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, 2020
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period fromto
Commission file number: 000-50796
SP PLUS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 16-1171179 | |||
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |||
Incorporation or Organization) | ||||
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
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
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 | ☒ | Accelerated Filer | ☐ | |||
Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of June 29, 2018,30, 2020, 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 $834.3$476.8 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 | Outstanding at February 19, 2021 |
Common Stock, $0.001 par value per share | 23,124,954 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 8, 201912, 2021 are incorporated by reference into Part III of this Form 10-K. The 20192020 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
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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.
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PART I
Item 1. | Business |
Our Company
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 are one of the leading providers ofprovide professional parking management, ground transportation, services,remote baggage servicescheck-in and handling, facility maintenance, security, event logistics, and other ancillary servicestechnology-driven mobility solutions to aviation, commercial, hospitality, institutional, municipalhealthcare and governmental, and aviationgovernment clients across the United States, Canada and Puerto Rico. These services include on-site parking management, valet parking, ground transportation services, facility maintenance, event logistics, baggage handling services, remote airline check-in services, security services, municipal meter revenue collection and enforcement services, and consulting services. We schedule and supervise service personnel as well as provide customer service, marketing, accounting and revenue control functions necessary to provide such services.
Acquisitions, Investment in Joint Venture and Sale of Business
On November 30, 2018, we acquired the outstanding shares of Baggage Airline Guest Services,ZWB Holdings, Inc. and Home Serv Delivery, LLC,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 million checked bags annually.
Our Operations
Our experience in the newly formed legal entity called Parkmobile, LLC ("Parkmobile"). Parkmobile is a leading provider of on-demand and prepaid transaction processing for on- and off-street parking and ground transportation services. The Parkmobile joint venture combined two parking transaction engines: SP Plus contributed its
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. |
• | 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 4%6% of our revenue, net of reimbursed management type contract revenue, or more than 4%6% of our gross profit for the year ended December 31, 2018.2020. Additionally, we have built a diverse geographic footprint that as of December 31, 2018 includedspans operations in 45 states, the District of Columbia and Puerto Rico, and three4 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:
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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 at airports and to 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 monitoring 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; |
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• | 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; |
• | providing an online and mobile app consumer platform through parking.com; 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 serviceservices providers, as well as technology solution providers that serve those industries, are large and fragmented. A substantial number of companies in these industries offer parking management services, ground transportation services, technology services and baggage services as non-core operations, and companies in these industries are large national competitors or small and private andcompanies that 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 potentially acquire smaller operators. We also expect that new small new operators and technology companies will continue to enter the market as they have in the past.
Beginning in March 2020, the COVID-19 pandemic (“COVID-19”) and the resulting stay at home orders issued by local governments began impacting certain industries and businesses internationally and within the United States and North America, including our business and those businesses that serve the hospitality and travel industries. See Item 1A. Risk Factors for risks related to COVID-19, as well as other risks related to our business and the industry.
Industry Operating Arrangements
Professional service businesses operate primarily under two general types of arrangements:
Management Type Contracts
Under management type contracts; and
Lease Type Contract
Under a lease type contract,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. ManyIn addition, 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 technology-driven mobility solutions and other ancillary services to be a profit generator and/or a service differentiator to their respective customers. By outsourcing these services, theyour clients are able to capture additional profit and enhance the customer experience by leveraging the unique technology, operational skills and controls that an experienced services and technology company can offer. Our ability to consistently deliver a uniformly high level of services to our clients, including the use of various technological solutions and 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 transportationservices, baggage services, technology-driven mobility solutions and other ancillary services to commercial, hospitality, institutional, municipal and government, airports, airlines and cruise line clients across North America. SP+ introduced Sphere™, a suite of industry-leading technology solutions that drives end-to-end mobility and delivers a frictionless consumer experience across all markets we serve. 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+, Sphere™ 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,Sphere™, Bags®and, in certain sections of the United States and Canada,SP+ Security service lines, thus enabling our clients to efficiently address variousneeds through a single vendor relationship. We believe our ability to offer a comprehensive range of |
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services and leverage our Sphere™ platform 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 enhanceour 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. |
o | Client Base.Our clients include some of North America's largest private and public owners, municipalities, managers and developers ofmajor 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. |
o | Industry Vertical Markets. We believe that our industry vertical market diversification, such as commercial real estate, residentialcommunities, 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. |
o | Geographic Locations. We have a diverse geographic footprint that includes operations in 45 states, the District of Columbia, Puerto Ricoand |
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Stable Client Relationships. We have a track record of providing our clients with consistent, value-added and high quality services, which can enhance their customer’sexperience. 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 Sphere™technology solutions and platforms that arecomplemented 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 asignificant 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. In order to mitigate some of the effects from COVID-19, we converted many of our lease locations to management locations during the year ended December 31, 2020. In addition, we were able to exit or renegotiate many less profitable contracts, which were for both lease-type and management-type contracts. |
• | Highly Capital Efficient Business with Attractive Cash Flow Characteristics. Our business generates attractive operating cash flow due to negative workingcapital dynamics. In addition, we generally have low capital expenditure requirements. |
• | Focus on Operational Excellence and Human Capital Management. Our culture and training programs place a continuing focus on excellence in theexecution 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 through the use of our web-based SP+ University™ learning management system, in addition to facilitated classes. This investment in our people 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 safetyinitiatives 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 byexpanding our business in our existing geographic markets, especially in our core markets. As a given geographic market achieves a certain operational size, we will typically 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 presenceinto 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+, Sphere™ and Bags® designations to highlight the specialized expertise, competencies, services and |
• | Expand and Cross-Sell Additional Services to Drive Incremental Revenue. We believe we have significant opportunities to further strengthen ourrelationships with existing clients, and to attract new clients, by continuing to cross-sell value-added services that complement our core service operations. |
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• | Grow and Expand Cross-Selling Bags Services. Bags®is a leading provider of baggage services, remote airline check-in services, and other relatedservices, 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 |
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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 regularlyseek 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. Sphere™,Remote Services allows us to provide remote management services, whereby personnel are able to monitor revenue and otheraspects 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. Additionally, Sphere™ iQ Admin reduces the dependency on local resources by providing remote support for daily revenue reporting and monthly billing maintenance, reducing the cost of local bookkeeping and allowing for increased focus on maximizing revenue. We expect these businesses to grow as clients focus on improving the profitability of their operations by decreasing labor costs at their locations through remote services. |
• | Pursue Opportunistic, Strategic Acquisitions. The outsourced professional services industry remains fragmented and presents a significantopportunity 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 and Healthcare Businesses. SP+Hospitality Services and SP+ Healthcare Servicesis a leader in the hospitality and healthcare parking and valet industries, and management continuesto believe there is significant opportunity to use SP+'s capabilities to further develop a national business in hospitality and healthcare. 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 parking and 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 parking and valet associates. SP+University Services™continuously provides training to our parking and valet professionals to become an integrated extension of our clients' staff and blendseamlessly into the overall hospitality and healthcare experience. |
Business Development
We also place a specific focus on marketing and client relationship efforts that pertain to those clients or prospective clients having a large regional or national presence. Accordingly, we assign a dedicated executives to thosethese existing clients or prospective clients to manage the overall client relationship, address any existing portfolio issues as well as to reinforce existing account relationships and to 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, operatingoffering an array of service offeringsservices 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 services.service offerings. Additionally, technological factors that improve ride-sharing capabilities and increase the use of parking aggregators and the use of third-party technology-driven mobility solutions 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.
We believe that we compete for management contract type clients based on a variety of factors, including fees charged for services, providing a comprehensive suite of technology driven mobility solutions, 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 and technology related 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 in order to support approximately 23,500 employees.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 areis 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 accountingadministrative 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 informationproduct and technology are primarily based in our Chicago corporate office, andas well as the Nashville and Orlando support offices.
Employees
As of December 31, 2018,2020, we employed approximately 23,50012,200 individuals, including 14,2008,600 full-time and 9,300 part-time employees, and as of December 31, 2017, we employed 20,800 individuals, including 13,100 full-time and 7,7003,600 part-time employees. Approximately 27%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,
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Cleveland, Dallas, Denver, Detroit, Flint, Kansas City, Las Vegas, Los Angeles, Manchester (NH), Meadowlands, Miami, New York City, Newark, Oakland, Ontario (Canada), Orlando, Oxon Hill, Philadelphia, Pittsburgh, Portland, Providence, Richmond, San Diego, San Francisco, San Jose, San Juan (Puerto Rico), Santa Ana, 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.
Central to our ability to execute on our business strategy is the commitment of our employees to delivering excellence in execution of all aspects of our day-to-day operations. We strive to create an inclusive environment which promotes diversity across our organization and a safe and engaging work environment where our employees have the opportunity to succeed and grow. Through our comprehensive development programs and talent management systems, our employees refine their skills and are able to access continued training and career development opportunities. In addition to base salary, our compensation and benefits programs are structured to retain and motivate our employees.
The health and safety of our employees is of paramount importance. Because the safety is the responsibility of everyone, each employee is expected to take all safety and health polices seriously and help enforce these policies within the workplace. In 2020, we quickly activated comprehensive health and safety protocols to ensure appropriate safety precautions to address COVID-19.
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 an allocated portion of our insurance-related costs.
We provide group health insurance with respect to eligible full-time employees (whether they work at leased facilities, managed facilities or in our support offices). We self-insure the cost of the medical claims for these participants up to a stop-loss limit. Pursuant to our management type contracts, we charge those clients an allocated portion of our 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 parking facilities. Our facilities in New York City are, for example, subject toor impose extensive governmental restrictions concerning automobile capacity, pricing, structural integrity and certain prohibited practices. ManyAdditionally, many cities impose a tax or surcharge on parking services, which generally range from 10% to 50% of revenues collected. We collect and remit sales/parking taxes and file tax returns for and on behalf of our clients and ourselves. We are affected by laws and regulations that may impose a direct assessment on us for failure to remit sales/parking taxes or to file tax returns for ourselves and on behalf of our clients.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws typically impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with the operation of parking facilities, we may be potentially liable for any such costs.
Several state and local laws have been passed in recent years that encourage car-pooling and the use of mass transit or impose certain restrictions on automobile usage. These types of laws have adversely affected our revenues and could continue to do so in the future. For example, the City of New York 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, including minimum wage per hour laws and regulations imposed, 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 (TSA)(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 feet 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.
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Various other governmental regulations affect our operation of parkingproperty or facilities, both directly and indirectly, including the Americans with Disabilities Act (the "ADA"). Under the ADA, all public accommodations, including parking facilities, are required to meet certain federal requirements related to access and use by disabled persons. For example, the ADA requires parking facilities to include handicapped spaces, headroom for wheelchair vans, attendants' booths that accommodate wheelchairs and elevators that are operable by disabled persons. When negotiating management 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.property or facility. There can be no assurance, however, that the property owner has assumed such liability for any given property and there can be no assuranceor that we would not be held liable despite assumption of responsibility for such liability by the property owner. Management believesWe believe 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 Federal Aviation Administration (the "FAA") may affect our business. The FAA generally prohibits parking within 300 feetprocessing of airport terminals during times of heightened alert. The 300 foot rulecredit card transactions, including the Fair and new regulations may prevent us from using a number of existing spaces during heightened security alerts at airports. Reductions inAccurate Credit Transactions Act and the number of parking spaces may reduce our gross profitPayment Card Data Security Standard. These laws and cash flowindustry standards impose substantial financial penalties for both our leased facilities and those facilities we operate under management type contracts.
Intellectual Property
SP Plus® and the, SP+® and the SP+ logo, SP+ GAMEDAY®, Sphere, Technology by SP+TM (and its related marks), Parking.com, 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
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.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.
Risks related to our business and industry
The global COVID-19 pandemic has had, and is expected to continue to have a negative effect on the global economy, the United States economy and the global financial markets, and has disrupted, and is expected to continue to disrupt, our operations and our clients’ operations, all of which have had and will have an adverse effect on our business, financial condition and results of operations.
The ongoing COVID-19 global and national health emergency has caused significant disruptions in the international and United States economies and financial markets. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability.
We are taking precautions to protect the safety and well-being of our employees, clients and customers. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our ability to continue to provide services to our clients.
The spread of COVID-19 and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business, as many of the clients we serve have suspended or closed operations. We have been, and will continue to be, negatively impacted by related developments, including heightened governmental regulations and travel advisories, recommendations by the U.S. Department of State and the Centers for Disease Control and Prevention, and travel bans and restrictions, each of which has impacted, and is expected to continue to significantly impact, the demand for the services we provide, including professional parking management, ground transportation, remote baggage check-in and handling, facility maintenance, security, event logistics, and other technology-driven mobility solutions.
The extent to which the pandemic impacts our business, operations, and financial results, including the duration and magnitude of such effects, will depend on numerous evolving factors that we may not be able to accurately predict or assess, including, but not limited to:
• | the duration and scope of the pandemic; |
• | the roll-out of the vaccines for COVID-19; |
• | its impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer spending; |
• | its short and longer-term impact on consumer behavior (including the demand for travel and related hospitality services and attendance at concerts, conventions and large public gatherings) and levels of consumer confidence; |
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• | the short and longer-term impact of statewide stay-at-home orders, including the possible acceleration of the movement toward home office or “work from home” alternatives; |
• | the ability of our clients and our customers to navigate the impacts of the pandemic; |
• | actions governments, businesses and individuals take in response to the pandemic, including limiting or banning travel and in-person gatherings; and |
• | how quickly economies, travel activity, sporting events, concerts and other social or business functions and gatherings and demand for the related services we provide recover after the pandemic subsides. |
The COVID-19 pandemic has already subjected our business, operations and financial condition to a number of risks, including, but not limited to, those discussed below.
• | COVID-19 has negatively impacted, and is expected to continue to negatively impact to an extent we are unable to predict, our revenues from the services we provide, which are driven primarily by revenues from commercial, travel, entertainment and leisure-related activities. |
• | Our clients may experience a decline in their revenues due to the pandemic, which may cause them to be unable or unwilling to pay us amounts that we are entitled to on a timely basis or at all, which would adversely affect our revenues and liquidity. |
• | Our clients with whom we have management type contracts may also require us to deposit all parking revenues directly into their respective accounts-a departure from our typical practice under such contracts of depositing such revenues into one of our accounts and, after withholding and retaining any operating expenses and other amounts for which we are responsible or to which we are entitled, remit funds to the client. If client requests for such an arrangement are significant, our working capital and liquidity may be adversely affected. |
As a result, we have taken steps to reduce operating costs and other expenses while improving efficiency, including furloughing a substantial number of our personnel, implementing reduced work hours for other hourly personnel, eliminating non-essential spending and capital expenditures and suspending our stock repurchase program. Those steps, along with others we have taken and will take in the future, to reduce our costs may not be sufficient to offset any reduction in our revenues and, at the same time, may negatively impact our ability to attract and retain employees and senior management, retain or expand our client and customer base, continue to provide services sufficient to meet customer demand, including, in particular, following the end of the pandemic, and compete with others in our industries, and our reputation, revenues and market share may suffer as a result.
In addition, if our furloughed personnel do not return to work with us when the COVID-19 pandemic subsides, we may experience operational challenges, which could limit our ability to grow and expand our business and could reduce our profits. Further, reputational damage from, and the financial impact of, reduced work hours could lead employees to depart the company and make it harder for us to recruit and hire new employees in the future.
Our ability to grow our company may also be harmed by COVID-19. If COVID-19 or general economic weakness causes further deterioration for the travel, leisure and hospitality industry or the other industries to which we provide services, we may not be able to expand the geographies in which we provide our services or acquire businesses that may enable us to fuel our growth or otherwise execute our strategic growth plan. In addition, once the pandemic subsides, certain acquisition or other opportunities to grow our business may no longer be available, because such opportunities may have been pursued by our competitors or such opportunities may be too costly or time-consuming for us to pursue at that time. See “Risks relating to our acquisition strategy may adversely impact our results of operations.” See also “We are subject to intense competition that could constrain our ability to gain business and adversely impact our profitability.”
COVID-19 has caused, and, in the future, may continue to cause, us to incur additional expenses in light of the public health implications posed by COVID-19, including additional or accelerated investments in technology solutions which may be mandated by local, state, federal or other governmental authorities or by recommendations from the Centers for Disease Control and Prevention. The cost of investing in, implementing and maintaining such technology may be high, and such technology, whether purchased or developed internally, may not meet our needs or the needs of our clients and customers, in a timely, cost-effective manner or at all. During the course of implementing new technology into our operations, we may experience system interruptions and failures, which may result in additional costs to us. In addition, we may not recognize, in a timely manner or at all, the benefits that we may expect as a result of our implementing this or any other new technology into our operations.
The full impact of COVID-19 on our business and the industries in which we operate, as well as the effect on local, regional and global economic conditions, is highly uncertain, and its continuation, a future resurgence of COVID-19, or the existence of any future pandemic could precipitate or magnify the other risks described below in this Item 1A. “Risk Factors.”
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,service, 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 principal leaders ofa leader in the industry,industries in which we operate, 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 for 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 often 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.
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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 analyzeanalyzing and respondresponding 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 usingincluding the use of 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, andwhich may have an impact toon the pricingprice customers are willing to pay.pay for our services. 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.pay for our services. If we are unable to anticipate and respond to trends in the consumer marketplace and the industry, including, but not limited to, market displacement by livery service companies, car sharing companies and changing technologies, it could constrain our business and have a material and adverse impact on our business, financial condition and results of operations.
Our business success depends on our ability to preserve client relationships.
We primarily provide services pursuant to agreements that are cancelable by either party upon 30-days’ notice.As we generally incur higher initial costson 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 a resultpart 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, maintaining or renewing coverage for certain insurable risks or obtaining coverage for certain insurable risks at a reasonable cost and we are subject to volatility associated with our high deductible / retention insured and self-insured programs including the possibility that changes in estimates of ultimate insurance losses could result in a material charges against our operating results.
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 of entities inwithin 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. However, our actual obligations at any particular time may 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 effectively 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 of entities 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 professionalthird 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 damages, including, in particular, due to unforeseen events, such as COVID-19 and terrorist attacks. In addition, there can be no assurance that we will notmay sustain material losses resulting from an issueevent or occurrence where our insurance coverage is believed to be sufficient, but such coverage is either inadequate or we cannot access the coverage. EitherFurthermore, our business interruption insurance, however, may not
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provide sufficient coverage, if any, for losses we incur in connection with these events, in addition to other specified exclusions. These scenarios may result in a material adverse impact on our results of operations.
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, our insurance coverage may not be adequate, despite our implementation of Company-wide safety and loss control efforts, or may be inaccessible in certain instances, either of which would result in additional costs to us and may adversely impact our results of operations.
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, andacquisitions. In light of recent events related to the COVID-19 pandemic, we expect to continue to acquire businesses in the future as part of our growth strategy. Athat there will be a slowdown in the pace or size of our acquisitions, which, in addition to the other factors discussed above, could lead to a slower growth rate. There can be no assurance that anyAny acquisition we make including Bags, willmay not provide us with any of the benefits that we anticipated or anticipate when entering into thesuch 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 Company 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, including in connection with 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 often be terminated, without cause, on 30-days' notice or less, giving clients regular opportunities to attempt to negotiate a reduction in fees or other allocated costs. Any loss of a significant number of clients could in the aggregate materially adversely affect our operating results.
We are particularly exposed to increases in costs for locations that we operate under lease type contracts because we are generally responsible for all the operating expenses of our leased locations. DuringTypically, 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, including in relation to COVID-19, 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.
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, leisure and leisurehospitality industry. Our business could be materially adversely affected to the extent that weak economic conditions or demographic factors have resultedcould result in the elimination of jobs and high unemployment in thesethe large urban areas.areas where our business operations are concentrated, as has occurred in the wake of COVID-19. 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 or “work from home” 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.
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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 anythe controls orand procedures that we have in place willmay not 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 launchedthey have been deployed against a target. Accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures.
Additionally, our systems arecould 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 have also implemented additional security measures including, for example, forcing our vendors to use two-factor authentication for remote access.
We do not have control over security measures taken by third-party vendors hired by our clients to prevent unauthorized access to electronic and other confidential information. There can be no assurance that other third-party payment processing vendors will not suffer a similaran attack in the future thatin which unauthorized parties will not gain access to personal financial information of individuals associated with our company, our clients or thatour client's customers, and any such incident willmay not be discovered and remedied in a timely manner.
Labor disputes could adversely affect our financial condition.
When one or more of our assets. Failuremajor collective bargaining agreements becomes subject to complyrenegotiation or we face union organizing drives, we may disagree with covenantsthe union on important issues that, in turn, could lead to a strike, work slowdown or other job actions. We may not be able to meet payment obligations underrenew existing labor union contracts on acceptable terms, particularly during times of economic distress, and, in such cases, we may not be able to staff sufficient employees for our credit facilityshort-term needs. A strike, work slowdown or other job action could in some cases disrupt our ability to provide 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. Negotiating a first time agreement or renegotiating an existing collective bargaining agreement could result in an event of default which, if not cured or waived, could resulta substantial increase in the acceleration of outstanding debt obligations.
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.
Catastrophic events could disrupt our business and services.
Catastrophic events, including natural disasters, severe weather conditions, pandemic outbreaks and acts of terrorism or other geopolitical events, 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 the use of our services andour 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 Federal Aviation Administration generally prohibits parking within 300 feet of airport terminals during periods of heightened security. Although the prohibition is not currently in effect, it may be reinstated 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. Fluctuations in our results could make it difficult to evaluate our business or cause instability in the market price of our common stock.
State and municipal government clients may sell or enter new markets, (ii) serviceinto long-term lease type contracts of parking-related assets with our competitors or refinanceproperty 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 existing debt, (iii) make necessary capital investments and (iv) make other expenditures necessary for the ongoing conductcompetitors or clients of our business.
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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.
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; |
• | 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.
13
Risks related to legal and regulatory matters
Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of business 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 these mattersthere may cause us to incurbe negative publicity with respect to theseany alleged claims. Additionally, we are subject to risks in the states where we have employees, including, for example, if there are risks to all employees in some states, such as California, resulting from new andor unanticipated judicial interpretations of existing laws and the application of those new interpretations of existing laws and the application of those new interpretations againstare applied to employers on a retroactive basis.
We must complyoperate in a highly regulated environment, and our compliance with publiclaws and private regulations, thatincluding 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 of these parking facilities, and companies that we acquired in previous years may have owned a large number of properties that we did not acquire. We may now be held liable for suchcertain costs as a result of such previous and current ownership. In addition, from time to time we are involved insubject to legal claims and regulatory actions involving environmental issues at certain locations or otherwise in connection with our operations. The cost of defending against claims of liability, or remediation of a contaminated property, could have a material adverse effect on our business, financial condition and results of operations. In addition, several state and local laws have been passed in recent years that encourage carpooling and the use of mass transit. Laws and regulations that reduce the number of cars and vehicles being driven could adversely impact our business.
In connection with 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.regulations, including in the wake of the COVID-19 pandemic. Compliance with such regulations could hamper our ability to provide qualified drivers and increase our operating costs. There can be no assurance that ourOur compliance with any new rules and regulations, directives, anticipated rules or other forms of regulatory oversight will notmay 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, and may in the future be 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,federal, state or the currentlocal government. Any such changes may pose additional regulatory burden and future U.S. Congress, but we will monitor developments regarding legislation changes and regulatory shifts.
Federal Aviation Administration generally prohibits parking within 300 feet of airport terminals during periods of heightened security. While the prohibition is not currently in effect, there can be no assurance that this governmental prohibition will not again be reinstated. The existing regulations governing parking within 300 feet of airport terminals or future regulations may prevent us from using certain parking spaces. Reductions in the number of parking spaces and air travelers may reduce our revenue and cash flow for both our leased facilities and those facilities and contracts we operate under management type contracts.
We provide healthcare and other benefits to employees. In 2010,certain circumstances, we charge our clients insurance-related costs. Costs for health care have increased more rapidly than the Patient Protection and Affordable Care Act was signed into lawgeneral inflation in the U.S. (the "ACA"). Among other things, the ACA requires large employers to provide a minimum level ofeconomy. If this trend in health insurance for all qualifying employees or pay penalties for not providing such coverage. Although the ACA has been fully implemented, we cannot predict with certainty what the repeal or modifications to the ACA or additional initiatives, if any, will be implemented at the federal or state level, or what the ultimate effect of any future healthcare legislation or regulation will have on us. Ifcare continues and we are unable to raise the rates we charge our clients to cover expenses incurred due to ACAthe Patient Protection and Affordable Care Act or other additional healthcare initiatives, our operating profit could be negatively impacted.
Changes in tax laws or rulings could materially affect our financial position, results of operations, and cash flows.
We are subject to income and non-income tax laws in the United States (federal, state and local) and other foreign jurisdictions, which include Canada and Puerto Rico. Changes in tax laws, regulations, tax rulings, administrative practices or changes in interpretations of existing laws, could materially affect our business. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change, with or without notice, and the effective tax rate could be affected by changes in the mix of earnings in countries with differing statutory tax rates or changes in tax laws or their interpretation, including in 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 itsour provision for taxes, and there can be no assurancebut our assessments as to the outcome of such tax audits and examinations.examinations involve a number of assumptions and may ultimately prove to be incorrect. 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.
14
Risks related to our liquidity and capital resources
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 the 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 in markets for instruments that currently rely on LIBOR and may also result in reductions in the interpretationvalue of certain instruments or the effectiveness of related transactions such as our interest rate collars and applicationany other hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes. Any such effects of the 2017 Tax Cutstransition 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 Jobs Actresults of operations.
Impairment charges could materially affecthave a material adverse effect on our tax obligationsfinancial condition and effective tax rate.
Goodwill represents the excess purchase price of acquired businesses over the fair values of the assets acquired and liabilities assumed. October 1st is our 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. The goodwill impairment test is performed at the reporting unit level. 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 implied 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. Future events may indicate differences from management’s judgments and estimates which could, in turn, result in impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, increases in interest rates, which would impact discount rates, or other factors which could decrease revenues and profitability of our reporting units and changes in the cost structure of existing facilities. During the year ended December 22, 2017,31, 2020, we recognized a goodwill impairment charge of $59.5 million. See Note 1. Significant Accounting Policies and Practices and Note 11. Goodwill to our Consolidated Financial Statements for further discussion.
We evaluate our long-lived assets, including lease ROU and intangible assets, for impairment whenever events or changes in circumstances indicate that the U.S. Tax Cutscarrying amount of such assets may not be recoverable. These events and Jobs Actcircumstances include, but are not limited to, a current expectation that a long-lived asset will be disposed of 2017 (the “2017 Tax Act”) was signed into law. The 2017 Tax Act includessignificantly 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, a change in its physical condition or a projection or forecast that demonstrates continuing losses associated with the use of the long-lived asset group. 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. During the year ended December 31, 2020, we concluded that certain ROU and intangible assets were impaired and recorded impairment charges amounting to $98.6 million and $75.8 million, respectively. See Notes 1. Significant Accounting Policies and Practices, Note 2. Leases and Note 10. Other Intangible Assets, net to our Consolidated Financial Statements for further discussion.
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 future changes to the corporate income tax systemassumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the United States, including a federal corporate rate reduction from 35% to 21%carrying value of long-lived assets and the transition of United States international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The U.S. Department of Treasury, the Internal Revenue Service (IRS), foreign jurisdictions, state jurisdictions, and other standard-setting bodies could interpret or issue additional guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered that is different than our interpretation.
We have incurred indebtedness, and materiallywe may incur indebtedness in the future, that could adversely affect our financial positioncondition.
Our Amended Credit Agreement (as defined in Item 9B. Other Information), which was amended on February 16, 2021, provides for a Senior Credit Facility that includes a $325.0 million revolving credit facility and a $225.0 million term loan that is scheduled to mature in November 2023. The Senior Credit Facility is secured by a lien on all of our assets. In connection with our Amended Credit Agreement, the negative and financial covenants in the Credit Agreement were amended and some additional covenants were added, as described in Item 9B. Other Information. 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 may not 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.
In addition, the terms of future debt agreements and amendments to our existing debt agreements could include more restrictive covenants, which may further restrict our business operations or cause future financing to be unavailable due to our covenant restrictions then in effect.
Our ability to maintain and expand our business will be dependent upon the availability of adequate capital.
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The ability to maintain and expand our business 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, 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 may not have the ability to obtain adequate capital to maintain andexpand 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.
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, we may not 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.
General risk factors
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. We may not 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 or different than current regulations.
Actions of activist investors could disrupt our business.
Public companies have been the target of activist investors.investors, including, in particular, during times of economic and market turmoil. 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, 2018
Location | Character of Office | Approximate Square Feet | Lease Expiration Date | Segment | ||||||
Chicago, Illinois (1) | Chicago Support Office | 35,000 | September 2025 | Other | ||||||
Nashville, Tennessee | Nashville Support Office | 25,000 | June 2024 | Other | ||||||
Orlando, Florida (2) | Orlando Support Office | 3,700 | November 2024 | Other | ||||||
(1) | |||||||||
During the year ended December 31, 2020, 6,000 square feet of | |||||||||
(2) | During the year ended December 31, 2020, 16,400 square feet of office space was vacated. |
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 and Canada. 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
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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 4. |
Mine Safety Disclosures |
Not applicable.
17
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 NASDAQNasdaq Stock Market LLC under the symbol "SP".
Holders
As of February 14, 2019,11, 2021, we estimate that there were approximately 7,2009,000 registered holders of our common stock.
Issuer Purchases of Equity Securities
There were no repurchases of equity securities during the three months ended December 31, 2020.
Securities Authorized for Issuance Under Equity Compensation Plans
| Plan Category | 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) | ||||||
| Equity compensation plans approved by securities holders | 380,300 | $ | — | 940,529 | |||||
| Equity compensation plans not approved by securities holders | — | — | — | ||||||
| Total | 380,300 | $ | — | 940,529 | |||||
We have 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 Directors authorized us to repurchase, on the open market, sharesPlan that increased the number of our outstanding common stock in an amount not to exceed $30.0 million in aggregate. Purchases of our common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with Rule 10b-18 and 10b5-1 under the Securities Exchange Act of 1934 ("Exchange Act"). The share repurchase program does not obligate us to repurchase any particular amount of common stock, and has no fixed termination date.
The status of the Plan on December 31, 2018, at an average price of $24.43, resulting in $7.5 million in program-to-date repurchases. No repurchases were made for the year ended December 31, 2018.
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Equity compensation plans approved by securities holders (a) |
| $ | 251,494 |
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| $ | — |
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| $ | 647,903 |
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Equity compensation plans not approved by securities holders |
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Total |
| $ | 251,494 |
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| $ | 647,903 |
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a) |
Securities to be issued upon exercise comprise of 51,276 RSUs and 200,218 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, 2020. |
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Stock Performance Graph
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| Years Ended December 31, |
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Company / Index |
| 2015 |
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| 2016 |
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| 2017 |
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| 2018 |
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| 2019 |
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| 2020 |
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SP Plus Corporation |
| $ | 100.00 |
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| $ | 117.78 |
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| $ | 155.23 |
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| $ | 123.60 |
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| $ | 177.53 |
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| $ | 120.63 |
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S&P 500 Index |
| $ | 100.00 |
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| $ | 111.96 |
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| $ | 136.40 |
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| $ | 130.42 |
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| $ | 171.49 |
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| $ | 203.04 |
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S&P SmallCap 600 Commercial & Professional Services |
| $ | 100.00 |
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| $ | 123.95 |
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| $ | 138.65 |
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| $ | 135.03 |
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| $ | 173.39 |
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| $ | 164.46 |
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| Years Ended December 31, | ||||||||||||||||||
| Company / Index | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||
| SP Plus Corporation | $ | 100.00 | $ | 96.89 | $ | 91.78 | $ | 108.10 | $ | 142.47 | $ | 113.44 | ||||||
| S&P 500 Index | $ | 100.00 | $ | 113.69 | $ | 115.26 | $ | 129.05 | $ | 157.22 | $ | 150.33 | ||||||
| S&P SmallCap 600 Commercial & Professional Services | $ | 100.00 | $ | 99.07 | $ | 100.35 | $ | 124.39 | $ | 139.14 | $ | 135.51 | ||||||
The performance graph above shows the cumulative total stockholder return of our common stock for the period starting on December 31, 20132015 to December 31, 2018.2020. 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, 2013,2015, $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.
Item 6. |
Selected Financial Data |
N/A
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| Year Ended December 31, | |||||||||||||||||||
| (millions) | 2018 (1) | 2017 | 2016 | 2015 | 2014 | ||||||||||||||
| Statement of Income | |||||||||||||||||||
| Services revenue | |||||||||||||||||||
| Lease type contracts (2) | $ | 413.9 | $ | 563.1 | $ | 545.0 | $ | 570.9 | $ | 496.6 | |||||||||
| Management type contracts | 361.5 | 348.2 | 346.8 | 350.3 | 338.3 | ||||||||||||||
| 775.4 | 911.3 | 891.8 | 921.2 | 834.9 | |||||||||||||||
| Reimbursed management type contract revenue | 693.0 | 679.2 | 676.6 | 650.6 | 638.7 | ||||||||||||||
| Total services revenue | 1,468.4 | 1,590.5 | 1,568.4 | 1,571.8 | 1,473.6 | ||||||||||||||
| Cost of services | |||||||||||||||||||
| Lease type contracts (2) | 377.6 | 518.4 | 505.6 | 532.8 | 455.7 | ||||||||||||||
| Management type contracts | 213.8 | 207.6 | 209.8 | 218.3 | 207.9 | ||||||||||||||
| 591.4 | 726.0 | 715.4 | 751.1 | 663.6 | |||||||||||||||
| Reimbursed management type contract expense | 693.0 | 679.2 | 676.6 | 650.6 | 638.7 | ||||||||||||||
| Total cost of services | 1,284.4 | 1,405.2 | 1,392.0 | 1,401.7 | 1,302.3 | ||||||||||||||
| Gross profit | |||||||||||||||||||
| Lease type contracts | 36.3 | 44.7 | 39.4 | 38.1 | 40.9 | ||||||||||||||
| Management type contracts | 147.7 | 140.6 | 137.0 | 132.0 | 130.4 | ||||||||||||||
| Total gross profit | 184.0 | 185.3 | 176.4 | 170.1 | 171.3 | ||||||||||||||
| General and administrative expenses | 91.0 | 82.9 | 90.0 | 97.3 | 101.5 | ||||||||||||||
| Depreciation and amortization | 17.9 | 21.0 | 33.7 | 34.0 | 30.3 | ||||||||||||||
| Operating income | 75.1 | 81.4 | 52.7 | 38.8 | 39.5 | ||||||||||||||
| Other expense (income) | |||||||||||||||||||
| Interest expense | 9.6 | 9.2 | 10.5 | 12.7 | 17.8 | ||||||||||||||
| Interest income | (0.4 | ) | (0.6 | ) | (0.5 | ) | (0.2 | ) | (0.4 | ) | |||||||||
| Gain on sale of a business | — | (0.1 | ) | — | (0.5 | ) | — | ||||||||||||
| Gain on contribution of a business to an unconsolidated entity | — | — | — | — | (4.1 | ) | |||||||||||||
| Equity in (earnings) losses from investment in unconsolidated entity | (10.1 | ) | 0.7 | 0.9 | 1.7 | 0.3 | |||||||||||||
| Total other expense (income) | (0.9 | ) | 9.2 | 10.9 | 13.7 | 13.6 | |||||||||||||
| Earnings before income taxes | 76.0 | 72.2 | 41.8 | 25.1 | 25.9 | ||||||||||||||
| Income tax expense (benefit) | 19.6 | 27.7 | 15.8 | 4.8 | (0.2 | ) | |||||||||||||
| Net income | 56.4 | 44.5 | 26.0 | 20.3 | 26.1 | ||||||||||||||
| Less: Net income attributable to noncontrolling interest | 3.2 | 3.3 | 2.9 | 2.9 | 3.0 | ||||||||||||||
| Net income attributable to SP Plus Corporation | $ | 53.2 | $ | 41.2 | $ | 23.1 | $ | 17.4 | $ | 23.1 | |||||||||
| Per Share Data | |||||||||||||||||||
| Basic | $ | 2.38 | $ | 1.86 | $ | 1.04 | $ | 0.78 | $ | 1.05 | |||||||||
| Diluted | $ | 2.35 | $ | 1.83 | $ | 1.03 | $ | 0.77 | $ | 1.03 | |||||||||
| Balance sheet data (at end of year) | |||||||||||||||||||
| Cash and cash equivalents | $ | 39.9 | $ | 22.8 | $ | 22.2 | $ | 18.7 | $ | 18.2 | |||||||||
| Total assets | 1,072.3 | 762.9 | 778.6 | 784.1 | 823.1 | ||||||||||||||
| Total debt | 386.7 | 153.8 | 195.1 | 225.1 | 250.8 | ||||||||||||||
| Total stockholders' equity | $ | 368.6 | $ | 313.1 | $ | 268.4 | $ | 250.1 | $ | 229.8 | |||||||||
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.fact, including statements regarding the anticipated further impact of the COVID-19 pandemic on our operations and financial condition. 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""We" and "SP Plus""Our" as used herein refers collectively to SP Plus Corporation and its wholly ownedwholly-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 of Bags. 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 operations for the year ended December 31, 2017 and 2016 do not include amounts related to the Bags results of operations. See Note 2.
General Overview
In evaluating our financial condition and operating performance, management’sour primary focus is on our gross profit and total general and administrative expense.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,
We believe that sophisticated clients (which also include property owners) recognize the potential for parking services, parking management, ground transportation services, baggage handling services, technology-driven mobility solutions 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 improve customer experienceexperiences 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 88%87% and 92%93% for the years ended December 31, 20182020 and 2017, respectively. This retention rate captures facilities in2019, respectively, for the Commercial segment.
Commercial Segment One (CommercialFacilities
In order to mitigate some of the effects from the COVID-19 pandemic (“COVID-19”), we converted many of our lease locations to management locations during the year ended December 31, 2020. In addition, we were able to exit many less profitable contracts, which were for both lease and Institutional).
|
| December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Lease-type facilities |
|
| 445 |
|
|
| 609 |
|
|
| 628 |
|
Management-type facilities |
|
| 2,539 |
|
|
| 2,560 |
|
|
| 2,514 |
|
Total Commercial segment facilities |
|
| 2,984 |
|
|
| 3,169 |
|
|
| 3,142 |
|
| December 31, | ||||||||
| 2018 | 2017 | 2016 | ||||||
| Leased facilities (1) | 628 | 644 | 664 | |||||
| Managed facilities | 2,514 | 2,722 | 2,742 | |||||
| Total Commercial and Institutional Segment facilities | 3,142 | 3,366 | 3,406 | |||||
Revenue
We recognize services revenue from lease and management typeour contracts as the related services are provided. Substantially all of our revenue comes from the following two sources:
Lease type contracts
.Management type contract revenue consistscontracts. 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.services. We believe we generally can 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 contractsthose facilities, as thesethose 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
Our cost of services consists of the following:
Lease type contracts.
Management type contracts.
Reimbursed Management Type Contract Expense
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 life.
Goodwill
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; our reporting units represent our operating segments, consisting of Commercial and Aviation. Factors that could trigger an impairment review include, among others, 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.
We may perform a qualitative, rather than quantitative, assessment, to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. As of January 1, 2020, we adopted Accounting Standards Update ("ASU") 2017-04, which eliminated the two step approach from the current goodwill impairment test and allows impairment to be calculated based on the quantitative assessment. The determination of fair value of a reporting unit utilizes cash flow projections that assume certain future revenue and cost levels, comparable marketplace data, assumed discount rates based upon current market conditions and other valuation factors, all of which involve the use of significant judgment and estimates. We also assess critical areas that may impact our business including economic conditions, market related exposures, competition, changes in service offerings and changes in key personnel.
Beginning in March 2020, COVID-19 and the resulting stay at home orders issued by local governments were impacting certain of our businesses. These factors have significantly impacted the hospitality and travel industries, as well as overall consumer discretionary spending.
Due to the impacts of COVID-19, revenues for certain markets in which we operate have dropped significantly as compared to the expectations as of the October 1, 2019 annual impairment test. We do not know how long the impacts of COVID-19 will or may impact our results. In addition, certain Aviation contracts were terminated during August 2020. The termination of these contracts and the ongoing impacts of COVID-19 on our expected future operating cash flows triggered us to complete a quantitative goodwill impairment analysis for our Aviation reporting unit as of August 31, 2020. Based on the quantitative analysis, we determined that estimated carrying values exceeded implied fair value for the Aviation reporting unit and goodwill was impaired, and therefore an impairment charge was recognized during the year ended December 31, 2020. As of October 1, 2020 (our annual goodwill impairment test date), we performed a qualitative assessment of goodwill, since projections used in the August 31, 2020 impairment test have not materially changed and we concluded no further impairment testing was required. See Note 11. Goodwill in the notes to the Consolidated Financial Statements for further discussion.
Other Intangibles Assets, net
Other intangible assets represent assets with finite lives that 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 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 their remaining useful lives. Assumptions and estimates about future values and remaining useful lives of our intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors, such as changes in our business strategy and internal forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact reported financial results.
As a result of the termination of certain contracts within the Aviation reporting unit and the ongoing impact of COVID-19 on our expected future operating cash flows, we determined certain impairment testing triggers had occurred related to our intangible assets during the year ended December 31, 2020. Accordingly, we analyzed undiscounted cash flows for certain intangible assets and determined that estimated net carrying values exceeded undiscounted future cash flows, resulting in certain intangible assets being impaired, resulting in impairment charges being recognized during the year ended December 31, 2020. See Note 10. Other Intangible Assets, net in the notes to the Consolidated Financial Statements for further discussion.
21
For both goodwill and intangible assets, future events may indicate differences from our judgments and estimates which could, in turn, result in impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, increases in interest rates, which would impact discount rates, or other factors which could decrease revenues and profitability of existing locations and changes in the cost structure of existing facilities.
Long-Lived Assets
We evaluate long-lived assets, primarily including right-of-use (“ROU”) assets, leasehold improvements, equipment and construction in progress for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. We group assets at the lowest level for which cash flows are separately identified in order to measure impairment. Events or circumstances that would result in an impairment review include a significant change in the use of an asset, the planned sale or disposal of an asset, or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset group. 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 is measured by the amount by which the carrying value of the asset exceeds its fair value.
As a result of the impact of COVID-19 on our expected future operating cash flows, we determined certain impairment triggers had occurred for certain ROU assets associated with certain asset groups, resulting in impairment charges being recognized during the year ended December 31, 2020. See Note 2. Leases in the notes to the Consolidated Financial Statements for further discussion.
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 future 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 additional impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, or other factors which could decrease revenues and profitability of existing locations and changes in the cost structure of existing facilities.
Segments
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by our chief operating decision maker (“CODM”), in deciding how to allocate resources. Our CODM is our chief executive officer.
The operating segments are reported to our CODM as Commercial and Aviation.
• | Commercial encompasses our services in healthcare facilities, municipalities, including meter revenue collection and enforcement services, government facilities, hotels, commercial real estate, residential communities, retail, colleges and universities, as well as ancillary services such as shuttle and 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 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 and costs that are not specifically attributable to Commercial or Aviation and certain unallocated items, such as and including prior year insurance reserve adjustments/costs and other corporate items. |
In the fourth quarter 2018,July 2020, we changed our internal reporting segment information reported to our CODM as a result of the Bags acquisition. The operating segmentsCODM. Certain hospitality locations previously reported under Aviation are internally reported as Segment One (Commercial and Institutional) and Segment Two (Aviation).now included in Commercial. All prior periods presentedyear amounts have been restatedreclassified to reflect the new internal reportingconform to the CODM.
Analysis of ancillary revenue that is not specifically identifiable to Segments One or Two and certain unallocated items, such as and including prior year insurance reserve adjustments/costs and other corporate items.
2020 Compared to Fiscal 2017
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
| Segment One | Segment Two | Other | Total | Variance | |||||||||||||||||||||||||||||||||||
| (millions) | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||||||
| Lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business (a) (b) | $ | 42.3 | $ | 33.7 | $ | 1.2 | $ | 3.0 | $ | — | $ | — | $ | 43.5 | $ | 36.7 | $ | 6.8 | 18.5 | % | |||||||||||||||||||
| Expired business (c) | 15.8 | 61.5 | — | — | — | — | 15.8 | 61.5 | (45.7 | ) | (74.3 | )% | |||||||||||||||||||||||||||
| Existing business (d) (e) | 302.6 | 311.1 | 25.8 | 126.3 | 0.7 | — | 329.1 | 437.4 | (108.3 | ) | (24.8 | )% | |||||||||||||||||||||||||||
| Conversions | 25.5 | 27.5 | — | — | — | — | 25.5 | 27.5 | (2.0 | ) | (7.3 | )% | |||||||||||||||||||||||||||
| Total lease type contracts | $ | 386.2 | $ | 433.8 | $ | 27.0 | $ | 129.3 | $ | 0.7 | $ | — | $ | 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 | 15.4 | 35.4 | 0.8 | 3.7 | — | — | 16.2 | 39.1 | (22.9 | ) | (58.6 | )% | |||||||||||||||||||||||||||
| Existing business | 185.1 | 180.2 | 69.2 | 70.1 | 9.5 | 9.1 | 263.8 | 259.4 | 4.4 | 1.7 | % | ||||||||||||||||||||||||||||
| Conversions | 1.0 | 1.4 | 0.1 | — | — | — | 1.1 | 1.4 | (0.3 | ) | (21.4 | )% | |||||||||||||||||||||||||||
| Total management type contracts | $ | 250.8 | $ | 250.0 | $ | 101.2 | $ | 89.1 | $ | 9.5 | $ | 9.1 | $ | 361.5 | $ | 348.2 | $ | 13.3 | 3.8 | % | |||||||||||||||||||
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. Revenue associatedOther business comprises of expired business, conversions and new/acquired business. As a result of COVID-19, we have executed on a strategy to successfully convert certain lease type contracts to management type contracts which should provide a higher gross profit over the contract term. In addition, for those locations that have remained leases, we have worked with expiredlandlords to either receive rent concessions or change lease terms to be more favorable to us. Expired business relates to contracts that have expired however,but where we were operating the business in the comparative period presented. Existing business in the Other segment represents amounts not specifically attributable to Commercial or Aviation and certain unallocated items.
Consolidated results for the for the years ended December 31, 2020 and 2019, respectively, included the following notable items:
|
| December 31, |
|
| Variance |
| ||||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| Amount |
|
| % |
| ||||
Service revenue (1) |
| $ | 549.0 |
|
| $ | 934.9 |
|
| $ | (385.9 | ) |
|
| (41.3 | )% |
Cost of services (2) |
|
| 421.5 |
|
|
| 706.8 |
|
|
| (285.3 | ) |
|
| (40.4 | )% |
Lease impairment |
|
| 97.1 |
|
|
| — |
|
|
| 97.1 |
|
|
| 100.0 | % |
Gross profit |
|
| 30.4 |
|
|
| 228.1 |
|
|
| (197.7 | ) |
|
| (86.7 | )% |
General and administrative expenses |
|
| 85.4 |
|
|
| 109.0 |
|
|
| (23.6 | ) |
|
| (21.7 | )% |
Depreciation and amortization |
|
| 29.3 |
|
|
| 29.4 |
|
|
| (0.1 | ) |
|
| (0.3 | )% |
Impairment of goodwill and intangible assets |
|
| 135.3 |
|
|
| — |
|
|
| 135.3 |
|
|
| 100.0 | % |
Operating (loss) income |
|
| (219.6 | ) |
|
| 89.7 |
|
|
| (309.3 | ) |
|
| (344.8 | )% |
Income tax (benefit) expense |
|
| (67.5 | ) |
|
| 19.4 |
|
|
| (86.9 | ) |
|
| (447.9 | )% |
22
(1) | Excludes Reimbursed management type contract revenue |
(2) | Excludes Reimbursed management type contract expense and lease impairment |
Services revenue—revenue decreased by $385.9 million, or 41.3%, attributable to the following:
• | Services revenue for lease type contracts decreased $219.5 million, or 53.7%, primarily driven by a decrease of $133.4 million from existing business, $43.0 million from locations that converted to management type contracts during the periods presented, $41.2 million from expired business, and $1.9 million from new/acquired business. Existing business revenue decreased $133.4 million, or 47.2%, primarily due to a decrease in transient revenue as a result of COVID-19. |
• | Services revenue for management type contracts decreased $166.4 million, or 31.6%, primarily due to a decrease of $140.9 million from existing business and $48.3 million from expired business, partially offset by an increase of $21.4 million from new/acquired business and $1.4 million from locations that converted from lease type contracts during the periods presented. Existing business revenue decreased $140.9 million, or 34.1%, primarily due to a decrease in activity for volume based management type contracts primarily related to the Aviation segment as a result of COVID-19, partially offset by $5.6 million of termination fees received related to certain terminated Aviation contacts. |
Gross profit decreased by $197.7 million, or 86.7%, attributable to the following:
• | Gross profit for lease type contracts decreased $47.6 million, or 113.3%, and gross profit percentage was negative 3.0% for the year ended December 31, 2020, compared to 10.3% for the year ended December 31, 2019. Gross profit declined as a result of decreases in gross profit for existing business, expired business, locations that converted to management type contracts during the periods presented and new/acquired business. Gross profit for existing business decreased $28.5 million, or 81.7%, primarily due to decreases in transient revenue as a result of COVID-19 and an increase in legal and bad debt expense, partially offset by the recognition of certain rent concessions of $57.2 million, as well as a decrease in compensation, benefits and overall lower net operating costs. |
• | Gross profit for management type contracts decreased $53.0 million, or 28.5%, while gross profit percentage for management type contracts increased to 37.0% for the year ended December 31, 2020, compared to 35.4% for the year ended December 31, 2019. Gross profit declined as a result of decreases in gross profit for existing business and expired business, partially offset by increases in new/acquired business and locations that converted from lease type contracts during the periods presented. Gross profit for existing business decreased $37.1 million, or 24.6%, primarily due to a decrease in activity for volume based management type contracts primarily related to the Aviation segment as a result of COVID-19 and an increase in bad debt and legal expenses, partially offset by decreases in compensation, benefits, overall net operating costs and $5.6 million of termination fees received related to certain terminated Aviation contacts. |
• | We recognized $97.1 million of impairment charges related to operating lease ROU assets in the Commercial segment during the year ended December 31, 2020. Due to the impact of COVID-19 on our operations, our projected future operating cash flows for certain locations is expected to lower. As a result, the fair value of those locations was lower than their carrying value and corresponding impairment charges were recorded during the year ended December 31, 2020. No impairment charge was recognized for the year ended December 31, 2019. |
General and administrative expenses decreased $23.6 million, or 21.7%, for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily related to lower stock based compensation expense related to performance share units during the year ended December 31, 2020, as well as lower performance based compensation and cost initiatives, partially offset by an increase in acquisition, restructuring and integration costs. Impairment charges of $1.6 million during the year ended December 31, 2020 related to certain abandoned operating leases. No similar impairment charges were recognized during the year ended December 31, 2019.
We recognized $135.3 million of impairment charges related to certain finite lived intangible assets and goodwill for the year ended December 31, 2020 in the Aviation segment. Due to the impact of COVID-19 on our operations and the termination of certain Aviation contracts, our projected future revenue, profitability and operating cash flows within the Aviation segment are expected to be lower than our prior projections. As a result, the implied fair value of certain asset groups related to finite lived intangible assets within the Aviation segment were lower than their carrying value, resulting in $75.8 million of impairment charges being recorded during the year ended December 31, 2020. In addition, based on the quantitative goodwill impairment analysis performed by us as of August 31, 2020, the estimated carrying values for the Aviation reporting unit exceeded their implied fair value, resulting in $59.5 million of goodwill impairment charges being recorded during the year ended December 31, 2020. No similar impairment charges were recognized during the year ended December 31, 2019.
Our effective tax rate was 28.1% for the year ended December 31, 2020 compared to 27.3% for the year ended December 31, 2019. The effective tax rate for the year ended December 31, 2020 reflects the benefit related to the ability to carryback our current year federal Net Operating Loss (“NOL”) to tax years that had a higher tax rate.
The following charts summarize our revenues (excluding reimbursed management type contracts
Commercial segment: Services Revenue
23
Lease type contracts.Lease type contract revenue decreased $149.2$197.1 million, or 26.5%52.2%, to $413.9$180.2 million for the year ended December 31, 2018,2020, compared to $563.1 million for the year-ago period. 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
Management type contracts. Management type contract revenue decreased $52.5 million, or 19.8%, to $212.1 million for the year-ago period. The increaseyear ended December 31, 2020, compared to $264.6 million for the year ended December 31, 2019. Existing business revenue decreased by $45.6 million, or 23.1%, primarily due to a decrease in activity for volume based management type contractcontracts as a result of COVID-19. Management type revenue resultedfrom other business decreased by $6.9 million, or 10.2%, primarily due to a decrease of $33.9 million from increasesexpired business, partially offset by an increase of $32.1$26.2 million from new/acquired business and $4.4$0.8 million in locations that converted from lease type contracts during the period presented.
Commercial segment: Gross Profit
Lease type contracts. Gross profit decreased $39.9 million, or 135.3%, to a loss of $10.4 million for the year ended December 31, 2020, compared to gross profit of $29.5 million for the year ended December 31, 2019. Gross profit percentage decreased to negative 5.8% for the year ended December 31, 2020, compared to 7.8% for the year ended December 31, 2019. Gross profit decreased as a result of declines in existing business, expired business, locations that converted to management type contracts in the periods presented and new/acquired business. Gross profit for existing business decreased $24.4 million, or 95.3%, primarily due to decreases in transient revenue as a result of COVID-19, partially offset by the recognition of certain rent concessions of $30.1 million, as well as decreases in variable rent, compensation, benefits and overall lower net operating costs.
24
Management type contracts. Gross profit decreased $24.0 million, or 23.1%, to $80.1 million for the year ended December 31, 2020, compared to $104.1 million for the year ended December 31, 2019. Gross profit percentage decreased to 37.8% for the year ended December 31, 2020, compared to 39.3% for the year ended December 31, 2019. Gross profit decreased as a result of declines in expired business and existing business, partially offset by a decrease of $22.9 million from expiredincreases in new/acquired business and $0.3 million from businesslocations that converted from lease type contracts during the periods presented. Gross profit for existing business decreased $13.8 million, or 17.4%, primarily due to a decrease in activity for volume based management type contracts as a result of COVID-19, partially offset by a decrease in compensation, benefits and overall lower net operating costs.
Aviation segment: Services Revenue
Lease type contracts. Lease type contract revenue decreased $22.1 million, or 72.0%, to $8.6 million for the year ended December 31, 2020, compared to $30.7 million for the year ended December 31, 2019. Existing business revenue decreased $9.8 million, or 71.5%, primarily due to a decrease in transient revenue as a result of COVID-19. Revenue from other business decreased by $12.3 million, or 72.4%, primarily due to decreases of $10.2 million from locations that converted to management type contracts during the periods presented, $1.2 million from new/acquired business and $0.9 million from expired business.
Management type contracts. Management type contract revenue decreased $111.3 million, or 44.2%, to $140.5 million for the year ended December 31, 2020, compared to $251.8 million for the year ended December 31, 2019. Existing business decreased by $92.7 million, or 44.8%, primarily due to a decrease in activity for volume based management type contracts as a result of COVID-19, partially offset by $5.6 million of termination fees received related to certain terminated contracts. Revenue from other business decreased by $18.6 million, or 41.5%, primarily due to a decrease of $14.4 million from expired business and $4.8 million from new/acquired business, partially offset by an increase of $0.6 million from locations that converted from lease type contracts during the periods presented.
Aviation segment: Gross Profit
25
Lease type contracts. Gross profit decreased $7.5 million, or 91.5%, to $0.7 million for the year ended December 31, 2020, compared to $8.2 million for the year ended December 31, 2019. Gross profit percentage decreased to 8.1% for the year ended December 31, 2020, compared to 26.7% for the year ended December 31, 2019. Gross profit decreased as a result of declines in existing business, locations that converted to management type contracts in the periods presented and new/acquired business, partially offset by increases in expired business. Gross profit for existing business decreased $3.9 million, or 78.0%, primarily due to declines in transient revenue as a result of COVID-19, partially offset by the recognition of certain concessions of $27.1 million, as well as a decrease in variable rent and overall net operating costs.
Management type contracts. Gross profit for management type contracts decreased $26.3 million, or 39.7%, to $39.9 million for the year ended December 31, 2020, compared to $66.2 million for the year ended December 31, 2019. Gross profit percentage increased to 28.4% for the year ended December 31, 2020, compared to 26.3% for the year ended December 31, 2019. Gross profit decreased as a result of declines in existing business, expired business and new/acquired business, partially offset by an increase in locations that converted from lease type contracts in the periods presented. Gross profit for existing business decreased $20.6 million, or 36.8%, primarily due to decreases in activity for volume based management type contracts as a result of COVID-19, partially offset by decreases in overall net operating costs and $5.6 million of termination fees received related to certain terminated contacts.
“Other” segment
"Other" consists of ancillary revenue and costs that are 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. Total service revenue in “Other” decreased $2.9 million, or 27.6%, to $7.6 million for the year ended December 31, 2020, compared to $10.5 million for the year ended December 31, 2019. Gross profit for “Other” decreased $2.9 million, or 14.4%, to $17.2 million for the year ended December 31, 2020, compared to $20.1 million for the year ended December 31, 2019.
2019 Compared to 2018
Consolidated results for the for the years ended December 31, 2020 and 2019, respectively, include the following notable items:
|
| December 31, |
|
| Variance |
| ||||||||||
(millions) |
| 2019 |
|
| 2018 |
|
| Amount |
|
| % |
| ||||
Service revenue (1) |
| $ | 934.9 |
|
| $ | 775.4 |
|
| $ | 159.5 |
|
|
| 20.6 | % |
Cost of services (2) |
|
| 706.8 |
|
|
| 591.4 |
|
|
| 115.4 |
|
|
| 19.5 | % |
Gross profit |
|
| 228.1 |
|
|
| 184.0 |
|
|
| 44.1 |
|
|
| 24.0 | % |
General and administrative expenses |
|
| 109.0 |
|
|
| 91.0 |
|
|
| 18.0 |
|
|
| 19.8 | % |
Depreciation and amortization |
|
| 29.4 |
|
|
| 17.9 |
|
|
| 11.5 |
|
|
| 64.2 | % |
Operating income |
|
| 89.7 |
|
|
| 75.1 |
|
|
| 14.6 |
|
|
| 19.4 | % |
Income tax expense |
|
| 19.4 |
|
|
| 19.6 |
|
|
| (0.2 | ) |
|
| (1.0 | )% |
(1) | Excludes Reimbursed management type contract revenue |
(2) | Excludes Reimbursed management type contract expense |
Services revenue increased by $159.5 million, or 20.6%, attributable to the following:
• | Services revenue for lease type contracts decreased $5.0 million, or 1.2%, primarily driven by a decrease of $26.9 million from expired business, partially offset by an increase of $12.0 million from new/acquired business, $9.7 million from existing business, and $0.2 million from locations 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. |
• | Services revenue for management type contracts increased $164.5 million, or 45.5%, primarily due to an increase of $185.9 million from new/acquired business, mainly due to the acquisition of Bags, and $0.2 million from locations that converted from lease type contracts during the periods presented, |
26
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 changes in contract terms for certain management type contracts, whereby the contract terms converted from “reverse” management type contracts to management type contracts, which typically have 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. |
Gross profit increased by $44.1 million, or 24.0%, attributable to the following:
• | Gross profit for lease type contracts increased $5.7 million, or 15.7%, and gross profit percentage increased to 10.3% for the year ended December 31, 2019, compared to 8.8% for the year ended December 31, 2018. Gross profit increased as a result of increases from existing business, new/acquired business, expired business and locations that converted from management type contracts during the periods presented. Gross profit for existing business increased $2.8 million, or 9.1%, primarily due to increases in transient revenue, partially offset by an increase in compensation, benefits costs and rent expense. |
• | Gross profit for management type contracts increased $38.4 million, or 26.0%, while 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 ended December 31, 2018. Gross profit increased as a result of increases from new/acquired business, primarily due to the acquisition of Bags, partially offset by decreases in expired business and existing business. Gross profit for existing business decreased $0.9 million, or 0.7%, primarily due to increases in net operating costs. |
General and administrative expenses increased $18.0 million, or 19.8%, for the year ended December 31, 2019, as compared to the year ended December 31, 2019, primarily related to the acquisition of Bags, 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.
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 increase in the effective tax rate for the year ended December 31, 2019 reflects the benefit recorded in 2018 related to the U.S. Tax Cuts and Jobs Act of 2017 (the ”2017 Tax Act”).
The following charts summarize our revenues (excluding reimbursed management type contract revenue) and gross profit by segment for years ended December 31, 2019 and 2018.
Commercial segment: Services Revenue
Lease type contracts. Lease type contract revenue decreased $8.9 million, or 2.3%, to $377.3 million for the year ended December 31, 2019, compared to $386.2 million for the year ended December 31, 2018. Revenue from other business decreased by $17.4 million, or 19.7%, primarily due to a decrease of $26.5 million from expired business, partially offset by increases of $8.9 million from new/acquired business and $0.2 million from locations that converted from management type contracts during the periods presented. Existing business revenue increased $4.4$8.5 million, or 1.7%2.9%, primarily due to changean increase in transient revenue.
27
Management type contracts. Management type contract revenue increased $15.2 million, or 6.1%, to $264.6 million for the year ended December 31, 2019, compared to $249.4 million for the year ended December 31, 2018. Management type revenue from other business increased by $15.9 million, or 34.9%, primarily due to increases of $35.8 million from new/acquired business, mainly due to the acquisition of Bags, and $0.2 million in locations that converted from lease type contracts during the periods presented, partially offset by a decrease of $20.1 million from expired business. Existing business revenue decreased by $0.7 million, or 3.0%, primarily due to a decrease in volume based management type contracts.
Commercial segment: Gross Profit
Lease type contracts. Gross profit increased $3.7 million, or 14.3%, to $29.5 million for the year ended December 31, 2019, compared to $25.8 million for the year ended December 31, 2018. Gross profit percentage increased to 7.8% for the year ended December 31, 2019, compared to 6.7% for the year ended December 31, 2018. Gross profit increased as a result of increases in existing business, expired business, new/acquired business and locations that converted from management type contracts in the periods presented. Gross profit for existing business increased $1.4 million, or 6.3%, primarily due to increases in transient revenue, partially offset by an increase in compensation and benefits costs, as well as rent expense.
Management type contracts. Gross profit increased $5.8 million, or 5.9%, to $104.1 million for the year ended December 31, 2019, compared to $98.3 million for the year ended December 31, 2018. Gross profit percentage decreased to 39.3% for the year ended December 31, 2019, compared to 39.4% for the year ended December 31, 2018. Gross profit increased as a result of increases in new/acquired business and existing business, partially offset by a decrease in expired business. Gross profit for existing business increased $0.1 million, or 0.1%.
Aviation segment: Services Revenue
28
Lease type contracts. Lease type contract revenue increased $3.7 million, or 13.7%, to $30.7 million for the year ended December 31, 2019, compared to $27.0 million for the year ended December 31, 2018. Revenue from other business increased by $2.7 million, or 50.9%, primarily due to an increase of $3.1 million new/acquired business, partially offset by a decrease of $0.4 million from expired business. Existing business revenue increased $1.0 million, or 4.6%, primarily due to an increase in transient revenue.
Management type contracts. Management type contract revenue increased $150.6 million, or 148.8%, to $251.8 million for the year ended December 31, 2019, compared to $101.2 million for the year ended December 31, 2018. Revenue from other business decreased by $152.5 million, or 648.9%, primarily due to increases of $150.1 million from new/acquired business and $2.4 million from expired business. Existing business decreased $1.9 million, or 2.4%, primarily due to changes 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.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
| Segment One | Segment Two | Other | Total | Variance | |||||||||||||||||||||||||||||||||||
| (millions) | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||||||
| Lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business (a) (b) | $ | 39.0 | $ | 32.0 | $ | 0.7 | $ | 2.7 | $ | — | $ | — | $ | 39.7 | $ | 34.7 | $ | 5.0 | 14.4 | % | |||||||||||||||||||
| Expired business (c) | 15.9 | 46.5 | — | — | — | — | 15.9 | 46.5 | (30.6 | ) | (65.8 | )% | |||||||||||||||||||||||||||
| Existing business (d) (e) | 282.0 | 290.4 | 19.1 | 119.9 | (3.1 | ) | (2.2 | ) | 298.0 | 408.1 | (110.1 | ) | (27.0 | )% | |||||||||||||||||||||||||
| Conversions | 24.0 | 29.1 | — | — | — | — | 24.0 | 29.1 | (5.1 | ) | (17.5 | )% | |||||||||||||||||||||||||||
| Total lease type contracts | $ | 360.9 | $ | 398.0 | $ | 19.8 | $ | 122.6 | $ | (3.1 | ) | $ | (2.2 | ) | $ | 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 | 10.6 | 21.1 | 0.5 | 2.6 | — | — | 11.1 | 23.7 | (12.6 | ) | (53.2 | )% | |||||||||||||||||||||||||||
| Existing business | 115.7 | 113.1 | 42.9 | 45.6 | (11.5 | ) | (8.4 | ) | 147.1 | 150.3 | (3.2 | ) | (2.1 | )% | |||||||||||||||||||||||||
| Conversions | 0.2 | 0.4 | — | — | — | — | 0.2 | 0.4 | (0.2 | ) | (50.0 | )% | |||||||||||||||||||||||||||
| Total management type contracts | $ | 156.0 | $ | 153.1 | $ | 69.3 | $ | 62.9 | $ | (11.5 | ) | $ | (8.4 | ) | $ | 213.8 | $ | 207.6 | $ | 6.2 | 3.0 | % | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
| Segment One | Segment Two | Other | Total | Variance | |||||||||||||||||||||||||||||||||||
| (millions) | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | Amount | % | |||||||||||||||||||||||||||||
| Lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | $ | 3.3 | $ | 1.7 | $ | 0.5 | $ | 0.3 | $ | — | $ | — | $ | 3.8 | $ | 2.0 | $ | 1.8 | 90.0 | % | |||||||||||||||||||
| Expired business | (0.1 | ) | 15.0 | — | — | — | — | (0.1 | ) | 15.0 | (15.1 | ) | (100.7 | )% | |||||||||||||||||||||||||
| Existing business | 20.6 | 20.7 | 6.7 | 6.4 | 3.8 | 2.2 | 31.1 | 29.3 | 1.8 | 6.1 | % | ||||||||||||||||||||||||||||
| Conversions | 1.5 | (1.6 | ) | — | — | — | — | 1.5 | (1.6 | ) | 3.1 | (193.8 | )% | ||||||||||||||||||||||||||
| Total lease type contracts | $ | 25.3 | $ | 35.8 | $ | 7.2 | $ | 6.7 | $ | 3.8 | $ | 2.2 | $ | 36.3 | $ | 44.7 | $ | (8.4 | ) | (18.8 | )% | ||||||||||||||||||
| (Percentages) | |||||||||||||||||||||||||||||||||||||||
| Gross profit percentage lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business (a) | 7.8 | % | 5.0 | % | 41.7 | % | 10.0 | % | — | % | — | % | 8.7 | % | 5.4 | % | |||||||||||||||||||||||
| Expired business | (0.6 | )% | 24.4 | % | — | % | — | % | — | % | — | % | (0.6 | )% | 24.4 | % | |||||||||||||||||||||||
| Existing business (b) | 6.8 | % | 6.7 | % | 26.0 | % | 5.1 | % | — | % | — | % | 9.5 | % | 6.7 | % | |||||||||||||||||||||||
| Conversions | 5.9 | % | (5.8 | )% | — | % | — | % | — | % | — | % | 5.9 | % | (5.8 | )% | |||||||||||||||||||||||
| Total gross profit percentage | 6.6 | % | 8.3 | % | 26.7 | % | 5.2 | % | — | % | — | % | 8.8 | % | 7.9 | % | |||||||||||||||||||||||
| Management type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business (c) | $ | 19.8 | $ | 14.5 | $ | 5.2 | $ | 0.6 | $ | — | $ | — | $ | 25.0 | $ | 15.1 | $ | 9.9 | 65.6 | % | |||||||||||||||||||
| Expired business | 4.8 | 14.3 | 0.3 | 1.1 | — | — | 5.1 | 15.4 | (10.3 | ) | (66.9 | )% | |||||||||||||||||||||||||||
| Existing business | 69.4 | 67.1 | 26.3 | 24.5 | 21.0 | 17.5 | 116.7 | 109.1 | 7.6 | 7.0 | % | ||||||||||||||||||||||||||||
| Conversions | 0.8 | 1.0 | 0.1 | — | — | — | 0.9 | 1.0 | (0.1 | ) | (10.0 | )% | |||||||||||||||||||||||||||
| Total management type contracts | $ | 94.8 | $ | 96.9 | $ | 31.9 | $ | 26.2 | $ | 21.0 | $ | 17.5 | $ | 147.7 | $ | 140.6 | $ | 7.1 | 5.0 | % | |||||||||||||||||||
| (Percentages) | |||||||||||||||||||||||||||||||||||||||
| Gross profit percentage management type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | 40.2 | % | 43.9 | % | 16.7 | % | 3.9 | % | — | % | — | % | 31.1 | % | 31.3 | % | |||||||||||||||||||||||
| Expired business | 31.2 | % | 40.4 | % | 37.5 | % | 29.7 | % | — | % | — | % | 31.5 | % | 39.4 | % | |||||||||||||||||||||||
| Existing business | 37.5 | % | 37.2 | % | 38.0 | % | 35.0 | % | 221.1 | % | 192.3 | % | 44.2 | % | 42.1 | % | |||||||||||||||||||||||
| Conversions | 80.0 | % | 71.4 | % | — | % | — | % | — | % | — | % | 81.8 | % | 71.4 | % | |||||||||||||||||||||||
| Total gross profit percentage | 37.8 | % | 38.8 | % | 31.5 | % | 29.4 | % | 221.1 | % | 192.3 | % | 40.9 | % | 40.4 | % | |||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
| Segment One | Segment Two | Other | Total | Variance | |||||||||||||||||||||||||||||||||||
| (millions) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | Amount | % | |||||||||||||||||||||||||||||
| Lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | $ | 39.8 | $ | 7.1 | $ | 3.0 | $ | 0.9 | $ | — | $ | — | $ | 42.8 | $ | 8.0 | $ | 34.8 | 435.0 | % | |||||||||||||||||||
| Expired business | 28.2 | 51.2 | — | 4.5 | — | — | 28.2 | 55.7 | (27.5 | ) | (49.4 | )% | |||||||||||||||||||||||||||
| Existing business | 347.0 | 344.1 | 126.3 | 119.3 | — | — | 473.3 | 463.4 | 9.9 | 2.1 | % | ||||||||||||||||||||||||||||
| Conversions | 18.8 | 17.9 | — | — | — | — | 18.8 | 17.9 | 0.9 | 5.0 | % | ||||||||||||||||||||||||||||
| Total lease type contracts | $ | 433.8 | $ | 420.3 | $ | 129.3 | $ | 124.7 | — | — | $ | 563.1 | $ | 545.0 | $ | 18.1 | 3.3 | % | |||||||||||||||||||||
| Management type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | $ | 39.7 | $ | 16.4 | $ | 15.3 | $ | 7.0 | $ | — | $ | — | $ | 55.0 | $ | 23.4 | $ | 31.6 | 135.0 | % | |||||||||||||||||||
| Expired business | 9.9 | 30.9 | 2.6 | 21.9 | — | — | 12.5 | 52.8 | (40.3 | ) | (76.3 | )% | |||||||||||||||||||||||||||
| Existing business | 199.5 | 200.1 | 71.2 | 59.1 | 9.1 | 10.5 | 279.8 | 269.7 | 10.1 | 3.7 | % | ||||||||||||||||||||||||||||
| Conversions | 0.9 | 0.9 | — | — | — | — | 0.9 | 0.9 | — | — | % | ||||||||||||||||||||||||||||
| Total management type contracts | $ | 250.0 | $ | 248.3 | $ | 89.1 | $ | 88.0 | $ | 9.1 | $ | 10.5 | $ | 348.2 | $ | 346.8 | $ | 1.4 | 0.4 | % | |||||||||||||||||||
Aviation segment: Gross Profit
Lease type contract revenuecontracts. Gross profit increased primarily due to increases in revenue from new/acquired business in Segments One and Two and existing business in Segment Two. This was partially offset by decreases in revenue from expired business in Segments One and Two and existing business in Segment One and Other and conversions in Segment One. The Other segment amounts in existing business represent costs not specifically identifiable to Segments One or Two.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
| Segment One | Segment Two | Other | Total | Variance | |||||||||||||||||||||||||||||||||||
| (millions) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | Amount | % | |||||||||||||||||||||||||||||
| Lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | $ | 38.1 | $ | 6.7 | $ | 2.7 | $ | 0.8 | $ | — | $ | — | $ | 40.8 | $ | 7.5 | $ | 33.3 | 444.0 | % | |||||||||||||||||||
| Expired business | 15.8 | 45.5 | — | 4.1 | — | — | 15.8 | 49.6 | (33.8 | ) | (68.1 | )% | |||||||||||||||||||||||||||
| Existing business | 323.6 | 316.1 | 119.9 | 114.1 | (2.2 | ) | (1.1 | ) | 441.3 | 429.1 | 12.2 | 2.8 | % | ||||||||||||||||||||||||||
| Conversions | 20.5 | 19.4 | — | — | — | — | 20.5 | 19.4 | 1.1 | 5.7 | % | ||||||||||||||||||||||||||||
| Total lease type contracts | $ | 398.0 | $ | 387.7 | $ | 122.6 | $ | 119.0 | (2.2 | ) | $ | (1.1 | ) | $ | 518.4 | $ | 505.6 | $ | 12.8 | 2.5 | % | ||||||||||||||||||
| Management type contracts: | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | $ | 23.2 | $ | 9.7 | $ | 14.7 | $ | 6.7 | $ | — | $ | — | $ | 37.9 | $ | 16.4 | $ | 21.5 | 131.1 | % | |||||||||||||||||||
| Expired business | 6.0 | 19.3 | 2.1 | 20.3 | — | — | 8.1 | 39.6 | (31.5 | ) | (79.5 | )% | |||||||||||||||||||||||||||
| Existing business | 123.7 | 123.4 | 46.1 | 36.4 | (8.4 | ) | (6.2 | ) | 161.4 | 153.6 | 7.8 | 5.1 | % | ||||||||||||||||||||||||||
| Conversions | 0.2 | 0.2 | — | — | — | — | 0.2 | 0.2 | — | — | % | ||||||||||||||||||||||||||||
| Total management type contracts | $ | 153.1 | $ | 152.6 | $ | 62.9 | $ | 63.4 | $ | (8.4 | ) | $ | (6.2 | ) | $ | 207.6 | $ | 209.8 | $ | (2.2 | ) | (1.0 | )% | ||||||||||||||||
29
December 31, 2018. Gross profit increased as a result of increases in costs from new/acquired business and existing business, and business that converted from management type contracts during the year, partially offset by decreases in costs expired business. Existing business costs increased $12.2 million, or 2.8%, primarily due to compensation and benefit costs and overall net operating costs and an increase in rent expense as a result of higher revenues for existing business, partially offset by unallocated insurance reserve adjustments/costs and other unallocated corporate items.
Management type contracts. Gross profit increased $34.3 million, or 107.5%, to $207.6$66.2 million for the year ended December 31, 2017,2019, compared to $209.8 million for the year-ago period. The decrease resulted primarily from decreases in costs from expired business, partially offset by increases in new/acquired business and existing business. Existing business costs increased $7.8 million, or 5.1%, primarily due to a 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 have higher operating costs associated with the facilities operation but allow us to have a higher management fee from the owner, compensation and benefit costs and overall net operating costs, partially offset by lower costs related to ancillary services and unallocated insurance reserve adjustments/costs and other unallocated corporate items.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
| Segment One | Segment Two | Other | Total | Variance | |||||||||||||||||||||||||||||||||||
| (millions) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | Amount | % | |||||||||||||||||||||||||||||
| Lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | $ | 1.7 | $ | 0.4 | $ | 0.3 | $ | 0.1 | $ | — | $ | — | $ | 2.0 | $ | 0.5 | $ | 1.5 | 300.0 | % | |||||||||||||||||||
| Expired business | 12.4 | 5.7 | — | 0.4 | — | — | 12.4 | 6.1 | 6.3 | 103.3 | % | ||||||||||||||||||||||||||||
| Existing business | 23.4 | 28.0 | 6.4 | 5.2 | 2.2 | 1.1 | 32.0 | 34.3 | (2.3 | ) | (6.7 | )% | |||||||||||||||||||||||||||
| Conversions | (1.7 | ) | (1.5 | ) | — | — | — | — | (1.7 | ) | (1.5 | ) | (0.2 | ) | 13.3 | % | |||||||||||||||||||||||
| Total lease type contracts | $ | 35.8 | $ | 32.6 | $ | 6.7 | $ | 5.7 | $ | 2.2 | $ | 1.1 | $ | 44.7 | $ | 39.4 | $ | 5.3 | 13.5 | % | |||||||||||||||||||
| (Percentages) | |||||||||||||||||||||||||||||||||||||||
| Gross profit percentage lease type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | 4.3 | % | 5.6 | % | 10.0 | % | 11.1 | % | — | % | — | % | 4.7 | % | 6.3 | % | |||||||||||||||||||||||
| Expired business | 44.0 | % | 11.1 | % | — | % | 8.9 | % | — | % | — | % | 44.0 | % | 11.0 | % | |||||||||||||||||||||||
| Existing business | 6.7 | % | 8.1 | % | 5.1 | % | 4.4 | % | — | % | — | % | 6.8 | % | 7.4 | % | |||||||||||||||||||||||
| Conversions | -9.0 | % | -8.4 | % | — | % | — | % | — | % | — | % | -9.0 | % | -8.4 | % | |||||||||||||||||||||||
| Total gross profit percentage | 8.3 | % | 7.8 | % | 5.2 | % | 4.6 | % | — | % | — | % | 7.9 | % | 7.2 | % | |||||||||||||||||||||||
| Management type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | $ | 16.5 | $ | 6.7 | $ | 0.6 | $ | 0.3 | — | — | $ | 17.1 | $ | 7.0 | $ | 10.1 | 144.3 | % | |||||||||||||||||||||
| Expired business | 3.9 | 11.6 | 0.5 | 1.6 | — | — | 4.4 | 13.2 | (8.8 | ) | (66.7 | )% | |||||||||||||||||||||||||||
| Existing business | 75.8 | 76.7 | 25.1 | 22.7 | 17.5 | 16.7 | 118.4 | 116.1 | 2.3 | 2.0 | % | ||||||||||||||||||||||||||||
| Conversions | 0.7 | 0.7 | — | — | — | — | 0.7 | 0.7 | — | — | |||||||||||||||||||||||||||||
| Total management type contracts | $ | 96.9 | $ | 95.7 | $ | 26.2 | $ | 24.6 | $ | 17.5 | $ | 16.7 | $ | 140.6 | $ | 137.0 | $ | 3.6 | 2.6 | % | |||||||||||||||||||
| (Percentages) | |||||||||||||||||||||||||||||||||||||||
| Gross profit percentage management type contracts | |||||||||||||||||||||||||||||||||||||||
| New/Acquired business | 41.6 | % | 40.9 | % | 3.9 | % | 4.3 | % | — | % | — | % | 31.1 | % | 29.9 | % | |||||||||||||||||||||||
| Expired business | 39.4 | % | 37.5 | % | 19.2 | % | 7.3 | % | — | % | — | % | 35.2 | % | 25.0 | % | |||||||||||||||||||||||
| Existing business | 38.0 | % | 38.3 | % | 35.3 | % | 38.4 | % | 192.3 | % | 159.0 | % | 42.3 | % | 43.0 | % | |||||||||||||||||||||||
| Conversions | 77.8 | % | 77.8 | % | — | % | — | % | — | % | — | % | 77.8 | % | 77.8 | % | |||||||||||||||||||||||
| Total gross profit percentage | 38.8 | % | 38.5 | % | 29.4 | % | 28.0 | % | 192.3 | % | 159.0 | % | 40.4 | % | 39.5 | % | |||||||||||||||||||||||
“Other” segment
"Other" consists of ancillary revenue and costs that are 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. Total service revenue in “Other” decreased $1.1 million, or 9.5%, to $44.7$10.5 million for the year ended December 31, 2017,2019, compared to $39.4 million for the year-ago period. Gross profit for lease type contracts increased primarily due to expired business and new/acquired business, partially offset by existing business and business that converted from management type contracts during the year. Gross profit on expired business includes earnings of $8.5 million for our proportionate share of the net gain of an equity method investee's sale of assets. Gross profit on existing business decreased primarily due to a net increase in rent expense as a result of higher revenues for existing business, net increases in compensation and benefit costs and overall net operating costs, partially offset by net increases in monthly parking revenue, short term revenue, rental revenue, transient revenue and unallocated insurance reserve adjustments/costs and other unallocated corporate items.
Analysis of changes to U.S. tax law.
Liquidity and Capital Resources
General
We continually project anticipated cash requirements for our operating, investing and financing needs, as well as cash flows generated from operating activities available to meet these needs. Our operating needs can include, among other items, commitments for cost of 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, share repurchases and payments on our outstanding indebtedness.
As of December 31, 2018,2020, we had $13.9 million of cash and cash equivalents and $190.3 million of borrowing availability under our Senior Credit Facility. COVID-19 and the resulting global disruptions have negatively affected the global economy, as well as our business and the businesses of our customers and clients. The full impact of COVID-19 on our business and the businesses of our customers and clients is unknown and highly unpredictable and could continue beyond the containment of the COVID-19 outbreak. We are taking further actions to improve our liquidity, including, without limitation, reducing operating expenses and capital expenditures and suspending repurchases of our common stock. Based on these actions and our expectations regarding the impact of COVID-19, we believe we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months.
Outstanding Indebtedness
As of December 31, 2020, we had total indebtedness of approximately $386.6$362.1 million, an increasea decrease of $232.8$6.9 million from $153.8$369.0 million as of December 31, 2017.2019. The $386.6$362.1 million includes:
• | $330.6 million under our Senior Credit Facility (as defined below); and |
• | $31.5 million of other debt including finance lease obligations. |
Senior Credit Facility (as defined below); and
On November 30, 2018, (the "Closing Date"), in connection with the acquisition of Bags, 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 theretovarious other institutions (the “Lenders”). Pursuant, pursuant to the terms, and subject to the conditions, of the Credit Agreement,which the Lenders have 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.
Under the terms of the Amended Credit Agreement (as defined in Item 9B. Other Information), term loan portion ofloans under the Senior Credit Facility was drawn by the Company on the Closing Date and isare subject to scheduled quarterly amortizationpayments 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 underloan through the revolving credit facility on the Closing Date. The proceeds from these borrowingsfirst quarter of 2021 and will increase to 1.875% thereafter.
We were used by the Company to pay the purchase price for the Acquisition (See Note 2
As of December 31, 2018,2020, we had $386.6$190.3 million of borrowing availability under the Credit Agreement, of which we could have borrowed $386.7$21.6 million on December 31, 20182020 and remained in compliance with the above described covenants as of such date. Our borrowing availability under the Amended Credit Agreement is limited only as of our fiscal quarter-end by the covenant restrictions described above. At December 31, 2018,2020, we had $51.1$49.0 million letters of credit outstanding under the Senior Credit Facility and borrowings against the Senior Credit Facility aggregated $375.0to $333.2 million (excluding debt discount of $1.6$0.9 million and deferred financing costs of $2.2$1.7 million).
Stock Repurchases
On March 10, 2020, we suspended stock repurchases in order to help improve liquidity in response to the impacts of COVID-19.
In May 2016, our Board of Directors (the “Board”) authorized us to repurchase, on 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.
In July 2019, the Board authorized us 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,
30
we repurchased 393,375 shares of common stock at an average price of $38.78 during the year ended December 31, 2020. During the year ended December 31, 2019, we repurchased 652,000 shares of common stock at an average price of $38.88 under this program.
In March 2020, the Board authorized a new program to repurchase, on the open market, shares of our outstanding stock in an amount not to exceed $50.0 million in aggregate. We have yet to repurchase shares under this program.
As of December 31, 2020, $59.4 million remained available for repurchase under the July 2019 and March 2020 stock repurchase programs. 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 RuleRules 10b-18 and 10b5-1 under the Securities Exchange Act.Act of 1934 at time and prices considered to be appropriate at our discretion. As noted above, we have currently suspended stock repurchases. The share repurchase program does not obligate us to repurchase any particular amount of common stock, and has no fixed termination date. Under thisdate and the program we repurchased 305,183 shares of commonmay be suspended at any time at our discretion.
Share repurchase activity under the stock through December 31, 2018 at an average price of $24.43 per share, resulting in $7.5 million in program-to-date repurchases. No repurchases were made duringrepurchase programs for the year ended December 31, 2018.2020 and 2019 was as follows:
(millions, except for share and per share data) |
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Total number of shares repurchased |
|
| 393,975 |
|
|
| 1,335,584 |
|
Average price paid per share |
| $ | 38.78 |
|
| $ | 35.83 |
|
Total value of stock repurchased |
| $ | 15.3 |
|
| $ | 47.9 |
|
The remaining authorized amounts in the aggregate under the July 2019 and March 2020 repurchase programs as of December 31, 2020 was as follows:
(millions) |
| December 31, 2020 |
| |
Total authorized repurchase amount |
| $ | 100.00 |
|
Total value of shares repurchased |
|
| 40.6 |
|
Total remaining authorized repurchase amount |
| $ | 59.4 |
|
Letters of Credit
We provided letters of credit totaling $24.9$14.4 million and $33.4$17.2 million to our casualty insurance carriers to collateralize our casualty insurance program as of December 31, 20182020 and 2017,2019, respectively.
We provided $26.2$34.6 million and $15.1$33.0 million in letters of credit to collateralize other obligations as of December 31, 20182020 and 2017,2019, respectively.
Interest Rate Collars
In May 2019, we entered into three-year interest rate collar contracts with an aggregate $222.3 million notional amount. The interest rate collars are used to our obligationsmanage interest rate risk associated with respectvariable interest rate borrowings under the Credit Agreement. The interest rate 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 interest rate 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 amortized consistently with the term loan portion of the Senior Credit Facility under the Credit Agreement prior to the parking garage operations at Bradley International Airport,Third Amendment. The interest rate collars were classified as cash flow hedges through May 5, 2020. On May 6, 2020, concurrent with entering into the Third Amendment, we are requiredde-designated the three-year interest rate collars. Prior to make certain deficiency payments forde-designation, the benefiteffective portion of the Statechange in the fair value of Connecticut andthe collars was reported in Accumulated other comprehensive loss. Upon de-designation, the balance in Accumulated other comprehensive loss is being reclassified to Other income (expense) in the Consolidated Statements of (Loss) Income on a straight-line basis through April 2022, which is over the remaining life for holders of special facility revenue bonds. The deficiency payments represent contingentwhich the interest bearing advances to the trustee to cover operatingrate collars had previously been designated as cash flow requirements. As of December 31, 2018, we had made $3.9 million of cumulative deficiency payments tohedges. Changes in 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 obligationsfair value of the Statecollars after de-designation are included within Other income (expense) in the Consolidated Statements of Connecticut or the trustee.
| Year Ended December 31 | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Deficiency repayments | $ | 3.9 | $ | 2.0 | $ | 1.7 | |||||
| Interest | 0.9 | 0.6 | 0.5 | ||||||||
| Premium | $ | 0.3 | $ | 0.2 | $ | 0.2 | |||||
We do not enter into derivative instruments for certain structural and other repair costs for certain lease type contracts acquired in a previous acquisition.
Daily Cash Collections
As a result of day-to-day operations,activity at our parking locations, 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,intervals. Other clients 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
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 $39.9$13.9 million and $24.1 million at December 31, 2018, compared to $22.8 million at December 31, 2017.2020 and 2019, respectively. The cash balances reflect our ability to utilize funds deposited into our local bank accounts. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements was $1.7 million
| Years ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Net cash provided by operating activities | $ | 70.9 | $ | 45.2 | $ | 59.7 | |||||
| Net cash provided by (used in) investing activities | $ | (268.4 | ) | $ | 2.3 | $ | (13.8 | ) | |||
| Net cash provided by (used in) financing activities | $ | 215.2 | $ | (47.2 | ) | $ | (42.1 | ) | |||
Our primary sources of fundsliquidity are cash flows from operating activities and changes in operating assetsavailability under our Senior Credit Facility. Our cash flows for the years ended December 31, 2020, 2019 and liabilities.2018 were as follows:
|
| Years ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net cash provided by operating activities |
| $ | 40.2 |
|
| $ | 76.0 |
|
| $ | 70.9 |
|
Net cash used in by investing activities |
| $ | (11.5 | ) |
| $ | (12.5 | ) |
| $ | (268.4 | ) |
Net cash (used in) provided by financing activities |
| $ | (39.0 | ) |
| $ | (79.4 | ) |
| $ | 215.2 |
|
Operating Activities
Net cash provided by operating activities totaled $70.9decreased $35.8 million for 2018, compared to $45.2$40.2 million for 2017. Cashduring the year ended December 31, 2020 from $76.0 million during the year ended December 31, 2019. The decrease in net cash provided during 2018 included $70.7 millionby operating activities primarily resulted from operations,the impacts of COVID-19, partially offset by changes in operating assetslower cash taxes 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
Net cash provided by operating activities totaled $45.2increased $5.1 million for 2017, compared to $59.7$76.0 million for 2016. Cashduring the year ended December 31, 2019 from $70.9 million during the year ended December 31, 2018. The increase in net cash provided during 2017 included $62.4 millionby operating activities primarily resulted from operations,increased revenue, partially offset by changes in operating assets and liabilities that resulted in ahigher cash use of $17.2 million. The net decrease in operating assets and liabilities resulted primarily from: (i) a net decrease in accounts payable and accrued liabilities of $10.5 million, which primarily resulted from the timing of payments to our clients, as described under "Daily Cash Collection" and vendors and decreases in the amount of book overdrafts included in accounts payable; (ii) a net increase in prepaid expenses and other of $4.1 million; and (iii) a net increase in notes and accounts receivable of $2.6 million due to the timing of collections.
Investing Activities
Net cash used in investing activities totaledwas $11.5 million during the year ended December 31, 2020, a decrease of $1.0 million from $12.5 million during the year ended December 31, 2019. Cash used to purchase leasehold improvements, equipment and cost of contracts was $11.0 million during the year ended December 31, 2020 as compared to $12.8 million during the year ended December 31, 2019. During the year ended December 31, 2020, we sold investments and equipment for $1.2 million and bought out a minority partner for $1.7 million as part of our decision to convert our agreement with the Bradley International Airport to a standard management type agreement.
Net cash used in investing activities was $12.5 million during the year ended December 31, 2019, a decrease of $255.9 million from $268.4 million for 2018, compared to net cash provided of $2.3 million in 2017.during the year ended December 31, 2018. Cash used in investing activities induring the year ended December 31, 2018 included (i) $277.9 million used for the acquisition of Bags 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'sinvestee’s sale of assets;assets. Cash used to purchase leasehold improvements, equipment and (v) $0.2cost of contracts was $12.8 million during the year ended December 31, 2019 as compared to $10.0 million during the year ended December 31, 2018.
Financing Activities
Net cash used in financing activities was $39.0 million during the year ended December 31, 2020, a decrease of proceeds$40.4 million from $79.4 million during the saleyear ended December 31, 2019. The decrease was primarily due to lower repurchases of assetscommon stock and contract terminations.
Net cash used in financing activities was $79.4 million during the year ended December 31, 2019, as compared to net cash provided by investingfinancing activities totaled for $2.3of $215.2 million for 2017, compared to a use of $13.8 million in 2016. Cash provided by investing activities in 2017 included (i) $8.4 million in proceeds received fromduring the sale of an equity method investee's sale of assets; (ii) $0.8 million of proceeds from the sale of assets and contract terminations; and (iii) $0.6 million of proceeds received and relating to the final earn-out payment from buyer for the security business sold in 2015; offset by (iv) $6.8 million for capital investments needed to secure and/or extend leased facilities and investments in information system enhancements and infrastructure; and (v) $0.7 million for cost of contract purchases.
Summary Disclosures about Contractual Obligations and Commercial Commitments
The following table summarizes certain of our contractual obligations at December 31, 20182020 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.
|
| Payments Due by Period |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2026 and |
| |
(millions) |
| Total |
|
| 2021 |
|
| 2022 - 2023 |
|
| 2024 - 2025 |
|
| thereafter |
| |||||
Contractual obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (1) |
| $ | 374.4 |
|
| $ | 94.7 |
|
| $ | 139.1 |
|
| $ | 71.3 |
|
| $ | 69.3 |
|
Finance leases |
|
| 31.7 |
|
|
| 8.8 |
|
|
| 12.8 |
|
|
| 5.1 |
|
|
| 5.0 |
|
Service concession arrangements (2) |
|
| 118.0 |
|
|
| 51.3 |
|
|
| 48.4 |
|
|
| 15.1 |
|
|
| 3.2 |
|
Total contractual obligations |
| $ | 524.1 |
|
| $ | 154.8 |
|
| $ | 200.3 |
|
| $ | 91.5 |
|
| $ | 77.5 |
|
| Payments Due by Period | |||||||||||||||||||
| Total | 2019 | 2020 - 2021 | 2022 - 2023 | 2024 and thereafter | |||||||||||||||
| (millions) | |||||||||||||||||||
| Contractual obligations | |||||||||||||||||||
| Operating leases (1) | $ | 627.0 | $ | 170.6 | $ | 217.0 | $ | 122.4 | $ | 117.0 | |||||||||
| Capital leases | 17.9 | 2.3 | 4.6 | 4.0 | 7.0 | ||||||||||||||
| Service concession arrangements (2) | $ | 172.8 | $ | 85.9 | $ | 49.2 | $ | 21.7 | $ | 16.0 | |||||||||
| Total contractual obligations | $ | 817.7 | $ | 258.8 | $ | 270.8 | $ | 148.1 | $ | 140.0 | |||||||||
| Other Long-Term Liabilities | |||||||||||||||||||
| Deferred Compensation | $ | 6.2 | $ | 0.5 | $ | 1.1 | $ | 1.2 | $ | 3.4 | |||||||||
| Other long-term liabilities (3) | 49.6 | 20.0 | 11.7 | 10.6 | 7.3 | ||||||||||||||
| Total other long-term liabilities | $ | 55.8 | $ | 20.5 | $ | 12.8 | $ | 11.8 | $ | 10.7 | |||||||||
| Commercial Commitments | |||||||||||||||||||
| Senior Credit Facility (4) | $ | 375.0 | $ | 11.2 | $ | 22.5 | $ | 341.3 | $ | — | |||||||||
| Other Debt (4) | 1.2 | 1.2 | — | — | — | ||||||||||||||
| Interest payments on debt and long-term liabilities | 76.5 | 17.2 | 32.0 | 27.3 | — | ||||||||||||||
| Letters of credit (5) | 51.1 | 51.1 | — | — | — | ||||||||||||||
| Total commercial commitments | $ | 503.8 | $ | 80.7 | $ | 54.5 | $ | 368.6 | $ | — | |||||||||
| Total | $ | 1,377.3 | $ | 360.0 | $ | 338.1 | $ | 528.5 | $ | 150.7 | |||||||||
(1) | Represents minimum rental commitments, excluding (i) contingent rent provisions under all non-cancelable leases; and (ii) sublease income of |
(2) | Represents lease type contracts that meet the definition of service concession arrangements under Topic 853. |
32
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. The SEC has defined a company's critical accounting policies and estimates as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base these estimates and judgments on historic experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Certain accounting estimates are particularly sensitive because of their complexity and the possibility that future events affecting them may differ materially from our current judgments and estimates.
This listing of critical accounting policies is not intended to be a comprehensive list of all of our accounting policies. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results, which are included in Note 1.
Significant Accounting Policies and Practicesof the notes to the Consolidated Financial Statements included in Part IV, Item 15. "Exhibits and Financial StatementSchedules."Goodwill and Other Intangibles
Goodwill represents the excess of purchase price paid over the fair value of net assets acquired. In accordance with the Financial Accounting Standards Board's ("FASB") authoritative accounting guidance on goodwill, we do not amortizeevaluate goodwill but rather evaluate it for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired. We have elected to assess the impairment of goodwill annually on the first day of our fiscal fourth quarter,October 1 or at an interim date if there is an event or change in circumstances indicateindicating 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 ourits business strategy, a change in reportable segments and significant negative industry or economic trends.
We may perform a qualitative, factorsrather than quantitative, assessment to determine the likelihood of impairment and ifwhether it wasis more likely than not that the fair value of thea reporting units wereunit is less than the carrying value of the reporting unit. We concluded there was no impairment of goodwill at any of the reporting units.
Other 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 thetheir remaining useful life.lives. In addition, other intangible assets are reviewed for impairment when circumstances change that would indicate the carrying value may not be recoverable. Assumptions and estimates about future values and remaining useful lives of our intangible and other long-lived assetsintangibles are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors, such as changes in our business strategy and internal forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results.
Long-Lived Assets
We evaluate long-lived asset groupsassets, including ROU assets, leasehold improvements, equipment and construction in progress, for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. We group 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 primarily include a significant change in the use of an asset, or the planned sale or disposal of an asset.asset, or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset group. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset group. If it is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset exceeds its fair value. Our estimates of future cash flows from such assets could be impacted if it underperforms relative to historical or projected future operating results.
Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in an impairment charge.
Insurance Reserves
We purchase comprehensive casualty insurance (including, but not limited to, general/garage liability, automobile liability, garage-keepers legal liability, worker's compensation and umbrella/excess liability insurance) covering certain claims that arise in connection with our operations. In addition, we purchase umbrella/excess liability coverage. Under ourthe various liability and workers' compensation insurance policies, we are obligated to pay directly or reimburse the insurance carrier for the deductible / retention amount of each loss covered by our general/general / garage liability, automobile, liability, workers' compensation and garage keepers legal liability policies. As a result, we are effectivelyin effect, self-insured for all claims up towithin the deductible / retention amount forof each loss. ItAny loss over the deductible / retention is our policythe responsibility of the third-party insurer. We apply the provisions as defined in the guidance related to record our self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported. We utilize historical claims experience and actuarial methods which consider a number of factors to estimate our ultimate cost of losses incurredaccounting for contingencies, in determining the required level of insurance reservestiming and timingamount 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 when determiningand the required insurance reserves and amount to be recognized as an expense. We utilize historical claims experience and exposures specific to each type of insurance, along with actuarial methods performed quarterly by a third party actuarial adviser in determining the required level of insurance reserves. As of December 31, 2020, the insurance reserve for general, garage, automobile and workers’ compensation liabilities was recorded in Accrued and other current liabilities and Other noncurrent 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.
We report accounts receivable, net of an allowance for doubtful accounts, to represent our estimate of the amount that ultimately will be realized in cash. In determining the adequacy of the allowance for doubtful accounts, we primarily use the review of specific accounts but also use historical collection trends and aging of receivables and make adjustments in the allowance as necessary. Changes in economic conditions or other circumstances could have an impact on the collection of existing receivable balances or future allowance for doubtful account considerations.
Income Taxes
Income tax expense involves management judgment as to the ultimate resolution of any tax issues. Historically, our assessments of the ultimate resolution of tax issues have been reasonably accurate. The current open issues are not dissimilar from historical items.
Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reportingUS GAAP amounts and the tax basesbasis 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 2036.2040. We consider a number of factors in itsour assessment of the recoverability of itsour 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 itsour assessment of their recoverability.
When evaluating our tax positions, we account for uncertainty in income taxes in our Consolidated Financial Statements. OurThe 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
Legal and Other Contingencies
We are subject to claims and litigation in the normal course of our business. The outcomes of claims and legal proceedings brought against us and other loss contingencies are subject to significant uncertainty. We accrue a charge when our management determineswe determine 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.
If we were to borrow the entire $134.5$190.3 million available under the revolving credit facility, a 1one percent (%) increase in the average market rate would result in an increase in our annual interest expense of $1.3$1.9 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.
Interest Rate Collars
See Item 7 of Part II of this Annual Report on Form 10-K concerning Liquidity and Capital Resources for further discussion regarding our interest rate collars.
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 $4.2$0.5 million of Canadian dollar denominated cash instruments at December 31, 2018,2020, and no debt instruments denominated in Canadian dollar at December 31, 2018.2020. 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.
34
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
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, 20182020 and under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, and Corporate Controller, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (the "Evaluation") at a reasonable assurance level as of the last day of the period covered by this Form 10-K.
Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, and Corporate Controller, to allow timely decisions regarding required disclosures.
Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer and Corporate Controller concluded that, as of December 31, 2020, our disclosure controls and procedures were effective at theto promote reasonable assurance levelthat 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 of December 31, 2018.
Inherent Limitations of the Effectiveness of Internal Control
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles ("GAAP"). Our internal control over financial reporting includes those policies and procedures that:
(i) | |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; |
(ii) | |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company's receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and |
(iii) | |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. |
Management, including our Chief Executive Officer and Chief Financial Officer, and Corporate Controller, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of our published financial statements.
Prior to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2020, our management assessed the effectiveness of our internal control over financial reporting as of the last day of the period covered by the report. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control—Integrated Framework (2013(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, 2018. Management's assessment of internal control over financial reporting as of December 31, 2018 excludes internal control over financial reporting related to ZWB Holdings, Inc. and Rynn's Luggage Corporation, their subsidiaries and affiliates (collectively, "Bags") (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 yearquarter ended December 31, 2018, which2020, 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 controlscontrol over financial reporting.
Item 9B. | Other Information |
Senior Credit Facility
On February 16, 2021 (the “Fourth Amendment Effective Date”), we entered into a fourth amendment (the “Fourth Amendment”) to our credit agreement (as amended prior to the Fourth Amendment Effective Date (as defined below), the “Credit Agreement”) with Bank of America, N.A. (“Bank of America”), as Administrative Agent, swing-line lender and conclusionsa 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 which the Lenders have made available to us a senior secured credit facility (the “Senior Credit Facility”). Prior to the Fourth Amendment Effective Date and pursuant to the third amendment (the “Third Amendment”) to our credit agreement, which was entered into on May 6, 2020, the effectivenessSenior Credit Facility permitted aggregate borrowings of internal control over financial reporting did not include$595.0 million consisting of (i) a revolving credit facility of up to $370.0 million at any time outstanding, which includes a letter of credit facility that is limited to
35
$100.0 million at any time outstanding, and (ii) a term loan facility of $225.0 million (the entire principal amount of which we drew on November 30, 2018). Pursuant to the internal controlsCredit Agreement as amended by the Fourth Amendment (the “Amended Credit Agreement”), the aggregate commitments under the revolving credit facility decreased by $45.0 million to $325.0 million.
Borrowings under the Senior Credit Facility bear interest, at our option, at a rate per annum based on our consolidated total debt to EBITDA ratio for the 12-month period ending as of
Also pursuant to the Fourth Amendment, (a) we are subject to a liquidity test that requires us to have liquidity of at least $40.0 million at each of March 31, 2021 and June 30, 2021, (b) we are subject to a requirement that, at any time cash on hand exceeds $40.0 million for a period of three consecutive business days, we must repay revolving loans in an amount equal to such excess. Certain other negative and financial covenants were amended, which included restrictions on certain Investments, Permitted Acquisitions, Restricted Payments and Prepayments of Subordinated Debt (each as defined in the Amended Credit Agreement and described in the Fourth Amendment), through the delivery of the compliance certificate for the fiscal quarters ending March 31, 2022 or June 30, 2022, as applicable.
Prior to the Fourth Amendment Effective Date, we were required to maintain a maximum consolidated total debt to EBITDA ratio of between 5.50:1.0 and net assets, excluding goodwill3.50:1.0 (with such ratio being waived for the fiscal quarter ended June 30, 2020 and intangible assets recognizedwith certain step-ups and step-downs described in, and as partcalculated in accordance with, the Credit Agreement that were amended under the Fourth Amendment). In addition, we were required to maintain a minimum consolidated fixed charge coverage ratio of purchase accounting, respectively, asnot less than 3.50:1.0 (with certain step-ups and step-downs described in the Credit Agreement that were amended under the Fourth Amendment). Under the terms of the Fourth Amendment, the maximum consolidated debt to EBITDA ratio will be waived for the quarters ending March 31, 2021 and June 30, 2021. As of December 31, 20182020, the maximum total debt to EBITDA ratio required us to maintain a maximum ratio (as calculated in accordance with the Amended Credit Agreement) of not greater than 4.75:1.0. Starting with the quarter ending September 30, 2021, we will be required to maintain a maximum consolidated total debt to EBITDA ratio (as calculated in accordance with the Fourth Amendment) of not greater than 5.25:1.0 (with certain step-downs described in the Amended Credit Agreement). As of December 31, 2020, we were required to maintain a minimum consolidated fixed coverage ratio of not less than 2.50:1.0 (as calculated in accordance with the Amended Credit Agreement). Beginning with the quarter ending March 31, 2021, we will be required to maintain a minimum consolidated fixed coverage ratio of not less than 1.60:1:0 (with certain step-ups and 1%step-downs described in the Amended Credit Agreement). On March 31, 2021 and 3%June 30, 2021 only, we must maintain $40.0 million of Minimum Liquidity (as described in the Amended Credit Agreement).
We incurred approximately $1.2 million for fees and other customary closing costs in connection with the Amended Credit Agreement.
The forgoing description of the Company's revenueFourth Amendment is not complete and net income attributableis qualified in its entirety by reference to SP Plus Corporation, respectively, for the year then ended.
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PART III
Item 10. | Directors, Executive Officers and Corporate Governance |
Information required by this item with respect to our directors and compliance by our directors, executive officers and certain beneficial owners of our common stock with Section 16(a) of the Exchange Act is incorporated by reference to all information under the captions entitled "Board Matters—Nominees for Director," "Board Matters—Nomination Process," "Our Corporate Governance Practices—Codes of Conduct and Ethics," "Board Committees and Meetings," "Executive Officers" and "Section"Delinquent Section 16(a) Beneficial Ownership Reporting Compliance"Reports" (if any) included in our 20192021 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 20192021 Proxy Statement.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information required by this item is incorporated by reference to all information under the caption entitled "Equity Compensation Plan Information" and "Security Ownership" included in our 20192021 Proxy Statement.
Item 13.Certain Relationships and RelatedRelated 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 20192021 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 20192021 Proxy Statement.
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PART IV
Item 15. | Exhibits and Financial Statement Schedules |
(a) Documents filed as part of this report
1.
All Financial StatementsIndex to Consolidated Financial Statements
42 | ||
44 | ||
Audited Consolidated Financial Statements | ||
| 2019 | 45 | |
For the years ended December 31, | ||
46 | ||
47 | ||
48 | ||
49 | ||
50 |
2. Financial Statement Schedule
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
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| Incorporated by Reference | ||||
Exhibit Number |
| Description |
| Form |
| Exhibit |
| Filing Date/Period End Date |
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2.1 |
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| 8-K |
| 2.1 |
| October 17, 2018 | |
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3.1 |
| Second Amended and Restated Certificate of Incorporation of the Company filed on June 2, 2004. |
| 10-K |
| 3.1 |
| December 31, 2008 |
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3.1.1 |
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| 10-K |
| 3.1.1 |
| December 31, 2008 | |
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3.1.2 |
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| 10-Q |
| 3.1.3 |
| June 30, 2010 | |
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3.1.3 |
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| 10-Q |
| 3.1.4 |
| June 30, 2010 | |
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3.1.4 |
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| 8-K |
| 3.1 |
| December 2, 2013 | |
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3.2 |
| Fourth Amended and Restated Bylaws of the Company dated January 1, 2010. |
| 10-Q |
| 3.1 |
| September 30, 2016 |
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3.2.1 |
| Amendment to Fourth Amended and Restated Bylaws of the Company dated February 19, 2016. |
| 10-Q |
| 3.1.1 |
| September 30, 2016 |
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3.2.2 |
| Amendment to Fourth Amended and Restated Bylaws of the Company dated August 5, 2016. |
| 10-Q |
| 3.1.2 |
| September 30, 2016 |
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4.1 |
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| 10-K |
| 4.1 |
| December 31, 2015 | |
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4.2* |
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10.1 |
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| 8-K |
| 10.1 |
| November 30, 2018 | |
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10.1.1 |
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| 10-K |
| 10.1.1 |
| February 27, 2019 | |
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10.1.2 |
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| 10-Q |
| 10.1 |
| October 31, 2019 | |
| Incorporated by Reference | ||||||
Exhibit Number | Description | Form | Exhibit | Filing Date/Period End Date | ||
| 2.1 | 8-K | 2.1 | October 17, 2018 | |||
| 3.1 | 10-K | 3.1 | December 31, 2008 | |||
| 3.1.1 | 10-K | 3.1.1 | December 31, 2008 | |||
| 3.1.2 | 10-Q | 3.1.3 | June 30, 2010 | |||
| 3.1.3 | 10-Q | 3.1.4 | June 30, 2010 | |||
| 3.1.4 | 8-K | 3.1 | December 2, 2013 | |||
| 3.2 | 10-Q | 3.1 | September 30, 2016 | |||
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10.1.3 |
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| 10-Q |
| 10.1 |
| May 11, 2020 | |
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10.1.4* |
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| 10-K |
| 10.1.4 |
| February 22, 2021 | |
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10.3+ |
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| 10-K |
| 10.22.2 |
| December 31, 2012 | |
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10.3.1+ |
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| 8-K |
| 10.3 |
| March 7, 2005 | |
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10.3.2 + |
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| 10-K |
| 10.10.2 |
| December 31, 2012 | |
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10.3.3+ |
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| 10-Q |
| 10.8 |
| June 30, 2012 | |
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10.4+ |
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| 10-Q |
| 10.1 |
| August 1, 2019 | |
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10.5*+ |
| Executive Employment Agreement by and between Baggage Airline Guest Services, Inc., and Robert Miles |
| 10-K |
| 10.5 |
| February 22, 2021 |
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10.6+ |
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| 10-Q |
| 10.9 |
| September 30, 2012 | |
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10.6.1+ |
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| 10-K |
| 10.7.1 |
| December 31, 2017 | |
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10.6.2+ |
| Second Amendment to Employment Agreement dated February 15, 2017 between the Company and Rob Toy. |
| 10-K |
| 10.12.1 |
| December 31, 2016 |
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10.7+ |
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| 8-K/A |
| 10.1 |
| September 27, 2019 | |
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10.8+ |
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| 10-K |
| 10.8 |
| February 27, 2019 | |
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10.9+ |
| Form of Performance Share Agreement between the Company and Recipient. |
| 10-K |
| 4.1 |
| December 31, 2015 |
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10.10+ |
| Form of the Company's Restricted Stock Unit Agreement dated as of July 1, 2008. |
| 8-K |
| 10.1 |
| July 2, 2008 |
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10.10.1+ |
| First Amendment to Form of the Company's Restricted Stock Unit Agreement. |
| 8-K |
| 10.1 |
| August 6, 2009 |
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10.10.2+ |
| Second Amendment to Form of the Company's Restricted Stock Unit Agreement dated May 27, 2011. |
| 8-K |
| 10.1 |
| June 2, 2011 |
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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 |
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10.11 |
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| 10-K |
| 10.23 |
| December 31, 2013 | |
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10.12 |
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| 10-K |
| 10.24 |
| December 31, 2013 | |
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10.13 |
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| 10-K |
| 10.30 |
| December 31, 2005 | |
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10.14 |
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| 10-K |
| 10.27 |
| December 31, 2008 | |
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10.15 |
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| 10-K |
| 10.28 |
| December 31, 2008 | |
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10.16 |
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| 10-K |
| 10.29 |
| December 31, 2008 | |
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| 3.2.1 | 10-Q | 3.1.1 | September 30, 2016 | |||
| 3.2.2 | 10-Q | 3.1.2 | September 30, 2016 | |||
| 4.1 | 10-K | 4.1 | December 31, 2015 | |||
| 10.1 | 8-K | 10.1 | November 30, 2018 | |||
| 10.1.1 | * | |||||
| 10.2 | + | 10-K | 10.24 | December 31, 2001 | ||
| 10.2.1 | + | 10-K | 10.25 | December 31, 2001 | ||
| 10.2.2 | + | S-1 | 10.7.2 | February 10, 2004 | ||
| 10.2.3 | + | 10-K | 10.7.3 | December 31, 2008 | ||
| 10.2.4 | + | 10-K | 10.7.4 | December 31, 2008 | ||
| 10.2.5 | + | 10-K | 10.7.5 | December 31, 2008 | ||
| 10.2.6 | + | 10-K | 10.6.6 | December 31, 2016 | ||
| 10.3 | + | 10-K | 10.22.2 | December 31, 2012 | ||
| 10.3.1 | + | 8-K | 10.3 | March 7, 2005 | ||
| 10.3.2 | + | 10-K | 10.10.2 | December 31, 2012 | ||
| 10.3.3 | + | 10-Q | 10.8 | June 30, 2012 | ||
| 10.4 | + | 10-K | 10.12 | December 31, 2014 | ||
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| 10.5 | + | 10-K | 10.14 | December 31, 2009 | ||
| 10.5.1 | + | 10-K | 10.14.1 | December 31, 2009 | ||
| 10.5.2 | + | 10-Q | 10.3 | September 30, 2011 | ||
| 10.5.3 | + | 10-K | 10.10.3 | December 31, 2016 | ||
| 10.6 | + | 10-Q | 10.9 | September 30, 2012 | ||
| 10.6.1 | + | 10-K | 10.7.1 | December 31, 2017 | ||
| 10.6.2 | + | 10-K | 10.12.1 | December 31, 2016 | ||
| 10.7 | + | 8-K/A | 10.1 | March 31, 2014 | ||
| 10.8 | *+ | |||||
| 10.9 | + | 10-K | 4.1 | December 31, 2015 | ||
| 10.10 | + | 8-K | 10.1 | July 2, 2008 | ||
| 10.10.1 | + | 8-K | 10.1 | August 6, 2009 | ||
| 10.10.2 | + | 8-K | 10.1 | June 2, 2011 | ||
| 10.11 | 10-K | 10.23 | December 31, 2013 | |||
| 10.12 | 10-K | 10.24 | December 31, 2013 | |||
| 10.13 | 10-K | 10.30 | December 31, 2005 | |||
| 10.14 | 10-K | 10.27 | December 31, 2008 | |||
| 10.15 | 10-K | 10.28 | December 31, 2008 | |||
| 10.16 | 10-K | 10.29 | December 31, 2008 | |||
21* | ||||||||
23* | Consent of Independent Registered Public Accounting Firm dated as of February 22, 2021. | |||||||
31.1* | ||||||||
31.2* | ||||||||
32** | ||||||||
101.INS * | Inline 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 * | Inline XBRL Taxonomy Extension Schema. | |||||||
101.CAL * | Inline XBRL Taxonomy Extension Calculation Linkbase. | |||||||
101.DEF * | Inline XBRL Taxonomy Extension Definition Linkbase. | |||||||
101.LAB * | Inline XBRL Taxonomy Extension Label Linkbase. | |||||||
101.PRE * | Inline XBRL Taxonomy Extension Presentation Linkbase. | |||||||
104 | Cover Page Interactive Data File (embedded within Inline XBRL document). | |||||||
* | Filed herewith. |
** | Furnished herewith. |
+ | Management contract or compensation plan, contract or agreement. |
Item 16. | Form 10-K Summary |
None.
40
| 14.1 | 10-K | 14.1 | December 31, 2002 | |||
| 21 | * | |||||
| 23 | * | |||||
| 31.1 | * | |||||
| 31.2 | * | |||||
| 31.3 | * | |||||
| 32 | ** | |||||
| 101.INS | * | XBRL Instance Document. | ||||
| 101.SCH | * | XBRL Taxonomy Extension Schema. | ||||
| 101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase. | ||||
| 101.DEF | * | XBRL Taxonomy Extension Definition Linkbase. | ||||
| 101.LAB | * | XBRL Taxonomy Extension Label Linkbase. | ||||
| 101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase. | ||||
SIGNATURES
Pursuant to the requirements of Section 13 or compensation plan, contract or agreement.
SP PLUS CORPORATION | |||
Date: February 22, 2021 | By: | /s/ KRISTOPHER H. ROY | |
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 | Date | ||
/s/ G MARC BAUMANN | Director, President and Chief Executive Officer ( Principal Executive Officer) | February 22, 2021 | ||
G Marc Baumann | ||||
/s/ KAREN M. GARRISON | Director and Non-Executive Chairman | February 22, 2021 | ||
Karen M. Garrison | ||||
/s/ ALICE M. PETERSON | Director | February 22, 2021 | ||
Alice M. Peterson | ||||
/s/ GREGORY A. REID | Director | February 22, 2021 | ||
Gregory A. Reid | ||||
/s/ WYMAN T. ROBERTS | Director | February 22, 2021 | ||
Wyman T. Roberts | ||||
/s/ DOUGLAS R. WAGGONER | Director | February 22, 2021 | ||
Douglas R. Waggoner | ||||
/s/ KRISTOPHER H. ROY | Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer and Duly Authorize Officer) | February 22, 2021 | ||
Kristopher H. Roy | ||||
41
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, 20182020 and 2017,2019, the related consolidated statements of (loss) income, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, 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 referred to above present fairly, in all material respects, the financial position of the Company at December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, 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’sCompany's internal control over financial reporting as of December 31, 2018,2020, 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 27, 201922, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany'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 | As described in Notes 1 and 11 to the consolidated financial statements, the Company recorded impairment charges on the goodwill within the Aviation reporting unit. The termination of certain Aviation contracts and the impacts of COVID-19 caused a decline in the Company's expected future operating cash flow and resulted in impairment triggers. As a result of these changes, the Company evaluated goodwill in its Aviation reporting unit for recoverability and determined that the goodwill was impaired. The Company recognized a $59.5 million impairment charge during 2020. Auditing management’s goodwill impairment assessment was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimate was based on significant assumptions, including revenue, cost of services and the discount rate, which are affected by expectations about future market or economic conditions. | |
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 and identification of reporting units. To test the estimated fair value of the Company’s reporting unit, 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 unit that would result from changes in the assumptions. In addition, we tested management’s reconciliation of the fair value of the Company’s reporting units to the overall market capitalization of the Company. | |
Long-lived Assets Impairment | ||
Description of the Matter | As described in Note 1, 2, 10 and 12 to the consolidated financial statements, during 2020 the Company recorded impairment charges relating to long-lived assets. The termination of certain contracts and the impact of COVID-19 caused a decline in the Company's expected future operating cash flows and resulted in impairment triggers for certain asset groups. The Company’s tests of recoverability and fair value measurements for the asset groups resulted in impairment charges of $98.7 million and $75.8 million relating to right-of-use assets in the Commercial segment and intangible assets in the Aviation segment, respectively. Auditing the Company's measurement of impairment involved a high degree of subjectivity as estimates underlying the determination of fair values were based on assumptions about future economic conditions. Significant assumptions used in the Company’s fair value estimates included projected future revenues, costs of services and the discount rates. |
42
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 processes to determine its asset groups, the fair value of the related assets and calculation of the long-lived asset impairment charges. This included controls over management's cash flow models and review of the significant assumptions as described above. To test the estimated fair value of the Company’s long-lived assets, we performed audit procedures that included, among other procedures, assessing methodologies and testing the significant assumptions and the underlying data used by the Company in its analyses. We involved our valuation specialists to assist in evaluating the Company’s valuation models and the reasonableness of the significant assumptions. 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. For example, we compared the significant assumptions used to estimate cash flows to current industry and economic trends, performed a sensitivity analyses of the significant assumptions to evaluate the change in the fair value estimate that would result from changes in the assumptions and recalculated management's estimate. | |
Valuation of insurance reserves incurred but not reported | ||
Description of the Matter | As discussed in Note 1 to the consolidated financial statements, the Company purchases comprehensive liability insurance covering certain claims that occur in its operations, including coverage for general, garage and automobile liabilities. 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, 2020, the insurance reserve for general, garage, automobile and workers’ compensation liabilities are recorded in Accrued and other current liabilities and Other noncurrent 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 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. | |
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 the 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'sCompany’s auditor since 1989.
Chicago, Illinois
February 27, 2019
43
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of SP Plus Corporation
Opinion on Internal Control overOver Financial Reporting
We have audited SP Plus Corporation’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework) (the COSO Criteria)criteria). In our opinion, SP Plus Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, 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, 20182020 and 2017,2019, the related consolidated statements of (loss) income, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes and the financial statement schedule listed in the Index at Item 15 of the Company and our report dated February 27, 201922, 2021 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’sManagement's Annual Report on Internal ControlsControl 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 27, 2019
44
SP Plus Corporation
Consolidated Balance Sheets
|
| December 31, |
| |||||
(millions, except for share and per share data) |
| 2020 |
|
| 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 13.9 |
|
| $ | 24.1 |
|
Notes and accounts receivable, net |
|
| 111.2 |
|
|
| 162.3 |
|
Prepaid expenses and other current assets |
|
| 26.8 |
|
|
| 24.7 |
|
Total current assets |
|
| 151.9 |
|
|
| 211.1 |
|
Leasehold improvements, equipment and construction in progress, net |
|
| 53.3 |
|
|
| 47.9 |
|
Right-of-use assets |
|
| 235.1 |
|
|
| 431.7 |
|
Goodwill |
|
| 526.6 |
|
|
| 586.0 |
|
Other intangible assets, net |
|
| 63.1 |
|
|
| 152.2 |
|
Equity investments in unconsolidated entities |
|
| 10.1 |
|
|
| 10.2 |
|
Deferred taxes |
|
| 63.8 |
|
|
| 10.6 |
|
Other noncurrent assets, net |
| 33.8 |
|
| 29.9 |
| ||
Total noncurrent assets |
|
| 985.8 |
|
|
| 1,268.5 |
|
Total assets |
| $ | 1,137.7 |
|
| $ | 1,479.6 |
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 97.8 |
|
| $ | 115.3 |
|
Accrued and other current liabilities |
|
| 112.7 |
|
|
| 121.4 |
|
Short-term lease liabilities |
|
| 82.1 |
|
|
| 115.2 |
|
Current portion of long-term obligations under Senior Credit Facility and other long-term borrowings |
|
| 25.0 |
|
|
| 17.9 |
|
Total current liabilities |
|
| 317.6 |
|
|
| 369.8 |
|
Long-term borrowings, excluding current portion |
| 337.1 |
|
|
| 351.1 |
| |
Long-term lease liabilities |
|
| 243.4 |
|
|
| 327.7 |
|
Other noncurrent liabilities |
|
| 58.2 |
|
|
| 57.1 |
|
Total noncurrent liabilities |
|
| 638.7 |
|
|
| 735.9 |
|
Total liabilities |
| $ | 956.3 |
|
| $ | 1,105.7 |
|
Stockholders' equity |
|
|
|
|
|
|
|
|
Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of December 31, 2020 and 2019, respectively; 0 shares issued or outstanding |
| $ | 0 |
|
| $ | 0 |
|
Common stock, par value $0.001 per share; 50,000,000 shares authorized as of December 31, 2020 and 2019; 25,123,128 and 23,088,386 shares issued and outstanding as of December 31, 2020, respectively, and 24,591,127 and 22,950,360 issued and outstanding as of December 31, 2019, respectively |
|
| 0 |
|
|
| 0 |
|
Treasury stock at cost, 2,034,742 and 1,640,767 shares at December 31, 2020 and 2019, respectively |
|
| (70.6 | ) |
|
| (55.3 | ) |
Additional paid-in capital |
|
| 261.4 |
|
|
| 262.6 |
|
Accumulated other comprehensive loss |
|
| (4.4 | ) |
|
| (2.7 | ) |
(Accumulated deficit) retained earnings |
|
| (3.3 | ) |
|
| 169.5 |
|
Total SP Plus Corporation stockholders' equity |
|
| 183.1 |
|
|
| 374.1 |
|
Noncontrolling interest |
|
| (1.7 | ) |
|
| (0.2 | ) |
Total stockholders' equity |
|
| 181.4 |
|
|
| 373.9 |
|
Total liabilities and stockholders' equity |
| $ | 1,137.7 |
|
| $ | 1,479.6 |
|
| December 31, | |||||||
| (millions, except for share and per share data) | 2018 | 2017 | |||||
| Assets | |||||||
| Cash and cash equivalents | $ | 39.9 | $ | 22.8 | |||
| Notes and accounts receivable, net | 150.7 | 122.3 | |||||
| Prepaid expenses and other | 17.2 | 15.5 | |||||
| Total current assets | 207.8 | 160.6 | |||||
| Leasehold improvements, equipment, land and construction in progress, net | 40.3 | 27.4 | |||||
| Other assets | |||||||
| Advances and deposits | 4.2 | 4.1 | |||||
| Other intangible assets, net | 166.0 | 54.1 | |||||
| Favorable acquired lease contracts, net | 17.6 | 23.3 | |||||
| Equity investments in unconsolidated entities | 9.8 | 18.6 | |||||
| Other assets, net | 17.3 | 18.3 | |||||
| Deferred taxes | 14.6 | 15.9 | |||||
| Cost of contracts, net | 9.2 | 8.9 | |||||
| Goodwill | 585.5 | 431.7 | |||||
| Total other assets | 824.2 | 574.9 | |||||
| Total assets | $ | 1,072.3 | $ | 762.9 | |||
| Liabilities and stockholders' equity | |||||||
| Accounts payable | $ | 110.1 | $ | 102.8 | |||
| Accrued rent | 23.5 | 23.2 | |||||
| Compensation and payroll withholdings | 25.8 | 22.2 | |||||
| Property, payroll and other taxes | 9.5 | 6.8 | |||||
| Accrued insurance | 19.7 | 18.9 | |||||
| Accrued expenses | 45.1 | 25.5 | |||||
| Current portion of long-term obligations under credit facility and other long-term borrowings | 13.2 | 20.6 | |||||
| Total current liabilities | 246.9 | 220.0 | |||||
| Long-term borrowings, excluding current portion | |||||||
| Obligations under credit facility | 360.9 | 132.0 | |||||
| Other long-term borrowings | 12.6 | 1.2 | |||||
| 373.5 | 133.2 | ||||||
| Unfavorable acquired lease contracts, net | 24.7 | 31.5 | |||||
| Other long-term liabilities | 58.6 | 65.1 | |||||
| Total noncurrent liabilities | 456.8 | 229.8 | |||||
| Stockholders' equity | |||||||
| Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of December 31, 2018 and 2017; no shares issued | — | — | |||||
| Common stock, par value $0.001 per share; 50,000,000 shares authorized as of December 31, 2018 and 2017; 22,783,976 and 22,542,672 shares issued and outstanding as of December 31, 2018 and 2017, respectively | — | — | |||||
| Treasury stock, 305,183 at cost; shares at December 31, 2018 and December 31, 2017 | (7.5 | ) | (7.5 | ) | |||
| Additional paid-in capital | 257.7 | 254.6 | |||||
| Accumulated other comprehensive loss | (2.4 | ) | (1.2 | ) | |||
| Retained earnings | 120.7 | 67.0 | |||||
| Total SP Plus Corporation stockholders' equity | 368.5 | 312.9 | |||||
| Noncontrolling interest | 0.1 | 0.2 | |||||
| Total stockholders' equity | 368.6 | 313.1 | |||||
| Total liabilities and stockholders' equity | $ | 1,072.3 | $ | 762.9 | |||
See Notes to Consolidated Financial Statements.
45
SP Plus Corporation
Consolidated Statements of (Loss) Income
|
| Years Ended December 31, |
| |||||||||
(millions, except for share and per share data) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Services revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
| $ | 189.4 |
|
| $ | 408.9 |
|
| $ | 413.9 |
|
Management type contracts |
|
| 359.6 |
|
|
| 526.0 |
|
|
| 361.5 |
|
|
|
| 549.0 |
|
|
| 934.9 |
|
|
| 775.4 |
|
Reimbursed management type contract revenue |
|
| 537.9 |
|
|
| 728.8 |
|
|
| 693.0 |
|
Total services revenue |
|
| 1,086.9 |
|
|
| 1,663.7 |
|
|
| 1,468.4 |
|
Cost of services |
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
|
| 195.0 |
|
|
| 366.9 |
|
|
| 377.6 |
|
Management type contracts |
|
| 226.5 |
|
|
| 339.9 |
|
|
| 213.8 |
|
|
|
| 421.5 |
|
|
| 706.8 |
|
|
| 591.4 |
|
Reimbursed management type contract expense |
|
| 537.9 |
|
|
| 728.8 |
|
|
| 693.0 |
|
Lease impairment |
|
| 97.1 |
|
|
| 0 |
|
|
| 0 |
|
Total cost of services |
|
| 1,056.5 |
|
|
| 1,435.6 |
|
|
| 1,284.4 |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
|
| (5.6 | ) |
|
| 42.0 |
|
|
| 36.3 |
|
Management type contracts |
|
| 133.1 |
|
|
| 186.1 |
|
|
| 147.7 |
|
Lease impairment |
|
| (97.1 | ) |
|
| 0 |
|
|
| 0 |
|
Total gross profit |
|
| 30.4 |
|
|
| 228.1 |
|
|
| 184.0 |
|
General and administrative expenses |
|
| 85.4 |
|
|
| 109.0 |
|
|
| 91.0 |
|
Depreciation and amortization |
|
| 29.3 |
|
|
| 29.4 |
|
|
| 17.9 |
|
Impairment of goodwill and intangible assets |
|
| 135.3 |
|
|
| 0 |
|
|
| 0 |
|
Operating (loss) income |
|
| (219.6 | ) |
|
| 89.7 |
|
|
| 75.1 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 21.5 |
|
|
| 18.9 |
|
|
| 9.6 |
|
Interest income |
|
| (0.5 | ) |
|
| (0.3 | ) |
|
| (0.4 | ) |
Other expenses |
|
| 0.1 |
|
|
| 0 |
|
|
| 0 |
|
Gain on sale of other investments |
|
| (0.3 | ) |
|
| 0 |
|
|
| 0 |
|
Equity in earnings from investment in unconsolidated entity |
|
| 0 |
|
|
| 0 |
|
|
| (10.1 | ) |
Total other expenses (income) |
|
| 20.8 |
|
|
| 18.6 |
|
|
| (0.9 | ) |
(Loss) earnings before income taxes |
|
| (240.4 | ) |
|
| 71.1 |
|
|
| 76.0 |
|
Income tax (benefit) expense |
|
| (67.5 | ) |
|
| 19.4 |
|
|
| 19.6 |
|
Net (loss) income |
|
| (172.9 | ) |
|
| 51.7 |
|
|
| 56.4 |
|
Less: Net (loss) income attributable to noncontrolling interest |
|
| (0.1 | ) |
|
| 2.9 |
|
|
| 3.2 |
|
Net (loss) income attributable to SP Plus Corporation |
| $ | (172.8 | ) |
| $ | 48.8 |
|
| $ | 53.2 |
|
Common stock data |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (8.21 | ) |
| $ | 2.21 |
|
| $ | 2.38 |
|
Diluted |
| $ | (8.21 | ) |
| $ | 2.20 |
|
| $ | 2.35 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 21,056,061 |
|
|
| 22,080,025 |
|
|
| 22,394,542 |
|
Diluted |
|
| 21,056,061 |
|
|
| 22,208,032 |
|
|
| 22,607,223 |
|
| Years Ended December 31, | |||||||||||
| (millions, except for share and per share data) | 2018 | 2017 | 2016 | ||||||||
| Services revenue | |||||||||||
| Lease type contracts | $ | 413.9 | $ | 563.1 | $ | 545.0 | |||||
| Management type contracts | 361.5 | 348.2 | 346.8 | ||||||||
| 775.4 | 911.3 | 891.8 | |||||||||
| Reimbursed management type contract revenue | 693.0 | 679.2 | 676.6 | ||||||||
| Total services revenue | 1,468.4 | 1,590.5 | 1,568.4 | ||||||||
| Cost of services | |||||||||||
| Lease type contracts | 377.6 | 518.4 | 505.6 | ||||||||
| Management type contracts | 213.8 | 207.6 | 209.8 | ||||||||
| 591.4 | 726.0 | 715.4 | |||||||||
| Reimbursed management type contract expense | 693.0 | 679.2 | 676.6 | ||||||||
| Total cost of services | 1,284.4 | 1,405.2 | 1,392.0 | ||||||||
| Gross profit | |||||||||||
| Lease type contracts | 36.3 | 44.7 | 39.4 | ||||||||
| Management type contracts | 147.7 | 140.6 | 137.0 | ||||||||
| Total gross profit | 184.0 | 185.3 | 176.4 | ||||||||
| General and administrative expenses | 91.0 | 82.9 | 90.0 | ||||||||
| Depreciation and amortization | 17.9 | 21.0 | 33.7 | ||||||||
| Operating income | 75.1 | 81.4 | 52.7 | ||||||||
| Other expense (income) | |||||||||||
| Interest expense | 9.6 | 9.2 | 10.5 | ||||||||
| Interest income | (0.4 | ) | (0.6 | ) | (0.5 | ) | |||||
| Gain on sale of a business | — | (0.1 | ) | — | |||||||
| Equity in (earnings) losses from investment in unconsolidated entity | (10.1 | ) | 0.7 | 0.9 | |||||||
| Total other expenses (income) | (0.9 | ) | 9.2 | 10.9 | |||||||
| Earnings before income taxes | 76.0 | 72.2 | 41.8 | ||||||||
| Income tax expense | 19.6 | 27.7 | 15.8 | ||||||||
| Net income | 56.4 | 44.5 | 26.0 | ||||||||
| Less: Net income attributable to noncontrolling interest | 3.2 | 3.3 | 2.9 | ||||||||
| Net income attributable to SP Plus Corporation | $ | 53.2 | $ | 41.2 | $ | 23.1 | |||||
| Common stock data | |||||||||||
| Net income per common share | |||||||||||
| Basic | $ | 2.38 | $ | 1.86 | $ | 1.04 | |||||
| Diluted | $ | 2.35 | $ | 1.83 | $ | 1.03 | |||||
| Weighted average shares outstanding | |||||||||||
| Basic | 22,394,542 | 22,195,350 | 22,238,021 | ||||||||
| Diluted | 22,607,223 | 22,508,288 | 22,528,122 | ||||||||
See Notes to Consolidated Financial Statements.
46
SP Plus Corporation
Consolidated Statements of Comprehensive (Loss) Income
|
| Years Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net (loss) income |
| $ | (172.9 | ) |
| $ | 51.7 |
|
| $ | 56.4 |
|
Change in fair value of interest rate collars |
|
| (1.8 | ) |
|
| (0.4 | ) |
|
| — |
|
Foreign currency translation gain (loss) |
|
| 0.1 |
|
|
| 0.1 |
|
|
| (0.6 | ) |
Comprehensive (loss) income |
|
| (174.6 | ) |
|
| 51.4 |
|
|
| 55.8 |
|
Less: Comprehensive (loss) income attributable to noncontrolling interest |
|
| (0.1 | ) |
|
| 2.9 |
|
|
| 3.2 |
|
Comprehensive (loss) income attributable to SP Plus Corporation |
| $ | (174.5 | ) |
| $ | 48.5 |
|
| $ | 52.6 |
|
| Years Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Net income | $ | 56.4 | $ | 44.5 | $ | 26.0 | |||||
| Other comprehensive (loss) income | (0.6 | ) | 0.2 | (0.3 | ) | ||||||
| Comprehensive income | 55.8 | 44.7 | 25.7 | ||||||||
| Less: Comprehensive income attributable to noncontrolling interest | 3.2 | 3.3 | 2.9 | ||||||||
| Comprehensive income attributable to SP Plus Corporation | $ | 52.6 | $ | 41.4 | $ | 22.8 | |||||
See Notes to Consolidated Financial Statements.
47
SP Plus Corporation
Consolidated Statements of Stockholders' Equity
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
| Retained |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Number |
|
|
|
|
|
| Additional |
|
| Other |
|
| Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| of |
|
| Par |
|
| Paid-In |
|
| Comprehensive |
|
| (Accumulated |
|
| Treasury |
|
| Noncontrolling |
|
|
|
|
| |||||||
(millions, except share data) |
| Shares |
|
| Value |
|
| Capital |
|
| Loss |
|
| Deficit) |
|
| Stock |
|
| Interest |
|
| Total |
| ||||||||
Balance at December 31, 2017 |
|
| 22,542,672 |
|
| $ | — |
|
| $ | 254.6 |
|
| $ | (1.2 | ) |
| $ | 67.0 |
|
| $ | (7.5 | ) |
| $ | 0.2 |
|
| $ | 313.1 |
|
Adoption of ASU No. 2018-02 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.6 | ) |
|
| 0.6 |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Balance at January 1, 2018 |
|
| 22,542,672 |
|
| $ | — |
|
| $ | 254.6 |
|
| $ | (1.8 | ) |
| $ | 67.6 |
|
| $ | (7.5 | ) |
| $ | 0.2 |
|
| $ | 313.1 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 53.2 |
|
|
| — |
|
|
| 3.2 |
|
|
| 56.4 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.6 | ) |
Issuance of stock grants |
|
| 20,757 |
|
|
| — |
|
|
| 0.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.7 |
|
Issuance of restricted stock units |
|
| 161,495 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Issuance of performance stock units |
|
| 59,052 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Non-cash stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.4 |
|
Distributions to noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.3 | ) |
|
| (3.3 | ) |
Balance at December 31, 2018 |
|
| 22,783,976 |
|
| $ | — |
|
| $ | 257.7 |
|
| $ | (2.4 | ) |
| $ | 120.7 |
|
| $ | (7.5 | ) |
| $ | 0.1 |
|
| $ | 368.6 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48.8 |
|
|
| — |
|
|
| 2.9 |
|
|
| 51.7 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Change in fair value of interest rate collars |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) |
Issuance of stock grants |
|
| 14,076 |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.8 |
|
Issuance of restricted stock units |
|
| 90,214 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Issuance of performance stock units |
|
| 62,094 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Non-cash stock-based compensation |
|
| — |
|
|
| — |
|
|
| 4.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4.1 |
|
Repurchases of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (47.9 | ) |
|
| — |
|
|
| (47.8 | ) |
Distributions to noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3.2 | ) |
|
| (3.2 | ) |
Balance at December 31, 2019 |
|
| 22,950,360 |
|
| $ | — |
|
| $ | 262.6 |
|
| $ | (2.7 | ) |
| $ | 169.5 |
|
| $ | (55.3 | ) |
| $ | (0.2 | ) |
| $ | 373.9 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (172.8 | ) |
|
| — |
|
|
| (0.1 | ) |
|
| (172.9 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Change in fair value of interest rate collars |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
Issuance of stock grants |
|
| 25,066 |
|
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
Issuance of restricted stock units |
|
| 66,259 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Issuance of performance stock units |
|
| 46,701 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Noncontrolling interest buyout |
|
| — |
|
|
| — |
|
|
| (1.7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.7 | ) |
Repurchases of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15.3 | ) |
|
| — |
|
|
| (15.3 | ) |
Distributions to noncontrolling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.4 | ) |
|
| (1.4 | ) |
Balance at December 31, 2020 |
|
| 23,088,386 |
|
| $ | — |
|
| $ | 261.4 |
|
| $ | (4.4 | ) |
| $ | (3.3 | ) |
| $ | (70.6 | ) |
| $ | (1.7 | ) |
| $ | 181.4 |
|
| Common Stock | ||||||||||||||||||||||||||||||
| (millions, except for share and per share data) | Number of Shares | Par Value | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Noncontrolling Interest | Total | ||||||||||||||||||||||
| Balance (deficit) at December 31, 2015 | 22,328,578 | $ | — | $ | 247.9 | $ | (1.1 | ) | $ | 2.8 | $ | — | $ | 0.5 | $ | 250.1 | ||||||||||||||
| Net income | — | — | — | — | 23.1 | — | 2.9 | 26.0 | ||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | (0.2 | ) | — | — | — | (0.2 | ) | ||||||||||||||||||||
| Effective portion of cash flow hedge | — | — | — | (0.1 | ) | — | — | — | (0.1 | ) | ||||||||||||||||||||
| Issuance of stock grants | 26,593 | — | 0.6 | — | — | — | — | 0.6 | ||||||||||||||||||||||
| Issuance of restricted stock units | 1,415 | — | — | — | — | — | — | — | ||||||||||||||||||||||
| Non-cash stock-based compensation related to restricted stock units and performance share units | — | — | 2.7 | — | — | — | 2.7 | |||||||||||||||||||||||
| Treasury stock | — | — | — | — | — | (7.5 | ) | — | (7.5 | ) | ||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | (3.3 | ) | (3.3 | ) | ||||||||||||||||||||
| Balance (deficit) at December 31, 2016 | 22,356,586 | $ | — | $ | 251.2 | $ | (1.4 | ) | $ | 25.9 | $ | (7.5 | ) | $ | 0.2 | $ | 268.4 | |||||||||||||
| Cumulative effect adjustment upon adoption of new accounting standard on January 1, 2017 | — | — | 0.3 | — | (0.3 | ) | — | — | — | |||||||||||||||||||||
| Balances at January 1, 2017 | 22,356,586 | $ | — | $ | 251.5 | $ | (1.4 | ) | $ | 25.6 | $ | (7.5 | ) | $ | 0.2 | $ | 268.4 | |||||||||||||
| Net income | — | — | — | — | 41.2 | — | 3.3 | 44.5 | ||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | 0.2 | — | — | — | 0.2 | ||||||||||||||||||||||
| Issuance of stock grants | 27,632 | — | 0.9 | — | — | — | — | 0.9 | ||||||||||||||||||||||
| Issuance of restricted stock units | 61,599 | — | — | — | — | — | — | — | ||||||||||||||||||||||
| Issuance of performance stock units | 96,855 | — | — | — | — | — | — | — | ||||||||||||||||||||||
| Non-cash stock-based compensation related to restricted stock units and performance share units | — | — | 2.2 | — | — | — | 2.2 | |||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | (3.2 | ) | (3.2 | ) | ||||||||||||||||||||
| Balance (deficit) at December 31, 2017 | 22,542,672 | $ | — | $ | 254.6 | $ | (1.2 | ) | $ | 67.0 | $ | (7.5 | ) | $ | 0.2 | $ | 313.1 | |||||||||||||
| Cumulative effect adjustment upon adoption of new accounting standard on January 1, 2018 | — | — | — | (0.6 | ) | 0.6 | — | — | — | |||||||||||||||||||||
| Net income | — | — | — | — | 53.2 | — | 3.2 | 56.4 | ||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | (0.6 | ) | — | — | — | (0.6 | ) | ||||||||||||||||||||
| Issuance of stock grants | 20,757 | — | 0.7 | — | — | — | — | 0.7 | ||||||||||||||||||||||
| Issuance of restricted stock units | 161,495 | — | — | — | — | — | — | — | ||||||||||||||||||||||
| Issuance of performance stock units | 59,052 | — | — | — | — | — | — | — | ||||||||||||||||||||||
| Non-cash stock-based compensation related to restricted stock units and performance share units | — | — | 2.4 | — | — | — | — | 2.4 | ||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | (3.3 | ) | (3.3 | ) | ||||||||||||||||||||
| Balance (deficit) at December 31, 2018 | 22,783,976 | $ | — | $ | 257.7 | $ | (2.4 | ) | $ | 120.7 | $ | (7.5 | ) | $ | 0.1 | $ | 368.6 | |||||||||||||
Note: Amounts may not foot due to rounding.
See Notes to Consolidated Financial Statements.
48
SP Plus Corporation
Consolidated Statements of Cash Flows
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (172.9 | ) |
| $ | 51.7 |
|
| $ | 56.4 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Impairments |
|
| 234.0 |
|
|
| 0 |
|
|
| 0 |
|
Depreciation and amortization |
|
| 29.3 |
|
|
| 29.3 |
|
|
| 18.8 |
|
Non-cash stock-based compensation |
|
| 0.5 |
|
|
| 4.9 |
|
|
| 3.1 |
|
Provisions for credit losses on accounts receivable |
|
| 6.4 |
|
|
| 1.1 |
|
|
| 1.5 |
|
Deferred income taxes |
|
| (52.5 | ) |
|
| 4.2 |
|
|
| 1.3 |
|
Gain on sale of equity method investment |
|
| 0 |
|
|
| 0 |
|
|
| (10.1 | ) |
Other |
|
| 2.0 |
|
|
| 0.5 |
|
|
| (0.3 | ) |
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Notes and accounts receivable |
|
| 44.6 |
|
|
| (12.7 | ) |
|
| (16.7 | ) |
Prepaid and other current assets |
|
| (2.1 | ) |
|
| (6.9 | ) |
|
| 0.1 |
|
Accounts payable |
|
| (17.5 | ) |
|
| 5.2 |
|
|
| 0.8 |
|
Accrued liabilities and other |
|
| (31.6 | ) |
|
| (1.3 | ) |
|
| 16.0 |
|
Net cash provided by operating activities |
|
| 40.2 |
|
|
| 76.0 |
|
|
| 70.9 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of leasehold improvements and equipment |
|
| (8.4 | ) |
|
| (10.2 | ) |
|
| (8.9 | ) |
Cost of contracts purchased |
|
| (2.6 | ) |
|
| (2.6 | ) |
|
| (1.1 | ) |
Proceeds from sale of other investments and equipment |
|
| 1.2 |
|
|
| 0.3 |
|
|
| 0.2 |
|
Proceeds from sale of equity method investment |
|
| 0 |
|
|
| 0 |
|
|
| 19.3 |
|
Noncontrolling interest buyout |
|
| (1.7 | ) |
|
| 0 |
|
|
| 0 |
|
Acquisition of business, net of cash acquired |
|
| 0 |
|
|
| 0 |
|
|
| (277.9 | ) |
Net cash used in investing activities |
|
| (11.5 | ) |
|
| (12.5 | ) |
|
| (268.4 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facility revolver |
|
| 484.1 |
|
|
| 455.6 |
|
|
| 333.5 |
|
Payments on credit facility revolver |
|
| (488.4 | ) |
|
| (470.6 | ) |
|
| (186.3 | ) |
Proceeds from credit facility term loan |
|
| 0 |
|
|
| 0 |
|
|
| 225.0 |
|
Payments on credit facility term loan |
|
| (11.3 | ) |
|
| (11.3 | ) |
|
| (150.0 | ) |
Payments of debt issuance costs |
|
| (1.7 | ) |
|
| 0 |
|
|
| (3.2 | ) |
Payments on other long-term borrowings |
|
| (5.0 | ) |
|
| (2.3 | ) |
|
| (0.5 | ) |
Distributions to noncontrolling interest |
|
| (1.4 | ) |
|
| (3.2 | ) |
|
| (3.3 | ) |
Repurchases of common stock |
|
| (15.3 | ) |
|
| (47.6 | ) |
|
| 0 |
|
Net cash (used in) provided by financing activities |
|
| (39.0 | ) |
|
| (79.4 | ) |
|
| 215.2 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 0.1 |
|
|
| 0.1 |
|
|
| (0.6 | ) |
(Decrease) increase in cash and cash equivalents |
|
| (10.2 | ) |
|
| (15.8 | ) |
|
| 17.1 |
|
Cash and cash equivalents at beginning of year |
|
| 24.1 |
|
|
| 39.9 |
|
|
| 22.8 |
|
Cash and cash equivalents at end of year |
| $ | 13.9 |
|
| $ | 24.1 |
|
| $ | 39.9 |
|
Supplemental Disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 18.8 |
|
| $ | 17.9 |
|
| $ | 8.5 |
|
Income taxes |
| $ | 2.4 |
|
| $ | 15.3 |
|
| $ | 15.3 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Operating activities | |||||||||||
| Net income | $ | 56.4 | $ | 44.5 | $ | 26.0 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 18.8 | 21.7 | 34.2 | ||||||||
| Net accretion of acquired lease contracts | (1.1 | ) | (2.2 | ) | (1.8 | ) | |||||
| Loss (gain) on sale of equipment | — | 0.2 | (0.3 | ) | |||||||
| Net equity in (earnings) losses of unconsolidated entities (net of distributions) | (0.4 | ) | (8.5 | ) | 0.5 | ||||||
| Gain on sale of equity method investment in unconsolidated entity | (10.1 | ) | — | — | |||||||
| Net gain on sale of a business | — | (0.1 | ) | — | |||||||
| Amortization of debt issuance costs | 0.7 | 0.7 | 0.8 | ||||||||
| Amortization of original discount on borrowings | 0.5 | 0.5 | 0.5 | ||||||||
| Non-cash stock-based compensation | 3.1 | 3.1 | 3.4 | ||||||||
| Provision for losses on accounts receivable | 1.5 | 0.7 | 0.4 | ||||||||
| Deferred income taxes | 1.3 | 1.8 | (2.1 | ) | |||||||
| Changes in operating assets and liabilities | |||||||||||
| Notes and accounts receivable | (16.7 | ) | (2.6 | ) | (15.9 | ) | |||||
| Prepaid assets | 0.1 | (1.8 | ) | (1.0 | ) | ||||||
| Other assets | 2.1 | (2.3 | ) | (1.0 | ) | ||||||
| Accounts payable | 0.8 | (7.2 | ) | 14.8 | |||||||
| Accrued liabilities | 13.9 | (3.3 | ) | 1.2 | |||||||
| Net cash provided by operating activities | 70.9 | 45.2 | 59.7 | ||||||||
| Investing activities | |||||||||||
| Purchase of leasehold improvements and equipment | (8.9 | ) | (6.8 | ) | (13.0 | ) | |||||
| Proceeds from sale of equipment and contract terminations | 0.2 | 0.8 | 3.0 | ||||||||
| Cash received from sale of a business, net | — | 0.6 | — | ||||||||
| Proceeds from sale of equity method investee's sale of assets | 19.3 | 8.4 | — | ||||||||
| Cost of contracts purchased | (1.1 | ) | (0.7 | ) | (3.8 | ) | |||||
| Acquisition of business, net of cash acquired | (277.9 | ) | — | — | |||||||
| Net cash (used in) provided by investing activities | (268.4 | ) | 2.3 | (13.8 | ) | ||||||
| Financing activities | |||||||||||
| Payments on credit facility revolver | (186.3 | ) | (410.1 | ) | (401.0 | ) | |||||
| Proceeds from credit facility revolver | 333.5 | 386.6 | 385.0 | ||||||||
| Proceeds from credit facility term loan | 225.0 | — | — | ||||||||
| Payments on credit facility term loan | (150.0 | ) | (20.0 | ) | (15.0 | ) | |||||
| Payments of debt issuance costs and original discount on borrowings | (3.2 | ) | — | — | |||||||
| Payments on other long-term borrowings | (0.5 | ) | (0.5 | ) | (0.3 | ) | |||||
| Distribution to noncontrolling interest | (3.3 | ) | (3.2 | ) | (3.3 | ) | |||||
| Repurchase of common stock | — | — | (7.5 | ) | |||||||
| Net cash provided by (used in) financing activities | 215.2 | (47.2 | ) | (42.1 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (0.6 | ) | 0.3 | (0.3 | ) | ||||||
| Increase in cash and cash equivalents | 17.1 | 0.6 | 3.5 | ||||||||
| Cash and cash equivalents at beginning of year | 22.8 | 22.2 | 18.7 | ||||||||
| Cash and cash equivalents at end of year | $ | 39.9 | $ | 22.8 | $ | 22.2 | |||||
| Supplemental Disclosures | |||||||||||
| Cash paid during the period for | |||||||||||
| Interest | $ | 8.5 | $ | 8.0 | $ | 9.2 | |||||
| Income taxes, net | $ | 15.3 | $ | 26.5 | $ | 17.6 | |||||
| Non cash transactions | |||||||||||
| Capital lease obligations incurred to acquire equipment | $ | 13.0 | $ | 1.5 | $ | — | |||||
See Notes to Consolidated Financial Statements.
49
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") is onefacilitates the efficient movement of people, vehicles and personal belongings with the leading providersgoal of enhancing the consumer experience while improving bottom line results for the Company’s clients. The Company provides professional parking management, ground transportation, services,remote baggage check-in and handling, facility maintenance, security, event logistics, and other ancillary servicestechnology-driven mobility solutions to aviation, commercial, hospitality, institutional, municipalhealthcare and aviationgovernment clients across the United States, Canada and Puerto Rico. These services include on-site parking management, valet parking, ground transportation services, facility maintenance, event logistics, baggage services, remote airline check-in, security services, municipal meter revenue collection and enforcement services, and consulting services.North America. The Company schedules and supervises service personneltypically enters into contractual arrangements with property owners or managers as well as provides customer service, marketing, accounting and revenue control functions necessaryopposed to provide such services.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and Variable Interest Entities ("VIEs") in which the Company is the primary beneficiary. All significant intercompany profits, transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("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 foreignCanadian operations is the local currency.Canadian dollar. Accordingly, assets and liabilities of the Company's foreignCanadian operations are translated from foreign currenciesthe Canadian dollar 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 currencyCanadian dollar financial statements are accumulated and classified as a separate component of stockholders' equity.
Cash and Cash Equivalents
Cash equivalents represent funds temporarily invested in money market instruments with maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements was $1.7were $0.3 million and $0.3$0.5 million as of December 31, 20182020 and 2017,2019, 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, primarily using historical collection trends, aging of receivables, and a review of specific accounts, as well as historical collection trends and aging of receivables, and makes adjustments into 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, 20182020 and 2017,2019, the Company's allowance for doubtful accounts was $1.0$5.1 million and $0.7$1.9 million, respectively.
Transactions affecting the allowance for doubtful accounts receivable for the years ended December 31, 2020 and 2019 were as follows:
(millions) |
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Beginning Balance |
| $ | 1.9 |
|
| $ | 1.0 |
|
Provision for credit losses |
|
| 6.4 |
|
|
| 1.1 |
|
Write offs and other |
|
| (3.2 | ) |
|
| (0.2 | ) |
Ending Balance |
| $ | 5.1 |
|
| $ | 1.9 |
|
Leasehold Improvements, Equipment Land and Construction in Progress, net
Leasehold improvements, equipment, software, vehicles, and other fixed assets are stated at cost less accumulated depreciation and amortization. Equipment is depreciated on the straight-line basis over the estimated useful lives ranging from 1 to 10 years. Expenditures for major renewals and improvements that extend the useful life of property and equipment are capitalized. Leasehold improvements are amortized on the straight-line basis over the terms of the respective leases or the service lives of the improvements, whichever is shorter (weighted average remaining life of approximately 4.54.3 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.
50
Goodwill and Other Intangibles
Goodwill represents the excess of purchase price paid over the fair value of net assets acquired. In accordance with the Financial Accounting Standards Board's ("FASB") authoritative accounting guidance on goodwill, the Company does not amortizeevaluates goodwill but rather evaluates it for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired. The Company has elected to assess the impairment of goodwill annually on the first day of its fiscal fourth quarter,October 1 or at an interim date if there is an event or change in circumstances indicateindicating 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.
The Company utilized the option to evaluate variousmay perform a qualitative, factorsrather than quantitative, assessment to determine the likelihood of impairment and ifwhether it wasis more likely than not that the fair value of thea reporting units wereunit is less than theits carrying valueamount. As of the reporting unit. The Company concluded there was no impairment of goodwill at any of the reporting units.
Beginning in March 2020, the COVID-19 pandemic (“COVID-19”) and the resulting stay at home orders issued by local governments were beginning to impact certain of the Company’s businesses. These factors have significantly impacted the hospitality and travel industries, as well as overall consumer discretionary spending.
Due to the impacts of COVID-19, revenues for eachcertain markets in which the Company operates have dropped significantly as compared to the expectations as of its reporting units.
Other 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. IntangibleAssets, net
Other 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 thetheir remaining useful life.lives. In addition, other intangible assets are reviewed for impairment when circumstances change that would indicate the carrying value may not be recoverable. 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 itsthe Company’s business strategy and internal forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, differentdifference assumptions and estimates could materially impact its reported financial results.
As a result of the impact of COVID-19 on the Company’s expected future operating cash flows, the Company determined certain impairment triggers had occurred related to a proprietary know how intangible assets within the Aviation segment as of June 30, 2020. Accordingly, the Company analyzed undiscounted cash flows for the proprietary know how intangible asset as of June 30, 2020. Based on the undiscounted cash flow analysis, the Company determined that the estimated net carrying value for the proprietary know how intangible asset exceeded its undiscounted future cash flows and therefore, as of June 30, 2020, the asset was impaired.
Additionally, as a result of the termination of certain contracts within the Aviation reporting unit during August 2020 and the ongoing impact of COVID-19 on the Company’s expected future operating cash flows, the Company determined certain impairment testing triggers had occurred related to the Company’s customer relationships and trade names and trademarks intangible assets. Accordingly, the Company analyzed undiscounted cash flows for certain intangible assets as of August 31, 2020. Based on the undiscounted cash flow analysis, the Company determined that estimated net carrying values exceeded undiscounted future cash flows for certain intangible assets and therefore, as of August 31, 2020, certain intangible assets were impaired.
The impairments recognized were measured by the amount by which the carrying value of the intangible assets exceed their fair value. See Note 10. Other Intangible Assets, net for further discussion.
For both goodwill and intangible assets, future events may indicate differences from management’s judgements and estimates which could, in turn, result in impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, increases in interest rates, which would impact discount rates, or other factors which could decreases revenues and profitability of existing locations and changes in the cost structure of existing facilities.
Long-Lived Assets
The Company evaluates long-lived asset groupsassets, including ROU assets, leasehold improvements, equipment and construction in progress, 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 primarily include a significant change in the use of an asset, or the planned sale or disposal of an asset.asset, or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset group. 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
As a result of the impact of COVID-19 on the Company's estimates ofexpected future operating cash flows, from suchthe Company’s management determined impairment testing triggers had occurred for ROU assets could be impacted if it underperforms relative to historical or projected future operating results.
51
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 future 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 anadditional impairment charge.
Accrued and other current liabilities
Components of $2.2 millionaccrued and $1.0 million as of December 31, 2018, and 2017, respectively, have been recorded as a direct deduction from the carrying amount of the Company's debt balance within the Consolidated Balance Sheets and are reflected net of accumulated amortization of $10.4 million and $9.7 million respectively. Amortization expense related to debt issuance costs and included in interest expense within the Consolidated Statements of Income was $0.7 million, $0.7 million and $0.8 millionother current liabilities for the years ended December 31, 2018, 20172020 and 2016, respectively.2019 were as follows:
(millions) |
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Accrued rent |
| $ | 17.3 |
|
| $ | 18.1 |
|
Compensation and payroll withholdings |
|
| 32.0 |
|
|
| 28.7 |
|
Property, payroll and other taxes |
|
| 4.8 |
|
|
| 6.8 |
|
Accrued insurance |
|
| 20.1 |
|
|
| 19.2 |
|
Accrued expenses |
|
| 38.5 |
|
|
| 48.6 |
|
Accrued and other current liabilities |
| $ | 112.7 |
|
| $ | 121.4 |
|
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 $34.0$23.2 million and $29.0$29.3 million are included within Accounts payable within the Consolidated Balance Sheets as of December 31, 2018,2020, and 2017,2019, respectively. Long-term debt has a carrying value that approximates fair value because thesethe 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/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 and exposures specific to each type of insurance, along with regular input fromactuarial methods performed quarterlyby a third party insurance advisersactuarial adviser in determining the required level of insurance reserves. As of December 31, 2020, the insurance reserve for general, garage, automobile and workers’ compensation liabilities is recorded in Accrued and other current liabilities and Other noncurrent 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 offor 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.
52
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 3029 active partnerships, joint ventures or similar arrangements that operate parking facilities, of which 2524 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—revenue - lease type contracts within the Consolidated Statements of (Loss) 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 $2.7$1.3 million, $11.3$3.2 million, and $2.4$2.7 million for the year ended December 31, 2020, 2019 and 2018, 2017 and 2016, 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”). The Parkmobile joint venture combined two parking transaction engines, with SP Plus contributing the Click and Park® parking prepayment systems, which enables consumers to reserve and pay for parking online in advance and Parkmobile USA contributing its on demand transaction engine that allows consumers to transact real-time payment for parking privileges in both on- and off-street environments. On January 3, 2018, the Company closed a transaction to sell thesold 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, andcosts. The pre-tax gain was included in Equity in (earnings) losses from investment in unconsolidated entity within the Consolidated Statements of (Loss) Income for the twelve monthsyear 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 BalanceSheets. 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 (Loss) 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.
Income Taxes
Income tax expense involves management judgment as to the ultimate resolution of any tax issues. Historically, ourthe Company’s assessments of the ultimate resolution of tax issues have been reasonably accurate. The current open issues are not dissimilar from historical items.
Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reportingUS GAAP amounts and the tax basesbasis 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 itsthe Company’s assessment of their recoverability.
When evaluating ourthe Company’s tax positions, the Company accounts for uncertainty in income taxes in ourits 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 ourthe Company’s 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 includesincluded significant changes to the corporate income tax system in the United States, including a federal corporate rate reduction from 35% to 21% and the transition of United States international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The 2017 Tax Act requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the 2017 Tax Act and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Department of Treasury, the Internal Revenue Service (IRS), foreign jurisdictions, state jurisdictions and other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or otherwise administered that is different than our interpretation. The Company is required to recognize the effect of the tax law changes in the period of enactment, which include determining the transition tax, remeasuring our deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities.
Recently Adopted Accounting Pronouncements
ASU | Topic | Method of Adoption | |||
2016-13 | Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326) | Prospective | |||
2017-04 | Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment | Prospective | |||
2018-13 | Fair Value Measurement (Topic 820) | Prospective | |||
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 | Prospective | |||
20018-17 | Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities | Prospective | |||
2018-18 | Collaborative Arrangements (Topic 808) | Prospective | |||
2018-19 | Codification Improvements to Topic 326, Financial Instruments - Credit Losses | Prospective | |||
2019-04 | Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825) | Prospective | |||
2019-08 | Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), Codification Improvements - Share-Based Consideration Payable to a Customer | Prospective | |||
2020-02 | Financial Instruments-Credit Losses (Topic 326) And Leases (Topic 842)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 And Update to SEC Section On Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) | Prospective | |||
2019-12 | Simplifying the Accounting for Income Taxes (Topic 740) | Prospective, early adopted |
Accounting Pronouncements to be Adopted
Effects of Reference Rate Reform on Financial Reporting
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09
| Impact of Changes in Accounting Policies as of December 31, 2018 | ||||||||||||
| (millions, unaudited) | As Reported | Balances without Adoption of Topics 606 and 853 | Impact of Adoption Increase/(Decrease) | |||||||||
| Assets | ||||||||||||
| Notes and accounts receivable, net (1) | $ | 150.7 | $ | 140.3 | $ | 10.4 | ||||||
| Leasehold improvements, equipment and construction in progress, net (2) | 40.3 | 40.8 | (0.5 | ) | ||||||||
| Other assets, net (2) | 17.3 | 16.8 | 0.5 | |||||||||
| Liabilities | ||||||||||||
| Accrued expenses (1) | $ | 45.1 | $ | 34.7 | $ | 10.4 | ||||||
| Impact of Changes in Accounting Policies for the Year Ended December 31, 2018 | ||||||||||||
| (millions, unaudited) | As Reported | Balances without Adoption of Topics 606 and 853 | Impact of Adoption Increase/(Decrease) | |||||||||
| Services revenue | ||||||||||||
| Lease type contracts (1) | $ | 413.9 | $ | 547.5 | $ | (133.6 | ) | |||||
| Management type contracts | 361.5 | 361.7 | (0.2 | ) | ||||||||
| 775.4 | 909.2 | (133.8 | ) | |||||||||
| Reimbursed management type contract revenue | 693.0 | 693.0 | — | |||||||||
| Total services revenue | 1,468.4 | 1,602.2 | (133.8 | ) | ||||||||
| Cost of services | ||||||||||||
| Lease type contracts (1) | 377.6 | 511.0 | (133.4 | ) | ||||||||
| Management type contracts | 213.8 | 213.8 | — | |||||||||
| 591.4 | 724.8 | (133.4 | ) | |||||||||
| Reimbursed management type contract expense | 693.0 | 693.0 | — | |||||||||
| Total cost of services | 1,284.4 | 1,417.8 | (133.4 | ) | ||||||||
| Gross profit | ||||||||||||
| Lease type contracts | 36.3 | 36.5 | (0.2 | ) | ||||||||
| Management type contracts | 147.7 | 147.8 | (0.1 | ) | ||||||||
| Total gross profit | $ | 184.0 | $ | 184.3 | $ | (0.3 | ) | |||||
| Depreciation and amortization | $ | 17.9 | $ | 18.2 | $ | (0.3 | ) | |||||
Investments - equity securities; Investments-Equity Method and Joint Ventures; Derivatives and Hedging
In June 2016,January 2020, the FASB issued ASU No. 2016-13,
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. This ASU addresses, a variety of topics in the Accounting Standards Codification in order to improve consistency and clarify the guidance. The FASB provided transition guidance for all of the amendments. The ASU is effective for fiscal years 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 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 Company accounts for leases in accordance with Topic 842. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the internal-use software guidancepresent value of lease payments over the lease term. ROU assets represent the Company's "right-of-use" over an underlying asset for the lease term, and
54
lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The ROU asset includes cumulative prepaid or accrued rent, as well as lease incentives, initial direct costs and acquired lease contracts. 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 based on the information available at commencement date in Accounting Standards Codification (ASC) 350-40determining 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 determine which implementation costsrenew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. The Company’s lease term may include renewal options that are at the Company’s sole discretion and are reasonably certain to capitalize as assets. Capitalized implementation costs relatedbe exercised. Equipment and vehicle leases also include options to a hosting arrangement thatpurchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a service contract will be amortized overtransfer 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 term oflease 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 hosting arrangement, beginningCompany tests ROU assets when the module or component of the hosting arrangement is ready for its intended use. The standard is effective for interimimpairment indicators are present as detailed in Note 1. Significant Accounting Policies and annual reporting periods beginning after December 15, 2019. The Company is currently assessingPractices.
As discussed in Note 1. Significant Accounting Policies and Practices, due to the impact of adopting this standardCOVID-19 on the Company’s financial position, resultsCompany's expected future operating cash flows, the Company determined certain impairment testing triggers had occurred within its asset groups. Accordingly, the Company performed undiscounted cash flow analyses on certain operating lease ROU assets during the year ended December 31, 2020. Based on the undiscounted cash flow analyses as of operations,March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020, the Company determined that certain ROU asset groups had net carrying values that exceeded their estimated undiscounted future cash flows and financial statement disclosures.
In April 2020, the FASB staff provided accounting elections for entities that receive or provide lease-related concessions to mitigate the economic effects of COVID-19 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.lessees. The Company is currently assessingelected not to evaluate whether certain concessions provided by lessors in response to the impactCOVID-19 pandemic, that are within the scope of adopting this standardadditional interpretation provided by the FASB in April 2020, were lease modifications and has also elected not to apply modification guidance under Topic 842. These concessions will be recognized as a reduction of rent expense in the month they occur and will be recorded within Cost of parking services within the Consolidated Statements of (Loss) Income. During the year ended December 31, 2020, as a result of the ongoing COVID-19 pandemic, the Company was able to negotiate lease concessions with certain landlords. These rent concessions have been recorded in accordance with the guidance noted above. As a result, the Company recorded $26.0 million related to rent concessions as a reduction to cost of services during the year ended December 31, 2020.
Costs associated with the right to use the infrastructure on service concession arrangements are recorded as a reduction of revenue in accordance with the scope of ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services. See Note 5. Revenue for further discussion on service concession arrangements.
During the year ended December 31, 2020, as a result of the ongoing COVID -19 pandemic, the Company was able to negotiate cost reductions with certain entities related to service concession arrangements. As a result, the Company recorded $31.3 million related to such cost reductions during the year ended December 31, 2020.
The components of ROU assets and lease liabilities and classification on the Company’s financial position, resultsConsolidated Balance Sheet as of operations, cash flowsDecember 31, 2020 and financial statement disclosures.
(millions) |
| Classification |
| 2020 |
|
| 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
Operating |
| Right-of-use assets |
| $ | 235.1 |
|
| $ | 431.7 |
|
Finance |
| Leasehold improvements, equipment and construction in progress, net |
|
| 28.8 |
|
|
| 18.6 |
|
Total leased assets |
|
|
| $ | 263.9 |
|
| $ | 450.3 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Operating |
| Short-term lease liabilities |
| $ | 82.1 |
|
| $ | 115.2 |
|
Finance |
| Current portion of long-term obligations under Senior Credit Facility and other long-term borrowings |
|
| 7.8 |
|
|
| 3.1 |
|
Noncurrent |
|
|
|
|
|
|
|
|
|
|
Operating |
| Long-term lease liabilities |
|
| 243.4 |
|
|
| 327.7 |
|
Finance |
| Long-term borrowings, excluding current portion |
|
| 20.5 |
|
|
| 15.6 |
|
Total lease liabilities |
|
|
| $ | 353.8 |
|
| $ | 461.6 |
|
55
The components of lease cost and classification on the Consolidated Statement of Income for the year ended December 31, 2020 and 2019 were as follows:
(millions) |
| Classification |
| 2020 |
|
| 2019 |
| ||
Operating lease (a)(b) |
| Cost of services - lease type contracts |
| $ | 81.1 |
|
| $ | 150.9 |
|
Short-term lease (a) |
| Cost of services - lease type contracts |
|
| 22.6 |
|
|
| 33.1 |
|
Variable lease |
| Cost of services - lease type contracts |
|
| 20.1 |
|
|
| 58.1 |
|
Operating lease cost |
|
|
|
| 123.8 |
|
|
| 242.1 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
| Depreciation and amortization |
|
| 4.2 |
|
|
| 2.3 |
|
Interest on lease liabilities |
| Interest expense |
|
| 1.1 |
|
|
| 0.9 |
|
Lease Impairment |
| Lease impairment |
|
| 97.1 |
|
|
| — |
|
Lease Impairment |
| General and administrative expenses |
|
| 1.6 |
|
|
| — |
|
Net lease cost |
|
|
| $ | 227.8 |
|
| $ | 245.3 |
|
(a) | Operating lease cost included in General and administrative expenses are related to leases for office space amounting to $5.7 million and $6.0 million for the years ended December 31, 2020 and 2019, respectively. |
(b) | Includes rent concessions amounting to $26.0 million for the year ended December 31, 2020. NaN rent concessions were recognized for the year ended December 31, 2019. |
Sublease income during the years ended December 31, 2020 and 2019 was $1.6 million and $2.0 million, respectively.
The Company has entered into operating lease arrangements as of December 31, 2020 that commence in future periods. The total amount of ROU assets and lease liabilities related to these arrangements are immaterial.
Maturities, lease term, and discount rate information of lease liabilities as of December 31, 2020 were as follows:
|
| Operating |
|
| Finance |
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|
|
|
| ||
(millions) |
| Leases |
|
| Leases |
|
| Total |
| |||
2021 |
| $ | 94.7 |
|
| $ | 8.8 |
|
| $ | 103.5 |
|
2022 |
|
| 80.0 |
|
|
| 7.5 |
|
|
| 87.5 |
|
2023 |
|
| 59.1 |
|
|
| 5.3 |
|
|
| 64.4 |
|
2024 |
|
| 41.8 |
|
|
| 3.4 |
|
|
| 45.2 |
|
2025 |
|
| 29.5 |
|
|
| 1.7 |
|
|
| 31.2 |
|
After 2025 |
|
| 69.3 |
|
|
| 5.0 |
|
|
| 74.3 |
|
Total lease payments |
|
| 374.4 |
|
|
| 31.7 |
|
|
| 406.1 |
|
Less: Imputed interest |
|
| 48.9 |
|
|
| 3.4 |
|
|
| 52.3 |
|
Present value of lease liabilities |
| $ | 325.5 |
|
| $ | 28.3 |
|
| $ | 353.8 |
|
Weighted-average remaining lease term (years) |
|
| 5.6 |
|
|
| 5.1 |
|
|
|
|
|
Weighted-average discount rate |
|
| 5.0 | % |
|
| 4.2 | % |
|
|
|
|
Future sublease income for the periods shown above was excluded as the amounts are not material.
Supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019 were as follows:
(millions) |
| 2020 |
|
| 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
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|
|
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Operating cash outflows related to operating leases |
| $ | 120.3 |
|
| $ | 179.0 |
|
Operating cash outflows related to interest on finance leases |
|
| 1.1 |
|
|
| 0.9 |
|
Financing cash outflows related to finance leases |
|
| 5.2 |
|
|
| 2.3 |
|
Leased assets obtained in exchange for new operating liabilities |
|
| 38.2 |
|
|
| 68.6 |
|
Leased assets obtained in exchange for new finance lease liabilities |
|
| 16.5 |
|
|
| 6.8 |
|
3. Acquisition
On November 30, 2018 (the “acquisition date”), the Company acquired the outstanding shares of Bags (the "Acquisition"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, the Company paid $283.6 million as consideration for the acquisition of Bags, SP Plus paid to the Sellers total consideration of approximately $283.6 million.Bags. The consideration iswas comprised of $275.0 million of contractual cash consideration,paid by SP Plus, $8.1 million related to the preliminary net working capital and cash acquired and $0.5 million for certain individual taxes to be paid by the Sellerseller (the “Cash Consideration”). The purchase price is subject to adjustment based upon a working capital provision provided for by the purchase agreement, which the Company expects to finalize no later than the fourth quarter of 2019. As described in Note 21.
The Company's acquisition of Bags 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 acquisition date iswas 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 date of acquisition.
The Company incurred certain acquisition and integration costs associated with the transactionacquisition of Bags that were expensed as incurred and are reflected in the Consolidated Statements of (Loss) Income. See Note 3.
The fair values of assets acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair values. Thus, the provisional measurementswere as follows:
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|
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| Measurement |
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| |
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| Period |
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| |
(millions) |
| Initial |
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| Adjustments |
|
| Final |
| |||
Cash and cash equivalents |
| $ | 5.9 |
|
|
|
|
|
| $ | 5.9 |
|
Notes and accounts receivable |
|
| 13.2 |
|
|
|
|
|
|
| 13.2 |
|
Prepaid expenses and other current assets |
|
| 2.0 |
|
|
|
|
|
|
| 2.0 |
|
Other noncurrent assets |
|
| 0.2 |
|
|
|
|
|
|
| 0.2 |
|
Leasehold improvements, equipment and construction in progress |
|
| 1.5 |
|
|
|
|
|
|
| 1.5 |
|
Other intangible assets, net |
|
| 118.0 |
|
|
|
|
|
|
| 118.0 |
|
Goodwill |
|
| 154.1 |
|
|
| 0.3 |
|
|
| 154.4 |
|
Accounts payable |
|
| (6.5 | ) |
|
|
|
|
|
| (6.5 | ) |
Accrued and other current liabilities |
|
| (4.1 | ) |
|
| (0.3 | ) |
|
| (4.4 | ) |
Other long-term liabilities |
|
| (0.7 | ) |
|
|
|
|
|
| (0.7 | ) |
Net assets acquired and liabilities assumed |
| $ | 283.6 |
|
| $ | 0 |
|
| $ | 283.6 |
|
Goodwill of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed:
| (millions) | |||
| Cash and cash equivalents | $ | 5.9 | |
| Notes and accounts receivable | 13.2 | ||
| Prepaid expenses and other | 2.0 | ||
| Advances and deposits | 0.2 | ||
| Leasehold improvements, equipment and construction in progress, net | 1.5 | ||
| Other intangible assets, net | 118.0 | ||
| Goodwill | 154.1 | ||
| Accounts payable | (6.5 | ) | |
| Accrued expenses | (4.1 | ) | |
| Other long-term liabilities | (0.7 | ) | |
| Net assets acquired and liabilities assumed | $ | 283.6 | |
Acquired other Intangibles assets net acquired consist of the following:were as follows:
(millions) |
| Estimated Life |
| Fair Value |
| |
Trade name |
| 5.0 Years |
| $ | 5.6 |
|
Customer relationships |
| 12.4 - 15.8 Years |
|
| 100.4 |
|
Existing technology |
| 5.0 - 6.0 Years |
|
| 10.4 |
|
Non-compete agreement |
| 5.0 Years |
|
| 1.6 |
|
Estimated fair value of identified intangibles |
|
|
| $ | 118.0 |
|
| (millions) | Estimated Life (1) | Estimated Fair Value | |||
| Trade name | 5.0 Years | $ | 5.6 | ||
| Customer relationships | 12.4 - 15.8 Years | 100.4 | |||
| Existing technology | 5.0 - 6.0 Years | 10.4 | |||
| Non-compete agreement | 5.0 Years | 1.6 | |||
| Estimated fair value of identified intangibles | $ | 118.0 | |||
The fair value estimate 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 estimated fair value of trade names was determined with the relief from royalty savings method, which is a commonly-used variation of the income approach.method. The Company considered the return on assets and market comparable methods when estimating an appropriate royalty rate for the trade names. The estimated fair value of acquired customer relationships was determined with the excess earnings method, which is a variation of the income approach.method. 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 estimated 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 yearsyear ended December 31, 2018, and 2017, assumes the Acquisitionacquisition of Bags was completed on January 1, 2017,2018, 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 acquisitionBags have been adjusted in the pro forma information 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 of Bags, 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 revenue synergies, cost savings or operating synergies that may result from the Acquisitionacquisition of Bags or to any future 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 arewere not included in the unaudited pro forma 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 whichthat the company has incurred or may incur to integrate Bags.
(millions) |
| 2018 |
| |
Total services revenue |
| $ | 1,617.7 |
|
Net income attributable to SP Plus Corporation |
|
| 55.1 |
|
| Year Ended December 31, | ||||||
| (millions) | 2018 | 2017 | ||||
| Total services revenue | $ | 1,617.7 | $ | 1,735.1 | ||
| Net income attributable to SP Plus Corporation | 55.1 | 41.4 | ||||
Services revenue and net income related to Bags in 2018 that are included in the Consolidated Statements of (Loss) Income arewere $14.2 million and $1.3 million or the year ended December 31, 2018, respectively, which arewere 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:
• | 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 2020, 2019 and 2018 (included within Cost of services and General and administrative expenses within the Consolidated Statements of (Loss) Income); |
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• | Transaction costs and other acquisition related costs (primarily professional and advisory services, as well as write-offs of aged receivables incurred prior to acquisition) primarily related to the acquisition of Bags (included within General and administrative expenses within the Consolidated Statements of (Loss) Income) and; |
• | Consulting costs for integration-related activities related to the acquisition of Bags incurred during the year ended December 31, 2019 (included within General and administrative expenses within the Consolidated Statements of (Loss) Income). |
Included in General and administrative expenses withinare severance related costs of $4.0 million during the Consolidated Statements of Income);
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Cost of services - lease type contracts |
| $ | 0.4 |
|
| $ | — |
|
| $ | — |
|
Cost of services - management type contracts |
|
| 0.7 |
|
|
| — |
|
|
| — |
|
General and administrative expenses |
|
| 6.5 |
|
|
| 1.3 |
|
|
| 8.1 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| General and administrative expenses | $ | 8.1 | $ | 1.2 | $ | 4.5 | |||||
| Depreciation and amortization | — | — | 2.4 | ||||||||
| Total | $ | 8.1 | $ | 1.2 | $ | 6.9 | |||||
The accrual for acquisition, restructuring and integration costs of $3.3$1.2 million (of which, $1.0 million is included in Compensation and payroll withholdings, $2.1$0.1 million is included in Accrued Expenses, $0.2 million in Other long-termand other current liabilities within the Consolidated Balance Sheets) and $2.3 million (of which, $1.8 million is included in Compensation and payroll withholdings and $0.5 million in Other long-term liabilities within the Consolidated Balance Sheets)Sheet as of December 31, 20182020 and 2017,2019, respectively. All accruals are expected to be paid during 2019, with the exception of $0.2 million included in Other long-term liabilities within the Consolidated Balance Sheets.
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.
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 ourthe 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 responsible for most operating expenses, but typically is not responsible for major maintenance, capital expenditures or real estate taxes. Performance obligations for services revenues 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.
Management type contracts
Management type contract revenue consists of management fees, including both fixed variable and/orand performance-based fees. In exchange for this consideration, the Company has a bundle of performance obligations that include services such as managing the facilities as well ancillary services such as accounting, equipment leasing, consulting, insurance and providing certain services to a client.other value-added services. The Company believes that it can generally purchase required insurance for the locationfacility and facility operations at lower rates than clients can obtain on their own because the Company is effectively self-insured for all liability, worker'sworkers' 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 ourits 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 clientsproperty owners 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, revenueRevenue generated from service concession arrangements, is accounted for under the guidance of Topics 606 and Topic 853. For the year ended December 31, 2018, certainCertain expenses (primarily rental expense) related to service concession arrangements previously recorded within Cost of services - lease type contracts and Depreciationdepreciation and amortization, have been recorded as a reduction of ServicesService 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 from the property owner for operating expenses incurred under a management type contract. The Company has determined it is the principal in these transactions, as the nature of ourits performance obligations is for the Company to provide the services on behalf of the customer.client. As the principal to these related transactions, the Company has control of the promised services before they are transferred to the customer.
The Company disaggregates its revenue from contracts with customers by type of arrangement for each of ourthe 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 21.
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 inunder 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 ourthe Company’s 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 parking 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.
The Company’s 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, 2020, 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 typically collected in advance of the Company commencing its performance obligations under the contractual arrangement.
As of December 31, 2018,2020, the Company had $113.6$118.0 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 ourthe remaining performance obligations as revenue in future periods as follows:
|
| Remaining Performance |
| |
(millions) |
| Obligations |
| |
2021 |
| $ | 51.3 |
|
2022 |
|
| 28.9 |
|
2023 |
|
| 19.5 |
|
2024 |
|
| 10.7 |
|
2025 |
|
| 4.4 |
|
2026 and thereafter |
|
| 3.2 |
|
Total |
| $ | 118.0 |
|
| (millions) | Remaining Performance Obligations | ||
| 2019 | $ | 48.6 | |
| 2020 | 29.0 | ||
| 2021 | 16.9 | ||
| 2022 | 8.6 | ||
| 2023 | 5.3 | ||
| 2024 and thereafter | 5.2 | ||
| Total | $ | 113.6 | |
Contract balances
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 contract liabilities are reported on a contract-by-contract basis and are included in Notes and accounts receivable, net and Accrued expenses,and other current liabilities, respectively, on the Consolidated Balance Sheet asSheets. See Note 1. Significant Accounting Policies and Practices for additional detail on the write-off of December 31, 2018. Impairment charges related to accounts receivable for the years ended December 31, 2018, 2017 and 2016, were not significant.receivable. There were no0 impairment charges recorded on contract assets and contract liabilities for the years ended December 31, 2018, 20172020, 2019 and 2016.2018. The following table provides information about accounts receivable, contract assets and contract liabilities with customers and clients as of December 31, 2018:2020 and 2019:
(millions) |
| 2020 |
|
| 2019 |
| ||
Accounts receivable |
| $ | 102.7 |
|
| $ | 151.3 |
|
Contract asset |
|
| 8.6 |
|
|
| 11.0 |
|
Contract liability |
|
| (12.5 | ) |
|
| (19.4 | ) |
| (millions) | December 31, 2018 | ||
| Accounts receivable | $ | 139.3 | |
| Contract asset | 11.4 | ||
| Contract liability | $ | (19.1 | ) |
59
Changes in contract assets include recognition of additional consideration due from the customer or client once the Company obtains an unconditional right to the considerationare offset by reclassifications of contract asset balances to accounts receivable when the Company obtains an unconditional right to consideration, thereby establishing an accounts receivable. The following table provides information about changes to contract asset balances forduring the yearyears ended December 31, 2018:2020 and 2019:
(millions) |
| 2020 |
|
| 2019 |
| ||
Balance, beginning of period |
| $ | 11.0 |
|
| $ | 11.4 |
|
Additional contract assets |
|
| 8.6 |
|
|
| 11.0 |
|
Reclassification to accounts receivable |
|
| (11.0 | ) |
|
| (11.4 | ) |
Balance, end of period |
| $ | 8.6 |
|
| $ | 11.0 |
|
| (millions) | Contract Asset | ||
| Balance as of January 1, 2018 | $ | 12.2 | |
| Additional contract assets | 132.7 | ||
| Reclassification to accounts receivable | (133.5 | ) | |
| Balance as of December 31, 2018 | $ | 11.4 | |
Changes in contract liabilityliabilities primarily include additional contract liabilities and liquidationreductions of contract liabilities when revenue is recognized. The entire contract liability balance as of January 1, 2018 was recognized as revenue during the year ended December 31, 2018. The following table provides information about changes to contract liabilityliabilities balances forduring the yearyears ended December 31, 2018:2020 and 2019:
(millions) |
| 2020 |
|
| 2019 |
| ||
Balance, beginning of period |
| $ | (19.4 | ) |
| $ | (19.1 | ) |
Additional contract liabilities |
|
| (12.5 | ) |
|
| (19.4 | ) |
Recognition of revenue from contract liabilities |
|
| 19.4 |
|
|
| 19.1 |
|
Balance, end of period |
| $ | (12.5 | ) |
| $ | (19.4 | ) |
| (millions) | Contract Liability | ||
| Balance as of January 1, 2018 | $ | (20.5 | ) |
| Additional contract liabilities | (170.4 | ) | |
| Recognition of revenue from contract liabilities | 171.8 | ||
| Balance as of December 31, 2018 | $ | (19.1 | ) |
Cost of contracts, net
Cost of contracts, net represents the cost of obtaining contractual rights associated with providing services for a lease or management type contracts. The adoption of Topic 606 did not have a significant impact on how the Company previously reported contract costs. Incremental costs incurred to obtain parkingservice contracts are amortized on a straight line basis over the estimated life of the contracts, including anticipated renewals and terminations. ThisThe amortization period is consistent with the timing of when the Company satisfies the related performance obligations. Estimated lives are based on the contract life or anticipated liveslife.
See Note 9. Cost of the contract.
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Amortization expense related to cost of contract | $ | 3.0 | $ | 3.2 | $ | 3.4 | |||||
As of December 31, 2018
6. Net (Loss) Income per Common Share
Basic net (loss) income per common share is computed by dividing Netnet (loss) income attributable to SP Plus Corporation by the weighted daily average number of shares of common stock outstanding during the period. Diluted net (loss) income per common share is based upon the weighted daily average number of shares of common stock outstanding atfor the period end, consisting of incrementalplus dilutive potential common shares, assumed to be issued upon exercise of stock options and the incremental shares assumed to be issued under performance share andincluding restricted stock unit arrangements,units, using the treasury-stock method.
Basic and diluted net (loss) income per common share and a reconciliation the weighted average basic common shares outstanding to dilutedthe weighted average diluted common shares outstanding iswas as follows:
|
| Year Ended December 31, |
| |||||||||
(millions, except share and per share data) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net (loss) income attributable to SP Plus Corporation |
| $ | (172.8 | ) |
| $ | 48.8 |
|
| $ | 53.2 |
|
Basic weighted average common shares outstanding |
|
| 21,056,061 |
|
|
| 22,080,025 |
|
|
| 22,394,542 |
|
Dilutive impact of share-based awards |
|
| — |
|
|
| 128,007 |
|
|
| 212,681 |
|
Diluted weighted average common shares outstanding |
|
| 21,056,061 |
|
|
| 22,208,032 |
|
|
| 22,607,223 |
|
Net (loss) income per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (8.21 | ) |
| $ | 2.21 |
|
| $ | 2.38 |
|
Diluted |
| $ | (8.21 | ) |
| $ | 2.20 |
|
| $ | 2.35 |
|
| Year Ended December 31, | |||||||||||
| (millions, except share and per share data) | 2018 | 2017 | 2016 | ||||||||
| Net income attributable to SP Plus Corporation | $ | 53.2 | $ | 41.2 | $ | 23.1 | |||||
| Basic weighted average common shares outstanding | 22,394,542 | 22,195,350 | 22,238,021 | ||||||||
| Dilutive impact of share-based awards | 212,681 | 312,938 | 290,101 | ||||||||
| Diluted weighted average common shares outstanding | 22,607,223 | 22,508,288 | 22,528,122 | ||||||||
| Net income per common share | |||||||||||
| Basic | $ | 2.38 | $ | 1.86 | $ | 1.04 | |||||
| Diluted | $ | 2.35 | $ | 1.83 | $ | 1.03 | |||||
Due to the 2016 awards were included for the purposes of determining diluted net income per share as all performance goals were achieved as of this date. The 2017 and 2018 performance-based awards have been excluded for purposes of determining diluted net income per share forloss during the year ended December 31, 2018, as all performance goals2020, common stock equivalents arising from 51,276 restricted stock units were not achieved relating to these awards as of December 31, 2018.
There are nowere 0 additional securities that could dilute basic earnings per common share in the future that were not included in the computation of diluted earnings per common 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 andbased on assumptions as of the grant date. The expense is recognized on a straight-line basis over the requisite employee service period or performance period (generally the vesting period) for awards expected to vest. For those awards in which there is no requisite service period, the Company immediately recognizes the compensation expense. If the award is later modified, the Company may measure the award based on the estimated fair value at the modification date and recognize expense over the remaining requisite employee service period or performance period. 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.under which the Company may grant future awards. On March 7, 2018, the Company’s Board of Directors (the “Board”) approved an amendment and restatement ofto the Plan subject to stockholder approval, 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. Forfeited and expired options under the Plan become generally available for reissuance. At December 31, 2018, 940,5292020, 647,903 shares remained available for awardgrant under the Plan.
Stock-based compensation expense related to vested stock grants are included in General and administrative expenses within the Consolidated Statements of (Loss) Income. The Company’s authorized vested stock grants to certain directors and related expense for the years ended December 31, 2020, 2019 and 2018, was as follows:
|
| Year Ended December 31, |
| |||||||||
(millions, except stock grants) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Vested stock grants |
|
| 25,066 |
|
|
| 14,076 |
|
|
| 12,736 |
|
Stock-based compensation expense |
| $ | 0.5 |
|
| $ | 0.5 |
|
| $ | 0.5 |
|
| Year Ended December 31, | |||||||||||
| (millions, except stock grants) | 2018 | 2017 | 2016 | ||||||||
| Vested stock grants | 12,736 | 16,428 | 32,180 | ||||||||
| Stock-based compensation expense | $ | 0.5 | $ | 0.5 | $ | 0.7 | |||||
Restricted Stock Units
NaN restricted stock units were granted during the year ended December 31, 2020.
During the year ended December 31, 2019, the Company granted of 37,235 restricted stock units to certain executives that vest over three years from the grant date.
During the year ended December 31, 2018, the Company authorized certain one-time grantsgranted of 48,663 and 8,426 restricted stock units to certain executives that vest over three years
Nonvested restricted stock units as of December 31, 2018,2020, and changes during the year ended December 31, 2018, 2017 and 2016, are presented below:2020 were as follows:
|
| Shares |
|
| Weighted Average Grant-Date Fair Value |
| ||
Nonvested as of December 31, 2019 |
|
| 153,442 |
|
| $ | 27.46 |
|
Granted |
|
| — |
|
|
| — |
|
Vested |
|
| (102,166 | ) |
|
| 24.56 |
|
Forfeited |
|
| — |
|
|
| — |
|
Nonvested as of December 31, 2020 |
|
| 51,276 |
|
| $ | 33.24 |
|
| Shares | Weighted Average Grant-Date Fair Value | |||||
| Nonvested as of December 31, 2015 | 401,716 | $ | 19.25 | |||
| Issued | 4,020 | 24.87 | ||||
| Vested | (54,215 | ) | 18.33 | |||
| Forfeited | (17,324 | ) | 19.68 | |||
| Nonvested as of December 31, 2016 | 334,197 | $ | 19.45 | |||
| Issued | 22,000 | 18.25 | ||||
| Vested | (26,399 | ) | 18.98 | |||
| Forfeited | (4,537 | ) | 21.92 | |||
| Nonvested as of December 31, 2017 | 325,261 | $ | 19.37 | |||
| Issued | 57,089 | 35.28 | ||||
| Vested | (173,240 | ) | 19.67 | |||
| Forfeited | (6,456 | ) | 21.57 | |||
| Nonvested as of December 31, 2018 | 202,654 | $ | 23.53 | |||
The table below shows the Company's stock-based compensation expense related to the restricted stock units for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, andwhich is included in General and administrative expenses within the Consolidated Statements of Income.(Loss) Income, was as follows:
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Stock-based compensation expense |
| $ | 1.1 |
|
| $ | 1.1 |
|
| $ | 0.9 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Stock-based compensation expense | $ | 0.9 | $ | 0.9 | $ | 0.9 | |||||
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 endedas of December 31, 2018, 2017 and 2016, is shown in the table below.2020 was as follows:
|
| Year Ended December 31, |
| |
(millions) |
| 2020 |
| |
Unrecognized stock-based compensation |
| $ | 0.6 |
|
Weighted average (years) |
| 1.2 years |
| |
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Unrecognized stock-based compensation | $ | 1.8 | $ | 0.9 | $ | 1.7 | |||||
| Weighted average (years) | 2.3 years | 2.1 years | 2.8 years | ||||||||
Performance Share Units
In September 2014, the Board of Directors authorized a performance-based incentive program under the Plan ("Performance-Based(“Performance-based Incentive Program"Program”), whereby the Company willmay issue performance share unitsPSU’s to certain executive management individuals that represent shares potentially issuable in the future. The objective of the performance-based incentive programPerformance-Based Incentive Program is to link compensation to business performance, encourage the ownership of Companythe Company’s common stock, retain executive talent,key employees and reward executivemanagement’s performance. The Performance-Based Incentive Program provides participating executivesparticipants 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 starting in the year of grant and recipientsthe participants satisfy service-based vesting requirements. The stock-based compensation expense associated with unvested performance-based incentives arenonvested PSU’s 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.
The Company granted awards during the years ended December 31, 2020, 2019 and 2018 the Board of Directors authorized a performance-based incentive program96,056, 125,232 and 100,715, respectively, under the Company's Long-Term Incentive Plan ("2018 Performance-Based Incentive Program").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 issuedperformance target is based on the achievement of free cash flow before cash taxtaxes and interest payments over the cumulative three-year period starting in the year of 2018 through 2020.
Due to the Performance-Based Incentive Program shares basedimpact of COVID-19 on meeting eligibility for vesting at the endCompany’s operations, during the year ended December 31, 2020, the Compensation Committee of the three-yearBoard modified the performance periodtarget for the awards granted in 2018 (“2018 PSU’s”), as well as evaluated qualitative performance factors for the Company during 2020, which resulted in achievement of 2016 through 2018. As a result, 51,160 shares were95% of the target for the 2018 PSU’s. The 2018 PSU’s vested to these participating executives as of December 31, 2018.
61
2019 PSU’s was reversed, since the Company no longer expected the required performance targets to be subjectachieved. In addition, the Company has not recorded compensation expense related 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 executives2020 PSU’s.
Nonvested PSU’s as of December 31, 2017.
|
| Shares |
|
| Weighted Average Grant-Date Fair Value |
| ||
Nonvested as of December 31, 2019 |
|
| 212,096 |
|
| $ | 35.01 |
|
Granted |
|
| 96,056 |
|
|
| 37.89 |
|
Vested |
|
| (81,115 | ) |
|
| 30.01 |
|
Forfeited |
|
| (23,173 | ) |
|
| 36.27 |
|
Expired |
|
| (3,646 | ) |
|
| 37.59 |
|
Nonvested as of December 31, 2020 |
|
| 200,218 |
|
| $ | 35.27 |
|
| Shares | Weighted Average Grant-Date Fair Value | |||||
| Nonvested as of December 31, 2015 | 173,851 | $ | 20.63 | |||
| Issued | 99,466 | 23.72 | ||||
| Vested | (84,417 | ) | 19.15 | |||
| Forfeited | (29,423 | ) | 22.52 | |||
| Nonvested as of December 31, 2016 | 159,477 | 22.99 | ||||
| Issued (1) | 29,494 | 29.51 | ||||
| Vested | (61,919 | ) | 22.63 | |||
| Forfeited | (11,770 | ) | 25.86 | |||
| Nonvested as of December 31, 2017 | 115,282 | 28.01 | ||||
| Issued (2) | 55,640 | 36.49 | ||||
| Vested | (66,657 | ) | 25.42 | |||
| Forfeited | (10,572 | ) | 29.70 | |||
| Nonvested as of December 31, 2018 | 93,693 | $ | 35.92 | |||
The table below shows the Company's stock-based compensation expense (net reduction of expense) related to the Performance-Based Incentive Program forPSU’s during the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, andwhich is included in General and administrative expenses within the Consolidated Statements of Income.(Loss) Income, was as follows:
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Stock-based compensation expense |
| $ | (1.0 | ) |
| $ | 3.3 |
|
| $ | 1.4 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Stock-based compensation | $ | 1.4 | $ | 1.3 | $ | 1.8 | |||||
Since the Company no longer expects the required performance targets to be achieved for the 2019 and 2020 PSU’s, no future compensation expense is expected to be recognized; however, future compensation expense for currently outstanding awards under the Performance-Based Incentive Program2019 and 2020 PSU’s could reach a maximum of $9.7 million. Stock-based compensation for the Performance-Based Incentive Program is expected to be recognized over a weighted average period of 1.6 years.
8. Leasehold Improvements, Equipment Land and Construction in Progress, net
Leasehold improvements, equipment, and construction in progress and related accumulated depreciation and amortization isfor the years ended December 31, 2020 and 2019, were as follows:
|
|
|
| December 31 |
| |||||
(millions) |
| Estimated Useful Life |
| 2020 |
|
| 2019 |
| ||
Equipment |
| 1 - 10 Years |
| $ | 50.1 |
|
| $ | 45.2 |
|
Software |
| 2 - 5 Years |
|
| 42.3 |
|
|
| 39.7 |
|
Vehicles |
| 1 - 10 Years |
|
| 37.3 |
|
|
| 30.0 |
|
Other |
| 3 Years |
|
| 0.8 |
|
|
| 0.6 |
|
|
| Shorter of lease term or economic life up to |
|
|
|
|
|
|
|
|
Leasehold improvements |
| 10 years |
|
| 18.0 |
|
|
| 18.8 |
|
Construction in progress |
|
|
|
| 6.8 |
|
|
| 6.3 |
|
|
|
|
|
| 155.3 |
|
|
| 140.6 |
|
Accumulated depreciation and amortization |
|
|
|
| (102.0 | ) |
|
| (92.7 | ) |
Leasehold improvements, equipment and construction in |
|
|
|
|
|
|
|
|
|
|
progress, net |
|
|
| $ | 53.3 |
|
| $ | 47.9 |
|
| December 31 | |||||||||
| (millions) | Ranges of Estimated Useful Life | 2018 | 2017 | ||||||
| Equipment | 1 - 10 Years | $ | 41.5 | $ | 39.6 | ||||
| Software | 2 - 5 Years | 34.7 | 31.9 | ||||||
| Vehicles | 1 - 10 Years | 23.6 | 9.1 | ||||||
| Other | 3 Years | 0.6 | 0.5 | ||||||
| Leasehold improvements | Shorter of lease term or economic life up to 10 years | 17.7 | 20.8 | ||||||
| Construction in progress | 4.4 | 2.7 | |||||||
| 122.5 | 104.6 | ||||||||
| Less accumulated depreciation and amortization | (82.2 | ) | (77.2 | ) | |||||
| Leasehold improvements, equipment, land and construction in progress, net | $ | 40.3 | $ | 27.4 | |||||
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 operationsrecorded on a straight-line basis over their estimated useful lives or over the terms of the respective leases, whichever is shorter,shorter. Leasehold improvements, equipment and depreciated principally on the straight-line basis. The costs and accumulated depreciation of assets sold or disposed of are removed from the accounts and the resulting gain or loss is reflectedconstruction in earnings. Plant and equipmentprogress are reviewed for impairment when conditions indicate an impairment or future impairment;impairment. If the assets are determined to be impaired, they 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 Leaseholdleasehold improvements equipment and construction in progressequipment for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, and iswhich was included in Depreciation and amortization expense within the Consolidated Statements of Income.(Loss) Income, was as follows:
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Depreciation expense and amortization |
| $ | 15.3 |
|
| $ | 12.8 |
|
| $ | 9.6 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Depreciation expense | $ | 9.6 | $ | 11.3 | $ | 16.2 | |||||
9. Cost of Contracts, net
Cost of contracts, net, is comprisedas of the following:
| December 31, | |||||||
| (millions) | 2018 | 2017 | |||||
| Cost of contracts | $ | 33.8 | $ | 30.5 | |||
| Accumulated amortization | (24.6 | ) | (21.6 | ) | |||
| Cost of contracts, net | $ | 9.2 | $ | 8.9 | |||
|
| December 31, |
| |||||
(millions) |
| 2020 |
|
| 2019 |
| ||
Cost of contracts |
| $ | 26.0 |
|
| $ | 26.0 |
|
Accumulated amortization |
|
| (21.2 | ) |
|
| (21.7 | ) |
Cost of contracts, net |
| $ | 4.8 |
|
| $ | 4.3 |
|
| (millions) | Cost of Contract | ||
| 2019 | $ | 2.8 | |
| 2020 | 1.7 | ||
| 2021 | 1.2 | ||
| 2022 | 1.1 | ||
| 2023 | 0.8 | ||
| 2024 and Thereafter | 1.6 | ||
| Total | $ | 9.2 | |
The table below shows the Company's amortization expense related to costs of contracts for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, and iswhich was primarily included in Depreciation and amortization within the Consolidated Statements of (Loss) Income.
62
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Amortization expense |
| $ | 1.6 |
|
| $ | 1.9 |
|
| $ | 3.0 |
|
Weighted average life (years) |
|
| 7.8 |
|
|
| 10.0 |
|
|
| 9.4 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Amortization expense | $ | 3.0 | $ | 3.2 | $ | 3.4 | |||||
| Weighted average life (years) | 9.4 | 9.8 | 9.6 | ||||||||
10. Other Intangible Assets, net
The following presents a summarycomponents of other intangible assets:
| December 31, | |||||||||||||||||||||||||
| 2018 | 2017 | ||||||||||||||||||||||||
| (millions) | Weighted Average Life (Years) | Acquired Intangible Assets, Gross (1) | Accumulated Amortization | Acquired Intangible Assets, Net | Acquired Intangible Assets, Gross (1) | Accumulated Amortization | Acquired Intangible Assets, Net | ||||||||||||||||||
| Covenant not to compete | 4.9 | $ | 1.6 | $ | — | $ | 1.6 | $ | 0.9 | $ | (0.9 | ) | $ | — | |||||||||||
| Trade names and trademarks | 4.9 | 6.3 | (0.7 | ) | 5.6 | 9.8 | (9.7 | ) | 0.1 | ||||||||||||||||
| Proprietary know how | 5.7 | 11.0 | (0.8 | ) | 10.2 | 34.6 | (34.5 | ) | 0.1 | ||||||||||||||||
| Management contract rights | 10.0 | 81.0 | (32.2 | ) | 48.8 | 81.0 | (27.1 | ) | 53.9 | ||||||||||||||||
| Customer relationships | 14.9 | 100.4 | (0.6 | ) | 99.8 | — | — | — | |||||||||||||||||
| Acquired intangible assets, net (2) | 12.5 | $ | 200.3 | $ | (34.3 | ) | $ | 166.0 | $ | 126.3 | $ | (72.2 | ) | $ | 54.1 | ||||||||||
|
|
|
|
|
| December 31, |
| |||||||||||||||||||||
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
|
| Weighted |
|
| Acquired |
|
|
|
|
|
| Acquired |
|
| Acquired |
|
|
|
|
|
| Acquired |
| |||||
|
| Average |
|
| Intangible |
|
|
|
|
|
| Intangible |
|
| Intangible |
|
|
|
|
|
| Intangible |
| |||||
|
| Life |
|
| Assets, |
|
| Accumulated |
|
| Assets, |
|
| Assets, |
|
| Accumulated |
|
| Assets, |
| |||||||
(millions) |
| (Years) |
|
| Gross |
|
| Amortization |
|
| Net |
|
| Gross |
|
| Amortization |
|
| Net |
| |||||||
Covenant not to compete |
|
| 2.1 |
|
| $ | 2.9 |
|
| $ | (1.3 | ) |
| $ | 1.6 |
|
| $ | 2.9 |
|
| $ | (0.3 | ) |
| $ | 2.6 |
|
Trade names and trademarks |
|
| 2.9 |
|
|
| 0.9 |
|
|
| (0.2 | ) |
|
| 0.7 |
|
|
| 5.6 |
|
|
| (1.2 | ) |
|
| 4.4 |
|
Proprietary know how |
|
| 3.7 |
|
|
| 3.8 |
|
|
| (0.4 | ) |
| $ | 3.4 |
|
|
| 10.4 |
|
|
| (2.0 | ) |
|
| 8.4 |
|
Management contract rights |
|
| 8.1 |
|
|
| 81.0 |
|
|
| (42.6 | ) |
|
| 38.4 |
|
|
| 81.0 |
|
|
| (37.4 | ) |
|
| 43.6 |
|
Customer relationships |
|
| 12.9 |
|
|
| 21.5 |
|
|
| (2.5 | ) |
| $ | 19.0 |
|
|
| 100.4 |
|
|
| (7.2 | ) |
|
| 93.2 |
|
Acquired intangible assets, net |
|
| 9.1 |
|
| $ | 110.1 |
|
| $ | (47.0 | ) |
| $ | 63.1 |
|
| $ | 200.3 |
|
| $ | (48.1 | ) |
| $ | 152.2 |
|
The table below shows the amortization expense related to intangible assets for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, and iswhich was included in Depreciation and amortization within the Consolidated Statements of (Loss) Income.
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Amortization expense |
| $ | 13.2 |
|
| $ | 15.1 |
|
| $ | 6.1 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Amortization expense | $ | 6.1 | $ | 7.2 | $ | 14.6 | |||||
The expected future amortization of intangible assets as of December 31, 2018 is2020 was as follows:
(millions) |
| Intangible asset amortization |
| |
2021 |
| $ | 8.7 |
|
2022 |
|
| 8.1 |
|
2023 |
|
| 8.0 |
|
2024 |
|
| 7.3 |
|
2025 |
|
| 6.6 |
|
2026 and thereafter |
|
| 24.4 |
|
Total |
| $ | 63.1 |
|
| (millions) | Intangible asset amortization | ||
| 2019 | $ | 15.1 | |
| 2020 | 15.1 | ||
| 2021 | 15.1 | ||
| 2022 | 15.0 | ||
| 2023 | 14.9 | ||
| 2024 and thereafter | 90.8 | ||
| Total | $ | 166.0 | |
As discussed in Note 1. Significant Accounting Policies and Unfavorable Acquired Lease Contracts, net
Due to the impact of COVID-19 on the Company's expected future operating cash flows, the Company analyzed undiscounted cash flows as of June 30, 2020 and unfavorable acquired lease contracts are being amortized overdetermined the contract term, including anticipated renewalscarrying value for a proprietary know how asset was higher than its projected undiscounted cash flows. As a result, the Company recorded $3.7 million of impairment charges within the Aviation segment during the year ended December 31, 2020 which was recognized in Impairment of goodwill and terminations.
| Favorable | Unfavorable | ||||||||||||||
| December 31, | December 31, | ||||||||||||||
| (millions) | 2018 | 2017 | 2018 | 2017 | |||||||||||
| Acquired fair value of lease contracts | $ | 62.2 | $ | 65.2 | $ | (70.6 | ) | $ | (81.3 | ) | |||||
| Accumulated (amortization) accretion | (44.6 | ) | (41.9 | ) | 45.9 | 49.8 | |||||||||
| Total acquired fair value of lease contracts, net | $ | 17.6 | $ | 23.3 | $ | (24.7 | ) | $ | (31.5 | ) | |||||
Additionally, due to the termination of certain contracts within the Aviation segment during August 2020 and the impact of COVID-19 on the Company's expected future operating cash flows, the Company analyzed undiscounted cash flows as of August 31, 2020 and determined the carrying values for the customer relationships and trade names and trademarks were higher than their projected undiscounted cash flows. As a result, the Company recorded $72.1 million of impairment charges within the Aviation segment during the year ended December 31, 2020 which was recognized in Impairment of goodwill and intangible assets in the Consolidated Statements of (Loss) Income. See Note 12. Fair Value Measurement for further discussion.
NaN impairment charges were recorded during the years ended December 31, 2019 and 2018.
63
11. Goodwill
The changes in the carrying amounts of goodwill for the years ended December 31, 2018, 20172020 and 2016, along with2019 were as follows:
(millions) |
| Commercial |
|
| Aviation |
|
| Total |
| |||
Net book values as of January 1, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 376.8 |
|
| $ | 208.7 |
|
| $ | 585.5 |
|
Accumulated impairment losses |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 376.8 |
|
| $ | 208.7 |
|
| $ | 585.5 |
|
Purchase price adjustments |
|
| 0 |
|
|
| 0.3 |
|
|
| 0.3 |
|
Foreign currency translation |
|
| 0.2 |
|
|
| 0 |
|
|
| 0.2 |
|
Net book value as of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 377.0 |
|
| $ | 209.0 |
|
| $ | 586.0 |
|
Accumulated impairment losses |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 377.0 |
|
| $ | 209.0 |
|
| $ | 586.0 |
|
Impairment |
|
| — |
|
|
| (59.5 | ) |
|
| (59.5 | ) |
Foreign Currency translation |
|
| 0.1 |
|
|
| 0 |
|
|
| 0.1 |
|
Net book value as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 377.1 |
|
| $ | 209.0 |
|
| $ | 586.1 |
|
Accumulated impairment losses |
|
| — |
|
|
| (59.5 | ) |
|
| (59.5 | ) |
Total |
| $ | 377.1 |
|
| $ | 149.5 |
|
| $ | 526.6 |
|
In July 2020, the weighted average remaining useful life.
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Amortization expense | $ | 5.7 | $ | 6.6 | $ | 8.3 | |||||
| Weighted average life (years) | 12.0 | 14.1 | 11.9 | ||||||||
As discussed in Note 1. Significant Accounting Policies and Practices, due to the impacts of COVID-19, revenues for certain markets in which the Company operates have dropped significantly as compared to the expectations as of the October 1, 2019 annual impairment test. The table below showsCompany does not know how long COVID-19 and its effects will continue to impact results of the amortization expenseCompany. In addition, certain Aviation contracts were terminated in August 2020. The termination of these contracts and the ongoing impacts of COVID-19 on the Company’s expected future operating cash flows triggered the Company to complete a quantitative goodwill impairment analysis as of August 31, 2020 for unfavorable acquired lease contracts,the Aviation reporting unit. Accordingly, the Company determined the carrying value for the Aviation reporting unit was higher than its implied fair value. The implied fair value was determined based on cash flow projections that assume certain future revenue and cost levels, comparable marketplace data, assumed discount rates based upon current market conditions and other valuation factors. As a result, the Company recorded $59.5 million of impairment charges during the year ended December 31, 2020, which iswas recognized as a decrease to Costin Impairment of services - lease type contracts withingoodwill and intangible assets in the Consolidated Statements of Income,(Loss) Income. The fair value of goodwill was classified as Level 3 in the fair value hierarchy. See Note 12 Fair Value Measurement for the years endedfurther discussion.
As of December 31, 2018, 2017 and 2016, along with2020 the weighted average remaining useful life.
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Amortization expense | $ | 6.7 | $ | 8.8 | $ | 10.1 | |||||
| Weighted average life (years) | 7.9 | 10.7 | 10.5 | ||||||||
| (millions) | Favorable | Unfavorable | Unfavorable, Net | ||||||||
| 2019 | $ | 3.5 | $ | (5.6 | ) | $ | (2.1 | ) | |||
| 2020 | 3.0 | (3.7 | ) | (0.7 | ) | ||||||
| 2021 | 2.2 | (2.7 | ) | (0.5 | ) | ||||||
| 2022 | 1.5 | (2.6 | ) | (1.1 | ) | ||||||
| 2023 | 1.0 | (2.2 | ) | (1.2 | ) | ||||||
| 2024 and thereafter | 6.4 | (7.9 | ) | (1.5 | ) | ||||||
| Total | $ | 17.6 | $ | (24.7 | ) | $ | (7.1 | ) | |||
| (millions) | Segment One | Segment Two | Total | ||||||||
| Balance as of December 31, 2016 | $ | 368.7 | $ | 62.7 | $ | 431.4 | |||||
| Foreign currency translation | 0.3 | — | 0.3 | ||||||||
| Balance as of December 31, 2017 | $ | 369.0 | $ | 62.7 | $ | 431.7 | |||||
| Goodwill acquired | — | 154.1 | 154.1 | ||||||||
| Foreign currency translation | (0.3 | ) | — | (0.3 | ) | ||||||
| Balance as of December 31, 2018 | $ | 368.7 | $ | 216.8 | $ | 585.5 | |||||
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. |
Cash and cash equivalents are financial assets measured at fair value on a recurring basis. The carrying value of cashSee Note 1. Significant Accounting Policies and cash equivalents approximates theirPractices for further discussion. Interest rate collars are financial liabilities measured at fair value due to the short-term nature of these financial instruments and has been classified ason a Level 1.
Nonrecurring Fair Value Measurements
64
Certain assets are measured at fair value on a nonrecurring basis; that is,basis, generally as a result of acquisitions or the remeasurement of assets are measured at fair value on an ongoing basis but are subject to fair value adjustments onlyresulting in certain circumstances (for example, when there is evidence of impairment). Non-financial assets such as goodwill, intangible assets, and leasehold improvements, equipment land and construction in progress are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized. The Company assesses the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of its goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.charges. 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,assumptions. See Note 3. Acquisition for further discussion.
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 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 the Company’s goodwill and intangible assets are not estimated if there is no change in events or circumstances that indicate the carrying amount of the goodwill and intangible assets may not be recoverable.
For those assets and asset groups for which are further discussed in Note 2.
|
|
| As of Measurement Date |
|
| As of December 31, 2020 |
| ||||||
(millions) | Measurement Date |
| Impairment Charge |
|
| Fair Value Measurement (Level 3) |
|
| Net Book Value of Assets Assessed for Impairment |
| |||
ROU assets | March 31, 2020 |
| $ | 77.5 |
|
| $ | 147.4 |
|
|
|
|
|
ROU assets | June 30, 2020 |
|
| 16.7 |
|
|
| 26.2 |
|
|
|
|
|
ROU assets | September 30, 2020 |
|
| 1.6 |
|
|
| 1.6 |
|
|
|
|
|
ROU assets | December 31, 2020 |
|
| 2.9 |
|
|
| 5.0 |
|
|
|
|
|
Total of ROU assets impaired |
|
|
| 98.7 |
|
|
| 180.2 |
|
|
| 121.4 |
|
Goodwill - Aviation reporting unit | August 31, 2020 |
|
| 59.5 |
|
|
| 149.5 |
|
|
| 149.5 |
|
Proprietary know how | June 30, 2020 |
|
| 3.7 |
|
|
| 3.9 |
|
|
|
|
|
Customer relationships | August 31, 2020 |
|
| 69.2 |
|
|
| 4.6 |
|
|
|
|
|
Trade names and trademarks | August 31, 2020 |
|
| 2.9 |
|
|
| 0.5 |
|
|
|
|
|
Total Other intangible assets, net |
|
|
| 75.8 |
|
|
| 9.0 |
|
|
| 8.3 |
|
There were no0 impairment charges forduring the years ended December 31, 2018, 20172019 and 2016.
Financial Instruments notNot Measured at Fair Value
| 2018 | 2017 | ||||||||||||||
| (millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||
| Long-term borrowings | |||||||||||||||
| Credit Facility, net of original discount on borrowings and deferred financing costs | $ | 371.2 | $ | 371.2 | $ | 151.0 | $ | 151.0 | |||||||
| Other obligations | $ | 15.4 | $ | 15.4 | $ | 2.8 | $ | 2.8 | |||||||
The fair value of the RestatedSenior Credit Facility and Otherother obligations approximates the carrying amount due to variable interest rates and would be classified as a Level 2. See Note 13.
13. Borrowing Arrangements
Long-term borrowings, in orderas of preference, consisted of the following:December 31, 2020 and 2019, were as follows:
|
|
|
| Amount Outstanding |
| |||||
|
|
|
| December 31, |
| |||||
(millions) |
| Maturity Date |
| 2020 |
|
| 2019 |
| ||
Senior Credit Facility, net of original discount on borrowings (1) |
| November 30, 2023 |
| $ | 332.3 |
|
| $ | 347.5 |
|
Other borrowings |
| Various |
|
| 31.5 |
|
|
| 23.1 |
|
Deferred financing costs |
|
|
|
| (1.7 | ) |
|
| (1.6 | ) |
Total obligations under Senior Credit Facility and other borrowings |
|
|
|
| 362.1 |
|
|
| 369.0 |
|
Less: Current portion of obligations under Senior Credit Facility and other borrowings |
|
|
|
| 25.0 |
|
|
| 17.9 |
|
Total long-term obligations under Senior Credit Facility and other borrowings |
|
|
| $ | 337.1 |
|
| $ | 351.1 |
|
| Amount Outstanding | |||||||||
| December 31, | |||||||||
| (millions) | Maturity Date | 2018 | 2017 | ||||||
| Credit facility, net of original discount on borrowings and deferred financing costs | November 30, 2023 | $ | 371.2 | $ | 151.0 | ||||
| Other borrowings | Various | 15.5 | 2.8 | ||||||
| Total obligations under credit facility and other borrowings | 386.7 | 153.8 | |||||||
| Less: Current portion of obligations under credit facility and other borrowings | 13.2 | 20.6 | |||||||
| Total long-term obligations under credit facility and other borrowings | $ | 373.5 | $ | 133.2 | |||||
(1) |
Includes discount on borrowings of $0.9 million and $1.2 million for the years ended December 31, 2020 and 2019, respectively. |
At December 31, 2020, the future maturities of long-term borrowings for the fiscal years following December 31, 2018, aredebt, including capitalized leases, were as follows:
(millions) |
|
|
|
|
2021 |
| $ | 26.3 |
|
2022 |
|
| 23.6 |
|
2023 |
|
| 305.7 |
|
2024 |
|
| 3.1 |
|
2025 |
|
| 1.4 |
|
Thereafter |
|
| 4.6 |
|
Total |
| $ | 364.7 |
|
| (millions) | |||
| 2019 | $ | 14.1 | |
| 2020 | 13.1 | ||
| 2021 | 13.0 | ||
| 2022 | 13.0 | ||
| 2023 | 331.5 | ||
| Thereafter | 5.8 | ||
| Total debt | 390.5 | ||
| Less: Current portion, including debt discount | 13.2 | ||
| Less: Original discount on borrowings | 1.6 | ||
| Less: Deferred financing costs | 2.2 | ||
| Total long-term portion, obligations under credit facility and other borrowings | $ | 373.5 | |
Senior Credit Facility
On November 30, 2018February 16, 2021 (the "Closing Date"“Fourth Amendment Effective Date”) and in connection with the Acquisition,, the Company entered into a fourth amendment (the “Fourth Amendment”) to the Company’s credit agreement (the(as amended prior to the Fourth Amendment Effective Date (as defined below), 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.,
65
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, pursuant to the terms, and subject to the conditions, of the Credit Agreement,which the Lenders have made available to the Company a new senior secured credit facility (the “Senior Credit Facility”) that permits. Prior to the Fourth Amendment Effective Date and pursuant to the third amendment (the “Third Amendment”) to our credit agreement, which was entered into on May 6, 2020, the Senior Credit Facility permitted aggregate borrowings of $550$595.0 million consisting of (i) a revolving credit facility of up to $325$370.0 million at any time outstanding, which includes a letter of credit facility that is limited to $100$100.0 million at any time outstanding, and (ii) a term loan facility of $225 million. The Senior Credit Facility matures$225.0 million (the entire principal amount of which the Company drew on November 30, 2023.
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 (i) the applicable pricing levels set forth in the Credit Agreement (the “Applicable Margin”) for London Interbank Offered Rate (or(“LIBOR”) loans, subject to a “floor” on LIBOR of 1.00%, or a comparable or successor rate to LIBOR approved by Bank of America) (“LIBOR”) loans,America, 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%.
Also pursuant to the Fourth Amendment, (a) the Company is subject to a liquidity test that requires the Company to have liquidity of at least $40.0 million at each of March 31, 2021 and June 30, 2021, (b) the Company is subject to a requirement that, at any time cash on hand exceeds $40.0 million for a period of three consecutive business days, the Company must repay revolving loans in an amount equal to such excess. Certain other negative and financial covenants were amended, which included restrictions on certain Investments, Permitted Acquisitions, Restricted Payments and Prepayments of Subordinated Debt (each as defined in the Amended Credit Agreement and described in the Fourth Amendment), through the delivery of the compliance certificate for the fiscal quarters ending March 31, 2022 or June 30, 2022, as applicable.
Prior to the Fourth Amendment Effective Date, the Company was required to maintain a maximum consolidated total debt to EBITDA ratio of not greater than 4.25:between 5.50:1.0 and 3.50:1.0 (with such ratio being waived for the fiscal quarter ended June 30, 2020 and with certain step-ups and step-downs described in, and as calculated in accordance with, the Credit Agreement.Agreement that were amended under the Fourth Amendment). In addition, the Company iswas required to maintain a minimum consolidated fixed charge coverage ratio of not less than 3.50:1.0 (with certain step-ups and step-downs described in the Credit Agreement that were amended under the Fourth Amendment). Under the terms of the Fourth Amendment, the maximum consolidated debt to EBITDA ratio will be waived for the quarters ending March 31, 2021 and June 30, 2021. As of December 31, 2020, the maximum total debt to EBITDA ratio (as calculated in accordance with the Amended Credit Agreement) required the Company to maintain a maximum ratio of not greater than 4.75:1.0. Starting with the quarter ending September 30, 2021, the Company will be required to maintain a maximum consolidated total debt to EBITDA ratio (as calculated in accordance with the Fourth Amendment) of not greater than 5.25:1.0 (with certain step-downs described in the Amended Credit Agreement).
The Company incurred approximately $1.2 million for fees and other customary closing costs in connection with the Amended Credit Agreement.
Under the terms of the Amended Credit Agreement, term loans under the Senior Credit Facility are subject to scheduled quarterly payments of principal in installments equal to 1.25% of initial aggregate principal amount of such term loan through the first quarter of 2021 and will increase to 1.875% thereafter.
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 isincurred approximately $1.7 million for fees and other customer closing costs in connection with the Third Amendment, which the Company entered into on May 6, 2020.
As of December 31, 2020, the Company was in compliance with its debt covenants as of December 31, 2018.
At December 31, 2018,2020, the Company had $51.1$49.0 million of letters of credit outstanding under the Senior Credit Facility and borrowings against the Senior Credit Facility aggregated to $386.7$333.2 million.
The weighted average interest rate on ourthe Company's Senior Credit Facility and Former Restated Credit Facility was 4.0%3.6% and 2.9%3.4% for the years ended December 31, 20182020 and 2017,2019, respectively. The rate includesincluded all outstanding LIBOR contracts and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 4.3%3.8% and 3.3%, respectively,3.6% at December 31, 20182020 and December 31, 2017.
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.costs on the former credit facility. These losses were not significant.
66
Interest Rate Collars
The Company seeks to minimize risks from interest rate fluctuations in the ordinary course of business through the use of interest rate collar contracts. Interest rate collars, which are considered derivative instruments, are used to manage interest rate risk associated with the Company’s floating rate debt. The Company accounts for its derivative instruments at fair value. Derivatives held by the Company are usually 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 (Loss) Income on a straight-line basis over the life of the original designation period, with any subsequent changes in fair value recognized in earnings. In May 2019, the Company entered into three-year interest rate collar contracts with an aggregate notional amount of $222.3 million and maturity dates of April 2022. The interest rate collars were used to manage interest rate risk associated with variable interest rate borrowings under the Credit Agreement. The interest rate collars establish a range where the Company will pay the counterparties if the one-month LIBOR rate falls below the established floor rate, and the counterparties will pay the Company if the one-month LIBOR rate exceeds the established ceiling rate of 2.5%. The interest 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 amortized consistently with the term loan portion of the Senior Credit Facility under the Credit Agreement prior to the Third Amendment. The fair value of interest rate collars is a Level 2 fair value measurement, as the fair value was determined based on quoted prices of similar items in active markets. For the year ended December 31, 2020, a liability for Interest rate collars of $3.1 million was included in Other noncurrent liabilities in the Consolidated Balance Sheets and for the year ended December 31, 2019, a liability for Interest rate collars of $0.6 million was included in Accrued and other current liabilities in the Consolidated Balance Sheets. The interest rate collars were classified as cash flow hedges through May 5, 2020.
On May 6, 2020, concurrent with entering into the Third Amendment, the Company de-designated the three-year interest rate collars. Prior to de-designation, the effective portion of the change in the fair value of the interest rate collars was reported in Accumulated other comprehensive loss. Upon de-designation, the balance in Accumulated other comprehensive loss is being reclassified to Other income (expense) in the Consolidated Statements of (Loss) Income on a straight-line basis through April 2022, which is over the remaining life for which the interest rate collars had previously been designated as cash flow hedges. Changes in the fair value of the interest rate collars after de-designation are included within Other income (expense) in the Consolidated Statements of (Loss) Income. For the year ended December 31, 2020, $1.6 million of interest was paid for the interest rate collars.
See Note 18. Comprehensive (Loss) Income for the amount of (loss) gain recognized in Other Comprehensive (loss) income on the interest rate collars and the loss reclassified from Accumulated other comprehensive loss to the Consolidated Statements of (Loss) Income for the years ended December 31, 2020 and 2019.
Summarized information about the Company’s interest rate collars was as follows:
Interest Rate Collars |
| |||||||||||||
December 31, 2020 |
| |||||||||||||
|
|
|
| Interest Rate Parameters |
| |||||||||
(millions) |
| Maturity Date |
| Notional Amount |
|
| LIBOR Ceiling |
|
| LIBOR Floor |
| |||
Collar 1 |
| April 2022 |
| $ | 74.1 |
|
|
| 2.5 | % |
|
| 1.2 | % |
Collar 2 |
| April 2022 |
|
| 74.1 |
|
|
| 2.5 | % |
|
| 1.3 | % |
Collar 3 |
| April 2022 |
|
| 74.1 |
|
|
| 2.5 | % |
|
| 1.4 | % |
Total |
|
|
| $ | 222.3 |
|
|
|
|
|
|
|
|
|
Subordinated Convertible Debentures
The Company acquired Subordinated Convertible Debentures ("Convertible Debentures") as a result of the October 2, 2012 acquisition of Central.Central Parking Corporation. The subordinated debenture holders have the right to redeem the Convertible Debentures for $19.18 per share uponbefore their stated maturity (April 1, 2028) or upon acceleration or earlier repayment of the Convertible Debentures. There were no0 redemptions of Convertible Debentures during the years ended December 31, 20182020 and 2017,2019, respectively. The approximate redemption value of the Convertible Debentures outstanding at each of December 31, 20182020 and December 31, 2017 is2019 was $1.1 million and $1.1 million, respectively.
14. ShareStock Repurchase Plan
In May 2016, the Company's Board of Directors authorized the Company to repurchase, on the open market, shares of itsthe 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.
In July 2019, the Board authorized the Company 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. PurchasesUnder this program, the Company repurchased 393,975 shares of common stock through December 31, 2020, at an average price of $38.78.
In March 2020, the Board authorized the Company 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. During the year ended December 31, 2020, 0 shares had been repurchased under this program.
67
As of December 31, 2020, $50.0 million and $9.4 million remained available for repurchase under the March 2020 and July 2019 stock repurchase programs, respectively. Under the programs, 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 RuleRules 10b-18, to the extent relied upon, and 10b5-1 under the Exchange Act.Act at times and prices considered to be appropriate at the Company's discretion. The sharestock repurchase program doesprograms do not obligate the Company to repurchase any particular amount of common stock, and hashave no fixed termination date.
Share repurchase activity under the stock repurchase programs for the years ended December 31, 2020 and 2019 was as follows:
(millions, except for share and per share data) |
| December 31, 2020 |
|
| December 31, 2019 |
| ||
Total number of shares repurchased |
|
| 393,975 |
|
|
| 1,335,584 |
|
Average price paid per share |
| $ | 38.78 |
|
| $ | 35.83 |
|
Total value of stock repurchased |
| $ | 15.3 |
|
| $ | 47.9 |
|
The remaining authorized repurchase amounts in the aggregate under the July 2019 and March 2020 repurchase programs as of December 31, 2020 was as follows:
(millions) |
| December 31, 2020 |
| |
Total authorized repurchase amount |
| $ | 100.00 |
|
Total value of shares repurchased |
|
| 40.6 |
|
Total remaining authorized repurchase amount |
| $ | 59.4 |
|
15. Income Taxes
(Loss) earnings before income taxes during the years ended December 31, 2020, 2019 and 2018 and 2017.
| (millions) | December 31, 2018 | ||
| Total authorized repurchase amount | $ | 30.0 | |
| Total value of shares repurchased | 7.5 | ||
| Total remaining authorized repurchase amount | $ | 22.5 | |
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
United States |
| $ | (240.1 | ) |
| $ | 69.7 |
|
| $ | 74.9 |
|
Foreign |
|
| (0.3 | ) |
|
| 1.4 |
|
|
| 1.1 |
|
Total |
| $ | (240.4 | ) |
| $ | 71.1 |
|
| $ | 76.0 |
|
| (millions) | |||
| 2019 | $ | 170.6 | |
| 2020 | 122.5 | ||
| 2021 | 94.5 | ||
| 2022 | 74.0 | ||
| 2023 | 48.4 | ||
| 2024 and thereafter | 117.0 | ||
| Total | $ | 627.0 | |
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| United States | $ | 74.9 | $ | 70.0 | $ | 38.9 | |||||
| Foreign | 1.1 | 2.2 | 2.9 | ||||||||
| Total | $ | 76.0 | $ | 72.2 | $ | 41.8 | |||||
The components of income tax (benefit) expense areduring the years ended December 31, 2020, 2019 and 2018 were as follows:
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Current provision |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
| $ | (15.3 | ) |
| $ | 9.6 |
|
| $ | 9.9 |
|
Foreign |
|
| 0.2 |
|
|
| 0.9 |
|
|
| 1.0 |
|
State |
|
| 0.1 |
|
|
| 4.7 |
|
|
| 7.4 |
|
Total current |
|
| (15.0 | ) |
|
| 15.2 |
|
|
| 18.3 |
|
Deferred provision |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
| (40.7 | ) |
|
| 2.9 |
|
|
| 1.3 |
|
Foreign |
|
| — |
|
|
| (0.1 | ) |
|
| (0.3 | ) |
State |
|
| (11.8 | ) |
|
| 1.4 |
|
|
| 0.3 |
|
Total deferred |
|
| (52.5 | ) |
|
| 4.2 |
|
|
| 1.3 |
|
Income tax (benefit) expense |
| $ | (67.5 | ) |
| $ | 19.4 |
|
| $ | 19.6 |
|
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Current provision | |||||||||||
| U.S. federal | $ | 9.9 | $ | 21.5 | $ | 13.9 | |||||
| Foreign | 1.0 | 1.0 | 1.4 | ||||||||
| State | 7.4 | 3.3 | 2.6 | ||||||||
| Total current | 18.3 | 25.8 | 17.9 | ||||||||
| Deferred provision | |||||||||||
| U.S. federal | 1.3 | 2.6 | (2.5 | ) | |||||||
| Foreign | (0.3 | ) | 0.6 | (0.4 | ) | ||||||
| State | 0.3 | (1.3 | ) | 0.8 | |||||||
| Total deferred | 1.3 | 1.9 | (2.1 | ) | |||||||
| Income tax expense | $ | 19.6 | $ | 27.7 | $ | 15.8 | |||||
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingU.S. GAAP purposes and the amount used for income tax purposes.
68
Components of the Company's deferred tax assets and liabilities areas of December 31, 2020 and 2019 were as follows:
|
| December 31, |
| |||||
(millions) |
| 2020 |
|
| 2019 |
| ||
Deferred tax assets |
|
|
|
|
|
|
|
|
Net operating loss carry forwards and tax credits |
| $ | 23.5 |
|
| $ | 20.8 |
|
Lease liability |
|
| 87.9 |
|
|
| 119.5 |
|
Accrued expenses |
|
| 15.2 |
|
|
| 15.0 |
|
Accrued compensation |
|
| 8.4 |
|
|
| 9.2 |
|
Depreciation |
|
| 17.2 |
|
|
| — |
|
Other |
|
| 3.4 |
|
|
| 1.4 |
|
Total gross deferred tax assets |
|
| 155.6 |
|
|
| 165.9 |
|
Valuation allowances |
|
| (10.7 | ) |
|
| (8.3 | ) |
Total deferred tax assets |
|
| 144.9 |
|
|
| 157.6 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
| (0.2 | ) |
|
| (0.1 | ) |
Right of use asset |
|
| (62.8 | ) |
|
| (114.9 | ) |
Undistributed foreign earnings |
|
| (0.2 | ) |
|
| 0 |
|
Depreciation and amortization |
|
| — |
|
|
| (0.7 | ) |
Goodwill amortization |
|
| (13.0 | ) |
|
| (26.2 | ) |
Equity investments in unconsolidated entities |
|
| (4.9 | ) |
|
| (5.1 | ) |
Total deferred tax liabilities |
|
| (81.1 | ) |
|
| (147.0 | ) |
Net deferred tax asset |
| $ | 63.8 |
|
| $ | 10.6 |
|
| December 31, | |||||||
| (millions) | 2018 | 2017 | |||||
| Deferred tax assets | |||||||
| Net operating loss carry forwards | $ | 21.6 | $ | 21.5 | |||
| Accrued expenses | 17.4 | 18.8 | |||||
| Accrued compensation | 7.1 | 8.1 | |||||
| Book over tax cost unfavorable acquired lease contracts | 6.4 | 8.2 | |||||
| Other | 0.9 | — | |||||
| Total gross deferred tax assets | 53.4 | 56.6 | |||||
| Less: valuation allowance | (8.1 | ) | (7.1 | ) | |||
| Total deferred tax assets | 45.3 | 49.5 | |||||
| Deferred tax liabilities | |||||||
| Prepaid expenses | (0.1 | ) | (0.1 | ) | |||
| Undistributed foreign earnings | (0.1 | ) | (0.3 | ) | |||
| Tax over book depreciation and amortization | 1.3 | (3.8 | ) | ||||
| Tax over book goodwill amortization | (22.3 | ) | (18.2 | ) | |||
| Tax over book cost favorable acquired lease contracts | (4.6 | ) | (6.1 | ) | |||
| Equity investments in unconsolidated entities | (4.9 | ) | (5.1 | ) | |||
| Total deferred tax liabilities | (30.7 | ) | (33.6 | ) | |||
| Net deferred tax asset | $ | 14.6 | $ | 15.9 | |||
Changes affecting the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") was signed into law. The 2017 Tax Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also implementing a territorial tax system and imposing a repatriation taxvaluation allowances on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the 2017 Tax Act, the Company recorded $0.2 million of income tax expense in the fourth quarter of 2017. The provisional amount related to the remeasurement of certain deferred tax assets and liabilities based onduring the rates at which they are expected to reverse in the future was $1.6 million income tax benefit, which includes a $1.2 million income tax expense related to an increase in the valuation allowance. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $1.8 million income tax expense based on the cumulative foreign earnings of $14.1 million and the Company's current best estimate. Additionally, the Company recorded a tax charge of $0.6 million as an additional provision for withholding taxes on undistributed earnings not considered to be permanently reinvested.
|
| December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Beginning Balance |
| $ | 8.3 |
|
| $ | 8.1 |
|
| $ | 7.1 |
|
Current year expense |
|
| 2.4 |
|
|
| 0.2 |
|
|
| 1.0 |
|
Ending Balance |
| $ | 10.7 |
|
| $ | 8.3 |
|
| $ | 8.1 |
|
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 $8.1of $10.7 million and $7.1$8.3 million atas of December 31, 20182020 and 2017,2019, 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.
The Company recognized a $0.3 million net benefit for the reversal of a valuation allowance for deferred tax assets established for the historical net operating losses.
The Company has $19.5$20.5 million of tax effected state net operating loss carryforwardsNOLs as of December 31, 2018,2020, which will expire in the years 20192021 through 2038.2040. As noted above, the utilization of net operating loss carryforwardsNOLs of the Company are limited due to the ownership change in June 2004 and are also limited due to the Central Merger.
A reconciliation of the Company's reported income tax provision to the amount computed by multiplying earnings before income taxes by statutory United States federal income tax rate isduring the years ended December 31, 2020, 2019 and 2018 was as follows:
|
| Year Ended December 31, |
| |||||||||
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Tax at statutory rate |
| $ | (50.5 | ) |
| $ | 14.9 |
|
| $ | 16.0 |
|
Permanent differences |
|
| 0.7 |
|
|
| 0.8 |
|
|
| 0.2 |
|
State taxes, net of federal benefit |
|
| (13.9 | ) |
|
| 4.5 |
|
|
| 6.3 |
|
Effect of foreign tax rates |
|
| 0.4 |
|
|
| 0.6 |
|
|
| 0.6 |
|
Federal net operating loss carryback rate differential |
|
| (6.1 | ) |
|
| 0 |
|
|
| 0 |
|
Effect of 2017 Tax Act |
|
| 0 |
|
|
| 0 |
|
|
| (1.5 | ) |
Noncontrolling interest |
|
| 0 |
|
|
| (0.6 | ) |
|
| (0.7 | ) |
Current year adjustment to deferred taxes |
|
| 0 |
|
|
| 0.8 |
|
|
| 0.4 |
|
Recognition of tax credits |
|
| (0.5 | ) |
|
| (1.8 | ) |
|
| (2.7 | ) |
|
|
| (69.9 | ) |
|
| 19.2 |
|
|
| 18.6 |
|
Change in valuation allowance |
|
| 2.4 |
|
|
| 0.2 |
|
|
| 1.0 |
|
Income tax (benefit) expense |
| $ | (67.5 | ) |
| $ | 19.4 |
|
| $ | 19.6 |
|
Effective tax rate |
|
| 28.1 | % |
|
| 27.3 | % |
|
| 25.8 | % |
| Year Ended December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Tax at statutory rate | $ | 16.0 | $ | 25.3 | $ | 14.6 | |||||
| Permanent differences | 0.2 | 0.3 | 0.8 | ||||||||
| State taxes, net of federal benefit | 6.3 | 2.5 | 1.3 | ||||||||
| Effect of foreign tax rates | 0.6 | — | — | ||||||||
| Effect of 2017 Tax Act | (1.5 | ) | (1.0 | ) | — | ||||||
| Minority interest | (0.7 | ) | (1.1 | ) | (1.0 | ) | |||||
| Current year adjustment to deferred taxes | 0.4 | 1.6 | 1.3 | ||||||||
| Recognition of tax credits | (2.7 | ) | (1.5 | ) | (1.4 | ) | |||||
| Other | — | 1.1 | 0.4 | ||||||||
| 18.6 | 27.2 | 16.0 | |||||||||
| Change in valuation allowance (1) | 1.0 | 0.5 | (0.2 | ) | |||||||
| Income tax expense | $ | 19.6 | $ | 27.7 | $ | 15.8 | |||||
| Effective tax rate | 25.8 | % | 38.4 | % | 37.8 | % | |||||
69
Due to the Coronavirus Aid, Relief, and Economic Security Act in 2020, the Company will be able to carry back its current year taxable loss to the 2015 and 2016 tax years, which had a higher corporate tax rate. As a result, the Company recorded an income tax refund receivable of $15.4 as of December 31, 2020, which is included in Prepaid and other current assets within the Consolidated Balance Sheets.
Taxes paid were $2.4 million, $15.3 million and $15.3 million in the years ended December 31, 2020, 2019 and 2018, respectively.
The Company finalized its accounting for the income tax effects of the 2017 Tax Act during the year ended December 31, 2017 includes $1.22018 and recorded a tax benefit of $1.5 million for the transition tax on the mandatory deemed repatriation of additional income tax expense related to an increase in the valuation allowance as a result of theforeign earnings.
The 2017 Tax Act.
As of December 31, 20182020 the Company had not identified any uncertain tax positions that would have a material impact on the Company's financial position.
The Company recognizeswould 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, 2018 are shown below:
2017 - 2020 | ||
United States - federal income tax | ||
2016 - | United States - state and local income tax | |
2016 - | Foreign - Canada and Puerto Rico |
16. Benefit Plans
Deferred Compensation Arrangements
The Company offers deferred compensation arrangements for certain key executives. SubjectCertain employees are offered supplemental pension arrangements, 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, 20182020 and 2017,2019, the Company has accrued $3.7had $3.4 million and $3.6 million, respectively, recorded as Other noncurrent liabilities within the Consolidated Balance Sheets, representing the present value of the future benefit payments. Expenses related to these plans amounted to $0.4 million, $nil and $0.2 million in 2018, 2017for both the years ended December 31, 2020 and 2016, respectively.
The Company also has agreements with certain former key executives that provide for aggregate annual payments forover 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 was $0.3 million for both the years ended December 31, 2020 and 2019, and $0.2 million for the year ended December 31, 2018 was $0.2 million, $0.22020, 2018. As of December 31, 2020 and 2019, the Company had $2.2 million and $0.6$2.3 million, forrespectively, recorded as Other noncurrent liabilities within the years ended December 31, 2018, 2017 and 2016, respectively. The Company has recorded a liability of $2.4 million and $2.6 millionConsolidated Balance Sheets, associated with these agreements as of December 31, 2018 and 2017, respectively.
Life insurance contracts with a face value of approximately $6.2$4.8 million and $6.7$5.4 million as of December 31, 20182020 and 20172019 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 iswas approximately $3.6$3.4 million and $4.0$3.8 million as of December 31, 20182020 and 2017,2019, respectively, and classified as non-current assets and included in Other noncurrent 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 contributeshistorically had contributed an amount in cash or other property as a Company match equal to 50% of the first 6% of contributions as they occur. As a result of COVID-19, during the second quarter of 2020, the Company suspended the Company match under the plan. The Company plans to reinstitute the Company match once the impacts of COVID-19 have subsided. Expenses related to the Company's 401(k) match amounted to $0.9 million, $2.0 million, and $2.1 million $2.1 million,during the years ended December 31, 2020, 2019 and $1.9 million in 2018, 2017 and 2016, respectively.
The Company also offers a non-qualified deferred compensation plan to those employees whose participation in itsthe 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, 20182020 and 2017,2019, the cash surrender value of the COLI policies is $13.0was $20.3 million and $14.1$17.3 million, respectively, and classified as non-currentOther noncurrent assets, in Other Assets, net, within the Consolidated Balance Sheets. The liability for the non-qualified deferred compensation plan is included in Other long-termnoncurrent liabilities onwithin the Consolidated Balance Sheets and was $15.0$20.3 million and $16.3$20.4 million as of December 31, 20182020 and 2017,2019, 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. |
70
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 yearyears ending February 28, 20182020 and November 30, 2018,2020, respectively. The Company does not represent more than five percent to any other fund. The Company's participation in this planthese plans for the annual periods ended December 31, 2020, 2019 and 2018, 2017 and 2016, is outlineddiscussed 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"Implementation" column indicates plans for which a Financial Improvement Plan ("FIP") or a Rehabilitation Plan ("RP") is either pending or has been implemented.
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| Expiration | ||||
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| EIN/ |
| Zone Status |
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| Most |
| Date of | |||||||||||||
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| Collective |
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| Surcharge |
| Annual |
| Bargaining |
Pension |
| Number |
| 2020 |
| 2019 |
| 2018 |
| Implementation |
| 2020 |
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| 2019 |
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| 2018 |
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| Imposed |
| Report |
| Agreement | |||
Teamsters Local Union 727 |
| 36-61023973 |
| Green |
| Green |
| Green |
| N/A |
| $ | 0.3 |
|
| $ | 3.1 |
|
| $ | 3.2 |
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| No |
| 2020 |
| 10/31/2021 |
Local 272 Labor Management |
| 13-5673836 |
| Green |
| Green |
| Green |
| N/A |
| $ | 1.1 |
|
| $ | 1.3 |
|
| $ | 1.5 |
|
| No |
| 2020 |
| 3/5/2021 |
| EIN/ Pension Plan Number | Pension Protection Zone Status | FIP/FR Pending Implementation | Contributions (millions) | Zone Status as of the Most Recent Annual Report | Expiration Date of Collective Bargaining Agreement | ||||||||||||||||||||||
| Pension | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | Surcharge Imposed | ||||||||||||||||||||
| Teamsters Local Union 727 | 36-61023973 | Green | Green | Green | N/A | $ | 3.2 | $ | 3.4 | $ | 3.5 | No | 2018 | 10/31/2021 | |||||||||||||
| Local 272 Labor Management | 13-5673836 | Green | Green | Green | N/A | $ | 1.5 | $ | 1.6 | $ | 1.5 | No | 2018 | 3/5/2021 | |||||||||||||
Net expenses for contributions not reimbursed by clients and related to multiemployer defined benefit and defined contribution benefit plans were $2.1$1.2 million, $2.0 million and $3.3$2.1 million for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.
The Company currently does not have any intentions to cease participating in these multiemployer pension plans and therefore would not triggerplans.
17. Bradley Agreement
In February 2000, the withdrawal liability.
Under the terms of the Bradley Agreement, the parking garage was financed through the issuance of State of Connecticut special facility revenue bonds and providesprovided that the Company deposits,deposited, with the trustee for the bondholders, all gross revenues collected from operations of the surfacegarage and garagesurface parking. From thesethose gross revenues, the trustee payspaid debt service on the special facility revenue bonds outstanding, operating and capital maintenance expenseexpenses of the surfacegarage and garagesurface 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, 2018 and 2017 was $11.8 million and $11.5 million, respectively.State. All of the cash flowflows from the parking facilities arewere pledged to the security of the special facility revenue bonds and arewere collected and deposited with the bond trustee. Each month the bond trustee makesmade certain required monthly distributions, which arewere characterized as "Guaranteed“Guaranteed Payments."” To the extent the monthly gross receipts generated by the parking facilities arewere not sufficient for the bond trustee to make the required Guaranteed Payments, the Company iswas obligated to deliver the deficiency amount to the bond trustee, with such deficiency payments representing interest bearing advances to the bond trustee. The
On June 30, 2020, the Company does not directly guarantee the payment of any principal or interest on any debt obligations ofand the State of Connecticut or the trustee.
Under the terms of the Bradley Management Agreement, the Company is no time restriction onlonger required to make deficiency payments. In addition, other than the Company's right to reimbursement.
| December 31, | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Balance at beginning of year | $ | 7.8 | $ | 9.9 | $ | 11.6 | |||||
| Deficiency payments made | 0.1 | 0.3 | 0.2 | ||||||||
| Deficiency repayment received | (4.0 | ) | (2.3 | ) | (1.9 | ) | |||||
| Balance at end of year | $ | 3.9 | $ | 7.8 | $ | 9.9 | |||||
The total deficiency repayments (net of payments made), interest and premium received and recordedrecognized under the Bradley Agreement for the years ended December 31, 2020, 2019 and 2018 2017 and 2016 arewere as follows:
|
| Year Ended December 31 |
| |||||||||
(millions) |
| 2020 |
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| 2019 |
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| 2018 |
| |||
Deficiency repayments |
| $ | 0.1 |
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| $ | 3.8 |
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| $ | 3.9 |
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Interest |
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| 0.1 |
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| 1.0 |
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| 0.9 |
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Premium |
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| — |
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| 0.4 |
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| 0.3 |
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| Year Ended December 31 | |||||||||||
| (millions) | 2018 | 2017 | 2016 | ||||||||
| Deficiency repayments | $ | 3.9 | $ | 2.0 | $ | 1.7 | |||||
| Interest | 0.9 | 0.6 | 0.5 | ||||||||
| Premium | $ | 0.3 | $ | 0.2 | $ | 0.2 | |||||
Deficiency payments made areunder the Bradley Agreement were recorded as an increase in Cost of services-managementservices - management type contracts and deficiency repayments, interest and premium received areunder the Bradley Agreement were recorded as reductions to costCost of services.services - management type contracts. The reimbursement of principal, interest and premium arewas recognized when received.
71
On June 30, 2020, concurrent with the termination of the Bradley Agreement and effective as of May 31, 2020, the Company entered into an agreement to purchase the minority partners’ share in the Partnership previously established to execute the Bradley Agreement for a total cash consideration of $1.7 million. The consideration was paid in cash during the year ended December 31, 2020. Under the terms of the Termination Agreement, the Company may be required to pay additional consideration (“contingent consideration”) to the minority partner, that is contingent on the performance of the operations of Bradley. The contingent consideration is not capped and if any, would be payable to the minority partner in April 2025. Based on a probability weighting of potential payouts, the criteria to accrue for such potential payments had not been met and the contingent consideration was estimated to have no amounts of estimated deficiency payments accruedfair value as of December 31, 2018 and 2017, as the2020. The Company concluded that the potential for future deficiency payments did not meetwill continue to evaluate the criteria of both probable and estimable.
18. Comprehensive (Loss) Income (Loss)
The components of accumulated other comprehensive (loss) 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 benefit allocated to each component for the years ended December 31, 2020, 2019, and 2018 were as follows:
|
| 2020 |
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| 2019 |
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| 2018 |
| |||||||||||||||||||||
(millions) |
| Before Tax Amount |
| Income Tax |
| Net of Tax Amount |
|
| Before Tax Amount |
| Income Tax |
| Net of Tax Amount |
|
| Before Tax Amount |
| Income Tax |
| Net of Tax Amount |
| |||||||||
Translation adjustments |
| $ | 0.1 |
| $ | — |
| $ | 0.1 |
|
| $ | 0.1 |
| $ | — |
| $ | 0.1 |
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| $ | (0.6 | ) | $ | — |
| $ | (0.6 | ) |
Change in fair value of interest rate collars |
|
| (2.5 | ) |
| (0.7 | ) |
| (1.8 | ) |
|
| (0.6 | ) |
| (0.2 | ) |
| (0.4 | ) |
|
| — |
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| — |
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| — |
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Other Comprehensive (loss) income |
| $ | (2.4 | ) | $ | (0.7 | ) | $ | (1.7 | ) |
| $ | (0.5 | ) | $ | (0.2 | ) | $ | (0.3 | ) |
| $ | (0.6 | ) | $ | — |
| $ | (0.6 | ) |
The changes to accumulated other comprehensive loss by component for the years ended December 31, 2020, 2019, and 2018, were as follows:
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| Comprehensive |
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(millions) |
| Adjustments |
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| Collars |
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| Loss |
| |||
Balance as of January 1, 2018 |
| $ | (1.2 | ) |
| $ | — |
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| $ | (1.2 | ) |
Other comprehensive loss before reclassification |
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| (0.6 | ) |
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| — |
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| (0.6 | ) |
Cumulative effect of change in accounting principle (1) |
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| (0.6 | ) |
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| — |
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| (0.6 | ) |
Balance as of December 31, 2018 |
|
| (2.4 | ) |
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| — |
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| (2.4 | ) |
Other comprehensive (loss) income before reclassification |
|
| 0.1 |
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| (0.4 | ) |
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| (0.3 | ) |
Balance as of December 31, 2019 |
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| (2.3 | ) |
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| (0.4 | ) |
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| (2.7 | ) |
Other comprehensive (loss) income before reclassification |
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| 0.1 |
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| (2.9 | ) |
|
| (2.8 | ) |
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
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| 1.1 |
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| 1.1 |
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Balance as of December 31, 2020 |
| $ | (2.2 | ) |
| $ | (2.2 | ) |
| $ | (4.4 | ) |
| (millions) | Foreign Currency Translation Adjustments | Effective Portion of Unrealized Gain (Loss) on Derivative | Total Accumulated Other Comprehensive Income (Loss) | ||||||||
| Balance as of December 31, 2015 | $ | (1.2 | ) | $ | 0.1 | $ | (1.1 | ) | |||
| Change in other comprehensive income (loss) | (0.2 | ) | (0.1 | ) | (0.3 | ) | |||||
| Balance as of December 31, 2016 | (1.4 | ) | — | (1.4 | ) | ||||||
| Change in other comprehensive income (loss) | 0.2 | — | 0.2 | ||||||||
| Balance as of December 31, 2017 | (1.2 | ) | — | (1.2 | ) | ||||||
| Change in other comprehensive income (loss) | (0.6 | ) | — | (0.6 | ) | ||||||
| Cumulative effect of change in accounting principle (1) | (0.6 | ) | — | (0.6 | ) | ||||||
| Balance as of December 31, 2018 | $ | (2.4 | ) | $ | — | $ | (2.4 | ) | |||
(1) Refer to Note 1,
Significant Accounting Policies and Practicesfor additional information on the Company's adoption of ASU 2018-02.Reclassifications from accumulated other comprehensive loss for the years ended December 31, 2020, 2019, and 2018 were as follows:
(millions) |
| 2020 |
|
| 2019 |
|
| 2018 |
| Classification in the Consolidated Statements of (Loss) Income | |||
Interest Rate Collars: |
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Net realized loss |
| $ | 1.5 |
|
| $ | — |
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| $ | — |
| Other expenses |
Reclassifications before tax |
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| 1.5 |
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| — |
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| — |
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Income tax benefit |
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| 0.4 |
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| — |
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| — |
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Reclassifications, net of tax |
| $ | 1.1 |
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| $ | — |
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| $ | — |
|
|
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 itthe Company 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 itthe Company by government agencies at the time of their rendering regardless of its intent to appeal. In addition, the Company is from time-to-time party to litigation, administrative proceedings and union grievances that arise in the normal course of business, and occasionally pays non-material amounts to resolve claims or alleged violations of regulatory requirements. There are no "normal course" matters that separately or in the aggregate, would, in the opinion of management, have a material adverse effect on its operation,the Company’s results of operations, financial condition or cash flow.
In determining the appropriate accounting for loss contingencies, the Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as itsthe Company’s 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.
72
20. Segment Information
Segment information is presented in accordance with a "management“management approach,"” which designates the internal reporting used by the chief operating decision makerCompany's Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of the Company'sCompany’s reportable segments. The Company'sCompany’s segments are organized in a manner consistent with which separatediscrete financial information is available and evaluated regularly by the chief operating decision-maker ("CODM")CODM in deciding how to allocate resources and in assessing the Company's overallassess 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 andCompany’s chief executive officer. The business is managed based on segments administered by executive vice presidents.
Each of the operating segments isare 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 two2 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,gross profit as its primary measure of performance, 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 income taxes to the operating segments. The accounting policies for segment reporting are the same as for the Company as a whole.
In the fourth quarter of 2018,July 2020, the Company changed its internal reporting segment information reported to the CODM as a result of the Bags acquisition (see Note 2.
• |
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. |
Revenues and gross profit by operating segment for the years ended December 31, 2020, 2019 and 2018 2017 and 2016:
| Year Ended December 31, | ||||||||||||||||||||
| (millions) | 2018 (1) | Gross Margin | 2017 | Gross Margin | 2016 | Gross Margin | ||||||||||||||
| Services revenue | ||||||||||||||||||||
| Segment One | ||||||||||||||||||||
| Lease type contracts | $ | 386.2 | $ | 433.8 | $ | 420.3 | ||||||||||||||
| Management type contracts | 250.8 | 250.0 | 248.3 | |||||||||||||||||
| Total Segment One | 637.0 | 683.8 | 668.6 | |||||||||||||||||
| Segment Two | ||||||||||||||||||||
| Lease type contracts | 27.0 | 129.3 | 124.7 | |||||||||||||||||
| Management type contracts | 101.2 | 89.1 | 88.0 | |||||||||||||||||
| Total Segment Two | 128.2 | 218.4 | 212.7 | |||||||||||||||||
| Other | ||||||||||||||||||||
| Lease type contracts | 0.7 | — | — | |||||||||||||||||
| Management type contracts | 9.5 | 9.1 | 10.5 | |||||||||||||||||
| Total Other | 10.2 | 9.1 | 10.5 | |||||||||||||||||
| Reimbursed management type contract revenue | 693.0 | 679.2 | 676.6 | |||||||||||||||||
| Total services revenue | $ | 1,468.4 | $ | 1,590.5 | $ | 1,568.4 | ||||||||||||||
| Gross Profit | ||||||||||||||||||||
| Segment One | ||||||||||||||||||||
| Lease type contracts | 25.3 | 6.6 | % | 35.8 | 8.3 | % | 32.6 | 7.8 | % | |||||||||||
| Management type contracts | 94.9 | 37.8 | % | 96.9 | 38.8 | % | 95.7 | 38.5 | % | |||||||||||
| Total Segment One | 120.2 | 132.7 | 128.3 | |||||||||||||||||
| Segment Two | ||||||||||||||||||||
| Lease type contracts | 7.1 | 26.3 | % | 6.7 | 5.2 | % | 5.7 | 4.5 | % | |||||||||||
| Management type contracts | 31.9 | 31.5 | % | 26.2 | 29.2 | % | 24.6 | 28.0 | % | |||||||||||
| Total Segment Two | 39.0 | 32.9 | 30.3 | |||||||||||||||||
| Other | ||||||||||||||||||||
| Lease type contracts | 3.8 | 542.9 | % | 2.2 | — | % | 1.1 | — | % | |||||||||||
| Management type contracts | 21.0 | 221.1 | % | 17.5 | 192.3 | % | 16.7 | 159.0 | % | |||||||||||
| Total Other | 24.8 | 19.7 | 17.8 | |||||||||||||||||
| Total gross profit | 184.0 | 185.3 | 176.4 | |||||||||||||||||
| General and administrative expenses | 91.0 | 82.9 | 90.0 | |||||||||||||||||
| General and administrative expense percentage of gross profit | 49.5 | % | 44.7 | % | 51.0 | % | ||||||||||||||
| Depreciation and amortization | 17.9 | 21.0 | 33.7 | |||||||||||||||||
| Operating income | 75.1 | 81.4 | 52.7 | |||||||||||||||||
| Other expenses (income): | ||||||||||||||||||||
| Interest expense | 9.6 | 9.2 | 10.5 | |||||||||||||||||
| Interest income | (0.4 | ) | (0.6 | ) | (0.5 | ) | ||||||||||||||
| Gain on sale of a business | — | (0.1 | ) | — | ||||||||||||||||
| Equity in (earnings) losses from investment in unconsolidated entity | (10.1 | ) | 0.7 | 0.9 | ||||||||||||||||
| Total other expenses (income) | (0.9 | ) | 9.2 | 10.9 | ||||||||||||||||
| Earnings before income taxes | 76.0 | 72.2 | 41.8 | |||||||||||||||||
| Income tax expense | 19.6 | 27.7 | 15.8 | |||||||||||||||||
| Net income | 56.4 | 44.5 | 26.0 | |||||||||||||||||
| Less: Net income attributable to noncontrolling interest | 3.2 | 3.3 | 2.9 | |||||||||||||||||
| Net income attributable to SP Plus Corporation | $ | 53.2 | $ | 41.2 | $ | 23.1 | ||||||||||||||
| 2018 | 2017 | ||||||||||||||||||||||||||||||
| (millions, except for share and per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter (3) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||||
| Services revenue | |||||||||||||||||||||||||||||||
| Lease type contracts (1) (2) | $ | 99.5 | $ | 107.4 | $ | 104.7 | $ | 102.3 | $ | 130.8 | $ | 150.9 | $ | 140.9 | $ | 140.5 | |||||||||||||||
| Management type contracts | 94.4 | 87.7 | 82.6 | 96.8 | 92.1 | 84.0 | 86.7 | 85.4 | |||||||||||||||||||||||
| Reimbursed management type contract revenue | 172.9 | 167.1 | 174.8 | 178.2 | 179.0 | 168.6 | 165.1 | 166.5 | |||||||||||||||||||||||
| Total revenue | 366.8 | 362.2 | 362.1 | 377.3 | 401.9 | 403.5 | 392.7 | 392.4 | |||||||||||||||||||||||
| Cost of services | |||||||||||||||||||||||||||||||
| Lease type contracts | 94.6 | 94.5 | 94.2 | 94.3 | 125.8 | 130.2 | 131.0 | 131.4 | |||||||||||||||||||||||
| Management type contracts | 59.9 | 49.5 | 48.1 | 56.3 | 56.6 | 47.2 | 50.7 | 53.1 | |||||||||||||||||||||||
| Reimbursed management type contract expense | 172.9 | 167.1 | 174.8 | 178.2 | 179.0 | 168.6 | 165.1 | 166.5 | |||||||||||||||||||||||
| Total cost of services | 327.4 | 311.1 | 317.1 | 328.8 | 361.4 | 346.0 | 346.8 | 351.0 | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||
| Lease type contracts (1) | 4.9 | 12.9 | 10.5 | 8.0 | 5.0 | 20.7 | 9.9 | 9.1 | |||||||||||||||||||||||
| Management type contracts | 34.5 | 38.2 | 34.5 | 40.5 | 35.5 | 36.8 | 36.0 | 32.3 | |||||||||||||||||||||||
| Total gross profit | 39.4 | 51.1 | 45.0 | 48.5 | 40.5 | 57.5 | 45.9 | 41.4 | |||||||||||||||||||||||
| General and administrative expenses | 22.3 | 22.3 | 18.7 | 27.7 | 21.2 | 22.5 | 19.6 | 19.6 | |||||||||||||||||||||||
| Depreciation and amortization | 4.0 | 4.5 | 4.2 | 5.2 | 6.6 | 4.8 | 4.9 | 4.7 | |||||||||||||||||||||||
| Operating income | 13.1 | 24.3 | 22.1 | 15.6 | 12.7 | 30.2 | 21.4 | 17.1 | |||||||||||||||||||||||
| Other expense (income) | |||||||||||||||||||||||||||||||
| Interest expense | 2.1 | 2.2 | 2.1 | 3.2 | 2.6 | 2.3 | 2.2 | 2.1 | |||||||||||||||||||||||
| Interest income | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.2 | ) | (0.1 | ) | |||||||||||||||
| Gain on sale of a business | — | — | — | — | — | (0.1 | ) | — | — | ||||||||||||||||||||||
| Equity in (income) losses from investment in unconsolidated entity | (10.1 | ) | — | — | — | 0.2 | 0.2 | 0.1 | 0.2 | ||||||||||||||||||||||
| Total other expenses (income) | (8.1 | ) | 2.1 | 2.0 | 3.1 | 2.7 | 2.2 | 2.1 | 2.2 | ||||||||||||||||||||||
| Earnings before income taxes | 21.2 | 22.2 | 20.1 | 12.5 | 10.0 | 28.0 | 19.3 | 14.9 | |||||||||||||||||||||||
| Income tax expense | 5.3 | 6.0 | 5.6 | 2.7 | 3.3 | 10.7 | 7.3 | 6.4 | |||||||||||||||||||||||
| Net income | 15.9 | 16.2 | 14.5 | 9.8 | 6.7 | 17.3 | 12.0 | 8.5 | |||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interest | 0.6 | 0.9 | 1.0 | 0.7 | 0.7 | 1.1 | 0.8 | 0.7 | |||||||||||||||||||||||
| Net income attributable to SP Plus Corporation | $ | 15.3 | $ | 15.3 | $ | 13.5 | $ | 9.1 | $ | 6.0 | $ | 16.2 | $ | 11.2 | $ | 7.8 | |||||||||||||||
| Common stock data | |||||||||||||||||||||||||||||||
| Net income per common share (4) | |||||||||||||||||||||||||||||||
| Basic | $ | 0.69 | $ | 0.68 | $ | 0.60 | $ | 0.40 | $ | 0.27 | $ | 0.73 | $ | 0.51 | $ | 0.35 | |||||||||||||||
| Diluted | $ | 0.68 | $ | 0.68 | $ | 0.60 | $ | 0.40 | $ | 0.27 | $ | 0.72 | $ | 0.50 | $ | 0.35 | |||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||||||||||||
| Basic | 22,308,694 | 22,370,923 | 22,439,884 | 22,465,834 | 22,148,265 | 22,190,421 | 22,203,023 | 22,221,536 | |||||||||||||||||||||||
| Diluted | 22,557,326 | 22,644,884 | 22,626,746 | 22,607,102 | 22,447,904 | 22,515,234 | 22,523,036 | 22,528,825 | |||||||||||||||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||||||
(millions) |
| 2020 |
|
| Gross Margin Percentage |
|
| 2019 |
|
| Gross Margin Percentage |
|
| 2018 (1) |
|
| Gross Margin Percentage |
| ||||||
Services revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
| $ | 180.2 |
|
|
|
|
|
| $ | 377.3 |
|
|
|
|
|
| $ | 386.2 |
|
|
|
|
|
Management type contracts |
|
| 212.1 |
|
|
|
|
|
|
| 264.6 |
|
|
|
|
|
|
| 249.4 |
|
|
|
|
|
Total Commercial |
|
| 392.3 |
|
|
|
|
|
|
| 641.9 |
|
|
|
|
|
|
| 635.6 |
|
|
|
|
|
Aviation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
|
| 8.6 |
|
|
|
|
|
|
| 30.7 |
|
|
|
|
|
|
| 27.0 |
|
|
|
|
|
Management type contracts |
|
| 140.5 |
|
|
|
|
|
|
| 251.8 |
|
|
|
|
|
|
| 101.2 |
|
|
|
|
|
Total Aviation |
|
| 149.1 |
|
|
|
|
|
|
| 282.5 |
|
|
|
|
|
|
| 128.2 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
|
| 0.6 |
|
|
|
|
|
|
| 0.9 |
|
|
|
|
|
|
| 0.7 |
|
|
|
|
|
Management type contracts |
|
| 7.0 |
|
|
|
|
|
|
| 9.6 |
|
|
|
|
|
|
| 10.9 |
|
|
|
|
|
Total Other |
|
| 7.6 |
|
|
|
|
|
|
| 10.5 |
|
|
|
|
|
|
| 11.6 |
|
|
|
|
|
Reimbursed management type contract revenue |
|
| 537.9 |
|
|
|
|
|
|
| 728.8 |
|
|
|
|
|
|
| 693.0 |
|
|
|
|
|
Total services revenue |
| $ | 1,086.9 |
|
|
|
|
|
| $ | 1,663.7 |
|
|
|
|
|
| $ | 1,468.4 |
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
|
| (10.4 | ) |
|
| (5.8 | )% |
|
| 29.5 |
|
|
| 7.8 | % |
|
| 25.8 |
|
|
| 6.7 | % |
Management type contracts |
|
| 80.1 |
|
|
| 37.8 | % |
|
| 104.1 |
|
|
| 39.3 | % |
|
| 98.3 |
|
|
| 39.4 | % |
Lease impairment |
|
| (97.1 | ) |
| N/M |
|
|
| — |
|
| N/M |
|
|
| — |
|
| N/M |
| |||
Total Commercial |
|
| (27.4 | ) |
|
|
|
|
|
| 133.6 |
|
|
|
|
|
|
| 124.1 |
|
|
|
|
|
Aviation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
|
| 0.7 |
|
|
| 8.1 | % |
|
| 8.2 |
|
|
| 26.7 | % |
|
| 7.3 |
|
|
| 27.0 | % |
Management type contracts |
|
| 39.9 |
|
|
| 28.4 | % |
|
| 66.2 |
|
|
| 26.3 | % |
|
| 31.9 |
|
|
| 31.5 | % |
Total Aviation |
|
| 40.6 |
|
|
|
|
|
|
| 74.4 |
|
|
|
|
|
|
| 39.2 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease type contracts |
|
| 4.1 |
|
| N/M |
|
|
| 4.3 |
|
| N/M |
|
|
| 3.2 |
|
| N/M |
| |||
Management type contracts |
|
| 13.1 |
|
| N/M |
|
|
| 15.8 |
|
| N/M |
|
|
| 17.5 |
|
| N/M |
| |||
Total Other |
|
| 17.2 |
|
|
|
|
|
|
| 20.1 |
|
|
|
|
|
|
| 20.7 |
|
|
|
|
|
Total gross profit |
| $ | 30.4 |
|
|
|
|
|
| $ | 228.1 |
|
|
|
|
|
| $ | 184.0 |
|
|
|
|
|
(1) | ||||
The consolidated results of operations for the year ended December 31, 2018 includes Bags operating results for the period of November 30, 2018 through December 31, 2018. | ||||
| Description | Balance at Beginning of Year | Additions Charged to Costs and Expenses | Reductions (1) | Balance at End of Year | |||||||||||
| (millions) | |||||||||||||||
| Allowance for doubtful accounts | |||||||||||||||
| Year ended December 31, 2018 | $ | 0.7 | $ | 1.7 | $ | (1.4 | ) | $ | 1.0 | ||||||
| Year ended December 31, 2017 | 0.4 | 0.7 | (0.4 | ) | 0.7 | ||||||||||
| Year ended December 31, 2016 | $ | 0.9 | $ | 0.5 | $ | (1.0 | ) | $ | 0.4 | ||||||
| Deferred tax valuation allowance | |||||||||||||||
| Year ended December 31, 2018 | $ | 7.1 | $ | 1.0 | $ | — | $ | 8.1 | |||||||
| Year ended December 31, 2017 | 6.6 | 0.5 | — | 7.1 | |||||||||||
| Year ended December 31, 2016 | $ | 6.8 | $ | — | $ | (0.2 | ) | $ | 6.6 | ||||||
N/M - Not Meaningful
73