(I.R.S. Employer Identification No.) Incorporation or Organization) (Do not check if a smaller reporting company) (in thousands, except for share and per share data) March 31, December 31, (unaudited) Assets Cash and cash equivalents $ 18,794 $ 18,196 Notes and accounts receivable, net 115,343 109,287 Prepaid expenses and other 11,840 17,776 Deferred taxes 10,982 10,992 Total current assets 156,959 156,251 Leasehold improvements, equipment, land and construction in progress, net 41,716 42,784 Other assets Advances and deposits 5,849 6,693 Intangible assets, net 87,245 91,028 Favorable acquired lease contracts, net 45,777 48,268 Equity investments in unconsolidated entities 20,389 20,660 Other assets, net 17,657 16,697 Cost of contracts, net 12,183 10,481 Goodwill 432,531 432,888 Total other assets 621,631 626,715 Total assets $ 820,306 $ 825,750 Liabilities and stockholders’ equity Accounts payable $ 101,845 $ 106,519 Accrued and other current liabilities 89,879 103,844 Current portion of obligations under senior credit facility and other long-term borrowings 15,943 15,567 Total current liabilities 207,667 225,930 Deferred taxes 5,239 5,814 Long-term obligations under senior credit facility and other long-term borrowings 251,228 237,833 Unfavorable acquired lease contracts, net 58,531 61,350 Other long-term liabilities 66,485 65,011 Total noncurrent liabilities 381,483 370,008 Stockholders’ equity Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of March 31, 2015 and December 31, 2014; no shares issued — — Common stock, par value $0.001 per share; 50,000,000 shares authorized as of March 31, 2015 and December 31, 2014; 22,127,725 shares issued and outstanding as of March 31, 2015 and December 31, 2014 22 22 Additional paid-in capital 244,433 243,867 Accumulated other comprehensive income (loss) (687 ) (205 ) Accumulated deficit (13,239 ) (14,581 ) Total SP Plus Corporation stockholders’ equity 230,529 229,103 Noncontrolling interest 627 709 Total shareholders’ equity 231,156 229,812 Total liabilities and stockholders’ equity $ 820,306 $ 825,750 Three Months Ended (in thousands, except for share and per share data, unaudited) March 31, March 31, Parking services revenue Lease contracts $ 135,815 $ 116,635 Management contracts 94,058 89,955 Reimbursed management contract revenue 174,281 169,178 Total revenue 404,154 375,768 Cost of parking services Lease contracts 128,693 112,084 Management contracts 59,990 59,214 Reimbursed management contract expense 174,281 169,178 Total cost of parking services 362,964 340,476 Gross profit Lease contracts 7,122 4,551 Management contracts 34,068 30,741 Total gross profit 41,190 35,292 General and administrative expenses 25,673 26,066 Depreciation and amortization 7,934 7,163 Operating income 7,583 2,063 Other expenses (income) Interest expense 4,043 4,809 Interest income (60 ) (98 ) Equity in losses from investment in unconsolidated entity 471 - Total other expenses (income) 4,454 4,711 Income (loss) before income taxes 3,129 (2,648 ) Income tax provision (benefit) 1,335 (7,438 ) Net income 1,794 4,790 Less: Net income attributable to noncontrolling interest 452 487 Net income attributable to SP Plus Corporation $ 1,342 $ 4,303 Common stock data Net income per share Basic $ 0.06 $ 0.20 Diluted $ 0.06 $ 0.19 Weighted average shares outstanding Basic 22,127,725 21,977,836 Diluted 22,528,609 22,351,845 Three Months Ended (in thousands, unaudited) March 31, March 31, Net income $ 1,794 $ 4,790 Other comprehensive (loss) income (482 ) 16 Comprehensive income 1,312 4,806 Less: comprehensive income attributable to noncontrolling interest 452 487 Comprehensive income attributable to SP Plus Corporation $ 860 $ 4,319 Three Months Ended (in thousands, unaudited) March 31, March 31, Operating activities Net income $ 1,794 $ 4,790 Adjustments to reconcile net income to net cash provided by operations Depreciation and amortization 8,050 7,150 Net accretion of acquired lease contracts (328 ) (779 ) Net loss on sale and abandonment of assets 8 168 Amortization of debt issuance costs 271 341 Amortization of original discount on borrowings 207 299 Write-off of debt issuances costs and original discount on borrowings 634 115 Non-cash stock-based compensation 566 796 Provisions for losses on accounts receivable 127 109 Excess tax benefit related to vesting of restricted stock units - 89 Deferred income taxes (565 ) (6,199 ) Net change in operating assets and liabilities (16,886 ) (16,581 ) Net cash used in operating activities (6,122 ) (9,702 ) Investing activities Purchase of leasehold improvements and equipment (2,649 ) (3,327 ) Cost of contracts purchased (2,433 ) (102 ) Proceeds from sale of assets 7 42 Capitalized interest - (17 ) Net cash used in investing activities (5,075 ) (3,404 ) Financing activities Tax benefit from vesting of restricted stock units - (89 ) Contingent payments for businesses acquired - (141 ) Proceeds from Senior Credit Facility and Restated Credit Facility revolver, net 7,100 28,800 Proceeds from Senior Credit Facility and Restated Credit Facility term loan, net 6,205 (13,565 ) Payments of debt issuance costs for Restated Credit Facility (745 ) - Distribution to noncontrolling interest (450 ) (774 ) Redemption of convertible debentures (67 ) - Payments on other long-term debt obligations (77 ) (40 ) Net cash provided by financing activities 11,966 14,191 Effect of exchange rate changes on cash and cash equivalents (171 ) 28 Increase in cash and cash equivalents 598 1,113 Cash and cash equivalents at beginning of period 18,196 23,158 Cash and cash equivalents at end of period $ 18,794 $ 24,271 Supplemental disclosures Cash paid (received) during the period for Interest $ 2,429 $ 3,856 Income taxes, net $ 4,685 $ (4,692 ) data) (unaudited) 1, 2016. Sheets. Entities earnings in the Parkmobile joint venture is included in Equity in total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the Company's credit agreements. These Interest Rate Swaps are classified as cash flow hedges, and the Company assesses the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase of interest expense. As of March 31, 2016, no ineffectiveness of the hedge has been recognized in interest expense. See Note 6. Revenue from Contracts with Customers. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures. the Holten Settlement of $1.5 million for the three months ended March 31, 2016. Agreement. Cash consideration payable in three years from the acquisition date, pursuant to the Merger Agreement and prior to Central Net Debt Working Capital and indemnification of certain defined adverse consequences, net $ 27,000 Net Debt Working Capital at September 30, 2012 as defined in the Merger Agreement $ (296,153 ) Threshold of Net Debt Working Capital, pursuant to the Merger Agreement $ 285,000 Excess over the threshold of Net Debt Working Capital (11,153 ) Indemnification of certain defined adverse consequences, net (14,925 ) Settled cash consideration liability as of March 31, 2015 (included within Accrued Expenses within the Consolidated Balance Sheet) $ 922 indemnified claims is reasonably assured. 4. Intangible Assets, net March 31, 2015 (unaudited) December 31, 2014 Acquired Accumulated Acquired Acquired Accumulated Acquired Covenant not to compete 3.5 $ 933 $ (882) $ 51 $ 933 $ (879) $ 54 Trade names and trademarks 4.4 9,770 (6,073) 3,697 9,770 (5,487) 4,283 Proprietary know how 9.9 34,650 (19,263) 15,387 34,650 (17,358) 17,292 Management contract rights 16.7 81,000 (12,890) 68,110 81,000 (11,601) 69,399 Acquired intangible assets, net (2) 13.8 $ 126,353 $ (39,108) $ 87,245 $ 126,353 $ (35,325) $ 91,028 Three months ended March 31, March 31, 2014 Amortization expense related to intangible assets included in depreciation and amortization $ 3,783 $ 3,801 Region Region Region Region Region Total Balance as of December 31, 2014 (1) $ 161,222 $ 141,512 $ 36,389 $ 62,664 $ 31,101 $ 432,888 Foreign currency translation (357) — — — — (357) Balance as of March 31, 2015 $ 160,865 $ 141,512 $ 36,389 $ 62,664 $ 31,101 $ 432,531 changes in No impairment was recorded as a result of the goodwill impairment test performed. Value Measurements-Recurring Basis 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: Fair Value Measurement March 31, 2015 (unaudited) December 31, 2014 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets Prepaid expenses and other Interest rate swap — $ 24 — — $ 551 — Total — $ 24 — — $ 551 — Liabilities Accrued expenses Contingent acquisition consideration — — $ 261 — — $ 64 Other long term liabilities Contingent acquisition consideration — — 45 — — 208 Total — — $ 306 — — $ 272 2015: underlying exposure. Discontinuance of hedge accounting is required whenever it is subsequently determined that an underlying transaction is not going to occur, with any gains or losses recognized in the Consolidated Statements of Income at such time, Practices for further detail on the sale of the business). Under the sales agreement, 40% of the sale proceeds from the buyer is contingent in nature and scheduled to be received by the Company in February 2017. The contingent consideration amount expected to be received by the Company is based on the financial and operational performance of the business sold. The significant inputs used to derive the Level 3 fair value contingent consideration receivable is the probability of reaching certain revenue growth of the business sold and retention of current customers over an eighteen month period. The fair value of the contingent Due to Seller Balance at December 31, 2014 $ (272 ) Change in fair value (34 ) Balance at March 31, 2015 $ (306 ) be remeasured each subsequent reporting period. 2015. Fair Value March 31, 2015 (unaudited) December 31, 2014 Carrying Fair Value Carrying Fair Value Financial Assets Cash and cash equivalents $ 18,794 $ 18,794 $ 18,196 $ 18,196 Financial Liabilities Long-term obligations under senior credit facility and other long-term borrowings $ (267,171 ) $ (267,171 ) $ (253,400 ) $ (253,400 ) 2. Amount Outstanding Maturity Date March 31, December 31, Obligations under Credit Agreement and Restated Credit Agreement, net of original discount on borrowings (1) / (2) $ 264,927 $ 251,010 Other debt obligations Various 2,244 2,390 Total debt obligations 267,171 253,400 Less: Current portion under Senior Credit Facility and other debt obligations 15,943 15,567 Total long-term borrowings $ 251,228 $ 237,833 The entire amount of the term loan portion of the Restated 2016. 8. Bradley Agreement 2015 Balance at December 31, 2014 $ 13,327 Deficiency payments made 38 Deficiency repayment received (43 ) Balance at March 31, 2015 $ 13,322 Plan and became available for reissuance. Share Units March 31, 2016, 16,602 shares were vested related to certain participating executives being eligible for retirement. Three Months Ended March 31, March 31, Weighted average common basic shares outstanding 22,127,725 21,977,836 Effect of dilutive stock options and restricted stock units 400,884 374,009 Weighted average common diluted shares outstanding 22,528,609 22,351,845 Net income (loss) per share Basic $ 0.06 $ 0.20 Diluted $ 0.06 $ 0.19 reporting date. Three months ended March 31, March 31, Net income $ 1,794 $ 4,790 Effective portion of unrealized gain (loss) on cash flow hedge (311 ) (12 ) Foreign currency translation (171 ) 28 Comprehensive income 1,312 4,806 Less: comprehensive income attributable to noncontrolling interest 452 487 Comprehensive income attributable to SP Plus Corporation $ 860 $ 4,319 Foreign Currency Effective Portion of Total Balance at December 31, 2014 $ (530 ) $ 325 $ (205) Change in other comprehensive income (loss) (171 ) (311 ) (482) Balance at March 31, 2015 $ (701 ) $ 14 $ (687) 2015. 13. Business Unit Segment Information The business is managed based on regions administered by executive vice presidents. The following is a summary of revenues (excluding reimbursed management contract revenue) and gross profit by regions for the three months ended March 31, 2016 and 2015 Three months ended March 31, Gross March 31, Gross Revenues Region One Lease contracts $ 47,224 $ 47,332 Management contracts 20,160 21,631 Total Region One 67,384 68,963 Region Two Lease contracts 31,227 28,761 Management contracts 20,443 20,052 Total Region Two 51,670 48,813 Region Three Lease contracts 26,408 28,014 Management contracts 6,718 6,487 Total Region Three 33,126 34,501 Region Four Lease contracts 29,708 11,350 Management contracts 25,471 25,629 Total Region Four 55,179 36,979 Region Five Lease contracts 1,241 712 Management contracts 17,557 12,921 Total Region Five 18,798 13,633 Other Lease contracts 7 466 Management contracts 3,709 3,235 Total Other 3,716 3,701 Reimbursed management contract revenue 174,281 169,178 Total Revenues $ 404,154 $ 375,768 Gross Profit Region One Lease contracts $ 1,542 3 % $ 660 1 % Management contracts 9,409 47 % 8,977 42 % Total Region One 10,951 9,637 Region Two Lease contracts 4,524 14 % 3,917 14 % Management contracts 8,020 39 % 8,589 43 % Total Region Two 12,544 12,506 Region Three Lease contracts (464 ) -2 % (295 ) -1 % Management contracts 3,404 51 % 3,683 57 % Total Region Three 2,940 3,388 Region Four Lease contracts 863 3 % 586 5 % Management contracts 5,513 22 % 6,076 24 % Total Region Four 6,376 6,662 Region Five Lease contracts 202 16 % 70 10 % Management contracts 3,708 21 % 3,515 27 % Total Region Five 3,910 3,585 Other Lease contracts 455 N/A (387 ) N/A Management contracts 4,014 N/A (99 ) N/A Total Other 4,469 (486 ) Total gross profit $ 41,190 35,292 General and administrative expenses 25,673 26,066 General and administrative expense percentage of gross profit 62 % 74 % Depreciation and amortization 7,934 7,163 Operating income 7,583 2,063 Other expenses (income) Interest expense 4,043 4,809 Interest income (60 ) (98 ) Equity in losses from investment in unconsolidated entity 471 — 4,454 4,711 Income (loss) before income taxes 3,129 (2,648 ) Income tax (benefit) 1,335 (7,438 ) Net income 1,794 4,790 Less: Net income attributable to noncontrolling interest 452 487 Net income attributable to SP Plus Corporation $ 1,342 $ 4,303 2015. revenue collected from parking customers belongs to our clients. Therefore, gross profit and total general and administrative expense, rather than revenue, are management’s primary focus. March 31, 2015 December 31, 2014 March 31, 2014 Leased facilities 768 774 826 Managed facilities 3,359 3,409 3,356 Total facilities 4,127 4,183 4,182 Cost of parking services—management contracts.The cost of parking services under a management contract is generally the responsibility of the facility owner. As a result, these costs are not included in our results of operations. However, our reverse management contracts, which typically provide for larger management fees, do require us to pay for certain costs. The following is a summary of revenues (excluding reimbursed management contract revenue), cost of parking services and gross profit by regions for the three months ended March 31, 2015: 2015 Three Months Ended March 31, Region One Region Two Region Three Region Four Region Five Other Total Variance 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Amount % Lease contract revenue: New locations $ 3.6 $ 2.2 $ 0.8 $ 0.1 $ 0.7 $ 0.1 $ 16.2 $ — $ 0.1 $ — $ — $ — $ 21.4 $ 2.4 $ 19.0 792 % Contract expirations — 1.3 0.2 1.4 0.6 2.8 — — — — — — 0.8 5.5 (4.7 ) -85 % Same locations 43.2 41.7 30.1 27.2 25.1 25.1 11.4 11.4 0.7 0.7 0.1 0.4 110.6 106.5 4.1 4 % Conversions 0.4 2.1 0.1 0.1 — — 2.1 — 0.4 — — — 3.0 2.2 0.8 36 % Total lease contract revenue $ 47.2 $ 47.3 $ 31.2 $ 28.8 $ 26.4 $ 28.0 $ 29.7 $ 11.4 $ 1.2 $ 0.7 $ 0.1 $ 0.4 $ 135.8 $ 116.6 $ 19.2 16 % Management contract revenue: New locations $ 1.9 $ 0.2 $ 1.9 $ 0.2 $ 1.5 $ 0.4 $ 0.2 $ — $ 4.1 $ 1.1 $ — $ — $ 9.6 $ 1.9 $ 7.7 405 % Contract expirations 0.3 3.1 0.5 3.4 — 0.6 — 0.3 0.3 0.4 — — 1.1 7.8 (6.7 ) -86 % Same locations 17.9 18.1 18.0 16.4 5.2 5.5 24.9 25.0 13.2 11.1 3.7 3.3 82.9 79.4 3.5 4 % Conversions 0.1 0.2 — 0.1 — — 0.4 0.3 — 0.3 — — 0.5 0.9 (0.4 ) -44 % Total management contract revenue $ 20.2 $ 21.6 $ 20.4 $ 20.1 $ 6.7 $ 6.5 $ 25.5 $ 25.6 $ 17.6 $ 12.9 $ 3.7 $ 3.3 $ 94.1 $ 90.0 $ 4.1 5 % The other region amounts in same location represent revenue not specifically identifiable to a region. services revenue, partially offset by a decrease in other ancillary services revenue for region three. The other region amounts in same location represent revenues not specifically identifiable to a region. Segment cost of parking services information is summarized as follows (unaudited): Three Months Ended March 31, Region One Region Two Region Three Region Four Region Five Other Total Variance 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Amount % Cost of parking services lease contracts: New locations $ 3.2 $ 2.1 $ 0.7 $ 0.1 $ 0.6 $ 0.4 $ 16.2 $ — $ 0.1 $ — $ — $ — $ 20.8 $ 2.6 $ 18.2 700 % Contract expirations — 1.5 0.1 1.1 0.6 2.6 — — — — — — 0.7 5.2 (4.5 ) -87 % Same locations 42.2 41.1 25.8 23.6 25.7 25.3 10.6 10.8 0.6 0.6 (0.4 ) 0.8 104.5 102.2 2.3 2 % Conversions 0.3 1.9 0.1 0.1 — — 2.0 — 0.3 — — — 2.7 2.0 0.7 35 % Total cost of parking services lease contracts $ 45.7 $ 46.6 $ 26.7 $ 24.9 $ 26.9 $ 28.3 $ 28.8 $ 10.8 $ 1.0 $ 0.6 $ (0.4 ) $ 0.8 $ 128.7 $ 112.0 $ 16.7 15 % Cost of parking services management contracts: New locations $ 1.3 $ 0.1 $ 1.1 $ — $ 1.2 $ 0.4 $ 0.1 $ — $ 3.1 $ 0.9 $ — $ — $ 6.8 $ 1.4 $ 5.4 386 % Contract expirations 0.2 2.2 0.4 1.9 — 0.2 — 0.2 0.3 0.3 — — 0.9 4.8 (3.9 ) -81 % Same locations 9.3 10.3 10.9 9.6 2.1 2.2 19.6 19.4 10.4 7.9 (0.3 ) 3.2 52.0 52.6 (0.6 ) -1 % Conversions — 0.1 — — — — 0.3 — — 0.3 — — 0.3 0.4 (0.1 ) -25 % Total cost of parking services management contracts $ 10.8 $ 12.7 $ 12.4 $ 11.5 $ 3.3 $ 2.8 $ 20.0 $ 19.6 $ 13.8 $ 9.4 $ (0.3 ) $ 3.2 $ 60.0 $ 59.2 $ 0.8 1 % all three regions. in region three. Segment gross profit/gross profit percentage information is summarized as follows (unaudited): Three Months Ended March 31, Region One Region Two Region Three Region Four Region Five Other Total Variance 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Amount % Gross profit lease contracts: New locations $ 0.4 $ 0.1 $ 0.1 $ — $ 0.1 $ (0.3 ) $ — $ — $ — $ — $ — $ — $ 0.6 $ (0.2 ) $ 0.8 -400 % Contract expirations — (0.2 ) 0.1 0.3 — 0.2 — — — — — — 0.1 0.3 (0.2 ) -67 % Same locations 1.0 0.6 4.3 3.6 (0.6 ) (0.2 ) 0.8 0.6 0.1 0.1 0.5 (0.4 ) 6.1 4.3 1.8 42 % Conversions 0.1 0.2 — — — — 0.1 — 0.1 — — — 0.3 0.2 0.1 50 % Total gross profit lease contracts $ 1.5 $ 0.7 $ 4.5 $ 3.9 $ (0.5 ) $ (0.3 ) $ 0.9 $ 0.6 $ 0.2 $ 0.1 $ 0.5 $ (0.4 ) $ 7.1 $ 4.6 $ 2.5 54 % (Percentages) Gross profit percentage lease contracts: New locations 11 % 5 % 13 % 0 % 14 % -300 % 0 % N/A 0 % N/A N/A N/A 3 % -8 % Contract expirations N/A -15 % 50 % 21 % 0 % 7 % N/A N/A N/A N/A N/A N/A 13 % 5 % Same locations 2 % 1 % 14 % 13 % -2 % -1 % 7 % 5 % 14 % 14 % N/A N/A 6 % 4 % Conversions 25 % 10 % 0 % 0 % N/A N/A 5 % N/A 25 % N/A N/A N/A 10 % 9 % Total gross profit percentage 3 % 1 % 14 % 14 % -2 % -1 % 3 % 5 % 17 % 14 % N/A N/A 5 % 4 % Gross profit management contracts: New locations $ 0.6 $ 0.1 $ 0.8 $ 0.2 $ 0.3 $ — $ 0.1 $ — $ 1.0 $ 0.2 $ — $ — $ 2.8 $ 0.5 $ 2.3 460 % Contract expirations 0.1 0.9 0.1 1.5 — 0.4 — 0.1 — 0.1 — — 0.2 3.0 (2.8 ) -93 % Same locations 8.6 7.8 7.1 6.8 3.1 3.3 5.3 5.6 2.8 3.2 4.0 0.1 30.9 26.8 4.1 15 % Conversions 0.1 0.1 — 0.1 — — 0.1 0.3 — — — — 0.2 0.5 (0.3 ) -60 % Total gross profit management contracts $ 9.4 $ 8.9 $ 8.0 $ 8.6 $ 3.4 $ 3.7 $ 5.5 $ 6.0 $ 3.8 $ 3.5 $ 4.0 $ 0.1 $ 34.1 $ 30.8 $ 3.3 11 % (Percentages) Gross profit percentage management contracts: New locations 32 % 50 % 42 % 100 % 20 % 0 % 50 % N/A 24 % 18 % N/A N/A 29 % 26 % Contract expirations 33 % 29 % 20 % 44 % N/A 67 % N/A 33 % 0 % 25 % N/A N/A 18 % 38 % Same locations 48 % 43 % 39 % 41 % 60 % 60 % 21 % 22 % 21 % 29 % N/A N/A 37 % 34 % Conversions 100 % 50 % N/A 100 % N/A N/A 25 % 100 % N/A 0 % N/A N/A 40 % 56 % Total gross profit percentage 47 % 41 % 39 % 43 % 51 % 57 % 22 % 23 % 22 % 27 % N/A N/A 36 % 34 % partially offset by higher revenues for ancillary services. 2015. The Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the The Restated Credit Agreement reflects modifications to, and an extension of, the Credit Agreement, as described above. Each 2016. the Holten settlement of $1.5 million for the three months ended March 31, 2016. Deficiency Payments 2015. Three Months Ended March 31, 2015 March 31, 2014 Net cash used in operating activities $ (6.1) $ (9.7) Net cash used in investing activities $ (5.1) $ (3.4) Net cash provided by financing activities $ 12.0 $ 14.2 Net cash used in investing activities totaled $5.1 million in the three months ended March 31, 2015. Cash used in investing activities for the three months ended March 31, 2015 included (i) $2.6 million for capital investments needed to secure and/or extend lease facilities and investments in information system enhancements and infrastructure and (ii) $2.4 million for cost of contract purchases. PART II. OTHER INFORMATION Description 31.1* Section 302 Certification dated May 31.2* Section 302 Certification dated May 31.3* Section 302 Certification dated May 32** Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema 101.CAL* XBRL Taxonomy Extension Calculation Linkbase 101.DEF* XBRL Taxonomy Extension Definition Linkbase 101.LAB* XBRL Taxonomy Extension Label Linkbase 101.PRE* XBRL Taxonomy Extension Presentation Linkbase * Filed herewith Dated: May By: /s/ G MARC BAUMANN G Marc Baumann Director, President and Chief Executive Officer (Principal Executive Officer) Dated: May By: /s/ VANCE C. JOHNSTON Vance C. Johnston Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Dated: May By: /s/ KRISTOPHER H. ROY Kristopher H. Roy Senior Vice President, Corporate Controller and Assistant Treasurer (Principal Accounting Officer and Duly Authorized Officer)20152016Delaware16-1171179Delaware 16-1171179 (State or Other Jurisdiction of xý NO oxý NO oxý1, 2015,3, 2016, there were 22,135,36522,355,171 shares of common stock of the registrant outstanding.2PART I. FINANCIAL INFORMATIONItem1.
2015
2014(millions, except for share and per share data) March 31, 2016 December 31, 2015 (unaudited) Assets Cash and cash equivalents $ 30.8 $ 18.7 Notes and accounts receivable, net 106.6 105.1 Prepaid expenses and other 22.5 13.9 Deferred taxes 12.3 12.3 Total current assets 172.2 150.0 Leasehold improvements, equipment, land and construction in progress, net 32.4 34.6 Other assets Advances and deposits 4.4 5.0 Other intangible assets, net 72.1 75.9 Favorable acquired lease contracts, net 35.9 38.1 Equity investments in unconsolidated entities 18.8 19.0 Other assets, net 18.4 18.3 Cost of contracts, net 10.6 11.9 Goodwill 431.5 431.3 Total other assets 591.7 599.5 Total assets $ 796.3 $ 784.1 Liabilities and stockholders’ equity Accounts payable $ 100.1 $ 95.1 Accrued rent 21.9 22.9 Compensation and payroll withholdings 22.3 21.0 Property, payroll and other taxes 7.7 8.6 Accrued insurance 19.9 19.4 Accrued expenses 25.3 25.4 Current portion of obligations under Restated Credit Facility and other long-term borrowings 16.5 15.2 Total current liabilities 213.7 207.6 Deferred taxes — — Long-term borrowings, excluding current portion Obligations under Restated Credit Facility 217.4 209.4 Other long-term borrowings 0.4 0.5 217.8 209.9 Unfavorable acquired lease contracts, net 47.7 50.3 Other long-term liabilities 67.5 66.2 Total noncurrent liabilities 333.0 326.4 Stockholders’ equity Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of March 31, 2016 and December 31, 2015; no shares issued — — Common stock, par value $0.001 per share; 50,000,000 shares authorized as of March 31, 2016 and December 31, 2015; 22,328,578 shares issued and outstanding as of March 31, 2016 and December 31, 2015. — — Additional paid-in capital 248.4 247.9 Accumulated other comprehensive loss (1.2 ) (1.1 ) Retained earnings 2.8 2.8 Total SP Plus Corporation stockholders’ equity 250.0 249.6 Noncontrolling interest (0.4 ) 0.5 Total stockholders’ equity 249.6 250.1 Total liabilities and stockholders’ equity $ 796.3 $ 784.1
2015
2014 Three Months Ended (millions, except for share and per share data) (unaudited) March 31, 2016 March 31, 2015 Parking services revenue Lease contracts $ 138.5 $ 135.8 Management contracts 91.2 94.1 229.7 229.9 Reimbursed management contract revenue 167.9 174.3 Total revenue 397.6 404.2 Cost of parking services Lease contracts 130.6 128.7 Management contracts 60.7 60.0 191.3 188.7 Reimbursed management contract expense 167.9 174.3 Total cost of parking services 359.2 363.0 Gross profit Lease contracts 7.9 7.1 Management contracts 30.5 34.1 Total gross profit 38.4 41.2 General and administrative expenses 24.6 25.7 Depreciation and amortization 9.2 7.9 Operating income 4.6 7.6 Other expenses (income) Interest expense 2.8 4.1 Interest income (0.2 ) (0.1 ) Equity in losses from investment in unconsolidated entity 0.5 0.5 Total other expenses (income) 3.1 4.5 Earnings before income taxes 1.5 3.1 Income tax expense 0.9 1.3 Net income 0.6 1.8 Less: Net income attributable to noncontrolling interest 0.6 0.5 Net income attributable to SP Plus Corporation $ — $ 1.3 Common stock data Net income per share Basic $ — $ 0.06 Diluted $ — $ 0.06 Weighted average shares outstanding Basic 22,328,578 22,127,725 Diluted 22,593,505 22,528,609
2015
2014 Three Months Ended (millions) (unaudited) March 31, 2016 March 31, 2015 Net income $ 0.6 $ 1.8 Other comprehensive expense (0.1 ) (0.5 ) Comprehensive income 0.5 1.3 Less: Comprehensive income attributable to noncontrolling interest 0.6 0.5 Comprehensive (loss) income attributable to SP Plus Corporation $ (0.1 ) $ 0.8
2015
2014 Three Months Ended (millions) (unaudited) March 31, 2016 March 31, 2015 Operating activities Net income $ 0.6 $ 1.8 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 9.4 8.0 Net (accretion) amortization of acquired lease contracts (0.4 ) (0.3 ) (Gain) loss on sale of equipment (0.6 ) — Amortization of debt issuance costs 0.2 0.3 Amortization of original discount on borrowings 0.1 0.8 Non-cash stock-based compensation 0.6 0.6 Provisions for losses on accounts receivable 0.1 0.1 Deferred income taxes 0.1 (0.5 ) Changes in operating assets and liabilities Notes and accounts receivable (1.5 ) (6.2 ) Prepaid assets (9.8 ) 5.6 Other assets 0.3 0.9 Accounts payable 5.0 (4.7 ) Accrued liabilities 0.7 (12.5 ) Net cash provided by (used in) operating activities 4.8 (6.1 ) Investing activities Purchase of leasehold improvements and equipment (2.5 ) (2.7 ) Proceeds from sale of equipment and contract terminations 2.8 — Cost of contracts purchased (0.3 ) (2.4 ) Net cash used in investing activities — (5.1 ) Financing activities Payments on senior credit facility revolver (Senior Credit Facility and Restated Credit Facility) (68.6 ) (116.6 ) Proceeds from senior credit facility revolver (Senior Credit Facility and Restated Credit Facility) 81.3 123.7 Proceeds from term loan (Restated Credit Facility) — 10.4 Payments on term loan (Senior Credit Facility and Restated Credit Facility) (3.8 ) (3.8 ) Payments on other long-term borrowings (0.1 ) (0.1 ) Distribution to noncontrolling interest (1.5 ) (0.5 ) Payments of debt issuance costs and original discount on borrowings (0.1 ) (1.2 ) Net cash provided by financing activities 7.2 11.9 Effect of exchange rate changes on cash and cash equivalents 0.1 (0.2 ) Increase in cash and cash equivalents 12.1 0.5 Cash and cash equivalents at beginning of year 18.7 18.2 Cash and cash equivalents at end of period $ 30.8 $ 18.7 Supplemental disclosures Cash paid during the period for Interest $ 2.4 $ 3.3 Income taxes, net $ 0.4 $ 4.7 in thousandsmillions, except for share and per share data, unaudited) security services, training, scheduling and supervising all service personnel as well as providing customer service, marketing, and accounting and revenue control functions necessary to facilitate the operation of clients’ facilities. The Company also provides a range of ancillary services such as airport shuttle operations, valet services, taxi and livery dispatch services and municipal meter revenue collection and enforcement services.condensed consolidated financial statementsCondensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP)("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the Condensed Consolidated Balance Sheet,Sheets, Statements of Income, and Comprehensive (Loss) Income and Cash Flows prepared in conformity with U.S. GAAP have been condensed or omitted as permitted by such rules and regulations.20152016 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ended December 31, 2015.2016. The financial statements presented in this report should be read in conjunction with the Company’s annual consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed on March 6, 2015.$1,192$1.2 million and $465$0.9 million as of March 31, 20152016 and December 31, 2014,2015, respectively, and are included within Cash and Cash Equivalentscash equivalents within the Consolidated Balance Sheet.$29,075$26.4 million and $30,782$25.8 million are included within Accounts payable within the Condensed Consolidated Balance Sheets as of March 31, 20152016 and December 31, 2014,2015, respectively. Long-term debt has a carrying value that approximates fair value because these instruments bear interest at variable market rates.InvestmentInvestments in Unconsolidated Entityforty six38 partnerships, joint ventures or similar arrangements whichthat operate parking facilities, of which twenty-nine29 are VIEs and seventeen areconsolidated under the VIE or voting interest model entitiesmodels and 9 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 Investment in Unconsolidated Entitiesinvestments within the Condensed Consolidated Statements of Financial Position.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 RevenueParking services revenue—Lease contracts within the Condensed Consolidated Financial Statements of Income. The equity earnings in these related investments was $0.5 million and $0.4 million for the three months ended March 31, 2016 and 2015, and 2014 was $404 and $450, respectively.will provideprovides on-demand and prepaid transaction processing for on- and off-street parking and transportation services. The contribution of the Click and Park business in the joint venture resulted in a loss of control of the business, and therefore it was deconsolidated from the Company’s financial statements. The Company accounts for its investment in the joint venture with Parkmobile using the equity method of accounting, and its underlying share of equity in Parkmobile is included in Equity Investmentinvestments in Unconsolidated Entitiesunconsolidated entities within the Condensed Consolidated Financial Statements of Financial Position.Balance Sheets. The equityLosseslosses from Investmentinvestment in Unconsolidated Entityunconsolidated entity within the Condensed Consolidated Statements of Income.ourthe Southern California market to a third-party for a gross sales price of $1.8 million which resulted in a gain on sale of business of $0.5 million, net of legal and other expenses. The assets under the sale agreement met the definition of a business as defined by ASU 805-10-55-4. Cash consideration received during the third quarter 2015, net of legal and other expenses, was $1.0 million with the remaining consideration for the sale of the business being classified as contingent consideration, which per the sale agreement is based on the performance of the business and retention of current customers over an eighteen-month period, and due from the buyer in February 2017. The contingent consideration was valued at fair value as of the date of sale of the business and resulted in the Company recognizing a contingent consideration receivable from the buyer in the amount of $0.5 million. The pre-tax profit for the operations of the sold business was not significant to prior periods presented. See Note 6. Fair Value Measurement for the fair value of the contingent consideration receivable as of March 31, 2016.financial statements.AprilSeptember 2015, the the Financial Accounting Standards Board (the “FASB”("the FASB") issued Accounting Standards Update (“ASU”("ASU") No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30)2015-16, Business Combinations (Topic 805): Simplifying the Presentation of Debt Issuance CostsAccounting for Measurement-Period Adjustments. ASU 2015-032015-16 requires that debt issuance costs relatedan acquirer in a business combination recognize adjustments to a recognized debt liability be presentedprovisional amounts that are identified during the measurement period in the balance sheetreporting period in which the adjustment amounts are determined. The amendment requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a direct deduction from the carrying amountresult of the related debt liability instead of being presentedchange to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The ASU also requires an asset. ASU 2015-03 requires retrospective application and represents a change in accounting principle. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect ASU 2015-03entity to have a material effectpresent separately on the Company’s resultsface of operations, however, it will impact future balance sheet presentation and financialthe income statement disclosures relatedor disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the Company’s debt issuance costs.In April 2015,provisional amounts had been recognized as of the FASB issuedacquisition date. ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-052015-16 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently assessingadopted the impactstandard as of adoptingMarch 2016 on a prospective basis as required. The adoption of this standard did not have a material impact on the Company’sCompany's financial position, results of operations, cash flows, and financial statement disclosures.2015-02, 2015-2, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015- 022015-2 amends certain aspects of the consolidation guidance inunder U.S. GAAP. In particular, it will modifyIt modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities and also eliminates the presumption that a general partner should consolidate a limited partnership. The new guidance will also affectaffects the consolidation analysis of the Company’sas it relates to interests in VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective on January 1, 2016for interim and retrospectivelyannual reporting periods beginning after December 15, 2015 and retrospective adoption is required either through a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the year of adoption or retrospectively for all comparative periods. Early adoption is permitted. The Company is currently assessingadopted the impactstandard as of adoptingMarch 2016. The Company evaluated the latest consolidation analysis under ASU 2015-02, which was performed as of December 2015. The Company also evaluated updates to entity arrangements after December 2015. The adoption of this standard did not have an impact on the Company’sCompany's financial position, results of operations, cash flows, and financial statement disclosures.2015-01, 2015-1, Income Statement—Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expectadopted the standard as of March 2016. The adoption of ASU 2015-01 to have material impact of adopting this standard did not have an impact on the Company’sCompany's financial statements.position, results of operations, cash flows, and financial statement disclosures.Accounting Standards Update (ASU)ASU No. 2014-12 Compensation—Compensation - Stock Compensation (Topic 718), Accounting for Share Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company adopted the standard as of March 2016. The Company reviewed current stock compensation award programs and noted the adoption of ASU 2014-12 did not have an impact on the Company's financial position, results of operations, cash flows, and financial statement disclosures.permitted. permitted in any annual or interim period for which financial statements haven't been issued or made for issuance. However, all aspects of the guidance must be adopted in the same period. If an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.TableRevenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The ASU clarifies that the analysis must focus on whether a company has control of Contentsthe goods or services before they are transferred to the customer. Specifically under the ASU, an entity determines the nature of the goods or services provided to the customer and whether it controls each specified good or service before it is transferred to the customer. An entity can be a principal for some goods or services and an agent for others within the same contract. In general, a company is a principal if it controls the goods or services before transferring them to the customer. If it is not certain the company has control, it would evaluate three indicators that control has been obtained before the entity transfers the goods or services to a customer: (1) the entity is primarily responsible for fulfillment, (2) the entity has inventory risk before or after the good or service is transferred to the customer, and (3) the entity has discretion to establish pricing. Credit risk does not indicate that an entity has obtained control. Companies will need to re-evaluate their principal-agent conclusions using the new guidance as they prepare to adopt the new revenue standard. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of ASU No. 2014-09, 2014-09, 2014-9, Revenue from Contracts with Customers (Topic 606). The amendments in ASU No. 2014-092014-9 create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry specific revenue recognition guidance. In addition, the amendments supersede the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contract, and create a new Subtopic 340-40, Other Assets and Deferred Costs—Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The amendments are effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2016.2017. Early adoption is not permitted. The Company is currently assessing the impact of adopting this standard on the Company’s financial position, results of operations, cash flows and financial statement disclosures.DuringThe Company recorded $0.1 million of costs during each of the three months ended March 31, 20152016 and 2014, the Company recorded $95 and $101, respectively, of costs2015 (net of expected recovery of 80%recoveries of the total cost recognized by the Company through the applicable indemnity discussed further below and in Note 3. AcquisitionsAcquisition) in Cost of Parking Services-Leasesparking services—Lease contracts within the Condensed Consolidated Statements of Income for structural and other repair costs related to certain lease contracts acquired in the Central Merger, whereby the Company has expensed repair costs for certain leases and have engaged a third-party general contractorcontractors to complete certain structural and other repair projects.projects, and other indemnity related costs. The Company expects to incur substantial additional costs for certain structural and other repair costs pursuant to the contractual requirements of certain lease contracts acquired in the Central Merger (“Structural and Repair Costs”). Based on information available at this time, the Company currently expects theto incur additional Structural and Repair Costs to be between $7,000 and $22,000; however,of $1.5 million. While the Company continuesis unable to assess and determine the full extentestimate with certainty when such remaining costs will be incurred, it is expected that a substantial majority of the required repairs and estimatedthese costs associated with the lease contracts acquiredwill be incurred in the Central Merger.early- to mid-calendar year 2016. The Company currently expects to recover 80% of the Structural and Repair Costs incurred priorand related to October 2, 2015certain lease contracts acquired in the Central Merger through the applicable indemnity discussed further in Note 3. AcquisitionsAcquisition. Whileis unablefiled a lawsuit against the Company in the United States District Court, District of Connecticut. Mr. Holten was terminated as the Company's chairman in October 2009. The lawsuit alleged breach of his employment agreement and claimed that the agreement entitled Mr. Holten to estimatepayments worth more than $3.8 million. The Company filed an answer and counterclaim to Mr. Holten's lawsuit in 2010.certainty when such coststhe original lawsuits ("Holten Settlement"). Per the settlement, the Company will pay Mr. Holten $3.4 million of which $1.9 million will be incurred, it is expected that all or a substantial majorityrecovered by the Company through the Company's directors and officers liability insurance policies. The Company recognized an expense, net of these costs will be incurred priorinsurance recoveries, related to October 2, 2015.(“("Closing Date”Date"), the Company completed itsthe acquisition (the “Central Merger”"Central Merger" or “Merger”"Merger") of 100% of the outstanding common shares of KCPC Holdings, Inc., which was the ultimate parent of Central Parking Corporation (collectively, “Central”"Central"), for 6,161,332 shares of Company common stock and the assumption of approximately $217,675$217.7 million of Central’sCentral's debt, net of cash acquired. Additionally, Central’sthe Agreement and Plan of Merger dated February 28, 2012 with respect to the Central Merger ("Merger Agreement") provides that Central's former stockholders will beare entitled to receive cash consideration (the “Cash Consideration”"Cash Consideration") in anthe amount equal to the sum of $27,000$27.0 million plus, if and to the extent the Net Debt Working Capital (as defined below) was less than $275,000$275.0 million (the “Lower Threshold”"Lower Threshold") as of September 30, 2012, the amount by which the Net Debt Working Capital was below such amount (such sum, the “Cash"Cash Consideration Amount”Amount") to be paid three years after closing, to the extent the $27,000$27.0 million is not used to satisfy seller indemnity obligations pursuant to the Agreement and Plan of Merger dated February 28, 2012 (the “Merger Agreement”).Central’sCentral's former stockholders (i) if and to the extent Central’sCentral's combined net debt and the absolute value of Central’s negativeCentral's working capital (as determined in accordance with the Merger Agreement) (the “Net"Net Debt Working Capital”Capital") exceeded $285,000$285.0 million (the "Upper Threshold") as of September 30, 2012 and (ii) for certain defined adverse consequences as set forth in the Merger Agreement (including with respect to Structural and Repair Costs). Pursuant to the Merger Agreement, Central’sCentral's former stockholders are required to satisfy certain indemnity obligations, which are capped at the Cash Consideration Amount (the “Capped Items”"Capped Items") only through a reduction of the Cash Consideration. For certain other indemnity obligations set forth in the Merger Agreement, which are not capped at the Cash Consideration Amount (the “Uncapped Items”"Uncapped Items"), including the Net Debt Working Capital indemnity obligations described above, Central’sCentral's former stockholders may satisfy any amount payable pursuant to such indemnity obligations as follows (provided that the Company reserves the right to reject the cash and stock alternatives available to the Company and choose to reduce the Cash Consideration):·Central’s·Central’sCompany’sCompany's common stock (valued at $23.64 per share, the market value as of the closing date of the Merger Agreement); or·Central’s$27,000$27.0 million cash consideration by such amount, subject to the condition that the cash consideration remains at least $17,000$17.0 million to cover Capped Items.The Company has determined and concluded that the Net Debt Working Capital was $296,153 as of September 30, 2012 and that, accordingly, the Net Debt Working Capital exceeded the threshold by $11,153, herein recognized as a reduction of the Cash Consideration. The Company has made additional Net Debt Working Capital claims to the Selling Stockholders in aggregate of $1,600 which the Company has not recognized as a reduction of the Cash Consideration, as these additional Net Debt Working Capital claims are contingent in nature. In addition, the Company has determined that it currently has indemnity claims for certain defined adverse consequences (including indemnity claims with respect to Structural and Repair Costs incurred through March 31, 2015), which would reduce the cash consideration payable in three years from the acquisition date by $14,925. In addition, the Company expects to have additional indemnity claims in the future as new matters arise. The Company has periodically given Central’s former stockholders notice regarding indemnification matters since the closing date of the Merger and has made adjustments for known matters, although Central’s former stockholders have not agreed to such adjustments nor made any elections with respect to using cash or stock as the payment of any Uncapped Items. Furthermore, following the Company’s notices of indemnification matters, the representative of Central’s former stockholders has indicated that they may make additional inquiries and raise issues with respect to the Company’s indemnification claims (including, specifically, as to Structural and Repair Costs) and that they may assert various claims of their own relating to the Merger Agreement. On April 30, 2015, with respect to the Company’s Net Debt Working Capital calculation, the representative of Central’s former stockholders submitted specific objections to such calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $270,757 ($4,242 below the Lower Threshold). The Company continues to review and evaluate the Selling Stockholders specific objections to the Company’s calculation of Net Debt Working Capital, but currently believes that these indemnification claims should sustain challenge from the former Central stockholders and that recoverability of these indemnification claims by the Company is reasonably assured. Under the Merger Agreement, all post-closing claims and disputes, including as to indemnification matters, are ultimately subject to resolution through binding arbitration or, in the case of a dispute as to the calculation of Net Debt Working Capital, resolution by an independent public accounting firm. The Company and the representative of Central’s former stockholders are currently pursuing theShould a dispute resolution process for Net Debt Working Capital, as discussed above, although the Company’s pursuit of this process and the process available for other post-closing claims and disputes, including as to indemnification matters may be delayed by actions taken by representatives of Central’s former stockholders. Should the dispute resolution process result in determinations unfavorable to the Company, (either as to the Net Debt Working Capital calculation and/or other indemnification matters), the resulting resolution may have a material impact on the Company’s consolidated financial statements.determiningearly 2015, the Company and Central’s former stockholders engaged an independent public accounting firm for ultimate resolution, through binding arbitration, regarding its dispute as to the Company’s calculation of Net Debt Working Capital. On April 30, 2015, with respect to the Company's Net Debt Working Capital calculation, the representative of Central's former stockholders submitted specific objections to the Company's calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $270.8 million ($4.2 million below the Lower Threshold) and on September 21, 2015 submitted a revised calculation, asserting that the Net Debt Working Capital as of September 30, 2012 was $278.0 million ($3.0 million above the Lower Threshold) and therefore no amounts are due to the Company given calculated net Debt Working Capital is between the Lower Threshold and the Upper Threshold. On October 1, 2015, the Company provided notification to Central's former stockholders that the aggregate amount of the Company's (i) Net Debt Working Capital claim of $11.3 million as of September 30, 2012 and (ii) indemnity claims for certain defined adverse consequences of $14,925,as set forth in the Merger Agreement (including with respect to Structural and Repair Costs), exceeded the $27.0 million Cash Consideration and therefore the Company has evaluated the naturewould not be making any Cash Consideration payment pursuant to Section 3.7 of the costsMerger Agreement. On October 20, 2015, Central's former stockholders provided notification that they deemed the Company's refusal to pay the $27.0 million Cash Consideration to be a violation of the terms of the Merger Agreement. related indemnity claims and has concluded that it is probable that such indemnified claims will sustain any challenge from Central’s former stockholders received a non-appealable and recoverabilitybinding decision from the independent public accounting firm indicating that Net Debt Working Capital as of September 30, 2012 was $291.6 million, or $6.6 million above the Upper Threshold. Furthermore, as part of the independent public accounting firm’s decision over the calculation of Net Debt Working Capital as of September 30, 2012, it was determined by the independent public accounting firm and the Company that $1.5 million of Net Debt Working Capital claims were more appropriately claimable as an adverse consequence indemnification claim, as defined in the Merger Agreement. As such and in conjunction with the independent public accounting firm’s decision on Net Debt Working Capital, the Company (i) reclassified $1.5 million of indemnification claims from the Net Debt Working Capital calculation to indemnification claims for certain adverse consequences; and (ii) recognized an expense of $1.6 million ($0.9 million, net of tax) in General and administrative expenses for certain of the other amounts disallowed under the Net Debt Working Capital calculation as of and for the year ended December 31, 2015. The independent public accounting firm also determined that an additional $1.6 million of Net Debt Working Capital claims were disallowed; however, these indemnifiedNet Debt Working Capital amounts claimed by the Company were not previously recognized by the Company as a cost recovery given their contingent nature and since these claims is reasonably assured. were not previously recognized as an expense by the Company, the independent public accounting firm’s decision to disallow these claims had no impact to the Company's consolidated financial statements as of and for the year ended December 31, 2015.CommitmentCommitments and Contingencies, certain lease contracts acquired in the Central Merger include provisions allocating to the Company responsibility for all or a defined portion of the costs of certain structural and other repair costs required on the property, including improvement and repair costs arising as a result of ordinary wear and tear. AsThe Company has reduced the Company incurs additionalCash Consideration Amount by $6.6 million, representing the amount that Net Debt Working Capital exceeded the Upper Threshold, and $18.8 million, representing the amount of indemnified claims for certain adverse consequences (including but not limited to Structural and Repair Costs, that meetCosts) recognized by the Company as of March 31, 2016. While the Company has submitted $7.7 million of additional indemnity claims for certain adverse consequences (including but not limited to Structural and Repair Costs) to Central's former stockholders, including claims as set for in the March 11, 2016 letter, the Company has not recognized these indemnity claims as a receivable or offset to the Cash Consideration Amount with a corresponding gain or reduction of costs incurred by the Company as these additional indemnified claims are contingent in nature or represent costs which the Company has not yet incurred but which met the requirements of the indemnification provisions established in the Merger Agreement (including as to being incurred prior to October 2, 2015),Agreement. TheCompanynature of the costs and related indemnity claims and has concluded that it is probable that such indemnified claims will seek indemnification for a significant portion (generally 80%)sustain any challenge from Central’s former stockholders and recoverability of these costs pursuant to the Merger Agreement and reduce the cash consideration payable in three years from the acquisition date by such amounts.The following sets forth the adjustments to the cash consideration payable by the Company to the former stockholders of Central, based upon the foregoing determinations:(“ASC”("ASC") 805, Business Combinations,) prior to the adoption of ASU No. 2015-16), which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The purchase price has been allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the date of acquisition. The Company finalized the purchase price allocation during the third quarter of 2013.Income. The Company recognized $1,498 and $1,505 of these costs in its Consolidated Statements of Income for the three months ended March 31, 20152016 and 2014, respectively,2015. The Company recognized $0.8 million and $1.5 million of these costs in General and Administrative expenses.10administrative expenses for the three months ended March 31, 2016 and 2015, respectively, and an additional $1.0 million and $nil of costs in Depreciation and amortization expense for the three months ended March 31, 2016 and 2015, respectively.
Weighted
Average
Life (in
Years)
Intangible
Assets,
Gross (1)
Amortization
Intangible
Assets,
Net
Intangible
Assets,
Gross (1)
Amortization
Intangible
Assets,
Net March 31, 2016 (unaudited) December 31, 2015 (millions) Weighted
Average
Life (in
Years) Acquired
Intangibled
Assets,
Gross (1) Accumulated
Amortization Acquired
Intangible
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Net Acquired
Intangible
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Assets,
NetCovenant not to compete 2.8 $ 0.9 $ (0.9 ) $ — $ 0.9 $ (0.9 ) $ — Trade names and trademarks 0.9 9.8 (8.4 ) 1.4 9.8 (7.8 ) 2.0 Proprietary know how 1.1 34.7 (26.9 ) 7.8 34.7 (25.0 ) 9.7 Management contract rights 12.6 81.0 (18.1 ) 62.9 81.0 (16.8 ) 64.2 Acquired intangible assets, net (2) 11.1 $ 126.4 $ (54.3 ) $ 72.1 $ 126.4 $ (50.5 ) $ 75.9 onof fully amortized intangible assets.19nineteen years.
(unaudited)
2015 Three Months Ended (millions) March 31, 2016 March 31, 2015 Amortization expense related to intangible assets included in depreciation and amortization $ 3.8 $ 3.8
One
Two
Three
Four
Five(millions) Region
One Region
Two Region
Three Total Balance as of December 31, 2015 (1) $ 337.5 $ 62.7 $ 31.1 $ 431.3 Foreign currency translation 0.2 — — 0.2 Balance as of March 31, 2016 $ 337.7 $ 62.7 $ 31.1 $ 431.5 2015,2016, goodwill allocated to previous reporting units of Region One, Region Two, and Region Three and Region Five have been reallocated to newaggregated into a single reporting unitsunit, Region One. See also Note 13. Business Unit Segment Information for further discussion on a retrospective basis for all periods presented.certain organizational and executive leadership changes.earningearnings or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit.2015,2016, the goodwill allocated to certain previous reporting units have been reallocated to newaggregated into a single reporting units based on the relative fair value of the new reporting units.unit. See also Note 13. Business Unit Segment Information for further disclosure on the Company’s change in reporting segments effective January 1, 2015.2016.segmentssegment information, the Company completed a quantitative testimpairment analysis (Step One) offor goodwill impairment as of January 1, 20152016 and concluded that the estimated fair values of each of the Company’sCompany's reporting20152016 goodwill impairment quantitative test (Step One),Step One analysis, the Company analyzed actual and projected growth trends of the reporting units, gross margin, operating expenses and Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”("EBITDA") (which also includes forecasted five-year income statement and working capital projection, a market – basedmarket-based weighted average cost of capital and terminal values after five years). The Company also assesses critical areas that may impact its business including economic conditions, market related exposures, competition,productservice offerings and changes in key personnel. As part of the January 1, 20152016 goodwill assessment, the Company engaged a third-party to evaluate its reporting unit’sunits' fair values.internally reported as Region One (North)(Urban), Region Two (South),(Airport transportation) and Region Three (New York Metropolitan tri-state area of New York, New Jersey and Connecticut), Region Four (Airport transportation operations nationwide), Region Five (other(USA Parking reporting units of USA Parkingunit and event planning and transportation services). For purposes of reportable segments, the goodwill in Region FiveThree is attributable to USA Parking and event planning and transportation services reporting units.value measurements-recurring basis20152016 and December 31, 2014: Fair Value Measurement March 31, 2016 (unaudited) December 31, 2015 (millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets Prepaid expenses and other Contingent consideration receivable $ — $ — $ 0.5 $ — $ — $ 0.5 Interest rate swap — — — — 0.2 — Total $ — $ — $ 0.5 $ — $ 0.2 $ 0.5 Liabilities Accrued expenses Interest Rate Swap $ — $ 0.2 $ — $ — $ — $ — Total $ — $ 0.2 $ — $ — $ — $ — the Companyus are designated as hedges of specific exposures at inception, with an expectation that changes in the fair value will essentially offset the change in the and with any subsequent changes in fair value recognized currently in earnings. Fair values of derivatives are determined based on quoted prices for similar contracts. The effective portion of the change in fair value of the interest rate swap is reported in accumulatedAccumulated other comprehensive income, a component of stockholders’Stockholders' equity, and is being recognized as an adjustment to interest expense or other (expense) income, respectively, over the same period the related expenses are recognized in earnings. Ineffectiveness would occur when changes in the market value of the hedged transactions are not completely offset by changes in the market value of the derivative and those related gains and losses on derivatives representing hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized currently in earnings when incurred. No ineffectiveness was recognized during the three months ended March 31, 2016 and 2015.2014.Contingent Acquisition Considerationacquisition consideration include financial forecastsreceivable as of future operating results,March 31, 2016 was $0.5 million, with the probability of reaching the forecast and the associated discount rate. The weighted average probabilityfair value of the contingent acquisition consideration ranges from 12%receivable to 50%, with a weighted average discount rate of 12%.The following provides a reconciliation of the beginning and ending balances for the contingent consideration liability measured at fair value using significant unobservable inputs (Level 3) (unaudited):For the three months ended March 31, 2015 and 2014, the Company recognized an expense of $34 and $166, respectively, in General and Administrative Expenses within the Consolidated Statements of Income due to the change in fair value measurements using a Level 3 valuation technique. These adjustments were the result of using revised forecasts of operating results, updates to the probability of achieving the revised forecasts and updated fair value measurements that revised the Company’s contingent consideration obligations related to the purchase of this business. 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. There were no impairment charges for the three months ended March 31, 20152016 and 2014.instruments not measuredInstruments Not Measured at fair value20152016 and December 31, 2014:2015:
Amount
Amount March 31, 2016 (unaudited) December 31, 2015 (millions) Carrying
Amount Fair Value Carrying
Amount Fair Value Cash and cash equivalents $ 30.8 $ 30.8 $ 18.7 $ 18.7 Long-term borrowings Senior credit facility, net of original discount on borrowings and deferred financing costs $ 232.4 $ 232.4 $ 223.1 $ 223.1 Other obligations 1.9 1.9 2.0 2.0 1 measurement.1. The fair value of the Senior Credit Facility and otherOther obligations waswere estimated to not be materially different from the carrying amount as these instruments bear interest at variable market rates and are generally measured using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and have beenwould be classified as a Level 2 measurement.
2015
(unaudited)
2014 Amount Outstanding (millions) Maturity Date March 31, 2016 (unaudited) December 31, 2015 Senior credit facility, net of original discount on borrowings and deferred financing costs (1) / (2) $ 232.4 $ 223.1 Other borrowings Various 1.9 2.0 Total obligations under credit facility and other borrowings 234.3 225.1 Less: Current portion of obligations under credit facility and other borrowings 16.5 15.2 Total long-term obligations under credit facility and other borrowings $ 217.8 $ 209.9 (the “Credit(“Credit Agreement”) with Bank of America, N.A. ("Bank of America"), as administrative agent, Wells Fargo Bank, N.A. ("Wells Fargo Bank") and JPMorgan Chase Bank, as co-syndication agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto.Senior Credit Facilitysenior credit facility (the “Senior Credit Facility”) that permitted aggregate borrowings of $450,000$450.0 million consisting of (i) a revolving credit facility of up to $200,000$200.0 million at any time outstanding, which included a letter of credit facility that was limited to $100,000$100.0 million at any time outstanding, and (ii) a term loan facility of $250,000.$250.0 million. The Senior Credit Facility was due to mature on October 2, 2017.The Credit Agreement required the Company to make mandatory repayments of principal within 90 days of each fiscal year-end provided that certain excess cash is available, as defined within the Credit Agreement. In March 2014, the Company made a mandatory principal repayment of $7,940, as provided under the Credit Agreement.(Amended and (“Restatement Date)Date”), the Company entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with Bank of America, N.A. (“Bank of America”), as administrative agent, an issuing lender and swing-line lender; Wells Fargo Bank, N.A., as an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO Harris Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint lead arrangers and joint book managers; and the lenders party thereto (the “Lenders”). The Restated Credit FacilityAgreement reflects modifications to, and an extension of, the existingSenior Credit Agreement.Senior Credit Facility”) that permits aggregate borrowings of $400,000$400.0 million consisting of (i) a revolving credit facility of up to $200,000$200.0 million at any time outstanding, which includes a $100,000$100.0 million sublimit for letters of credit and a $20,000$20.0 million sublimit for swing-line loans, and (ii) a term loan facility of $200,000$200.0 million (reduced from $250,000)$250,000 under the Senior Credit Facility). The Company may request increases of the revolving credit facility in an aggregate additional principal amount of $100,000.$100.0 million. The Restated Senior Credit Facility matures on February 20, 2020. Senior Credit Facility had been drawn by the Company as of the Amended and Restatement Date (including approximately $10,400$10.4 million drawn on such date) and is subject to scheduled quarterly amortization of principal as follows: (i) $15,000$15.0 million in the first year, (ii) $15,000$15.0 million in the second year, (iii) $20,000$20.0 million in the third year, (iv) $20,000$20.0 million in the fourth year, (v) $20,000$20.0 million in the fifth year and (vi) $110,000$110.0 million in the sixth year. The Company also had outstanding borrowings of $147,299$147.3 million (including $53,449$53.4 million in letters of credit) under the revolving credit facility as of the Amended and Restatement Date. Senior Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s consolidated total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance with the pricing levels set forth in the Restated Credit Agreement (the “ Applicable Margin”), plus LIBOR or (ii) the Applicable Margin plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a daily rate equal to LIBOR plus 1.0% (the highest of (x), (y) and (z), the “Base Rate”), except that all swing-line loans will bear interest at the Base Rate plus the Applicable Margin.1:25:1.25:1.0.wholly-ownedwholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Restated Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Restated Credit Agreement. The Company’s obligations under the Restated Credit Agreement and such domestic subsidiaries’ guaranty obligations are secured by substantially all of their respective assets.2015.2015,2016, the Company had $75,701$92.2 million of borrowing availability under the Restated Credit Agreement, of which the Company could have borrowed $75,701$61.9 million on March 31, 20152016 and remained in compliance with the above described covenants as of such date. The additional borrowing availability under the Restated Credit Agreement is limited only as of the Company’s fiscal quarter-endsquarter-end by the covenant restrictions described above. At March 31, 2015,2016, the Company had $53,449$52.8 million of letters of credit outstanding under the Restated Senior Credit Facility, with aggregate borrowings against the Restated Senior Credit Facility of $267,100$236.2 million (excluding originaldebt discount on borrowings of $2,173)$1.6 million and deferred financing cost of $2.2 million).$634.Interest Rate Swap TransactionsIn October 2012,$0.6 million for the Company entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0 million (the “Notional Amount”). The Interest Rate Swaps have a termination date of September 30, 2017. The Interest Rate Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under the Credit Agreement, originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the Credit Agreement, determined based upon the Company’s consolidated total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the Credit Agreement. These Interest Rate Swaps are classified as cash flow hedges, and the Company assesses the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase of interest expense. As ofthree months ended March 31, 2015, no ineffectiveness of the hedge has been recognized in interest expense. See Note 5. Fair Value Measurement for the fair value of the interest rate swap as of March 31, 2015 and December 31, 2014.The Company does not enter into derivative instruments for any purpose other than for cash flow hedging purposes.152015.$3,600$3.6 million in contract year 2002 to approximately $4,500$4.5 million in contract year 2025. Annual guaranteed minimum payments to the State increase from approximately $8,300$8.3 million in contract year 2002 to approximately $13,200$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, 2016 and 2015 and 2014 is $11,042$11.3 million and was $10,815,$11.0 million, respectively. All of the cash flow from the parking facilities are pledged to the security of the special facility revenue bonds and are collected and deposited with the bond trustee. Each month the bond trustee makes certain required monthly distributions, which are characterized as “Guaranteed Payments.” To the extent the monthly gross receipts generated by the parking facilities are not sufficient for the trustee to make the required Guaranteed Payments, the Company is obligated to deliver the deficiency amount to the trustee, with such deficiency payments representing interest bearing advances to the trustee. The Company does not directly guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.·expenses;·expenses,bonds;·bonds,expenses;·expenses,·of Connecticut, net of reimbursements, as of March 31, 20152016 (unaudited) are as follows:During(millions) 2016 Balance at December 31, 2015 $ 11.6 Deficiency payments made 0.1 Deficiency repayment received (0.1 ) Balance at March 31, 2016 $ 11.6 $5,$nil and $nil, received and recorded interest of $43$0.1 million and $nil and premium of $8,$nil and $nil, respectively, with the net of these amounts recorded as a reduction in Cost of Parking Servicesparking services—Management contracts within the Condensed Consolidated Statements of Income. During the three months ended March 31, 2014, the Company received deficiency repayments (net of payments made) of $92 and received and recorded premium of $14, with the net of these amounts recorded as reduction in Cost of Parking Services within the Consolidated Statements of Income. The Company accrues for deficiency payments when the potential for future deficiency payments are both probable and estimable. There were no amounts of estimated deficiency payments accrued as of March 31, 20152016 and December 31, 2014,2015, as the Company concluded that the potential for future deficiency payments did not meet the criteria of both probable and estimable.unaffiliatedun-affiliated entity and the annual management fee will be paid to the extent funds are available for the trustee to make a distribution, and are paid after Guaranteed Payments (as defined in the Bradley Agreement) are paid,, and after the repayment of all deficiency payments, including interest and premium. Cumulative management fees of approximately $14,983$16.0 million and $14,733$15.7 million have not been recognized as of March 31, 20152016 and December 31, 2014,2015, respectively, and no management fees were recognized as revenue for the three months ended March 31, 20152016 and 2014.162015.20152016 and 2014.2015. The Company recognized no stock-based compensation expense related to stock options for the three months ended March 31, 20152016 and 2014,2015, as all stock options previously granted were fully vested. As of March 31, 2015,2016, there were no unrecognized compensation costs related to unvested stock options.2015, the Company authorized certain one-time grants of 3,9632016, no restricted stock units to an executive that vest five years from date of issuance.were authorized by the Company. During the three months ended March 31, 20152016 and 2014,2015, no restricted stock units vested. During the three months ended March 31, 2015 and 2014, no2016, 4,124 restricted stock units were forfeited under the amended and restated Long-Term Incentive Plan.$403$0.2 million and $796$0.4 million of stock-based compensation expense related to the restricted stock units for the three months ended March 31, 20152016 and 2014,2015, respectively, which is included in General and Administrative Expensesadministrative expenses within the Condensed Consolidated Statements of Income. As of March 31, 2015,2016, there was $4,115$2.5 million of unrecognized stock-based compensation costs, net of estimated forfeitures, related to the restricted stock units that are expected to be recognized over a weighted average remaining period of approximately 4.23.5 years.Based Stock2014 Performance-Based Incentive Program”)., whereby the Company will issue performance share units to certain executive management individuals that represent shares potentially issuable in the future. The objective of the performance-based incentive programPerformance-Based Incentive Program is to link compensation to business performance, encourage ownership of Company stock, retain executive talent, and reward executive performance. The 2014 Performance-Based Incentive Program provides participating executivesexecutive management individuals with the opportunity to earn vested common stock if certain performance targets for pre-tax free cash flow are achieved over the cumulativea three year performance period of 2014 through 2016 and recipients satisfy service-based vesting requirements. The stock-based compensation expense associated with unvested performance-based incentivesperformance share units are recognized on a straight-line basis over the shorter of the vesting period or minimum service period and dependent upon the probable outcome of the number of shares that will ultimately be issued based on the achievement of pre-tax free cash flow over the cumulative three year periodperiod. In March 2016, the Company granted 94,780 performance share units to certain individuals within executive management. During the three months ended March 31, 2016 and 2015, 4,493 and nil, performance share units were forfeited under the amended and restated Long-2014 through 2016.$162$0.4 million and $0.2 million of stock-based compensation expense related to the 2014 Performance-Based Incentive Program for the three months ended March 31, 2016 and 2015, respectively, and is included in General and Administrative Expensesadministrative expenses within the Condensed Consolidated Statements of Income. During the three months ended March 31, 2015, no performance-based shares were forfeited. There was no such program in place during the three months ended March 31, 2014. Future compensation expense for currently outstanding awards under the 2014 Performance Based Incentive Program could reach a maximum of $2,870.$9.3 million. Stock-based compensation for the 2014 Performance-Based Incentive Program is expected to be recognized over a weighted average period of 1.82.1 years.
2015
2014 (millions, except share and per share data) March 31, 2016 March 31, 2015 Net income attributable to SP Plus Corporation $ — $ 1.3 Basic weighted average common shares outstanding 22,328,578 22,127,725 Dilutive impact of share-based awards 264,927 400,884 Diluted weighted average common shares outstanding 22,593,505 22,528,609 Net income per common share Basic $ — $ 0.06 Diluted $ — $ 0.06 performance-based restricted stock wasperformance share units were excluded infrom the computation of weighted average diluted common share outstanding because the number of shares ultimately issuable is contingent uponon the Company’s attainment ofCompany's performance goals, forwhich were not achieved as of the period beginning January 1, 2014 through December 31, 2016. There was no performance-based incentive program in place during the three months ended March 31, 2014.
2015
2014 Three Months Ended (millions) March 31, 2016 March 31, 2015 Net income $ 0.6 $ 1.8 Effective portion of unrealized loss on cash flow hedge (0.2 ) (0.3 ) Foreign currency translation 0.1 (0.2 ) Comprehensive income 0.5 1.3 Less: Comprehensive income attributable to noncontrolling interest 0.6 0.5 Comprehensive (loss) income attributable to SP Plus Corporation $ (0.1 ) $ 0.8 incomeloss is comprised of unrealized gains (losses) on cash flow hedges and foreign currency translation adjustments. The components of changes in accumulated comprehensive income (loss),loss, net of tax, for the three months ended March 31, 20152016 were as follows (unaudited):
Translation
Adjustments
Unrealized Gain (Loss)
on Cash Flow Hedge
Accumulated
Other
Comprehensive
Income (Loss) (millions) Foreign Currency
Translation
Adjustments Effective Portion of
Unrealized Gain (Loss)
on Cash Flow Hedge Total
Accumulated
Other
Comprehensive
LossBalance at December 31, 2015 $ (1.2 ) $ 0.1 $ (1.1 ) Change in other comprehensive income (loss) 0.1 (0.2 ) (0.1 ) Balance at March 31, 2016 $ (1.1 ) $ (0.1 ) $ (1.2 ) 2015,2016, the Company recognized an income tax expense of $1,335$0.9 million on pre-tax earnings of $3,129$1.5 million compared to a$1.3 million income tax benefit of $7,438expense on pre-tax lossesearnings of $2,648$3.1 million for the three months ended March 31, 2014.2015. The effective tax rate for the three months ended March 31, 20152016 was 58.0% compared to 42.7%. for the three months ended March 31, 2015. The effective tax rate for the three months ended March 31, 2014 was a benefit of 280.9%,2016 increased primarily as a result of recognizing a $6,359 discrete benefit for the reversalwrite-off of a valuation allowance for a deferred tax asset established for historical net operating losses attributable to the State of New York. The valuation allowance was reversed inTennessee, compared to the first quarter of 2014 due to State of New York tax law changes effectivethree months ended March 31, 2014, which resulted in the Company determining that the future benefit of the net operating loss carryforwards were more likely than not to be realized.2015,2016, the Company has not identified any uncertain tax positions that would have a material impact on the Company’s financial position. The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense.20152016 are shown below:2010 – 2014United States — federal income tax2007 – 2014United States — state and local income tax2011 – 2014Canada and Puerto Rico18sixthree operating segments. The CODM assesses the performance of each operating segment using information about its revenue and gross profit as its primary measure of performance, but does not evaluate segments using discrete asset information. There are no inter-segment transactions and the Company does not allocate interest and other income, interest expense, depreciation and amortization or taxes to operating segments. The accounting policies for segment reporting are the same as for the Company as a whole.2015,2016, the Company began certain organizational and executive leadership changes to align with how the CODM reviews performance and makes decisions in managing the Company and, therefore, changed certain internal operating segment information reported to the CODM. TheSpecifically, the previous internally reported operating segments are internally reportedknown as Region One (North), Region Two (South), and Region Three (New York Metropolitan tri-state area of New York, New Jersey, and Connecticut), were aggregated into a single operating segment now known as Region FourOne (Urban). Region Two (Airport transportation operations nationwide,nationwide) and Region FiveThree (other operating segments of USA Parking and event planning and transportation services)., previously known as Region Four and Region Five, respectively, will continue to be reported to the CODM unchanged. All prior periods presented have been restated to reflect the new internal reporting to the CODM.Northern California,Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Puerto Rico, and fourthree Canadian provinces of Alberta, Manitoba, Ontario and Quebec.encompasses operations in Alabama, Arizona, Colorado, Florida, Georgia, Hawaii, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Oklahoma, South Carolina, Southern California, Tennessee, Texas Utah and Puerto Rico.Region Three encompasses operations in the New York metropolitan tri-state area of New York, New Jersey and Connecticut.Region Four(Airport transportation) encompasses all major airport and transportation operations nationwide.FiveThree encompasses other operating segments includingreporting units of USA Parking and event planning and transportation services.adjustments related to prior years.adjustments.and 2014 (unaudited):
2015
Margin%
2014
Margin% Three Months Ended (millions) March 31, 2016 Gross
Margin
% March 31, 2015 Gross
Margin
%Parking Services Revenue Region One Lease contracts $ 106.6 $ 104.8 Management contracts 46.4 47.3 Total Region One 153.0 152.1 Region Two Lease contracts 30.5 29.7 Management contracts 24.2 25.5 Total Region Two 54.7 55.2 Region Three Lease contracts 1.3 1.2 Management contracts 17.2 17.6 Total Region Three 18.5 18.8 Other Lease contracts 0.1 0.1 Management contracts 3.4 3.7 Total Other 3.5 3.8 Reimbursed management contract revenue 167.9 174.3 Total Revenues $ 397.6 $ 404.2 Gross Profit Region One Lease contracts 7.2 7 % $ 5.5 5 % Management contracts 19.5 42 % 20.8 44 % Total Region One 26.7 26.3 Region Two Lease contracts 0.8 3 % 0.9 3 % Management contracts 5.8 24 % 5.5 22 % Total Region Two 6.6 6.4 Region Three Lease contracts 0.2 15 % 0.2 17 % Management contracts 3.9 23 % 3.8 22 % Total Region Three 4.1 4.0 Other Lease contracts (0.3 ) (300 )% 0.5 500 % Management contracts 1.3 38 % 4.0 108 % Total Other 1.0 4.5 Total gross profit 38.4 $ 41.2 General and administrative expenses 24.6 25.7 General and administrative expense percentage of gross profit 64 % 62 % Depreciation and amortization 9.2 7.9 Operating income 4.6 7.6 Three Months Ended March 31, 2016 Gross
Margin
% March 31, 2015 Gross
Margin
%Other expenses (income) Interest expense 2.8 4.1 Interest income (0.2 ) (0.1 ) Equity in losses from investment in unconsolidated entity 0.5 0.5 Total other expenses (income) 3.1 4.5 Income before income taxes 1.5 3.1 Income tax expense 0.9 1.3 Net income 0.6 1.8 Less: Net income attributable to noncontrolling interest 0.6 0.5 Net income attributable to SP Plus Corporation $ — $ 1.3 2014.“expect,” “intend”, ‘will,“will,” “predict,” “project,” “may,” “should,” “could,” “believe,” “would,” “might,” “anticipates,“anticipate,” or words of similar terms and phrases, but such words, terms and phrases are not the exclusive means of identifying such statements. These expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. These forward looking statements are made based on management’s expectations, beliefs and projections concerning future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict and many of which are beyond management’s control. These forward looking statements are not guarantees of future performance and there can be no assurance that our expectations, beliefs and projections will be realized.2014,2015, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and except as expressly required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances, future events or for any other reason.Our Operationseither a fixed annual rent, a percentage of gross customer collections or a combination thereof. We collect all revenues under lease arrangements and we are responsible for most operating expenses, but we are typically not responsible for major maintenance, capital expenditures or real estate taxes. Margins for lease contracts vary significantly, not only due to operating performance, but also due to variability of parking rates in different cities and varying space utilization by parking facility type and location. As of March 31, 20152016, we operated 81%82% of our locations under management contracts and 19%18% under leases.2015, 81%2016, 82% of our locations were operated under management contracts and 83%80% of our gross profit for the three months ended March 31, 20152016 was derived from management contracts. Only 41%40% of total revenue (excluding reimbursed management contract revenue), however, was from management contracts because under those contracts theproperties’properties' tenants and visitors. By outsourcing these services, they are able to capture additional profit by leveraging the unique operational skills and controls that an experienced parking management company can offer. Our ability to consistently deliver a uniformly high level of parking and related services and maximize the profit to our clients improves our ability to win contracts and retain existing locations. Our focus on customer service and satisfaction is a key driver of our high location retention rate, which was approximately 89%90% and 88%89% for the twelve month periods ended March 31, 2016 and 2015, and 2014, respectively. March 31, 2016 December 31, 2015 March 31, 2015 Leased facilities (1) 706 713 768 Managed facilities (1) (2) 3,187 3,161 3,289 Total facilities 3,893 3,874 4,057 taxes)tax), consulting and real estate development fees, gains on sales of contracts and payments for exercising termination rights.as well as insurance and other value-added services with respect to managed locations. We believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker’s compensation and health care claims by maintaining a large per-claim deductible. As a result, we have generated operating income on the insurance provided under our management contracts by focusing on our risk management efforts and controlling losses. Management contract revenue doesrevenues do not include gross customer collections at the managed locations as this revenue belongsthese revenues belong to the property owner rather than to us. Management contracts generally provide us with a management fee regardless of the operating performance of the underlying facilities.(leaselease or management)management, are typically determined by our client and not us. Although the underlying economics to us of management contracts and leases are similar, the manner in which we account for them differs substantially.Chief Operating Decision Makerchief operating decision maker (“CODM”), in deciding how to allocate resources. Our CODM is our chief executive officer.2015,2016, the Company began certain organizational and executive leadership changes to align with how our CODM reviews performance and makes decisions in managing the Company and therefore, changed internal operating segment information reported to the CODM. The operating segments are internally reported as Region One (North)(Urban), Region Two (South),(Airport transportation) and Region Three (New York Metropolitan tri-state area of New York, New Jersey and Connecticut), Region Four (Airport transportation operations nationwide, Region Five (other reporting units of USA Parking and event planning and transportation services). All prior periods presented have been restated to reflect the new internal reporting to the CODM.Northern California,Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Puerto Rico, and fourthe three Canadian provinces of Alberta, Manitoba, Ontario and Quebec.encompasses operations in Alabama, Arizona, Colorado, Florida, Georgia, Hawaii, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Oklahoma, South Carolina, Southern California, Tennessee, Texas Utah and Puerto Rico.Region Three encompasses operations in the New York metropolitan tri-state area of New York, New Jersey and Connecticut.Region Four(Airport transportation) encompasses all major airport and transportation operations nationwide.FiveThree encompasses other operating segments including USA Parking and event planning and transportation services.reserve adjustments related to prior years.reserves adjustments.20152016 and 2014:endedEnded March 31, 20152016 Compared to Three Months ended March 31, 2014 Three Months Ended March 31, Region One Region Two Region Three Other Total Variance (millions) 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Amount % Lease contract revenue: New locations $ 3.6 $ 0.1 $ 18.0 $ 16.1 $ — $ — $ — $ — $ 21.6 $ 16.2 $ 5.4 33.3 % Contract expirations 0.4 7.7 0.1 1.4 — 0.1 — — 0.5 9.2 (8.7 ) (94.6 )% Same locations 99.5 95.2 12.4 12.2 1.1 1.0 0.1 0.1 113.1 108.5 4.6 4.2 % Conversions 3.1 1.8 — — 0.2 0.1 — — 3.3 1.9 1.4 73.7 % Total lease contract revenue $ 106.6 $ 104.8 $ 30.5 $ 29.7 $ 1.3 $ 1.2 �� $ 0.1 $ 0.1 $ 138.5 $ 135.8 $ 2.7 2.0 % Management contract revenue: New locations $ 5.1 $ 0.5 $ 1.9 $ — $ 2.4 $ 0.1 $ — $ — $ 9.4 $ 0.6 $ 8.8 1,466.7 % Contract expirations 0.2 6.7 — 4.9 0.9 3.3 — — 1.1 14.9 (13.8 ) (92.6 )% Same locations 41.0 40.0 22.3 20.6 13.7 14.2 3.4 3.7 80.4 78.5 1.9 2.4 % Conversions 0.1 0.1 — — 0.2 — — — 0.3 0.1 0.2 200.0 % Total management contract revenue $ 46.4 $ 47.3 $ 24.2 $ 25.5 $ 17.2 $ 17.6 $ 3.4 $ 3.7 $ 91.2 $ 94.1 $ (2.9 ) (3.1 )% $19.2$2.7 million, or 16%2.0%, to $138.5 million for the three months ended March 31, 2016, compared to $135.8 million for the three months ended March 31, 2015, compared to $116.6 million for the three months ended March 31, 2014.2015. The increase in lease contract revenue resulted primarily from increases of $19.0$5.4 million from new locations, $4.1$4.6 million from same locations and $0.8$1.4 million from conversions,locations that converted from management contracts during the year, partially offset by a $4.7an $8.7 million decrease in revenue from contract expirations.all five regions one and two, same locations increasesin all three regions, and conversions in regions one and two and conversions in regions four and five. The increase in lease contract revenue wasthree, partially offset by decreases in lease contract revenue for contract expirations in regions one, two andall three same locations in other and conversions for region one.regions. Same locationslocation revenue increases for the aforementioned regions were primarily due to increases in short-term parking and monthly parkingparker revenue.increased $4.1decreased $2.9 million, or 5%3.1%, to $91.2 million for the three months ended March 31, 2016, compared to $94.1 million for the three months ended March 31, 2015, compared to $90.0 million for the three months ended March 31, 2014.2015. The increasedecrease in management contract revenue resulted primarily from decreases of $13.8 million from contract expirations, partially offset by increases of $7.7$8.8 million from new locations, and $3.5$1.9 million from same locations partially offset by a $6.7and $0.2 million decrease from contract expirations and $0.4 million decreaselocations that converted from conversions.lease contracts during the year.increaseddecreased primarily due to decreases in contract expirations in all three regions, same locations in region three and other, partially offset by increases in new locations in all five regions, same locations increases in regions two, five and other, and conversions in region four, which was partially offset by decreases in revenue for contract expirations in all fivethree regions, same locations in regions one three and four and conversions in regions one, two and five. Thelocations that converted from lease contracts in region three. Same location revenue increases in same locations revenue for the aforementioned regions were primarily due to increasesan increase in other ancillary services.increased $5.1decreased $6.4 million, or 3%3.7%, to $174.3$167.9 million for the three months ended March 31, 2015,2016, compared to $169.2$174.3 million million for the three months ended March 31, 2014.2015. This increasedecrease resulted from additionalless reimbursements for costs incurred on behalf of owners. Three Months Ended March 31, Region One Region Two Region Three Other Total Variance (millions) 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Amount % Cost of parking services lease contracts: New locations $ 3.5 $ 0.1 $ 18.2 $ 16.1 $ — $ — $ — $ — $ 21.7 $ 16.2 $ 5.5 34.0 % Contract expirations 0.4 7.6 0.1 1.3 — 0.1 — — 0.5 9.0 (8.5 ) (94.4 )% Same locations 92.6 90.0 11.4 11.4 0.9 0.9 0.4 (0.4 ) 105.3 101.9 3.4 3.3 % Conversions 2.9 1.6 — — 0.2 — — — 3.1 1.6 1.5 93.8 % Total cost of parking services lease contracts $ 99.4 $ 99.3 $ 29.7 $ 28.8 $ 1.1 $ 1.0 $ 0.4 $ (0.4 ) $ 130.6 $ 128.7 $ 1.9 1.5 % Cost of parking services management contracts: New locations $ 3.5 $ 0.2 $ 1.7 $ — $ 1.6 $ — $ — $ — $ 6.8 $ 0.2 $ 6.6 3,300.0 % Contract expirations 0.3 4.6 — 4.7 0.7 2.8 — — 1.0 12.1 (11.1 ) (91.7 )% Same locations 23.0 21.7 16.7 15.3 10.9 11.0 2.1 (0.3 ) 52.7 47.7 5.0 10.5 % Conversions 0.1 — — — 0.1 — — — 0.2 — 0.2 — % Total cost of parking services management contracts $ 26.9 $ 26.5 $ 18.4 $ 20.0 $ 13.3 $ 13.8 $ 2.1 $ (0.3 ) $ 60.7 $ 60.0 $ 0.7 1.2 % $16.7$1.9 million, or 15%1.5%, to $130.6 million for the three months ended March 31, 2016 compared to $128.7 million for the three months ended March 31, 2015 compared to $112.0 million for the three months ended March 31, 2014.2015. The increase in cost of parking services for lease contracts resulted primarily from increases of $18.2$5.5 million from new locations, $2.3$3.4 million from same locations and $0.7$1.5 million from conversions,locations that converted from management contracts, partially offset by a $4.3an $8.5 million decrease from contract expirations. Same location costs increased $3.4 million or 3.4% primarily due to higher rent expense as a result of higher revenue for same locations and an increase in higher costs not specifically allocated to regions.all five regions one and two, same locations in region one and other, and locations converted from management contracts in regions one two and three, and conversions in regions four and five, partially offset by decreases in same locations in region four and other, conversions in region one and contract expirations in regions one, two, and three. Same locations costs increased primarily due general increases in operating expenses and higher lease rent expense, primarily as a result of contingent rental payments on the increase in revenue for same locations, partially offset by a decrease in health benefit costs.$0.8$0.7 million, or 1%1.2%, to $60.7 million for the three months ended March 31, 2016, compared to $60.0 million for the three months ended March 31, 2015, compared to $59.2 million for the three months ended March 31, 2014.2015. The increases in cost of parking services for management contracts resulted primarily from increases of $5.4$6.6 million from new locations, $5.0 million from same locations and $0.2 million from locations that converted from lease contracts, partially offset by a $3.9decrease of $11.1 million decrease from contract expirations,expirations. Same location costs increased $5.0 million or 10.5% primarily due to an increase in compensation and $0.6 million decrease from same locationsbenefit costs, certain costs not specifically allocated to regions and $0.1 million decrease from conversions.higher costs related to ancillary services.fivethree regions, same locations in regions two, four and five and conversions in region four, partially offset by decreases in cost of parking services for management contracts for same locations in regions one, threetwo and other conversionsand locations that converted from lease contracts in regions one and five andthree. Cost of parking services decreased in contract expirations infor regions one, two, and three and four. Same locations costs decreased primarily due decreases in costs associated with reverse management contracts and cost of providing management services and a decrease in health benefit costs and prior year insurance reserve adjustments. The decrease in the other region for same locations was primarily attributed to prior year insurance reserve adjustments and certain costs that are not specifically identifiable to a region.increased $5.1decreased $6.4 million, or 3%3.7%, to $167.9 million for the three months ended March 31, 2016, compared to $174.3 million for the three months ended March 31, 2015, compared to $169.2 million for the three months ended March 31, 2014.2015. This increasedecrease resulted from additionalless reimbursements for costs incurred on behalf of owners. Three Months Ended March 31, Region One Region Two Region Three Other Total Variance (millions) 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Amount % Gross profit lease contracts: New locations $ 0.1 $ — $ (0.2 ) $ — $ — $ — $ — $ — $ (0.1 ) $ — $ (0.1 ) — % Contract expirations — 0.1 — — — — — — — 0.1 (0.1 ) (100.0 )% Same locations 6.9 5.1 1.0 0.9 0.2 0.2 (0.3 ) 0.5 7.8 6.7 1.1 16.4 % Conversions 0.2 0.3 — — — — — — 0.2 0.3 (0.1 ) (33.3 )% Total gross profit lease contracts $ 7.2 $ 5.5 $ 0.8 $ 0.9 $ 0.2 $ 0.2 $ (0.3 ) $ 0.5 $ 7.9 $ 7.1 $ 0.8 11.3 % (Percentages) Gross profit percentage lease contracts: New locations 3.2 % 7.5 % 0.8 % — % — % — % — % — % (0.1 )% 0.1 % Contract expirations (3.1 )% 1.5 % (20.4 )% 3.3 % — % (45.1 )% — % — % (7.3 )% 1.4 % Same locations 7.0 % 5.4 % 7.6 % 6.7 % 17.3 % 17.6 % (2,287.8 )% 6,278.3 % 6.8 % 6.1 % Conversions 5.1 % 16.8 % — % — % 16.8 % 42.2 % — % — % 5.9 % 18.4 % Total gross profit percentage 6.8 % 5.3 % 2.6 % 2.9 % 17.1 % 16.3 % (2,287.8 )% 6,278.3 % 5.7 % 5.3 % Gross profit management contracts: New locations $ 1.6 $ 0.3 $ 0.2 $ — $ 0.8 $ — $ — $ — $ 2.6 $ 0.3 $ 2.3 766.7 % Contract expirations (0.1 ) 2.0 — 0.2 0.2 0.6 — — 0.1 2.8 (2.7 ) (96.4 )% Same locations 18.0 18.4 5.6 5.3 2.8 3.2 1.3 4.0 27.7 30.9 (3.2 ) (10.4 )% Conversions — 0.1 — — 0.1 — — — 0.1 0.1 — — % Total gross profit management contracts $ 19.5 $ 20.8 $ 5.8 $ 5.5 $ 3.9 $ 3.8 $ 1.3 $ 4.0 $ 30.5 $ 34.1 $ (3.6 ) (10.6 )% Gross profit percentage management contracts: New locations 30.5 % 66.7 % 9.8 % 76.7 % 34.9 % 45.7 % — % — % 27.5 % 65.6 % Contract expirations (45.2 )% 30.6 % 6,450.5 % 4.3 % 22.9 % 17.1 % — % — % 12.6 % 19.0 % Same locations 43.9 % 45.9 % 24.8 % 25.7 % 20.1 % 22.0 % 40.0 % 108.0 % 34.4 % 39.2 % Conversions 85.7 % 82.9 % — % — % 12.9 % — % — % — % 38.3 % 82.9 % Total gross profit percentage 42.2 % 44.0 % 23.7 % 21.6 % 22.3 % 21.1 % 40.0 % 108.0 % 33.5 % 36.2 % $2.5$0.8 million, or 54%11.3%, to $7.1$7.9 million for the three months ended March 31, 2015,2016, compared to $4.6$7.1 million for three months ended March 31, 2014.2015. Gross profit percentage for lease contracts increased to 5%5.7% for the three months ended March 31, 2015,2016, compared to 4%5.3% for the three months ended March 31, 2014.2015. Gross profit for lease contracts increased primarily as a result of increases in gross profit for same locations, new locations and conversions, partially offset by decreases in grossnew locations, contract expirations, and locations that converted from management contracts. Gross profit for contract expirations.same locations increased primarily due to increased lease revenue, partially offset by an increase rent expense as a result of higher lease revenue and certain costs not specifically allocated to regions.due to newfrom same locations in regions one and two and three, samenew locations for regionsin region one, partially offset by decreases in new locations in region two, four and other, contract expirations in region one, and conversions in regions four and five, partially offset by decreases to gross profit for contract expirations in regions two and three, same locations in region threeother and conversionslocations that converted from management contracts in region one. Gross profit for lease contracts on same locations increased primarily due to increases in short-term and monthly parking revenue and decreases in health benefit costs, partially offset by general increases in operating costs and higher lease rent expense, as a result of higher contingent rental payments on increased revenue.increased $3.3decreased $3.6 million, or 11%10.6%, to $30.5 million for the three months ended March 31, 2016 compared to $34.1 million for the three months ended March 31, 2015 compared to $30.8 million the three months ended March 31, 2014.2015. Gross profit percentage for management contracts increaseddecreased to 36%33.5% for three months ended March 31, 2015,2016, compared to 34%36.2% for three months ended March 31, 2014.2015. The increasedecrease in gross profit for management contracts was primarily as a result of newdecreases in contract expirations and same locations, partially offset by decreasesan increase in contract expirations and conversions.gross profit for new locations.increaseddecreased primarily due to new locationsdecreases in contract expirations for all fivethree regions, same locations in regions one, two,three and other and locations that converted from lease contracts in region one. The total decrease in gross profit percentage for management contracts was partially offset by decreases to gross profitincreases in new locations for contract expirations in all fivethree regions, same locations in regions three, four and five, and conversions in regionsregion two and four.locations that converted from lease contracts in region three. Gross profit for management contractsincreased on same locations decreased primarily as a result of increasesdue to an increase in revenue for othercompensation and benefit costs, an increase in certain costs not specifically allocated to regions and higher costs related to ancillary services, decreases in costs associated with reverse management contracts and cost of providing management services and decreases in health benefit costs and prior year insurance adjustments.The Other region amounts in same locations primarily represent prior year insurance reserve adjustments and amounts that are not specifically identifiable to a specific region.$0.4$1.1 million, or 2%4.3%, to $24.6 million for the three months ended March 31, 2016, as compared to $25.7 million for the three months ended March 31, 2015, compared2015. The decrease in general and administrative expenses overall was due to $26.1a decrease in merger and integration costs, including severance and benefit expenses, reductions in compensation and benefit costs and overall better expense control, partially offset by an increase in costs as a result of settling previous litigation with a former indirect controlling shareholder of the Company, for $1.5 million, net of insurance recoveries.2014. The decrease was primarily related to better expense control and lower transaction related expenses incurred for the Parkmobile LLC joint venture transaction that was completed in the fourth quarter 2014, partially offset by increases in expected pay-out under our performance based compensation programs.Depreciation and amortization. Depreciation and amortization increased $0.8 million, or 11%,2016, as compared to $7.9 million for the three months ended March 31, 2015, as compared to $7.2 million for the three months ended March 31, 2014.2015. This increase was primarily a result of an increase in amortization and depreciation for investments in information system enhancements and infrastructure.Interest expense was $4.2decreased $1.3 million, or 31.7%, to $2.8 million for the three months ended March 31, 20152016, as compared to $4.8$4.1 million for the three months ended March 31, 2014.2015. The decrease in interest expense was primarily related to decreases in average borrowing rates and reductions in amounts outstanding under our Senior Credit Facility and Restated Credit Facility.Facility as well as $0.6 million included in interest expense for the three months ended March 31, 2015 for the write-off of debt discount and debt issuance costs in connection with the Restated Credit Agreement.and 2014.respectively. There was no comparable equity in losses from investment in unconsolidated entity during the three months ended March 31, 2014.Income tax expense. Income tax expense increased $8.7 million2016, as compared to $1.3 million for the three months ended March 31, 2015, as compared to a benefit of $7.4 million2015. Our effective tax rate was 58.0% for the three months ended March 31, 2014. Our effective tax rate was 43%2016, compared to 42.7% for the three months ended March 31, 2015 and a benefit of 281% for the three months ended March 31, 2014.2015. The effective tax rate for the three months ended March 31, 2014 included2016 increased due to a discrete benefitwrite-off of approximately $6.4 million for the reversal of a valuation allowance for a deferred tax asset established for historical net operating losses attributable to the State of New York. The valuation allowance was reversed in the first quarter 2014 due to the New York tax law changes effective March 31, 2014, which resulted in the Company determining that the future benefit of the net operating loss carryforwards were more likely than not to be realized.Tennessee.2015,2016, we had total indebtedness of approximately $267.2 million, net of original discount on borrowings of $2.2$234.3 million, an increase of $13.8$9.2 million from December 31, 2014.$267.2$234.3 million in total indebtedness as of March 31, 20152016 includes:·$264.9▪ $232.4 million under our Restated Credit Facility, net of original discount on borrowings of $1.6 million and deferred financing costs of $2.2 million; and ▪ $1.9 million of other debt obligations, which includes capital lease obligations, obligations on seller notes and other indebtedness. net of original discount on borrowings of $2.2 million; and·$2.2 million of other debt obligations, which includes capital lease obligations and other indebtedness.We believe that our cash flow from operations, combined with availability under our Restated Senior Credit Facility, which amounted to $75.7 million at March 31, 2015, will be sufficient to enable us to repay our indebtedness, and to fund other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before their respective maturities. We believe that we will be able to refinance our indebtedness on commercially reasonable terms.Senior Credit Facility(the “Credit(“Credit Agreement”) with Bank of America, N.A. ("Bank of America"), as administrative agent, Wells Fargo Bank, N.A. ("Wells Fargo Bank") and JPMorgan Chase Bank, N.A., as co-syndication agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto.Lenderslenders made available to the Company a secured Senior Credit Facility (the “Senior Credit Facility”) that permitted aggregate borrowings of $450.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which included a letter of credit facility that was limited to $100.0 million at any time outstanding, and (ii) a term loan facility of $250.0 million. The Senior Credit Facility was due to mature on October 2, 2017.The Credit Agreement required us to make mandatory repayments of principal within 90 days of each fiscal year-end provided that certain excess cash is available, as defined within the Credit Agreement. In March 2014, we made a mandatory principal repayment of $7,940, as provided under the Credit Agreement.(Amended and (“Restatement Date)Date”), we entered into an Amended and Restated Credit Agreement (the “Restated"Restated Credit Agreement”Agreement"). The Restated Credit Facility reflects modifications to, and an extension of, the Credit Agreement. As indicated above, the Credit Agreement was due to mature on October 2, 2017. Loans under the Credit Agreement could be paid before maturity in whole or in part at the Company’s option without penalty or premium. As of the Amended and Restatement Date, the Company had $200.0 million and $93.9 million outstanding under the term loan facility and revolving term facility, respectively. The Company had $53.4 million of letters of credit outstanding at the time of the termination of the Credit Agreement, of which $53.4 million of letters of credit were incorporated into the Restated Secured Credit Facility.On the Amended and Restatement Date, we entered into the Restated Credit Agreement with Bank of America, N.A. (“Bank of America”), as administrative agent, an issuing lender and swing-line lender; Wells Fargo Bank, N.A., as an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO Harris Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint lead arrangersarranginers and joint book managers; and the lenders party thereto (the “Lenders”). Senior Credit Facility”) that permits aggregate borrowings of $400.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which includes a $100.0 million sublimit for letters of credit and a $20.0 million sublimit for swing-line loans, and (ii) a term loan facility of $200.0 million (reduced from $250.0 million). The Company may request increases of the revolving credit facility in an aggregate additional principal amount of $100.0 million. The Restated Senior Credit Facility matures on February 20, 2020.Senior Credit Facility had been drawn by the Company as of the Amended and Restatement Date (including approximately $10.4 million drawn on such date) and is subject to scheduled quarterly amortization of principal as follows: (i) $15.0 million in the first year, (ii) $15.0 million in the second year, (iii) $20.0 million in the third year, (iv) $20.0 million in the fourth year, (v) $20.0 million in the fifth year and (vi) $110.0 million in the sixth year. The Company also had outstanding borrowings of $147.3 million (including $53.4 million in letters of credit) under the revolving credit facility as of the Amended and Restatement Date. Senior Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s consolidated total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance with the pricing levels set forth in the Restated Credit Agreement (the “Applicable“Restatement Applicable Margin”), plus LIBOR or (ii) the Restatement Applicable Margin plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a daily rate equal to LIBOR plus 1.0%. (the highest of (x), (y) and (z), the “Base Rate”), except that all swing-line loans will bear interest at the Base Rate plus the Applicable Margin.the Company iswe are required to maintain a maximum consolidated total debt to EBITDA ratio of not greater than 4.0 to 1.0 as of the end of any fiscal quarter ending during the period from the Amended and Restatement Date through September 30, 2015, (ii) 3.75 to 1.0 as of the end of any fiscal quarter ending during the period from October 1, 2015 through September 30, 2016, and (iii) 3.5 to 1.0 as of the end of any fiscal quarter ending thereafter. In addition, the Company is required to maintain a minimum consolidated fixed charge coverage ratio of not less than 1:25:1.0.wholly-ownedwholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Restated Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Restated Credit Agreement. The Company’sCompany's obligations under the Restated Credit Agreement and such domestic subsidiaries’ guaranty obligations are secured by substantially all of their respective assets.The Company was2015.2015, the Company2016, we had $75.7$92.2 million of borrowing availability under the Restated the Credit Agreement, of which the Company could have borrowed $75.7$61.9 million on March 31, 20152016 and remained in compliance with the above described covenants as of such date. The additional borrowing availability under the Restated Credit Agreement is limited only as of the Company’s fiscal quarter-end by the covenant restrictions described above. At March 31, 2015,2016, the Company had $53.4$52.8 million of letters of credit outstanding under the Restated Senior Credit Facility, with aggregate borrowings against the Restated Senior Credit Facility of $267.1$236.2 million (excluding original discount on borrowings of $1.6 million and deferred financing costs of $2.2 million).In connection with and effective upon the execution and delivery of the Restated Credit Agreement on February 20, 2015, we recorded losses on extinguishment of debt, relating to original issue discount and debt issuance costs, of $0.6 million.While the Company hasthe Company evaluatesand evaluate the nature of those costs when incurred and either capitalizes the costs as leasehold improvements, as applicable, or recognizes the costs as repair expenses within Cost of Parking Services-Leasesparking services—Lease contracts within the Condensed Consolidated Statements of Income.responsibility to us responsibility for the cost of certain structural orand other improvement and repair costsrepairs required to be made to the leased property, including improvement and repair costs arising as a result of ordinary wear and tear. DuringWe recorded $0.1 million in costs during each of the three months ended March 31, 20152016 and 2014, we recorded $0.1 million and $0.1 million, respectively, of costs2015 (net of expected recovery of 80%recoveries of the total cost recognized by the Company through the applicable indemnity discussed further in Note 5. Acquisition) 3. Acquisition of our Condensed Consolidated Financial Statements) in Cost of Parking Services-Leasesparking services—Lease contracts within the Condensed Consolidated Statements of Income for structural and other improvement and repair costs related to certain lease contracts acquired in the Central Merger, whereby we have expensed repair costs for certain leases and engaged a third-party general contractorcontractors to complete certain defined structural and other improvementrepair projects, and repair projects.other indemnity related costs. We expect to incur substantial additional costs for certain structural orand other improvement and repair costs pursuant to the contractual requirements of certain lease contracts acquired in the Central Merger.Merger (“Structural and Repair Costs”). Based on information available at this time, we currently expect to incur additional Structural and Repair Costs of $1.5 million. While we are unable to estimate the total structural and other improvement and repairwith certainty when such remaining costs relatedwill be incurred, it is expected that a substantial majority of these costs will be incurred in early- to these lease contracts acquired in the Central Merger to be between $7.0 million and $22.0 million; however, we continue to assess and determine the full extent of the repairs required and estimated costs associated with the lease contracts required in the Central Merger.mid-calendar year 2016. We currently expect to recover 80% of the Structural and Repair Costs incurred priorand related to October 1, 2015certain lease contracts acquired in the Central Merger through the applicable indemnity discussed further in Note 3. Acquisitions Acquisition of our condensed consolidated financial statements. WhileCondensed Consolidated Financial Statements.are unable to estimatesettled all claims in connections with certainty when such coststhe original lawsuits ("Holten Settlement"). Per the settlement, we will pay Mr. Holten $3.4 million of which $1.9 million will be incurred, it is expected that all or a substantial majorityrecovered by us through our directors and officers liability insurance policies. We recognized an expense, net of these costs will be incurred in mid-calendar year 2015 and priorinsurance recoveries, related to October 1, 2015.the Companywe entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0 million (the “Notional Amount”). The Interest Rate Swaps have an effective date of October 31, 2012 and a termination date of September 30, 2017. The Interest Rate Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under the Credit Agreement,our credit agreements, originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the Credit Agreement,our credit agreements determined based upon the Company’sour consolidated total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the Credit Agreement.our credit agreements. These Interest Rate Swaps are classified as cash flow hedges, and we calculate the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase of interest expense. As of March 31, 2015,2016, no ineffectiveness of the hedge has been recognized. The fair20152016 was a liability of $0.2 million and is included in Accrued expenses within the Condensed Consolidated Balance Sheet. The fair value of the Interest Rate Swaps at December 31, 20142015 was an asset of $0.1$0.2 million and $0.6 million, respectively, and is included in Prepaid Expenses and Otherthe line item "Other assets, net" within the Consolidated Balance Sheet.2015,2016, we had made $13.3$11.6 million of cumulative deficiency payments torepayments from the trustee, net of reimbursements.payments. Deficiency payments made are recorded as increases to cost parking services and the reimbursements are recorded as reductions to cost of parking services. We believe these advances to be fully recoverable and will recognize the principal, interest and premium payments related to these deficiency payments when they are received. We do not directly guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.$5 thousand$nil in the three months ended March 31, 2015 compared to $93 thousand in the three months ended March 31, 2014.2016 and 2015. We received and recognized $8 thousand$0.1 million in interest and $43 thousand$nil in premium on deficiency repayments from the trustee in the three months ended March 31, 2015.2016. We received and recognized $nil in interest and $14 thousand$nil in premium on deficiency repayments from the trustee in the three months ended March 31, 2014.some 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. Other clients 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. Some clientsmonth-end or may require segregated bank accounts for the receipts and disbursements at locations. Our working capital and liquidity may be adversely affected if a significant number of our clients require us to deposit all parking revenues into their respective accounts.SeniorRestated Credit Facility.Net Cash Used in Three Months Ended (millions) (unaudited) March 31, 2016 March 31, 2015 Net cash provided by (used in) operating activities $ 4.8 $ (6.1 ) Net cash used in investing activities $ — $ (5.1 ) Net cash provided by financing activities $ 7.2 $ 11.9 working capital. operating assets and liabilities. the three months ended March 31, 2015. Cash used in operating activities for the first three months of 2015 included changes in operating assets and liabilities that resulted in a use of $16.9 million, partially offset by cash provided by operations of $10.7 million. The net decrease in changes inis operating assets and liabilities resulted primarily from; (i) an increase in notes and accounts receivablesreceivable of $6.2 million primarily due to timing on payments from our clients; (ii) ana decrease in accounts payable of $4.7 million which resulted primarily from the reduction of payments owed to our clients that are under management contracts as described under “Daily"Daily Cash Collections”Collection"; and (iii) a $12.6 million decrease in accruedana decrease in prepaid payroll and advances and deposits with vendors.operatinginvesting activities totaled $9.7 million$nil for the first three months of 2014.ended March 31, 2016. Cash used in operatinginvesting activities for the first three months ended March 31, 2016 included (i) $2.5 million for capital investments needed to secure and/or extend lease facilities and investments in information system enhancements and infrastructure and (ii) $0.3 million for cost of 2014 included changes in operatingcontract purchases; offset by (iii) $2.8 million of proceeds from the sale of assets and liabilities that resulted in a use of $16.6 million, partially offset by cash provided from operations of $6.8 million. The net decrease in changes in operating assets and liabilities resulted primarily from; (i) an increase in notes and accounts receivables of $16.5 million due to timing on payments from our clients; (ii) a decrease in accounts payable of $3.6 million, which resulted primarily from the reduction of payments owed to our clients that are under management contracts as described under “Daily Cash Collections”; (iii) a decrease in accrued liabilities of $1.6 million partially related to the payment of our performance-based compensation accrual during the first quarter of 2014contract terminations.and reductions in accrued rents and customer deposits; partially offset by (iv) a net decrease in prepaid and other assets of $5.1 million, primarily as a result of receiving an income tax refund in the first quarter of 2014.Net Cash Used in Investing ActivitiesNet cash used in investing activities totaled $3.4 million in the first three months of 2014. Cash used in investing activities for the first three months of 2014 included $3.3 million for capital investments needed to secure and/or extend lease facilities, investment in information system enhancements and infrastructure, and cost of contract purchases of $0.1 million.Net Cash Provided by $12.0$7.2 million in the three months ended March 31, 2016. Cash provided by financing activities for the three months ended March 31, 2016 included (i) net proceeds from the Restated Credit Facility revolver of $12.7 million; partially offset by (ii) $1.5 million of distributions to noncontrolling interest; (iii) $3.8 million for payments on the term loan, (iv) $0.1 million for payments on other long-term debt obligations, and (v) $0.1 million on payments for debt issuance costs.debt issuancedeferred financing costs; (iv) $0.5 million of distributions to noncontrolling interest; and (v) $0.1 million for payments on redemption of convertible debentures and other long-term debt obligations.Net cash provided by financing activities totaled $14.2 million in the first three months of 2014. Cash provided by financing activities for the first three months of 2014 included $15.2 million of net proceeds on our Senior Credit Facility, partially offset by $0.8 million distributed to non-controlling interests and $0.2 million on contingent payments for businesses acquired and other long-term debt obligations.$18.8$30.8 million and $18.2$18.7 million at March 31, 20152016 and December 31, 2014,2015, respectively. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements were $1.2 million and $0.5$0.9 million as of March 31, 20152016 and December 31, 2014,2015, respectively, and are included within Cash and Cash Equivalentscash equivalents within the Consolidated Balance Sheet.Sheets.2014.2015.and chief financial officer and corporate controller concluded that our disclosure controls and procedures were effective as of March 31, 2015.2016. 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 by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in 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 by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.32the Company iswe are subject to various legal proceedings, claims and other matters that arise in the ordinary course of business. In the opinion of management, the amount of the liability, if any, with respect to these matters will not materially affect the Company’sour condensed consolidated financial statements. We maintain liability insurance coverage to assist in protecting our assets from losses arising from or related to activities associated with business operations.2014.2015.2015.2016.Exhibit NumberDescription10.13.1 Amendment to Fourth Amended and Restated Credit Agreement, dated asBylaws of February 20, 2015, by and among the Company Bank of America, N.A., as administrative agent, an issuing lender and wing-line lender; Wells Fargo Bank, N.A., as an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO Harris Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto (incorporated by reference to exhibit 10.1.23.1 of the Company’s AnnualCompany's Current Report on Form 10-K8-K filed for December 31, 2014)on February 22, 2016).7, 20154, 2016 for G Marc Baumann, Director, President and Chief Executive Officer (Principal Executive Officer).7, 20154, 2016 for Vance C. Johnston, Chief Financial Officer and Treasurer (Principal Financial Officer).7, 20154, 2016 for Kristopher H. Roy, Senior Vice President, Corporate Controller and Assistant Treasurer (Principal Accounting Officer).7, 2015.SP PLUS CORPORATION 7, 20157, 20157, 2015