10-Q 1 0001.txt FORM 10-Q -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission file number: 333-50437 ---------------- APCOA/STANDARD PARKING, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 16-1171179 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 900 N. Michigan Avenue, Chicago, Illinois 60611-1542 (Address of Principal Executive Offices Including Zip Code) (312) 274-2000 (Registrant's Telephone Number, Including Area Code) Former name, address and fiscal year, if changed since last report: Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- APCOA/STANDARD PARKING, INC. FORM 10-Q INDEX Part I. Financial Information Item 1. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999............................................. 3 Condensed Consolidated Statements of Operations for the three months ended June 30, 2000 and June 30, 1999 and for the six months ended June 30, 2000 and June 30, 1999................. 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and June 30, 1999................. 5 Notes to Condensed Consolidated Financial Statements.......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 14 Part II. Other Information Item 1. Legal Proceedings............................................. 16 Item 2. Changes in Securities and Use of Proceeds..................... 16 Item 3. Defaults upon Senior Securities............................... 16 Item 4. Submission of Matters to a Vote of Security Holders........... 16 Item 5. Other Information............................................. 16 Item 6. Exhibits and Reports on Form 8-K.............................. 16 Signatures................................................................ 17 Exhibits.................................................................. 18
2 PART I FINANCIAL INFORMATION Item 1. Financial Statements APCOA/STANDARD PARKING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for share data)
June 30, December 31, 2000 1999 ----------- ------------ (Unaudited) (see Note) ASSETS ------ Current assets: Cash and cash equivalents........................... $ 4,269 $ 5,215 Notes and accounts receivable, net.................. 42,990 42,715 Prepaid expenses and supplies....................... 1,540 1,645 -------- -------- Total current assets.............................. 48,799 49,575 Leaseholds and equipment, net......................... 32,287 32,659 Advances and deposits................................. 1,438 2,040 Cost in excess of net assets acquired................. 114,586 114,923 Intangible and other assets........................... 12,955 14,073 -------- -------- Total assets...................................... $210,065 $213,270 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- Current liabilities: Accounts payable.................................... $ 25,927 $ 25,289 Accrued and other current liabilities............... 29,415 35,138 Current portion of long-term borrowings............. 1,286 1,328 -------- -------- Total current liabilities......................... 56,628 61,755 Long-term borrowings, excluding current portion....... 171,991 166,141 Other long-term liabilities........................... 11,637 11,116 Redeemable preferred stock............................ 52,050 49,280 Common stock subject to put/call rights; 5.01 shares issued and outstanding............................... 4,589 4,589 Common stockholders' deficit: Common stock, par value $1.00 per share; 1,000 shares authorized; 26.3 shares issued and outstanding........................................ 1 1 Additional paid-in capital.......................... 11,422 11,422 Advances to and deposits with affiliates............ (11,052) (10,553) Accumulated other comprehensive income.............. (412) 428 Accumulated deficit................................. (86,789) (80,909) -------- -------- Total common stockholders' deficit................ (86,830) (79,611) -------- -------- Total liabilities and stockholders' deficit....... $210,065 $213,270 ======== ========
-------- Note: The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Notes to Condensed Consolidated Financial Statements. 3 APCOA/STANDARD PARKING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, unaudited)
Three Months Ended Six Months Ended ------------------ ------------------ June 30, June 30, June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Gross customer collections............ $385,993 $339,000 $752,093 $655,600 ======== ======== ======== ======== Parking services revenue: Lease contracts..................... $ 46,386 $ 50,648 $ 93,817 $100,525 Management contracts................ 15,681 12,182 31,341 23,174 -------- -------- -------- -------- 62,067 62,830 125,158 123,699 Cost of parking services: Lease contracts..................... 40,211 44,873 82,851 88,892 Management contracts................ 6,480 4,282 12,768 8,162 -------- -------- -------- -------- 46,691 49,155 95,619 97,054 -------- -------- -------- -------- Gross profit.......................... 15,376 13,675 29,539 26,645 General and administrative expenses... 9,152 7,510 18,262 14,516 Restructuring and other special charges.............................. 99 260 218 410 Depreciation and amortization......... 2,675 2,351 5,216 4,150 -------- -------- -------- -------- Operating income...................... 3,450 3,554 5,843 7,569 Interest expense (income): Interest expense.................... 4,472 4,226 8,893 7,982 Interest income..................... (142) (162) (349) (323) -------- -------- -------- -------- 4,330 4,064 8,544 7,659 -------- -------- -------- -------- Loss before minority interest and income taxes......................... (880) (510) (2,701) (90) Minority interest..................... 86 90 159 257 Income tax expense.................... 233 130 250 283 -------- -------- -------- -------- Net loss.............................. (1,199) (730) (3,110) (630) Preferred stock dividends............. (1,404) (1,258) (2,770) (2,483) -------- -------- -------- -------- Net loss available for common stockholders......................... $ (2,603) $ (1,988) $ (5,880) $ (3,113) ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements. 4 APCOA/STANDARD PARKING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)
Six Months Ended ----------------- June 30, June 30, 2000 1999 ------- -------- Operating activities: Net loss................................................... $(3,110) $ (630) Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization............................ 5,216 4,150 Change in operating assets and liabilities, net of acquisitions............................................ (5,061) (18,457) ------- -------- Net cash used in operating activities.................. (2,955) (14,937) Investing activities: Businesses acquired, net of cash, and including direct acquisition costs......................................... -- (1,426) Purchase of leaseholds and equipment....................... (2,706) (4,339) Purchase of leaseholds and equipment by joint ventures..... (169) (192) Increase in other assets................................... -- (920) ------- -------- Net cash used in investing activities.................. (2,875) (6,877) Financing activities: Proceeds from long-term borrowings......................... 6,200 10,700 Payments on long-term borrowings........................... (173) (1,273) Payments on joint venture borrowings....................... (303) (237) ------- -------- Net cash provided by financing activities.............. 5,724 9,190 Effect of exchange rate on cash and cash equivalents....... (840) -- ------- -------- Decrease in cash and cash equivalents...................... (946) (12,624) Cash and cash equivalents at beginning of period........... 5,215 19,183 ------- -------- Cash and cash equivalents at end of period................. $ 4,269 $ 6,559 ======= ======== Supplemental disclosures: Cash paid during the period for: Interest................................................. $ 7,577 $ 7,656 Taxes.................................................... 519 87
See Notes to Condensed Consolidated Financial Statements. 5 APCOA/STANDARD PARKING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (in thousands, unaudited) 1. Interim Financial Data The accompanying unaudited condensed consolidated financial statements of APCOA/Standard Parking, Inc. ("APCOA/Standard" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results for the six-month period ended June 30, 2000 are not necessarily indicative of the results that might be expected for the fiscal year ending December 31, 2000. The financial statements presented in this Report should be read in conjunction with the consolidated financial statements and footnotes thereto included in APCOA/Standard's 1999 Form 10-K filed March 30, 2000. Certain reclassifications have been made to the 1999 financial information to conform to the 2000 presentation. 2. Restructuring and Other Special Charges Included in "Restructuring and other special charges" in the accompanying condensed consolidated statements of operations for the six months ended June 30, 2000 and 1999 are the following:
Six Months Ended ----------------- June 30, June 30, 2000 1999 -------- -------- Incremental integration costs and other................. $218 $410 ==== ====
The integration costs relate primarily to actions to facilitate the accounting system consolidation and activities to realign, centralize and reorganize administrative and other support functions. 3. Borrowing Arrangements APCOA/Standard's $140,000 9 1/4% Senior Subordinated Notes were issued in September of 1998 and are due in March of 2008. The Notes are registered with the Securities and Exchange Commission. The Notes were exchanged for unregistered notes with substantially identical terms, which had been issued earlier in 1998 to finance the acquisition of Standard and retire certain existing indebtedness, and for general working capital purposes. In March of 1998, the Company entered into a $40,000 revolving Senior Credit Facility (the "Facility") with a group of banks. Rates of interest on borrowings against the Facility are indexed to certain key variable rates. At June 30, 2000, borrowings under the Facility aggregated $24,300 and there were letters of credit outstanding against this Facility of $1,250. The Notes and Senior Credit Facility contain covenants that limit APCOA/Standard from incurring additional indebtedness and issuing preferred stock, restrict dividend payments, limit transaction with affiliates and restrict certain other transactions. Substantially all of APCOA/Standard's net assets are restricted under these provisions and covenants (See Note 4). 6 APCOA/STANDARD PARKING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Subsidiary Guarantors All of the Company's direct or indirect wholly owned domestic subsidiaries, including Standard, other than inactive subsidiaries, fully, unconditionally, jointly and severally guarantee the Senior Subordinated Notes. Separate financial statements of the guarantor subsidiaries are not separately presented because, in the opinion of management, such financial statements are not material to investors. The non-guarantor subsidiaries include joint ventures, wholly owned subsidiaries of the Company organized under the laws of foreign jurisdictions and inactive subsidiaries, all of which are included in the consolidated financial statements. The following is summarized combining financial information for the Company, the guarantor subsidiaries of the Company and the non-guarantor subsidiaries of the Company:
Guarantor Non-Guarantor APCOA/Standard Subsidiaries Subsidiaries Eliminations Total -------------- ------------ ------------- ------------ -------- Balance Sheet Data: June 30, 2000 Cash and cash equivalents............ $ 1,693 $ 259 $ 2,317 $ -- $ 4,269 Notes and accounts receivable............. 51,095 (8,588) 483 -- 42,990 Current assets.......... 54,087 (8,169) 2,881 -- 48,799 Leaseholds and equipment, net......... 17,996 8,330 5,961 -- 32,287 Cost in excess of net assets acquired, net... 19,225 91,701 3,660 -- 114,586 Investment in subsidiaries........... 99,716 -- -- (99,716) -- Total assets............ 199,017 97,269 13,495 (99,716) 210,065 Accounts payable........ 12,788 10,168 2,971 -- 25,927 Current liabilities..... 37,537 12,153 6,938 -- 56,628 Long-term borrowings, excluding current portion................ 166,788 354 4,849 -- 171,991 Redeemable preferred stock.................. 52,050 -- -- -- 52,050 Common stock subject to put/call rights........ 4,589 -- -- -- 4,589 Total stockholders' equity (deficit)....... (68,845) 80,513 1,218 (99,716) (86,830) Total liabilities and stockholders' equity (deficit).............. 199,017 97,269 13,495 (99,716) 210,065 December 31, 1999 Cash and cash equivalents............ $ 2,569 $ 1,963 $ 683 $ -- $ 5,215 Notes and accounts receivable............. 34,973 2,606 5,136 -- 42,715 Current assets.......... 39,130 4,608 5,837 -- 49,575 Leaseholds and equipment, net......... 17,204 9,263 6,192 -- 32,659 Cost in excess of net assets acquired, net... 19,536 92,590 2,797 -- 114,923 Investment in subsidiaries........... 102,639 -- -- (102,639) -- Total assets............ 187,655 112,225 16,029 (102,639) 213,270 Accounts payable........ 15,860 5,962 3,467 -- 25,289 Current liabilities..... 41,423 10,439 9,893 -- 61,755 Long-term borrowings, excluding current portion................ 160,667 371 5,103 -- 166,141 Redeemable preferred stock.................. 49,280 -- -- -- 49,280 Common stock subject to put/call rights........ 4,589 -- -- -- 4,589 Total stockholders' equity (deficit)....... (76,402) 98,889 541 (102,639) (79,611) Total liabilities and stockholders' equity (deficit).............. 187,655 112,225 16,029 (102,639) 213,270
7 APCOA/STANDARD PARKING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Guarantor Non-Guarantor APCOA/Standard Subsidiaries Subsidiaries Eliminations Total -------------- ------------ ------------- ------------ -------- Income Statement Data: Three Months Ended June 30, 2000 Parking revenue......... $30,989 $23,787 $ 7,291 $ -- $ 62,067 Gross profit............ 9,476 4,514 1,386 -- 15,376 Restructuring and other special charges........ 99 -- -- -- 99 Depreciation and amortization........... 1,125 1,244 306 -- 2,675 Operating income (loss)................. 7,274 (4,746) 922 -- 3,450 Interest expense, net... 4,208 (33) 155 -- 4,330 Equity in earnings of subsidiaries........... (4,261) -- -- 4,261 -- Net income (loss)....... (1,199) (4,724) 463 4,261 (1,199) Three Months Ended June 30, 1999 Parking revenue......... $24,723 $26,772 $11,335 $ -- $ 62,830 Gross profit............ 5,654 5,946 2,075 -- 13,675 Restructuring and other special charges........ 260 -- -- -- 260 Depreciation and amortization........... 1,248 811 292 -- 2,351 Operating income........ 1,516 530 1,508 -- 3,554 Interest expense, net... 3,974 (28) 118 -- 4,064 Equity in earnings of subsidiaries........... 1,736 -- -- (1,736) -- Net income (loss)....... (730) 636 1,100 (1,736) (730) Six Months Ended June 30, 2000 Parking revenue......... $60,062 $46,945 $18,151 $ -- $125,158 Gross profit............ 17,251 8,986 3,302 -- 29,539 Restructuring and other special charges........ 218 -- -- -- 218 Depreciation and amortization........... 2,073 2,496 647 -- 5,216 Operating income (loss)................. 12,791 (9,293) 2,345 -- 5,843 Interest expense, net... 8,270 (40) 314 -- 8,544 Equity in earnings of subsidiaries........... (7,623) -- -- 7,623 -- Net income (loss)....... (3,110) (9,253) 1,630 7,623 (3,110) Six Months Ended June 30, 1999 Parking revenue......... $51,642 $50,416 $21,641 $ -- $123,699 Gross profit............ 12,338 11,728 2,579 -- 26,645 Restructuring and other special charges........ 410 -- -- -- 410 Depreciation and amortization........... 2,213 1,418 519 -- 4,150 Operating income........ 4,630 1,411 1,528 -- 7,569 Interest expense, net... 7,382 (1) 278 -- 7,659 Equity in earnings of subsidiaries........... 2,337 -- -- (2,337) -- Net income (loss)....... (630) 1,411 926 (2,337) (630)
8 APCOA/STANDARD PARKING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Guarantor Non-Guarantor APCOA/Standard Subsidiaries Subsidiaries Eliminations Total -------------- ------------ ------------- ------------ -------- Statement of Cash Flow Data: Six Months Ended June 30, 2000 Net cash provided by (used in) operating activities............. $ (3,669) $(1,089) $ 1,803 $ -- $ (2,955) Investing activities: Purchase of leaseholds and equipment.......... (2,091) (615) -- -- (2,706) Purchase of leaseholds and equipment by joint venture................ -- -- (169) -- (169) Net cash used in investing activities... (2,091) (615) (169) -- (2,875) Financing activities: Proceeds from long-term borrowings............. 6,200 -- -- -- 6,200 Payments on long-term borrowings............. (173) -- -- -- (173) Payments on joint venture borrowings..... (303) -- -- -- (303) Net cash provided by financing activities... 5,724 -- -- -- 5,724 Effect of exchange rate changes................ (840) -- -- -- (840) Six Months Ended June 30, 1999 Net cash used in operating activities... $(11,871) $ (763) $(2,303) $ -- $(14,937) Investing activities: Purchase of leaseholds and equipment.......... (2,844) (1,495) -- -- (4,339) Purchase of leaseholds and equipment by joint ventures............... -- -- (192) -- (192) Businesses acquired..... (1,426) -- -- -- (1,426) Other................... (920) -- -- -- (920) Net cash used in investing activities... (5,190) (1,495) (192) -- (6,877) Financing activities: Proceeds from long-term borrowings............. 10,700 -- -- -- 10,700 Payments on long-term borrowings............. (1,273) -- -- -- (1,273) Payments on joint venture borrowings..... (237) -- -- -- (237) Net cash provided by financing activities... 9,190 -- -- -- 9,190
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General APCOA/Standard Parking, Inc. ("APCOA/Standard" or the "Company") operates in a single reportable segment operating parking facilities under two types of arrangements: management contracts and leases. Under a management contract, APCOA/Standard typically receives a base monthly fee for managing the property, and may also receive an incentive fee based on the achievement of facility revenues above a base amount. In some instances, APCOA/Standard also receives certain fees for ancillary services. Typically, all of the underlying revenues, expenses and capital expenditures under a management contract flow through to the property owner, not to APCOA/Standard. Under lease arrangements, APCOA/Standard generally pays to the property owner either a fixed annual rental, a percentage of gross customer collections or a combination thereof. APCOA/Standard collects all revenues under lease arrangements and is responsible for most operating expenses, but it is typically not responsible for major maintenance or capital expenditures. As of June 30, 2000, APCOA/Standard operated approximately 79% of its 1,827 parking facilities under management contracts and approximately 21% under leases. Parking services revenue--leases. Lease parking services revenues consist of all gross customer collections received at a leased facility. Parking services revenue--management contracts. Management contract revenues consist of management fees, including both fixed and revenue-based, and fees for ancillary services such as accounting, equipment leasing, consulting, and other value-added services with respect to managed locations, but exclude gross customer collections at such locations. Management contracts generally provide APCOA/Standard a management fee regardless of the operating performance of the underlying facility. Cost of parking services--leases. Cost of parking services under lease arrangements consist of (i) contractual rental fees paid to the facility owner and (ii) all operating expenses incurred in connection with operating the leased facility. Contractual fees paid to the facility owner are based on either a fixed contractual amount or a percentage of gross revenue, or a combination thereof. Generally under a lease arrangement, APCOA/Standard is not responsible for major capital expenditures or property taxes. Cost of parking services--management contracts. Cost of parking services under management contracts is generally passed through to the facility owner, therefore these costs are not included in the results of operations of the Company. Several APCOA/Standard contracts, however, require APCOA/Standard to pay for certain costs that are offset by larger management fees. These contracts tend to be large airport properties with high cost structures. General and administrative expenses. General and administrative expenses include primarily salaries, wages, travel and office related expenses for the headquarters and field office and supervisory employees. Summary of Operating Facilities The following table reflects the Company's facilities at the end of the periods indicated:
June 30, December 31, June 30, 2000 1999 1999 -------- ------------ -------- Managed facilities............................ 1,446 1,424 1,278 Leased facilities............................. 381 403 422 ----- ----- ----- Total facilities............................ 1,827 1,827 1,700 ===== ===== =====
The Company's strategy is to add locations in core cities where a concentration of locations improves customer service levels and operating margins. In general, contracts added as set forth in the table above followed this strategy. 10 Results of Operations Gross customer collections consist of gross receipts collected at all leased and managed properties, including unconsolidated affiliates. Gross customer collections increased $47.0 million, or 13.9%, to $386.0 million in the second quarter of 2000 compared to $339.0 million in the second quarter of 1999. Gross customer collections increased $96.5 million, or 14.7%, to $752.1 million in the first six months of 2000 compared to $655.6 in the first six months of 1999. These increases are attributable to the net addition of 127 locations during the period. In analyzing gross margins of APCOA/Standard, it should be noted that the cost of parking services incurred in connection with the provision of management services is generally paid by the clients. Margins for lease arrangements are significantly impacted by variables other than operating performance, such as variability in parking rates in different cities and widely varying space utilization by parking facility type. The following should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto in Item 1. Three Months ended June 30, 2000 Compared to Three Months ended June 30, 1999 Parking services revenue--lease contracts. Lease contract revenue decreased $4.3 million, or 8.4% to $46.4 million in the second quarter of 2000 as compared to $50.7 million in the second quarter of 1999. This resulted from the net reduction of 41 leases through contract expirations, conversions to management contracts and the loss of one large airport contract in the second half of 1999, and a change in reclassification of reimbursable costs. Parking services revenue--management contracts. Management contract revenue increased $3.5 million, or 28.7%, to $15.7 million in the second quarter of 2000 as compared to $12.2 million in the second quarter of 1999. This resulted from the net increase of 168 contracts through internal growth and 1999 acquisitions. Cost of parking services--lease contracts. Cost of parking for lease contracts decreased $4.7 million, or 10.4%, to $40.2 million for the second quarter of 2000 from $44.9 million in the second quarter of 1999. This decrease resulted from the reduction of 41 leases through terminations and conversions to management contracts. Gross margin for leases increased to 13.3% for the second quarter of 2000 compared to 11.4% for the second quarter of 1999. This increase was due to the pruning of our contract portfolio of leases with lower operating margins and a reclassification of reimbursable costs. Cost of parking services--management contracts. Cost of parking for management contracts increased $2.2 million, or 51.3%, to $6.5 million for the second quarter of 2000 from $4.3 million in the second quarter of 1999. This increase resulted from the addition of a net total of 168 new contracts through internal growth and acquisitions. Gross margin for management contracts declined to 58.7% in the second quarter of 2000 compared to 64.8% for the second quarter of 1999. Most management contracts have no cost of parking services related to them as all costs are reimbursable to the Company. However, several contracts (primarily large airport properties and several urban locations) require the Company to pay for certain costs which are offset by larger management fees. The increase in cost of parking management contracts was related to the addition of several contracts of this type. General and administrative expenses. General and administrative expenses increased $1.6 million, or 21.9%, to $9.1 million for the second quarter of 2000 as compared to $7.5 million, for the second quarter of 1999. This increase resulted from costs associated with acquired companies in 1999, inflation, and investment in the Company's infrastructure. Restructuring and other special charges. The Company recorded $0.1 million of incremental integration costs in the second quarter of 2000, as compared to $0.3 million in the second quarter of 1999, relating primarily to actions to facilitate the accounting system consolidation and reorganization of administrative and other support functions. 11 Six Months ended June 30, 2000 Compared to Six Months ended June 30, 1999 Parking services revenue--lease contracts. Lease contract revenue decreased $6.7 million, or 6.7%, to $93.8 million in the first six months of 2000 as compared to $100.5 million in the first six months of 1999. This resulted from the net reduction of 41 leases through contract expirations, conversions to management contracts and the loss of one large airport contract in the second half of 1999, and a change in reclassification of reimbursable costs. Parking services revenue--management contracts. Management contract revenue increased $8.2 million, or 35.2% to $31.4 million in the first six months of 2000 as compared to $23.2 million in the first six months of 1999. This resulted from the net increase of 168 management contracts through internal growth and 1999 acquisitions. Cost of parking services--lease contracts. Cost of parking services for lease contracts decreased $6.0 million, or 6.8%, to $82.9 million in the first six months of 2000 as compared to $88.9 million in the first six months of 1999. This resulted from the reduction of 41 leases through contract expirations and conversations to management contracts. Gross margin for leases increased to 11.7% for the first six months of 2000 compared to 11.6% for the first six months of 1999. This increase was due to the pruning of our contract portfolio of leases with lower operating margins and a reclassification of reimbursable costs. Cost of parking services--management contracts. Cost of parking for management contracts increased $4.6 million, or 56.4%, to $12.8 million in the first six months of 2000 as compared to $8.2 million in the first six months of 1999. Gross margin for management contracts declined to 59.3% in the first six months of 2000 compared to 64.8% for the first six months of 1999. Most management contracts have no cost of parking services related to them, as all costs are reimbursable to the Company. However, several contracts (primarily large airports properties and several urban locations) require the company to pay for certain costs which are offset by larger management fees. The increase in cost of parking management contracts was related to the addition of several contracts of this type. General and administrative expenses. General and administrative expenses increased $3.8 million, or 25.8%, to $18.3 million for the first six months of 2000 as compared to $14.5 million in the first six months of 1999. This increase resulted from investment in the Company's infrastructure, costs associated with acquired companies in 1999, and inflation. Restructuring and other special charges. The Company recorded $0.2 million of incremental integration costs in the first six months of 2000, as compared to $0.4 million in the first half of 1999, relating primarily to actions to facilitate the accounting system consolidation, and reorganization of administrative and other support functions. Liquidity and Capital Resources As a result of day-to-day activity at the parking locations, APCOA/Standard collects significant amounts of cash. Under lease contracts, this revenue is deposited into local APCOA/Standard bank accounts, with a portion remitted to the clients in the form of rental payments according to the terms of the leases. Under management contracts, some clients require APCOA/Standard to deposit the daily receipts into a local APCOA/Standard bank account. Others require the deposit into a client account, and some have a segregated account for the receipts and disbursements of the property. Locations with revenues deposited into the APCOA/Standard banks enable the Company to operate with a negative working capital. This negative working capital arises from the liability that is created for the amount of revenue that will be remitted to the clients in the form of rents or net profit distributions subsequent to month end, after the books are closed and reconciled. Since the Company operates with a revolving Senior 12 Credit Facility, all funds held for future remittance to the clients are used to reduce the credit line until the payments are made to the clients. Locations with revenue deposited into client accounts or segregated accounts can, depending upon timing of rent or net profit distributions, result in significant amounts of cash being temporarily inaccessible to the Company for use for operating needs. Additionally, the ability to utilize cash deposited into local APCOA/Standard accounts is dependent upon the movement of that cash into the Company's corporate account. For these reasons, the Company from time to time carries significant cash balances, while utilizing its Senior Credit Facility. The Company had cash and cash equivalents of $4.3 million at June 30, 2000 compared to $5.2 million at December 31, 1999. Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Net cash used in operating activities totaled $3.0 million for the first six months of 2000 compared to $14.9 million for the first six months of 1999. Cash used during the first six months of 2000 included a $6.5 million interest payment on the Senior Credit Facility, offset by increases in accounts payable and other liabilities of $0.6 million and a decrease in other assets of $1.3 million. Cash used during the first six months of 1999 included $5.5 million for the purchase of an insurance tail policy to cover claims for all years prior to 1999 under APCOA's previous insurance program, $5.0 million for cash restructuring charges and increases in accounts receivable relating to acquired contracts and existing locations of $1.6 million. Cash used in investing activities totaled $2.9 million for the first six months of 2000 compared to $6.9 million for the first six months of 1999. Cash used in investing activities in the first six months of 2000 resulted from capital purchases to secure and/or extend leased facilities and investments in management information system enhancements. Cash used in the first six months of 1999 resulted from capital purchases including the furnishing and improvement of the Company's combined office space in Chicago, investment in management information system enhancements, and capital investments to secure and/or extend leased facilities. Cash generated from financing activities totaled $5.7 million in the first six months of 2000 compared to $9.2 million for the first six months of 1999. The 2000 activity included $6.2 million in borrowings from the revolving Senior Credit Facility, partially offset by repayments on long-term and joint venture borrowings of $0.5 million. The 1999 activity included $10.7 million in borrowings from the revolving Senior Credit Facility, partially offset by repayments on long-term borrowings of $1.5 million. Other Liquidity and Capital Resources Information The Company's Senior Credit Facility (the "Facility") provides for cash borrowings up to $35 million and Letters of Credit up to $5 million, at variable rates based, at the Company's option, either on LIBOR, the overnight federal funds rate, or the bank's base rate. From time to time the Company utilizes the Facility to provide readily-accessible cash for working capital purposes. The Facility includes covenants that limit the Company from incurring additional indebtedness, issuing preferred stock or paying dividends, and contains certain other restrictions. At June 30, 2000, the Company had $1.3 million of letters of credit outstanding under the Facility and borrowings against the Facility aggregated $24.3 million. The Facility was amended on March 30, 2000, with the principal changes to the agreement providing for revisions to interest rates charged on borrowings and certain financial covenants. The Facility was amended on May 12, 2000, with the principal change to the agreement relating to a change in control. The Company's primary capital requirements are for working capital, capital expenditures and debt service. The Company believes that cash flow from operating activities, cash and cash equivalents and borrowings under the Senior Credit Facility will be adequate to meet the Company's short-term liquidity requirements prior to the maturity of its long-term indebtedness, although no assurance can be provided in this regard. 13 If the Company identifies investment opportunities requiring cash in excess of the Company's cash flows and existing cash, the Company may borrow under the Senior Credit Facility, or may seek additional sources of capital including the sale or issuance of common stock. From time to time the Company utilizes the Facility to provide readily-accessible cash for working capital purposes. Year 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. Special Cautionary Notice Regarding Forward-Looking Statements This quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, the discussions of the Company's expectations concerning its future profitability, the discussion of the Company's strategic relationships, discussions about Year 2000 compliance plans, and the Company's operating and growth assumptions regarding certain matters, including anticipated cost savings, in preparation of the unaudited financial information. Investors are cautioned that forward-looking statements involve risks and uncertainties. Although the Company believes that the assumptions underlying the forward- looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward- looking statements included will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Cautionary Statements The Company continues to be subject to certain factors that could cause the Company's results to differ materially from expected and historical results (see the "Risk Factors" set forth in the Company's Registration Statement on Form S-4 (No. 333-50437) filed on April 17, 1998, as amended on June 9, 1998, July 15, 1998, August 11, 1998 and August 14, 1998 (the "Registration Statement"). Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk exposure consists of risk related to changes in interest rates. Historically, the Company has not used derivative financial instruments for speculative or trading purposes. The Company entered into a $40 million revolving variable rate Senior Credit Facility (see Note 3 of the Notes to the Condensed Consolidated Financial Statements). Interest expense on such borrowing is sensitive to changes in the market rate of interest. If the Company were to borrow the entire $40 million available under the Facility, a 1% increase in the average market rate would result in an increase in the Company's annual interest expense of $0.4 million. This amount is determined by considering the impact of the hypothetical interest rates on the Company's borrowing cost, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Due to the uncertainty of the specific changes and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company's financial structure. 14 APCOA/Standard's indirect parent company is Holberg Industries, Inc. ("Holberg"), a privately held diversified service company located in Greenwich, Connecticut. Holberg also owns AmeriServe Food Distribution, Inc. ("AmeriServe"), one of the nation's largest food service distributors servicing quick-service and casual dining restaurants in the United States, Canada and Mexico. AmeriServe filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on January 31, 2000. APCOA/Standard and AmeriServe are separate and distinct companies with independent sources of funding. However, the AmeriServe Chapter 11 filing is a default under certain debt instruments of Holberg. As a result of such defaults, the creditors of Holberg could take control of Holberg or its subsidiary, AP Holdings, Inc. ("Holdings"). A change in control of Holberg or Holdings would also constitute a change in control of APCOA under the APCOA/Standard debt instruments and of Holdings under its bond indenture. In the event of such a change in control of APCOA/Standard or Holdings, the terms of APCOA/Standard's senior bank credit facility and subordinated bond indenture and of Holdings' bond indenture permit the APCOA/Standard and Holdings creditors, if they believed it were in their interest to do so, to call, for immediate payment under such instruments, and APCOA/Standard's or Holdings failure to pay on such terms would constitute a default thereunder. Holberg and its creditors are negotiating to restructure the debt and eliminate the defaults created as a result of the AmeriServe Chapter 11 filing. Although Holberg currently expects to complete the restructuring of the debt, and further currently expects that its creditors will not in any event seek to obtain control of Holberg, there can be no assurance that Holberg will be successful in restructuring its debt and eliminating the existing defaults, or that Holberg's creditors will not seek to obtain control of Holberg. Should APCOA/Standard's or Holdings' indebtedness be accelerated as a result of any action by Holberg's creditors, there is no assurance that APCOA/Standard or Holdings would have sufficient funds to satisfy such obligations (see Exhibit 4.9, Third Amendment to the Senior Credit Facility). 15 PART II OTHER INFORMATION Item 1. Legal Proceedings In the normal course of business, the Company is involved in disputes, generally regarding the terms of lease agreements. In the opinion of management, the outcome of these disputes and litigation will not have a material adverse effect on the consolidated financial position or operating results of the Company. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit Number Description ------- ----------- 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (No. 333-50437) filed on April 17, 1998, as amended on June 9, 1998, July 15, 1998, August 11, 1998 and August 14, 1998 (the "Registration Statement")). 3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Registration Statement). 4.1 Indenture, dated as of March 30, 1998, amended as of July 6, 1998, September 21, 1998 and January 12, 1999 by and among the Company, the Subsidiary Guarantors and State Street Bank and Trust Company (incorporated by reference to Exhibit 4.1 to the Registration Statement). 4.2 Form of New Note (included as Exhibit A to Exhibit 4.1). 4.3 Form of New Note Guarantee (included as Exhibit D to Exhibit 4.1). 4.7 First Amendment to Senior Credit Facility dated November 12, 1999 by and among the Company, the Lenders, and N.A. Bank One as agent for Lenders (incorporated by reference to Exhibit 4.7 of the Company's September 10, 1999 Form 10Q). 4.8 Second Amendment to the Senior Credit Facility dated March 30, 2000 by and among the Company, the Lenders and Bank One N.A., as agent for the Lenders (incorporated by reference to Exhibit 4.8 of the Company's May 12, 2000 Form 10Q). 4.9 Third Amendment to the Senior Credit Facility dated May 12, 2000 by and among the Company, the Lenders and Bank One N.A., as agent for the Lenders. 27.1 Financial Data Schedule.
(b) Reports on Form 8-K No current report on Form 8-K was filed by the Company during the quarter ended June 30, 2000. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: APCOA/Standard Parking, Inc. (Registrant) By: _________________________________ August 9, 2000 Myron C. Warshauer Chief Executive Officer By: _________________________________ August 9, 2000 Theodore C. Pulkownik Executive Vice President and Chief Financial Officer 17 INDEX TO EXHIBITS
Exhibit Number Description ------- ----------- 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (No. 333-50437) filed on April 17, 1998, as amended on June 9, 1998, July 15, 1998, August 11, 1998 and August 14, 1998 (the "Registration Statement")). 3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Registration Statement). 4.1 Indenture, dated as of March 30, 1998, amended as of July 6, 1998, September 21, 1998 and January 12, 1999 by and among the Company, the Subsidiary Guarantors and State Street Bank and Trust Company (incorporated by reference to Exhibit 4.1 to the Registration Statement). 4.2 Form of New Note (included as Exhibit A to Exhibit 4.1). 4.3 Form of New Note Guarantee (included as Exhibit D to Exhibit 4.1). 4.7 First Amendment to Senior Credit Facility dated November 12, 1999 by and among the Company, the Lenders, and N.A. Bank One as agent for Lenders (incorporated by reference to Exhibit 4.7 of the Company's September 10, 1999 form 10Q). 4.8 Second Amendment to the Senior Credit Facility dated March 30, 2000 by and among the Company, the Lenders and Bank One N.A., as agent for the Lenders (incorporated by reference to Exhibit 4.8 of the Company's May 12, 2000 Form 10Q). 4.9 Third Amendment to the Senior Credit Facility dated May 12, 2000 by and among the Company, the Lenders and Bank One N.A., as agent for the Lenders. 27.1 Financial Data Schedule.
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