially increased indebtedness incurred in connection with the Central Merger, which may reduce available cash flow, increase vulnerability to adverse economic conditions, and limit flexibility in planning for, or reacting to, changes in or challenges related to our business; unanticipated Central Merger and integration expenses; other losses, or renewals on less favorable terms, of management contracts and leases; adverse litigation judgments or settlements; the economic impact to areas damaged by Hurricane Sandy; changes in general economic and business conditions or demographic trends; the loss of customers, clients or strategic alliances as a result of the Central Merger; the effect on our strategy and operations due to changes to the Board of Directors that occurred upon the completion of the Central Merger; the impact of the divestitures of management contracts and leases required by the agreement entered into by the Company with the Department of Justice in connection with the Central Merger; the impact of public and private regulations; financial difficulties or bankruptcy of major clients; intense competition; insurance losses that are worse than expected or adverse events not covered by insurance; labor disputes; extraordinary events affecting parking at facilities that we manage, including emergency safety measures, military or terrorist attacks, cyber terrorism and natural disasters; the risk that state and municipal government clients sell or enter into long-term leases of parking-related assets to competitors or clients of our competitors; uncertainty in the credit markets; availability, terms and deployment of capital; our ability to obtain performance bonds on acceptable terms; and the impact of Federal health care reform.

For a detailed discussion of factors that could affect our future operating results, please see our filings with the Securities and Exchange Commission, including the disclosures under "Risk Factors" in those filings. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances, future events or for any other reason.

Explanatory Note

Central Merger

On October 2, 2012, we completed our acquisition (the "Central Merger") of Central Parking Corporation. 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 three months ended March 31, 2012 do not include any of Central's results of operations for that quarter.


Table of Contents

Overview

Our Business

We manage parking facilities in urban markets and at airports across the United States and in four Canadian provinces. We do not own any facilities, but instead enter into contractual relationships with property owners or managers.

We operate our clients' properties through two types of arrangements: management contracts and leases. Under a management contract, we typically receive a base monthly fee for managing the facility, and we may also receive an incentive fee based on the achievement of facility performance objectives. We also receive fees for ancillary services. Typically, all of the underlying revenue and expenses under a standard management contract flow through to our clients rather than to us. However, some management contracts, which are referred to as "reverse" management contracts, usually provide for larger management fees and require us to pay various costs. Under lease arrangements, we generally pay to the property owner either a fixed annual rent, a percentage of gross customer collections or a combination thereof. We collect all revenue under lease arrangements and we are responsible for most operating expenses, but we are typically not responsible for major maintenance, capital expenditures or real estate taxes. Margins for lease contracts vary significantly, not only due to operating performance, but also due to variability of parking rates in different cities and varying space utilization by parking facility type and location. As of March 31, 2013, we operated approximately 80% of our locations under management contracts and approximately 20% of our locations under leases. For the three months ended March 31, 2013, we derived approximately 71% of our gross profit under management contracts and approximately 29% of our gross profit under leases.

In evaluating our financial condition and operating performance, management's primary focus is on our gross profit, total general and administrative expenses and general and administrative expenses as a percentage of our gross profit. Although the underlying economics to us of management contracts and leases are similar, the manner in which we are required to account for them differs. Revenue from leases includes all gross customer collections derived from our leased locations (net of parking tax), whereas revenue from management contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management contracts, therefore, are not included in our revenue. Accordingly, while a change in the proportion of our operating agreements that are structured as leases versus management contracts may cause significant fluctuations in reported revenue and expense of parking services, that change will not artificially affect our gross profit. For example, as of March 31, 2013, we operated approximately 80% of our locations under management contracts, and for the three months ended March 31, 2013, we derived approximately 71% of our gross profit under management contracts. Only approximately 42% 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 expenses, rather than revenue, are management's primary focus.

General Business Trends

We believe that sophisticated commercial real estate developers and property managers and owners recognize the opportunity for parking and related services to be a profit generator rather than a cost center. Often, the parking experience makes both the first and the last impressions on their properties' tenants and visitors. By outsourcing these services, they are able to capture additional profit by leveraging the unique operational skills and controls that an experienced parking management company can offer. Our ability to consistently deliver a uniformly high level of parking and related services and maximize the profit to our clients improves our ability to win contracts and retain existing locations. Our location retention, excluding Central, rate for the twelve-month period ended March 31, 2013 was approximately 89%, compared to approximately 91% for the twelve-month period ended March 31, 2012, which also reflects our decision not to renew, or to terminate, unprofitable contracts and divestitures required to be made by the Department of Justice in connection with the Central Merger.

Excluding Central, for the three months ended March 31, 2013 compared to the three months ended March 31, 2012, average gross profit per location decreased from $10.0 thousand in 2012 compared to $9.1 thousand in 2013 primarily due to a negative fluctuation in prior year insurance reserve adjustments.


Table of Contents

Summary of Operating Facilities



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



                     March 31, 2013 (1)   December 31, 2012 (2)   March 31, 2012
Managed facilities                3,516                   3,325            1,973
Leased facilities                   904                     939              199
Total facilities                  4,420                   4,264            2,172

Revenue

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

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

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

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

Reimbursed Management Contract Revenue

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

Cost of Parking Services

Our cost of parking services consists of the following:

Cost of parking services-lease 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.


Table of Contents

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, which are included in cost of parking services.

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

Segments

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

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, our acquired valet business 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.

Our business is managed based on regions administered by executive vice presidents. The following is a summary of revenues (excluding reimbursed management contract revenue) and gross profit by regions for the three months ended March 31, 2013 and 2012 with information related to prior periods recast to conform to the current regional alignment:


Table of Contents

Three Months ended March 31, 2013 Compared to Three Months ended March 31, 2012

As noted previously, the financial results for the three months ended March 31, 2012 do not include any of Central's results of operations for that quarter due to the timing of the closing of the Central Merger on October 2, 2012. The financial results for the three months ended March 31, 2013 include Central's results of operations for that quarter. To help understand the operating results for these quarters, the term "Central Operations" refers to the results of Central on a stand-alone basis for the period from January 1, 2013 to March 31, 2013 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 three months ended March 31, 2013.

Segment revenue information is summarized as follows (unaudited):

                                                                             Three Months Ended March 31,
                                                            Region            Region
                       Region One        Region Two          Three             Four           Region Five         Other             Total             Variance
                      2013     2012     2013    2012     2013     2012     2013     2012     2013     2012     2013    2012     2013      2012    Amount      %
                                                                                     (In millions)
Lease contract
revenue:
New location         $  0.4   $    -   $    -   $   -   $  0.9   $  0.2   $  0.2   $    -   $   3.7   $   -   $    -   $   -   $   5.2   $  0.2   $   5.0   2500.0
Contract
expirations             0.1      1.1        -       -        -      0.2        -      0.1         -     0.6        -               0.1      2.0      (1.9 )  (95.0 )
Same location          17.7     15.8        -       -      5.2      5.0     11.1     10.5       3.7     3.5        -              37.7     34.8       2.9      8.3
Conversions             0.3      0.2                         -        -        -      0.3         -       -                        0.3      0.5      (0.2 )  (40.0 )
Acquisitions           56.5        -      1.3       -      6.2        -        -        -      15.8       -        -       -      79.8        -      79.8        -
Total lease
contract revenue     $ 75.0   $ 17.1   $  1.3   $   -   $ 12.3   $  5.4   $ 11.3   $ 10.9   $  23.2   $ 4.1   $    -   $   -   $ 123.1   $ 37.5   $  85.6    228.3
Management
contract revenue:
New location         $  1.3   $    -   $  0.5   $   -   $  1.1   $    -   $  1.0   $  0.1   $   0.4   $   -   $    -   $   -   $   4.3   $  0.1   $   4.2   4200.0
Contract
expirations             0.1      1.7        -     0.4      0.2      2.4        -      0.5         -     0.3        -       -       0.3      5.3      (5.0 )  (94.3 )
Same location          11.3     10.2      4.4     6.7     11.4     11.1     11.2     11.5       2.7     2.7      0.3     0.2      41.3     42.4      (1.1 )   (2.6 )
Conversions             0.2      0.2        -       -        -        -        -        -         -       -                        0.2      0.2         -        -
Acquisitions           13.0        -      5.3       -      5.5        -     12.5        -       5.9       -     (0.9 )     -      41.3        -      41.3        -
Total management
contract revenue     $ 25.9   $ 12.1   $ 10.2   $ 7.1   $ 18.2   $ 13.5   $ 24.7   $ 12.1   $   9.0   $ 3.0   $ (0.6 ) $ 0.2   $  87.4   $ 48.0   $  39.4     82.1

Parking services revenue-lease contracts. Lease contract revenue increased $85.6 million, or 228.3%, to $123.1 million for the three months ended March 31, 2013, compared to $37.5 million for the three months ended March 31, 2012. The increase in lease contract revenue consisted of an increase from the Standard Operations of $5.8 million, or 15.5%, and $79.8 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 March 31, 2013 are the comparative periods for the two years presented, increased 8.3%. The increase in same location revenue was due to increases in short-term parking revenue of $2.1 million, or 8.7%, and increases in monthly parking revenue of $0.8 million, or 7.7%. Revenue associated with contract expirations relates to contracts that expired during the current period. Acquisition revenue also includes a $2.1 million net benefit that resulted from the sale of contract rights.

Parking services revenue-management contracts. Management contract revenue increased $39.4 million, or 82.1%, to $87.4 million for the three months ended March 31, 2013, compared to $48.0 million for the three months ended March 31, 2012. The increase in management contact revenue consisted of an increase from the Central Operations of $41.3 million, partially offset by the decrease in revenue from the Standard Operations of $1.9 million, or 4.0%. The increase resulted primarily from increases in revenue from new locations and acquisitions, which was partially offset by a decrease in contract expirations. Same location revenue for those facilities, which as of March 31, 2013 are the comparative periods for the two years presented, decreased 2.6%, primarily due to decreased fees from reverse management locations and ancillary services.

Reimbursed management contract revenue. Reimbursed management contract revenue increased $55.5 million, or 53.4%, to $159.5 million for the three months ended March 31, 2013, compared to $103.9 million for the three months ended March 31, 2012. This increase resulted from additional reimbursements for costs incurred on behalf of owners, and the additional reimbursements related to Central.

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 and conversions in region one. This was partially offset by decreases in contract expirations in regions one, three, four and five and conversions in region four. Same location revenue increases for the aforementioned regions were primarily due to increases in short-term and monthly parking revenue.


Table of Contents

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 and other. This was partially offset by contract expirations in all five operating regions, same locations in regions two and three and acquisitions in other. The decreases in same location revenue were primarily due to a decrease 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.

Segment cost of parking services information is summarized as follows (unaudited):

                                                                               Three Months Ended March 31,
                                                             Region
                         Region One        Region Two         Three          Region Four       Region Five          Other             Total             Variance
                        2013     2012     2013    2012     2013    2012     2013     2012     2013     2012     2013     2012     2013      2012    Amount      %
                                                                                       (In millions)
Cost of parking
services lease
contracts:
New location           $  0.5   $    -   $    -   $   -   $  0.8   $ 0.2   $  0.2   $    -   $   3.3   $   -   $    -   $    -   $   4.8   $  0.2   $   4.6   2300.0
Contract expirations      0.2      1.1        -       -        -     0.2        -      0.2         -     0.5        -        -       0.2      2.0      (1.8 )  (90.0 )
Same location            16.8     15.2        -       -      4.9     4.6     10.4      9.7       3.4     3.3      0.1        -      35.6     32.8       2.8      8.5
Conversions               0.3      0.2        -       -        -       -        -      0.2         -       -        -        -       0.3      0.4      (0.1 )  (25.0 )
Acquisitions             52.1        -      1.1       -      5.8       -        -        -      11.8       -     (0.2 )      -      70.6        -      70.6        -
Total cost of
parking services
lease contracts        $ 69.9   $ 16.5   $  1.1   $   -   $ 11.5   $ 5.0   $ 10.6   $ 10.1   $  18.5   $ 3.8   $ (0.1 ) $    -   $ 111.5   $ 35.4   $  76.1    215.0
Cost of parking
services management
contracts:
New location           $  0.8   $    -   $  0.3   $   -   $  0.7   $   -   $  0.5   $  0.1   $   0.3   $   -   $    -   $    -   $   2.6   $  0.1   $   2.5   2500.0
Contract expirations      0.1      0.7        -     0.3      0.1     1.2        -      0.2         -     0.2        -        -       0.2      2.6      (2.4 )  (92.3 )
Same location             5.3      4.8      3.9     5.6      6.8     6.7      7.6      7.8       1.6     1.5      0.8     (0.6 )    26.0     25.8       0.2      0.8
Conversions                 -        -        -       -        -       -        -        -         -       -        -        -         -        -         -        -
Acquisitions              8.5        -      3.8       -      3.6       -     10.7        -       3.3       -     (0.4 )      -      29.5        -      29.5        -
Total cost of
parking services
management contracts   $ 14.7   $  5.5   $  8.0   $ 5.9   $ 11.2   $ 7.9   $ 18.8   $  8.1   $   5.2   $ 1.7   $  0.4   $ (0.6 ) $  58.3   $ 28.5   $  29.8    104.6

Cost of parking services-lease contracts. Cost of parking services for lease contracts increased $76.1 million, or 215.0%, to $111.5 million for the three months ended March 31, 2013, compared to $35.4 million for the three months ended March 31, 2012. The increase in cost of parking services for lease contracts consisted of an increase from the Standard Operations of $5.5 million, or 15.5%, and $70.6 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 March 31, 2013 are the comparative for the two years presented, increased 8.5%. Same location costs increased $2.3 million due to rent expense, primarily as a result of contingent rental payments on the . . .

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