Document

(millions)

Nine Months Ended September 30, 2018

Twelve Months Ended December 31, 2017

Estimated income tax effect on both Bags Investment Group earnings before income taxes, as it had no tax provision as a limited liability corporation, and the net impact of the proforma adjustments

0001059262-19-000007.txt : 20190214 0001059262-19-000007.hdr.sgml : 20190214 20190214164759 ACCESSION NUMBER: 0001059262-19-000007 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20181130 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190214 DATE AS OF CHANGE: 20190214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SP Plus Corp CENTRAL INDEX KEY: 0001059262 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 161171179 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-50796 FILM NUMBER: 19607646 BUSINESS ADDRESS: STREET 1: 200 E. RANDOLPH STREET STREET 2: SUITE 7700 CITY: CHICAGO STATE: IL ZIP: 60601-7702 BUSINESS PHONE: 312-274-2000 MAIL ADDRESS: STREET 1: 200 E. RANDOLPH STREET STREET 2: SUITE 7700 CITY: CHICAGO STATE: IL ZIP: 60601-7702 FORMER COMPANY: FORMER CONFORMED NAME: SP PLUS Corp DATE OF NAME CHANGE: 20131202 FORMER COMPANY: FORMER CONFORMED NAME: STANDARD PARKING CORP DATE OF NAME CHANGE: 20030506 FORMER COMPANY: FORMER CONFORMED NAME: APCOA STANDARD PARKING INC /DE/ DATE OF NAME CHANGE: 20011126 8-K/A 1 proforma8k.htm 8-K/A Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): November 30, 2018

SP PLUS CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)



000-50796	16-1171179
(Commission File Number)	(IRS Employer Identification No.)

200 E. Randolph Street, Suite 7700, Chicago, Illinois 60601‑7702

(Address of Principal Executive Offices) (Zip Code)

(312) 274-2000

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

EXPLANATORY NOTE

On November 30, 2018, SP Plus Corporation (“SP Plus” or the "Company") filed a current report on Form 8-K with the Securities and Exchange Commission (the "SEC") (the “Initial Form 8-K”) reporting SP Plus’ acquisition of ZWB Holdings, Inc. (“ZWB”), Rynn’s Luggage Corporation (“RLC”) and the direct and indirect subsidiaries of ZWB and RLC (together with ZWB and RLC, the “Bags Investment Group”). SP Plus is filing this Amendment No. 1 (this “Amendment No. 1”) to the Initial Form 8-K to amend and supplement the Initial Form 8-K to include financial statements and pro forma financial information as required by Item 9.01(a) and Item 9.01(b) of Form 8-K. This Amendment No. 1 should be read together with the Initial Form 8-K.

Item 9.01 Financial Statements and Exhibits

(a)Financial Statements of Business Acquired.

The unaudited combined financial statements of Bags Investment Group as of September 30, 2018 and December 31, 2017 and for the nine months ended September 30, 2018 and 2017 are filed as Exhibit 99.1 to this Amendment No. 1 and incorporated herein by reference. The audited combined financial statements of Bags Investment Group as of and for the year ended December 31, 2017 are filed as Exhibit 99.2 to this Amendment No. 1 and incorporated herein by reference


(b)	Pro Formal Financial Information.

The unaudited pro forma condensed combined balance sheet as of September 30, 2018 and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2018 and for the year ended December 31, 2017 and the notes to such unaudited pro forma condensed combined financial statements, all giving effect to the acquisition of Bags Investment Group are filed as Exhibit 99.3 to this Amendment No. 1 and incorporated herein by reference.


(c)	Exhibits.



23.1		Consent of Rosenfield & Company PLLC, Independent Auditors of Bags Investment Group

99.1		Unaudited combined financial statements of Bags Investment Group as of September 30, 2018 and December 31, 2017 (audited) and for the nine months ended September 30, 2018 and 2017

99.2		Audited combined financial statements of Bags Investment Group as of and for the year ended December 31, 2017

99.3		Unaudited pro forma condensed combined financial statements as of and for the nine months ended September 30, 2018 and unaudited pro forma condensed combined financial statements of income for the year ended December 31, 2017

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to report to be signed on its behalf by the undersigned hereunto duly authorized.



	SP PLUS CORPORATION (Registrant)

Date: February 14, 2019	By: /s/ VANCE C. JOHNSTON
	Vance C. Johnston Executive Vice President, Chief Financial Officer and Treasurer

EX-23.1 2 ex231.htm EXHIBIT 23.1 Exhibit

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITOR

We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-187680) (including the related prospectus) and on Forms S-8 (No. 333-116190, 333-150379, 333-211135 and 333-226526) and in this Form 8-K/A of SP Plus Corporation of our report dated October 31, 2018 with respect to the combined financial statements of Bags Investments Group as of and for the year ended December 31, 2017.

/s/ Rosenfield and Company, PLLC

Orlando, Florida

February 13, 2019

EX-99.1 3 ex991.htm EXHIBIT 99.1 Exhibit

EXHIBIT 99.1

BAGS INVESTMENT GROUP

COMBINED FINANCIAL STATEMENTS

NINE MONTHS ENDED

SEPTEMBER 30, 2018 AND 2017




TABLE OF CONTENTS

		Page No.

COMBINED FINANCIAL STATEMENTS

	Combined Balance Sheet	1
	Combined Statement of Income	3
	Combined Statement of Changes in Equity	4
	Combined Statement of Cash Flows	5
	Notes to Combined Financial Statements	7



BAGS INVESTMENT GROUP
COMBINED BALANCE SHEET
SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

ASSETS

		September 30,
		2018	December 31,
		(unaudited)	2017
CURRENT ASSETS:
	Cash and cash equivalents	$ 6,449,832	$ 5,119,936
	Accounts receivable, net	15,318,176	15,181,230
	Inventories	1,334,340	1,201,562
	Prepaid expenses	1,170,574	2,085,387

TOTAL CURRENT ASSETS		24,272,922	23,588,115

OTHER ASSETS:
	Property and equipment, net	1,552,116	2,537,299
	Goodwill	3,434,394	3,434,394
	Other intangible assets, net	187,916	371,666
	Deposits	197,065	185,844

TOTAL OTHER ASSETS		5,371,491	6,529,203

		$ 29,644,413	$ 30,117,318



BAGS INVESTMENT GROUP
COMBINED BALANCE SHEET
SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

LIABILITIES & OWNER'S EQUITY

		September 30,
		2018	December 31,
		(unaudited)	2017
CURRENT LIABILITIES:
	Accounts payable and accrued expenses	$ 8,221,731	$ 6,799,898
	Deposits payable	3,316,381	2,185,895
	Payroll payable	—	1,415,144
	Line of credit	—	2,000,000
	Current portion of long-term debt	2,789,030	2,619,085
	Current portion of capital lease obligations	5,584	289,045
	Deferred revenue	200,487	708,037

TOTAL CURRENT LIABILITIES		14,533,213	16,017,104

OTHER LIABILITIES:
	Long-term debt, less current portion, net	6,153,119	5,302,210
	Capital lease obligations, less current portion	2,474	46,463
	Deferred rent	65,059	113,638
	Deposits payable	12,150	8,275

TOTAL OTHER LIABILITIES		6,232,802	5,470,586

TOTAL LIABILITIES		20,766,015	21,487,690

OWNER'S EQUITY:
	Common stock	11,260	11,260
	Additional paid-in capital	6,024,847	6,024,847
	Retained earnings	1,811,180	1,563,012

TOTAL OWNER'S EQUITY		7,847,287	7,599,119

Non-controlling interest		1,031,111	1,030,509

		$ 29,644,413	$ 30,117,318



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017




		September 30,	September 30,
		2018	2017
		(unaudited)	(unaudited)

	Revenues	$123,774,847	$108,470,618

	Operating expenses	94,364,822	80,336,276

	Gross profit	29,410,025	28,134,342

	Selling, general and administrative	13,352,481	13,555,144
	Depreciation and amortization	1,001,940	1,527,487

	Net income from operations	15,055,604	13,051,711

	Interest expense, net	360,301	293,799

	Net income before non-controlling interest	14,695,303	12,757,912

	Net income attributable to non-controlling interest	286,916	237,350

	Net income	$ 14,408,387	$ 12,520,562



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF CHANGES IN EQUITY
NINE MONTHS ENDED
SEPTEMBER 30, 2018




		Additional
	Common	Paid-In	Retained		Non-controlling
	Stock	Capital	Earnings	Total	Interest	Total

BALANCE, DECEMBER 31, 2017	$11,260	$ 6,024,847	$ 1,563,012	$ 7,599,119	$ 1,030,509	$ 8,629,628

Net income	—	—	14,408,387	14,408,387	286,916	14,695,303

Distributions	—	—	(14,160,219)	(14,160,219)	(286,314)	(14,446,533)

BALANCE, SEPTEMBER 30, 2018	$11,260	$ 6,024,847	$ 1,811,180	$ 7,847,287	$ 1,031,111	$ 8,878,398



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017

	September 30,		September 30,
	2018		2017
	(unaudited)		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 14,408,387		$ 12,520,562
Net income attributable to non-controlling interest	286,916		237,350
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization	1,001,940		1,527,487
Loan cost amortization	36,788		3,892
Deferred revenue and rent amortization	(756,616)		(102,684)
Gain on disposal of property and equipment	(4,334)		(31,661)
Changes in operating assets and liabilities:
Accounts receivable	(136,939	)	1,224,432
Inventories	(132,779)		28,665
Prepaid expenses	914,813		(611,146)
Accounts payable and accrued expenses	1,421,825		(1,547,814	)
Deposits	1,123,140		349,940
Payroll payable	(1,415,144)		(771,923)
Deferred revenue	200,487		200,487
Net cash from operating activities	16,948,484		13,027,587

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(190,138)		(749,462)
Disposal of property and equipment	13,250		171,271
Investments	—		35,992
Note Receivable	—		(1,419,973)
Net cash from investing activities	(176,888)		(1,962,172)

CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds	3,353,724		2,000,000
Borrowings/(Repayments) on line of credit	(2,000,000)		(2,000,000)
Repayments of debt	(2,185,224)		(2,533,616)
Debt issuance costs	(184,432)		—
Repayments of capital lease obligations	(327,450)		(143,259)
Distributions to non-controlling interest	(286,314)		(249,491)
Distributions to owner	(13,812,004)		(10,472,992)
Net cash from financing activities	(15,441,700)		(13,399,358)

NET CHANGE IN CASH AND CASH EQUIVALENTS	1,329,896		(2,333,943)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	5,119,936		7,087,034
CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 6,449,832		$ 4,753,091



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017

	September 30,	September 30,
	2018	2017
	(unaudited)	(unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:

INTEREST PAID	$ 360,301	$ 293,799

NON-CASH OWNER DISTRIBUTIONS

Vehicles	$ 348,215	0

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of operations -

-------------------------

Bags Investment Group (the “Combined Entities” or the “Company”) combines the consolidated financial statements of ZWB Holding, Inc. (ZWB) and Rynn’s Luggage Corporation (RLC).

The ZWB and RLC consolidated balance sheets are included as of September 30, 2018 and December 31, 2017 and the related consolidated statements of income, changes in equity, and cash flows for the nine-months ended September 30, 2018 and 2017.

ZWB is headquartered in Orlando, Florida. ZWB provides travel and hospitality services to airlines, theme parks, resorts, hotels, airports, parking lots and cruise ports throughout the United States and Canada. The services include remote airline check-in (RAC), baggage handling, delivery services, skycap, wheelchair, bellhop, coat check, valet and self-parking operations. Additionally, ZWB manages and services delayed and elective baggage delivery operations (BAGS VIP) for all of the major airlines in airports throughout the United States.

RLC is headquartered in Dallas, Texas. RLC’s primary service is the repair and replacement of damaged luggage for airlines located nationwide. RLC derives the balance of its revenue from wholesale and retail sales of luggage and accessories.

Consolidation policy -

-------------------------

ZWB’s consolidated financial statements include the accounts of wholly owned subsidiaries including Baggage Airline Guest Services, Inc. (BAGS), Home Serv Delivery, LLC (HSD), Orlando DTTS, LLC (DTTS), CCM Investments Group, LLC (CCM), and Merritt Trucking, LLC as well as many other wholly owned subsidiaries not listed here. Either directly or through an intermediary company, each of these entities is wholly owned by ZWB, which is wholly owned by Craig Mateer (Mateer). During 2017, CCM was owned wholly by Mateer. However, effective January 1, 2018, ownership of CCM was contributed to ZWB by Mateer.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Consolidation policy - (continued)

-----------------------------------------

RLC’s consolidated financial statements include the accounts of wholly owned subsidiaries including Rynn’s Luggage of Texas and Netbags.com, LLC. RLC is owned 75% by Mateer and 25% by one other shareholder. The other shareholder is actively involved in the day to day operations of RLC. The non-controlling interest on the combined financial statements reflects the equity ownership in RLC of the other shareholder.

All significant intercompany transactions and related year-end balances have been eliminated in consolidation.

Combination policy -

--------------------------

The accompanying combined financial statements, referred to as Bags Investment Group include the accounts of the companies listed previously. The Combined Entities have been presented on a combined basis due to their related operations, common ownership, and common management control.

All significant intercompany transactions and related year-end balances have been eliminated in combination.

Use of estimates -

--------------------

The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Estimates and assumptions used by management affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the combined financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Fair value measurements -

--------------------------------

In certain circumstances, specific assets and liabilities may be required to be recognized at fair value. Fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurements date. The Combined

Entities utilize market data or assumptions that market participants would use in pricing the assets or liability under a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring entities to develop their own assumptions.

Cash and cash equivalents -

--------------------------------

Cash and cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.

Accounts receivable -

---------------------------

Accounts receivable are for services performed based on contracted and invoiced prices. Credit is extended to customers in the normal course of business and ongoing credit evaluations are performed to determine if allowances are necessary for uncollectable accounts.

The carrying amount of receivables is reduced by an allowance that reflects management’s best estimate of the amounts that will not be collected. Management reviews each receivable balance that exceeds 60 days from the invoice due date and based on historical bad debt experience and management’s evaluation of customer creditworthiness, estimates that portion, if any, of the balance that will not be collected. No interest is charged on delinquent receivables. The allowance for doubtful accounts was approximately $94,000 as of September 30, 2018 and $151,000 as of December 31, 2017.

Inventory -

------------

Inventories, which consist of luggage available for sale, are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Fair value of financial instruments -

-----------------------------------------

The fair value of the Combined Entities financial instruments approximate their carrying amounts, either because the expected collection or payment period is relatively short or because the terms are similar to market terms.

Property and equipment -

------------------------------

Property and equipment are stated at historical cost and depreciated using the straight-line method over the following estimated useful lives:



Computer equipment				2 - 3 years
Furniture and equipment				3 - 7 years
Vehicles				3 - 7 years
Software				2 - 5 years

Gains or losses on disposition of property and equipment are reflected in income. Repair and maintenance costs are expensed as incurred.

Long-lived assets -

---------------------

The Combined Entities record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. There were no indicators of impairment for 2018 or 2017.

Goodwill -

------------

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in connection with the business acquisition. In accordance with generally accepted accounting principles, goodwill is not amortized since it has as indefinite life. Instead, it is tested annually for impairment. The Company completed its impairment assessment by performing a qualitative analysis as permitted. Among the qualitative factors considered were the following: the substantial margin by which the reporting unit passed the previous impairment analysis; the continued strong performance of the reporting unit; the importance of the reporting unit to the Company’s strategic plan; and a lack of identified negative factors. The Company concluded, on a more-likely-than-not basis, that no goodwill impairment existed at September 30, 2018 or December 31, 2017.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Other intangible assets -

-----------------------------

Other intangible assets are non-physical assets such as patents, covenants not to compete and other purchased contracts having a useful life greater than one year. If other intangible assets are determined to have a useful life, then its value is amortized over that useful life. Patents are amortized on a straight-line basis over 5 years, covenants not to compete 2 to 7 years and airline contracts over 2 to 4 years.

If at any point there is determined to be a decline in the remaining value of an intangible asset below its carrying amount, then the difference is recognized as an impairment expense. Management does not believe any intangible asset had a decline in value less than the carrying amount as of September 30, 2018 or December 31, 2017.

Deposits payable -

--------------------

The Combined Entities consider all customer-related pass through fees collected or invoiced on behalf of the customer and not yet paid to be deposits payable.

Deferred revenue -

----------------------

Deferred revenues are advance payments recorded on the balance sheet as a liability until the services have been rendered. As the services are rendered deferred revenues are recognized as revenues on the income statement.

Accounting for income taxes -

------------------------------------

The Combined Entities have elected S corporation status, as defined by the Internal Revenue Code, whereby the companies are not subject to taxation for federal purposes. Under S corporation status, the owners of the companies report their share of taxable earnings or losses in their personal tax returns. While the Combined Entities are S corporations, consideration is given to the recognition and measurement of tax positions that meet a “more-likely-than-not” threshold. A tax position is a position taken in previously filed tax returns or a position expected to be taken in future tax returns that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions included the Combined Entities status as pass-through entities. The recognition and measurement of tax positions taken for various jurisdictions consider the amounts and probabilities of outcomes that could be realized upon settlement using the facts, circumstances, and information available at the reporting date. The Combined Entities have determined that they do not have any material unrecognized tax benefits or obligation as of September 30, 2018 or December 31, 2017. The federal income

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

tax returns for 2015, 2016, and 2017 are subject to examination by the IRS, generally three years after they were filed.

Uncertain tax positions -

-----------------------------

Management has determined that the Combined Entities do not have any uncertain tax positions and associated unrecognized benefits that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Combined Entities tax returns will not be challenged by the taxing authorities and that the Combined Entities or its owners will not be subject to additional tax, penalties, and interest as a result of such challenge.

Compensated absences -

----------------------------

Employees of the Combined Entities are entitled to paid vacations depending on job classification, length of service and other factors. Vacations are taken in the year earned. The Combined Entities do not allow employees to carryover unused vacation time to next year. Therefore, the Combined Entities have not accrued any liability for compensated absences.

Deferred rent -

------------------

Generally accepted accounting principles require the base rents on operating leases to be recorded on a straight-line basis. This requires accruing and expensing rent not yet paid. In addition, certain leases can contain escalation clauses that increase base rent. Rent expense was determined on the straight-line basis.

Debt issuance costs

-------------------------

Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Debt issuance costs incurred in connection with loan agreements are amortized over the life of the debt using the straight-line method and included in interest expense.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Revenue recognition -

-------------------------

The Combined Entities prepare their financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Under this basis of accounting, revenues are recognized when services are completed or products are delivered. Baggage delivery revenues are recognized at the time of delivery. Labor plus contract revenues, including but not limited to wheelchair, bellhop, baggage handling and coat check are recognized at the time service is provided. Skycap and remote airline check-in revenues are recognized at the time passengers are checked-in. Valet revenues are recognized at the time cars are delivered to the customer. Luggage sales are recognized at the time luggage is delivered to the customer.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

2. CONCENTRATION OF CREDIT RISK:

As a condition of its loans, the Combined Entities have agreed to maintain primary deposits with its lender during the term of its loans. The Combined Entities maintain significant cash balances with its lender. The Combined Entities also place cash and cash equivalents with a number of other financial institutions. Interest bearing accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation up to $250,000. The Combined Entities have not experienced any losses in such accounts and believe it is not exposed to any significant credit risk on cash and cash equivalents.

Concentration of credit risk with respect to its accounts receivable is limited due to short payment terms for major customers. For the nine months ended September 30, 2018, 66% of the Combined Entities revenues were from four customers, representing 23%, 22%, 13%, and 8%, individually. Additionally, as of September 30, 2018, 62% of the Combined Entities accounts receivable were due from five customers each representing 24%, 12%, 9%, 9%, and 8% individually. For the nine months ended September 30, 2017, 70% of the Combined Entities revenues were from four customers each representing 25%, 22%, 13%, and 10%, individually and as of December 31, 2017, 62% of the Combined Entities accounts receivable were due from four customers each representing 25%, 14%, 10% and 13% individually.

3. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following as of September 30, 2018 and December 31, 2017:



	September 30, 2018			December 31, 2017
Computer equipment	$	1,231,641		$	1,231,052
Furniture and equipment	1,441,037			1,310,783
Vehicles	4,013,841			4,700,156
Software	1,759,226			1,741,734
	8,445,745			8,983,725
Accumulated depreciation	(6,893,629		)	(6,446,426		)
	$	1,552,116		$	2,537,299

Depreciation expense totaled approximately $818,000 and $1,244,000 for the nine months ended September 30, 2018 and 2017, respectively.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

4. GOODWILL:

On June 18, 2009, HSD purchased assets of Diversified Services International, LLC and Distribution Solutions International, Inc. for $500,000. Goodwill of $470,176 was recorded in connection with the acquisition.

On November 18, 2010, HSD purchased assets of Rynn’s Logistics and Procurement Services, LLC for $2,000,000. Goodwill of $1,500,000 was recorded in connection with the acquisition.

On March 31, 2013, Mateer purchased 50% of RLC for $1,350,000 resulting in an estimated fair market value for RLC of $2,700,000. Goodwill of $1,464,218 was recorded in connection with the acquisition. On April 1, 2017, Mateer acquired an additional 25% and owns 75% of RLC.

5. OTHER INTANGIBLE ASSETS:

The following are intangible assets as of September 30, 2018 and December 31, 2017, respectively:

September 30, 2018:



	Year	Cost		Accumulated Amortization			Net

Covenants not to compete	2012	$	630,000	$	(592,084	)	$	37,916
Luggage delivery contract	2015	720,000		(570,000		)	150,000

Totals		$	1,350,000	$	(1,162,084	)	$	187,916

December 31, 2017:



	Year	Cost		Accumulated Amortization			Net

Covenants not to compete	2012	$	630,000	$	(543,334	)	$	86,666
Luggage delivery contract	2015	720,000		(435,000		)	285,000

Totals		$	1,350,000	$	(978,334	)	$	371,666

Amortization expense was approximately $183,750 and $283,750 for the nine months ended September 30, 2018 and 2017. Future amortization will be $187,916 for the twelve months ended December 31, 2019.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

6. DEFERRED REVENUES:

During the nine months ended September 30, 2018, the Combined Entities recognized revenues of approximately $708,000 related to advance payments received from customers in 2017 for services rendered in 2018 and deferred revenue of approximately $200,500 for advance payments received from customers in September 2018 for services to be rendered in the future.

During the nine months ended September 30, 2017, the Combined Entities recognized revenues of approximately $53,000 related to advance payments received from customers in 2016 for services rendered in 2017 and deferred revenue of approximately $200,500 for advance payments received from customers in September 2017 for services to be rendered in the future.

7. DEFERRED RENT:

The Combined Entities entered certain lease agreements where they were initially not required to make rent payments for a period of time. During the period, the Combined Entities accrued rent expenses and recorded the liability as deferred rent. The Combined Entities are amortizing the deferred rent balance against its future rent expense in order to straight-line the rent expense over the term of the lease. The Combined Entities amortized approximately $49,000 and $50,000 in deferred rent during the nine months ended September 30, 2018 and 2017, respectively.

8. LONG-TERM DEBT:

As of December 31, 2017, the Combined Entities had access to a $10,000,000 credit facility, with approximately $5,200,000 available. The first $2,000,000 was a line-of-credit for working capital with interest only payments due monthly at a floating interest rate of prime plus .50% with a 3.75% floor. The remainder of the credit facility was available for long-term borrowings for business acquisitions, equipment purchases and strategic opportunities. Long-term borrowings were amortized over 48 to 180 months at prime plus .50% with a 3.75% floor. Multiple notes could be issued under the credit facility.

Security consisted of all property, furniture, equipment, software, intangible assets (pending and future), accounts receivable, company stock and assignment of a $5,000,000 life insurance policy on the shareholder. The Combined Entities were required to maintain a net worth of $5,000,000 and a minimum “debt service coverage ratio” of 1.20x, among other requirements. As of December 31, 2017, the Combined Entities were in compliance with the required debt covenants.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

LONG-TERM DEBT - CONTINUED:

During 2017, the Combined Entities amortized approximately $6,600 in debt issuance costs included in interest expense.

On February 2, 2018, the Combined Entities entered a new credit facility providing $27,000,000 in available debt financing with a 3-year commitment. The credit facility provides $6,000,000 as a general line for working capital with interest only payments due monthly at a floating interest rate of prime plus .50% (3.75% floor). The remaining $21,000,000 is a guidance line available for letters of credit and long-term borrowings for business acquisitions, equipment purchases, land acquisitions, construction projects and strategic opportunities. Long-term borrowings are amortized over 48 to 240 months with a fixed rate determined at the time funding occurs based on prime plus .50% (3.75% floor). Multiple notes may be issued under the credit facility. As of September 30, 2018, the Combined Entities had approximately $17,910,000 available on the credit facility.

Security consists of all property, furniture, equipment, software, intangible assets (pending and future), accounts receivable, company stock and assignment of a $13,000,000 life insurance policy on the shareholder. In addition to other requirements, the Combined Entities are required to maintain a minimum “debt service coverage ratio” of 1.20x, a minimum “fixed charge coverage ratio” of 1.25x, a “leverage ratio” not to exceed 3.0x, and a net worth of approximately $7,000,000 plus 25 percent of future net income. As of September 30, 2018, the Combined Entities are in compliance with the required debt covenants.

Repayment of the credit facility has been guaranteed by Mateer. The credit facility and related notes payable have cross-collateralization and cross default provisions. There was no outstanding balance of the line-of-credit at September 30, 2018 and the combined entities had approximately $2,360,000 and $2,367,000 in outstanding letters of credit as of September 30, 2018 and December 31, 2017, respectively.

Long-term debt consisted of the following as of September 30, 2018 and December 31, 2017:



	September 30, 2018		December 31, 2018
Note payable, original amount of $1,207,500, payable in 60 monthly installments of $22,133 at 3.75% interest, maturing May 2018.	$	—	$	109,482

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

LONG-TERM DEBT - CONTINUED:



Note payable, original amount of $1,970,000, refinanced on January 28, 2016, payable in 52 monthly installments of $33,237 at 4.00% interest, maturing May 2020.	639,829	914,842

Note payable, original amount of $877,756, payable in 60 monthly installments of $16,089 at 3.75% interest, maturing June 2020.	332,333	465,347

Note payable, original amount of $4,000,000, payable in 48 monthly installments of $90,415 at 4.00% interest, maturing December 2020.	2,070,252	2,808,502

Note payable, original amount of $1,500,000, payable in 60 monthly installments of $27,663 at 4.00% interest, maturing December 2020.	712,667	936,252

Note payable, original amount of $2,000,000, payable in 48 monthly installments of $45,211 at 4.25% interest, maturing June 2021.	1,357,622	1,769,870

Note payable, original amount of $917,000, payable in 48 monthly installments of $21,042 at 4.75% interest, maturing December 2021.	775,508	917,000

Note payable, original amount of $994,975, payable in 60 monthly installments of $18,693 at 4.75% interest, maturing January 2023.	875,655	—

Note payable, original amount of $986,000, payable in 84 monthly installments of $7,836 and a balloon payment of $625,000 at 5.00% interest, maturing July 2025.	978,965	—

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

LONG-TERM DEBT - CONTINUED:



Note payable, original amount of $561,000, payable in 84 monthly installments of $3,805 and a balloon payment of $431,000 at 5.25% interest, maturing July 2025.	556,833			—

Note payable, original amount of $811,750 payable in 180 monthly installments of $6,342 at 4.75% interest, maturing July 2025.	790,131			—

	9,089,795			7,921,295
Less unamortized debt issuance costs	(147,646		)	—
Less current portion	(2,789,030		)	(2,619,085		)
Long-term debt, less current portion	$	6,153,119		$	5,302,210

During 2018, the Combined Entities incurred and capitalized approximately $184,000 in debt issuance costs associated with the new credit facility which will be amortized over the life of the facility on a straight-line basis and included in interest expense. The Combined Entities amortized approximately $37,000 and $4,000 in debt issuance costs during the nine months ended September 30, 2018 and 2017, respectively.

The outstanding debt was paid off in full on November 30, 2018. See Note 14 for Subsequent Events.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

9. CAPITAL LEASE OBLIGATIONS:

The Combined Entities lease vehicles under capital lease agreements. The related assets were recorded in property and equipment at a cost of approximately $822,000 with accumulated amortization of approximately $637,000 at December 31, 2017. At this date, capital lease obligations consisted of vehicle capital leases in the original aggregate amount of approximately $902,000, payable in 48 monthly installments totaling approximately $18,800 with interest between 6.47% and 7.19%, with original maturity dates from March 2018 to May 2019, secured by vehicles.

During 2018, a majority of the capital lease obligations were settled and the vehicles were purchased. At September 30, 2018, there was one capital lease obligation remaining. The related vehicle was recorded in property and equipment with a cost of approximately $26,000 and accumulated depreciation of approximately $20,000.

The original vehicle capital lease obligation totaled $30,200, payable in 48 monthly installments of $522 with an interest rate of 7.06% and a maturity date of March 2019. At September 30, 2018, the remaining obligation was $8,058. This capital lease obligation was settled in October 2018.

10. COMMON STOCK:

Common stock shares for the Combined Entities consisted of the following as of September 30, 2018 and December 31, 2017:



	Authorized	Issued and Outstanding	Par
ZWB	10,000	1,000	$0.01
RLC	50,000	15,000	$1.00

As of September 30, 2018, and December 31, 2017, RLC had $500,000 in treasury stock reflected as a proportionate reduction to additional paid-in capital and non-controlling interest.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

11. COMMITMENTS:

The Combined Entities lease offices, warehouses and facilities under month to month and non-cancelable operating leases. These leases currently require monthly rental payments of approximately $238,000 and expire at various times through December 2022.

The future minimum lease payments under non-cancelable operating leases in effect at September 30, 2018 are as follows:



2018	$	2,755,408
2019	2,158,955
2020	851,322
2021	615,716
2022	12,750

	$	6,394,151

Some leases contain rent escalation clauses and the lease expense is recognized on a straight-line basis over the term of the lease.


12.	CONTINGENCIES:

The Company is subject to litigation in the normal course of its business. The outcomes of legal proceedings and claims brought against it and other loss contingencies are subject to significant uncertainty. The Company accrues a charge against income when its management determines that it is probable, and the amount of loss can be reasonably estimated.

In determining the appropriate accounting for loss contingencies, the Company considers the likelihood of loss and the incurrence of a liability, as well as its ability to reasonably estimate the amount of potential loss. The Company regularly evaluates current information available to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a potential loss or a range of potential loss involves significant estimation and judgment.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2018 AND 2017

13. RELATED PARTY TRANSACTIONS:

The Combined Entities amortized $1,215,000 and $899,000 of insurance premiums related to coverage provided by a captive insurance company owned by Mateer during the nine months ended September 30, 2018 and 2017, respectively. As of December 31, 2017, the Combined Entities had approximately $1,620,000 included in prepaid expenses related to insurance premiums paid to the captive for coverage in 2018. As of September 30, 2018, there was approximately $405,000 remaining in prepaid expenses related to coverage for the remainder of 2018.

The Combined Entities outsource certain software maintenance to a company in which Mateer owns a 20% interest. Software expense incurred amounted to approximately $171,000 and $441,000 for the nine months ended September 30, 2018 and 2017, respectively. The Combined Entities had approximately $39,000 in accounts payable as of September 30, 2018 and $35,000 in accounts payable as of December 31, 2017.

The Combined Entities outsource driver payment processing to a group of companies collectively owned by a son of Mateer. Driver payment processing fees incurred amounted to approximately $433,000 and $455,000 for the nine months ended September 30, 2018 and 2017. The Combined Entities had approximately $5,950 in accounts payable related to processing fees as of September 30, 2018 and $18,000 in accounts payable as of December 31, 2017.

The Combined Entities leased office space from a company which is owned 75% by Mateer and 25% by the other RLC shareholder. The rental expense was $38,000 and $24,000 for the nine months ended September 30, 2018 and 2017, respectively.

14. SUBSEQUENT EVENTS:

The Combined Entities have evaluated subsequent events for possible adjustments or disclosure through December 26, 2018, the date upon which the combined financial statements were available to be issued.

On October 17, 2018, the Company entered into a Stock Purchase Agreement with a third-party purchaser to sell 100% of the issued and outstanding shares of Company stock for cash consideration of approximately $275 million, subject to certain purchase adjustments. The sale was completed on November 30, 2018. All outstanding debt of the Company was paid off in connection with the transaction.

EX-99.2 4 ex992.htm EXHIBIT 99.2 Exhibit

EXHIBIT 99.2

BAGS INVESTMENT GROUP

COMBINED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 2017




TABLE OF CONTENTS

		Page No.

INDEPENDENT ACCOUNTANTS' AUDIT REPORT		1
COMBINED FINANCIAL STATEMENTS

	Combined Balance Sheet	2
	Combined Statement of Income	4
	Combined Statement of Changes in Equity	5
	Combined Statement of Cash Flows	6
	Notes to Combined Financial Statements	8

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors

Bags Investments Group

We have audited the accompanying combined financial statements of Bags Investments Group, (the “Company”) which comprise the combined balance sheet as of December 31, 2017 and the related combined statements of income, changes in equity, and cash flows for the year then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note 2 to the combined financial statements, the combined financial statements have been restated to correct a misstatement. Our opinion is not modified with respect to this matter.

/s/ Rosenfield and Company, PLLC

Orlando, Florida

October 31, 2018



BAGS INVESTMENT GROUP
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2017
RESTATED

ASSETS


CURRENT ASSETS:
	Cash and cash equivalents	$	5,119,936
	Accounts receivable, net	15,181,230
	Inventories	1,201,562
	Prepaid expenses	2,085,387

TOTAL CURRENT ASSETS		23,588,115

OTHER ASSETS:
	Property and equipment, net	2,537,299
	Goodwill	3,434,394
	Other intangible assets, net	371,666
	Deposits	185,844

TOTAL OTHER ASSETS		6,529,203

		$	30,117,318



BAGS INVESTMENT GROUP
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2017
RESTATED

LIABILITIES & OWNER'S EQUITY


CURRENT LIABILITIES:
	Accounts payable and accrued expenses	$	6,799,898
	Deposits payable	2,185,895
	Payroll payable	1,415,144
	Line of credit	2,000,000
	Current portion of long-term debt	2,619,085
	Current portion of capital lease obligations	289,045
	Deferred revenue	708,037

TOTAL CURRENT LIABILITIES		16,017,104

OTHER LIABILITIES:
	Long-term debt, less current portion	5,302,210
	Capital lease obligations, less current portion	46,463
	Deferred rent	113,638
	Deposits payable	8,275

TOTAL OTHER LIABILITIES		5,470,586

TOTAL LIABILITIES		21,487,690

OWNER'S EQUITY:
	Common stock	11,260
	Additional paid-in capital	6,024,847
	Retained earnings	1,563,012

TOTAL OWNER'S EQUITY		7,599,119

Non-controlling interest		1,030,509

		$	30,117,318



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED
DECEMBER 31, 2017
RESTATED




	Revenues	$	144,623,883

	Operating expenses	106,628,372

	Gross profit	37,995,511

	Selling, general and administrative	18,291,885
	Depreciation and amortization	1,912,282

	Net income from operations	17,791,344

	Interest expense, net	371,600

	Net income before non-controlling interest	17,419,744

	Net income attributable to non-controlling interest	307,794

	Net income	$	17,111,950



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
DECEMBER 31, 2017
RESTATED



	Common	Paid-In	Retained		Non-controlling
	Stock	Capital	Earnings	Total	Interest	Total

BALANCE, DECEMBER 31, 2016	$ 7,510	$ 5,781,268	$ 1,422,697	$ 7,211,475	$ 1,945,382	$ 9,156,857

Net income	—	—	17,111,950	17,111,950	307,794	17,419,744

Distributions	—	—	(17,696,997)	(17,696,997)	(249,976)	(17,946,973)

Non-controlling interest	3,750	243,579	725,362	972,691	(972,691)	—

BALANCE, DECEMBER 31, 2017	$ 11,260	$ 6,024,847	$ 1,563,012	$ 7,599,119	$ 1,030,509	$ 8,629,628



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31, 2017
RESTATED

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 17,111,950
Net income attributable to non-controlling interest	307,794
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization	1,912,282
Deferred revenue and rent amortization	(80,784)
(Gain) loss on disposal of property and equipment	(26,151)
Changes in operating assets and liabilities:
Accounts receivable	(1,809,464)
Inventories	(11,910)
Prepaid expenses	(1,645,073)
Accounts payable and accrued expenses	(976,877)
Deposits	(35,089)
Payroll payable	(1,099,202)
Deferred revenue	708,037
Net cash from operating activities	14,355,513

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(1,045,128)
Disposal of property and equipment	173,849
Other	60,408
Net cash from investing activities	(810,871)

CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds	2,917,000
Repayments of debt	(3,472,724)
Repayments of capital lease obligations	(201,618)
Distributions to non-controlling interest	(249,976)
Distributions to owner	(14,504,422)
Net cash from financing activities	(15,511,740)

NET CHANGE IN CASH AND CASH EQUIVALENTS	(1,967,098)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	7,087,034

CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 5,119,936



BAGS INVESTMENT GROUP
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
December 31, 2017
RESTATED

SUPPLEMENTAL CASH FLOW INFORMATION:

INTEREST PAID	$ 372,313

NON-CASH OWNER DISTRIBUTIONS

Investments	389,973
Notes receivable	401,950
Land & buildings	979,711
Due from owner	1,420,941

	$ 3,192,575

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of operations -

-------------------------

Bags Investment Group (the “Combined Entities” or the “Company”) combines the consolidated financial statements of ZWB Holding, Inc. (ZWB), CCM Investments Group, LLC (CCM) and Rynn’s Luggage Corporation (RLC).

The ZWB, CCM and RLC consolidated financial statements are included as of and for the year ended December 31, 2017.

CCM is headquartered in Orlando, Florida. CCM provides travel and hospitality services to airlines, resorts, hotels, airports, and cruise ports in the central Florida area. The services include sorting, handling and transporting large volumes of baggage to and from the Orlando International Airport and Walt Disney World Resort Hotels and the Disney Cruise Line terminal at Port Canaveral. Additionally, CCM services delayed and elective baggage delivery operations for all of the major airlines at the Orlando International Airport.

Consolidation policy -

-------------------------

ZWB’s consolidated financial statements include the accounts of wholly owned subsidiaries including Baggage Airline Guest Services, Inc. (BAGS), Home Serv Delivery, LLC (HSD), Orlando DTTS, LLC (DTTS), Merritt Trucking, LLC as well as many other wholly owned subsidiaries not listed here. Either directly or through an intermediary company, each of these entities is wholly owned by ZWB, which is wholly owned by Craig Mateer (Mateer).

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Consolidation policy - (continued)

-----------------------------------------

CCM’s consolidated financial statements include the accounts of wholly owned operating subsidiaries including TRUK, LLC, Hospitality CCGS Holdings, LLC, RSF Staff, LLC, and City Side Services, LLC. Either directly or through an intermediary company, each of the above entities is wholly owned by CCM, which is wholly owned by Mateer.

All significant intercompany transactions and related year-end balances have been eliminated in consolidation.

Combination policy -

--------------------------

All significant intercompany transactions and related year-end balances have been eliminated in combination.

Use of estimates -

--------------------

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Fair value measurements -

--------------------------------

Cash and cash equivalents -

--------------------------------

Cash and cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.

Accounts receivable -

---------------------------

Inventory -

------------

Inventories, which consist of luggage available for sale, are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Fair value of financial instruments -

-----------------------------------------

Property and equipment -

------------------------------

Property and equipment are stated at historical cost and depreciated using the straight-line method over the following estimated useful lives:



Computer equipment				2 - 3 years
Furniture and equipment				3 - 7 years
Vehicles				3 - 7 years
Software				2 - 5 years

Gains or losses on disposition of property and equipment are reflected in income. Repair and maintenance costs are expensed as incurred.

Long-lived assets -

---------------------

Goodwill -

------------

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Other intangible assets -

-----------------------------

Deposits payable -

--------------------

The Combined Entities consider all customer-related pass through fees collected or invoiced on behalf of the customer and not yet paid to be deposits payable.

Deferred revenue -

----------------------

Accounting for income taxes -

------------------------------------

The Combined Entities have elected S corporation status, as defined by the Internal Revenue Code, whereby the companies are not subject to taxation for federal purposes. Under S corporation status, the owners of the companies report their share of taxable earnings or losses in their personal tax returns. While the Combined Entities are S corporations, consideration is given to the recognition and measurement of tax positions that meet a “more-likely-than-not” threshold. A tax position is a position taken in previously filed tax returns or a position expected to be taken in future tax returns that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions included the Combined Entities status as pass-through entities. The recognition and measurement of tax positions taken for various jurisdictions consider the amounts and probabilities of outcomes that could be realized upon settlement using the facts, circumstances, and information available at the reporting date. The Combined Entities have determined that they do not have any material unrecognized tax benefits or obligation as of December 31, 2017. The federal income tax returns for 2014, 2015 and 2016 are subject to examination by the IRS, generally three years after they were filed.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Uncertain tax positions -

-----------------------------

Compensated absences -

----------------------------

Deferred rent -

------------------

Debt issuance costs

-------------------------

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Revenue recognition -

-------------------------

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

2. RESTATEMENT:

The Company has restated its previously issued 2017 combined financial statements for matters related to the following previously reported items: owner distributions, accrued workers compensation claims; and non-controlling interest. The accompanying financial statements for 2017 have been restated to reflect the corrections.



The following is a summary of the restatements for 2017:

Increase in owner distributions			$ 3,152,044
Increase in accrued workers compensations claims			(105,611)
Non-controlling interest			(307,794)

Total increase in 2017 net income			$ 2,738,639

The effect on the Company’s previously issued 2017 financial statements is summarized as follows:


Effects on Combined Balance Sheet accounts as of December 31, 2017

	Previously	Increase
	Reported	(Decrease)	Restated

Accounts payable and accrued expenses	$ 6,694,287	$ 105,611	$ 6,799,898
Retained earnings	$ 1,668,623	$ (105,611)	$ 1,563,012



Effects on Combined Statement of Cash Flows for the Year Ended December 31, 2017

	Previously	Increase
	Reported	(Decrease)	Restated

Changes in accounts payable and accrued expenses	$ (1,082,488)	$ 105,611	$ (976,877)
Distributions to non-controlling interest	0	$ 249,976	$ 249,976
Distributions to owner	$ 11,602,354	$ 2,902,068	$ 14,504,422

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

RESTATEMENT (CONTINUED):



Effects on Combined Statement of Income for the Year Ended December 31, 2017

	Previously	Increase
	Reported	(Decrease)	Restated

Revenues	$ 144,623,883	0	$ 144,623,883

Operating expenses	106,522,761	105,611	106,628,372

Gross profit	38,101,122	(105,611)	37,995,511

Selling, general and administrative	21,443,929	(3,152,044)	18,291,885
Depreciation and amortization	1,912,282	0	1,912,282

Net income from operations	14,744,911	3,046,433	17,791,344

Interest expense, net	371,600	0	371,600

Net income before non-controlling interest	14,373,311	3,046,433	17,419,744

Net income attributable to non-controlling interest	0	307,794	307,794

Net income	$ 14,373,311	$ 2,738,639	$ 17,111,950

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

3. CONCENTRATION OF CREDIT RISK:

Concentration of credit risk with respect to its accounts receivable is limited due to short payment terms for major customers. For the year ended December 31, 2017, 70% of the Combined Entities revenues were from four customers each representing 25%, 22%, 13%, and 10%, individually. Additionally, as of December 31, 2017, 62% of the Combined Entities accounts receivable were due from four customers each representing 25%, 14%, 10% and 13% individually.

4. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following as of December 31, 2017:



Computer equipment	$	1,231,052
Furniture and equipment	1,310,783
Vehicles	4,700,156
Software	1,741,734
	8,983,725
Accumulated depreciation	(6,446,426		)
	$	2,537,299

Depreciation expense totaled approximately $1,567,000 for the year ended December 31, 2017

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

5. GOODWILL:

On November 18, 2010, HSD purchased assets of Rynn’s Logistics and Procurement Services, LLC for $2,000,000. Goodwill of $1,500,000 was recorded in connection with the acquisition.

6. OTHER INTANGIBLE ASSETS:

The following are intangible assets as of December 31, 2017:



	Year	Cost		Accumulated Amortization			Net

Covenants not to compete	2012	$	630,000	$	(543,334	)	$	86,666
Luggage delivery contract	2015	720,000		(435,000		)	285,000

Totals		$	1,350,000	$	(978,334	)	$	371,666

Amortization expense was approximately $345,000 for the year ended December 31, 2017. Future amortization will be $245,000 and $126,666 for the years ended December 31, 2019 and 2020, respectively

7. DEFERRED REVENUES:

During 2017, the Combined Entities recognized revenues of approximately $53,000 related to advance payments received from customers in 2016 for services rendered in 2017 and deferred revenue of approximately $708,000 for advance payments received from customers in 2017 for services to be rendered in 2018.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

8. DEFERRED RENT:

The Combined Entities entered certain lease agreements where they were initially not required to make rent payments for a period of time. During the period the Combined Entities accrued rent expenses and recorded the liability as deferred rent. The Combined Entities are amortizing the deferred rent balance against its future rent expense in order to straight-line the rent expense over the term of the lease. During 2017, the Combined Entities amortized approximately $76,000 in deferred rent.

9. LONG-TERM DEBT:

The Combined Entities have access to a $10,000,000 credit facility. The first $2,000,000 is a line-of-credit for working capital with interest only payments due monthly at a floating interest rate of prime plus .50% with a 3.75% floor. The remainder of the credit facility is available for long-term borrowings for business acquisitions, equipment purchases and strategic opportunities. Long-term borrowings are amortized over 48 to 180 months at prime plus .50% with a 3.75% floor. Multiple notes may be issued under the credit facility. As of December 31, 2017, the Combined Entities had approximately $5,200,000 available on the credit facility.

Security consists of all property, furniture, equipment, software, intangible assets (pending and future), accounts receivable, company stock and assignment of a $5,000,000 life insurance policy on the shareholder. As of December 31, 2017, the Combined Entities are required to maintain a net worth of $5,000,000 and a minimum “debt service coverage ratio” of 1.20x, among other requirements. As of December 31, 2017, the Combined Entities are in compliance with the required debt covenants. Repayment has been guaranteed by Craig Mateer.

The credit facility and related notes payable have cross-collateralization and cross default provisions. The outstanding balance of the line-of-credit was $2,000,000 and the combined entities had approximately $2,367,000 in outstanding letters of credit as of December 31, 2017.

Subsequent to December 31, 2017, the Combined Entities executed a new credit facility which replaced the credit facility described above (See Note 13).

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

LONG-TERM DEBT (CONTINUED):

Long-term debt consisted of the following as of December 31, 2017:



Note payable, original amount of $1,207,500, payable in 60 monthly installments of $22,133 at 3.75% interest, maturing May 2018.	$	109,482

Note payable, original amount of $1,970,000, refinanced on January 28, 2016, payable in 52 monthly installments of $33,237 at 4.00% interest, maturing May 2020.	914,842

Note payable, original amount of $877,756, payable in 60 monthly installments of $16,089 at 3.75% interest, maturing June 2020.	465,347

Note payable, original amount of $4,000,000, payable in 48 monthly installments of $90,415 at 4.00% interest, maturing December 2020.	2,808,502

Note payable, original amount of $1,500,000, payable in 60 monthly installments of $27,663 at 4.00% interest, maturing December 2020.	936,252

Note payable, original amount of $2,000,000, payable in 48 monthly installments of $45,211 at 4.25% interest, maturing June 2021.	1,769,870

Note payable, original amount of $917,000, payable in 48 monthly installments of $21,042 at 4.75% interest, maturing December 2021.	917,000

	7,921,295
Less current portion	(2,619,085		)
Long-term debt, less current portion	$	5,302,210

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

LONG-TERM DEBT (CONTINUED):

Aggregate annual maturities of long-term debt are as follows:



2018	$	2,619,085
2019	2,634,597
2020	2,141,511
2021	526,102

Total	$	7,921,295

In 2017, the Combined Entities amortized approximately $6,600 in debt issuance costs included in interest expense.

10. CAPITAL LEASE OBLIGATIONS:

The Combined Entities lease vehicles under capital lease agreements. The related assets are recorded in property and equipment at a cost of approximately $822,000 with accumulated amortization of approximately $637,000 at December 31, 2017. The equipment and related liabilities were initially recorded at the present value of the lease payments.

Capital lease obligations consisted of vehicle capital leases in the original aggregate amount of approximately $902,000, payable in 48 monthly installments totaling approximately $18,800 with interest between 6.47% and 7.19%, maturing from March 2018 to May 2019, secured by vehicles.

Aggregate annual maturities of capital lease obligations are as follows:



	2018	$	302,270
	2019	47,255

Total minimum lease payments		349,525
Amount representing interest		(14,017		)

Present value of net minimum leases		335,508
Current portion of capital lease obligations		(289,045		)

Capital lease obligations, less current portion		$	46,463

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

11. COMMON STOCK:

Common stock shares for the Combined Entities consisted of the following as of December 31, 2017:



	Authorized	Issued and Outstanding	Par
ZWB	10,000	1,000	$0.01
RLC	50,000	15,000	$1.00

As of December 31, 2017, RLC had $500,000 in treasury stock reflected as a proportionate reduction to additional paid-in capital and non-controlling interest and CCM had $800,000 related to its initial member’s capital reflected as additional paid-in capital.

12. COMMITMENTS:

The Combined Entities lease offices, warehouses and facilities under month to month and non-cancelable operating leases. These leases currently require monthly rental payments of approximately $210,000 and expire at various times through August 2022.

The future minimum lease payments under non-cancelable operating leases in effect at December 31, 2017 are as follows:



2018	$	2,528,642
2019	2,120,887
2020	1,580,321
2021	1,030,577
2022	360,046

	$	7,620,473

Some leases contain rent escalation clauses and the lease expense is recognized on a strait line basis over the term of the lease.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED


13.	CONTINGENTCIES:

14. RELATED PARTY TRANSACTIONS:

During 2017, the Combined Entities amortized approximately $1,199,000 of insurance premiums related to coverages provided by a captive insurance company owned by Mateer. As of December 31, 2017, the Combined Entities have approximately $1,620,000 included in prepaid expenses related to insurance premiums paid to the captive for coverage in 2018.

The Combined Entities outsource certain software maintenance to a company in which Mateer owns a 20% interest. Software expense incurred amounted to approximately $525,000 for the year ended December 31, 2017, and the Combined Entities had approximately $35,000 in accounts payable as of December 31, 2017.

The Combined Entities outsource driver payment processing to a group of companies collectively owned by a son of Mateer. Driver payment processing fees incurred amounted to approximately $595,000 for the year ended December 31, 2017, and the Combined Entities had approximately $18,000 in accounts payable related to processing fees as of December 31, 2017.

The Combined Entities leased office space from a company which is owned 75% by Mateer and 25% by the other RLC shareholder. The rental expense was $24,000 for the year ended December 31, 2017.

BAGS INVESTMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

RESTATED

15. SUBSEQUENT EVENTS:

The Combined Entities have evaluated subsequent events for possible adjustments or disclosure through October 31, 2018, the date upon which the combined financial statements were available to be issued.

Security consists of all property, furniture, equipment, software, intangible assets (pending and future), accounts receivable, company stock and assignment of a $13,000,000 life insurance policy on the shareholder. In addition to other requirements, the Combined Entities are required to maintain a minimum “debt service coverage ratio” of 1.20x, a minimum “fixed charge coverage ratio” of 1.25x, a “leverage ratio” not to exceed 3.0x, and a net worth of approximately $7,000,000 plus 25 percent of future net income. Repayment has been guaranteed by Mateer. The credit facility and related notes payable have cross-collateralization and cross default provisions.

The Combined Entities incurred and capitalized approximately $160,000 in debt issuance costs associated with the new credit facility which will be amortized over the life of the facility on a straight-line basis and included in interest expense.

EX-99.3 5 ex993.htm EXHIBIT 99.3 Exhibit

EXHIBIT 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of SP Plus Corporation and consolidated subsidiaries (“SP Plus” and “Company”) and ZWB Holdings, Inc. (“ZWB”) Rynn’s Luggage Corporation (“RLC”) and the direct and indirect subsidiaries of ZWB and RLC (together with ZWB and RLC, “Bags Investment Group”) after giving effect to SP Plus’ acquisition of Bags Investment Group (the “Acquisition”) and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The effective date of the Acquisition was November 30, 2018.

The following selected unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting, with SP Plus being the acquiring entity, and reflects estimates and assumptions deemed appropriate by Company management to give effect to the Acquisition as if it had been completed effective September 30, 2018, with respect to the Unaudited Pro Forma Condensed Combined Balance Sheet, and as of January 1, 2017 (the beginning of the Company’s fiscal 2017), with respect to the Unaudited Pro Forma Condensed Combined Statements of Income.

The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial statements is based upon preliminary estimates. The preliminary estimated fair values of certain assets have been determined with the assistance of a third-party valuation firm, based upon such firm’s preliminary work (primarily with respect to identifiable intangible assets and goodwill). SP Plus' estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as SP Plus finalizes the valuations of certain tangible and intangible assets acquired and liabilities assumed in connection with the Acquisition. The primary areas of the purchase price allocation which are not yet finalized relate to identifiable intangible assets and goodwill.

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the results of operations or financial position of SP Plus that would have been reported had the Acquisition been completed as of the dates presented, and should not be taken as representative of the future results of operations or financial position of SP Plus. The unaudited pro forma condensed combined financial statements, including the notes thereto, do not reflect any potential operating disynergies, integration costs, efficiencies, cost savings and revenue synergies that SP Plus may have or achieve with respect to the combined companies. The unaudited pro forma condensed combined financial statements and notes thereto should be read in conjunction with the historical financial statements of SP Plus included in its annual report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 22, 2018, and in conjunction with its subsequent quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2018 filed with the SEC on November 1, 2018, and in conjunction with the historical financial statements of Bags Investment Group included in Exhibits 99.1 and 99.2 to this Form 8-K/A.

SP Plus Corporation

Pro Forma Condensed Combined Balance Sheet

As of September 30, 2018



	Historical
(millions, except for share and per share data)	SP Plus Corporation			Bags Investment Group (Note 7)		Pro Forma Adjustments			Note	Pro Forma Combined
	(unaudited)			(unaudited)
Assets
Cash and cash equivalents	$	20.2		$	6.4	$	—			$	26.6
Notes and accounts receivable, net	136.4			15.3		—				151.7
Prepaid expenses and other	13.1			2.5		—				15.6
Total current assets	169.7			24.2		—				193.9
Leasehold improvements, equipment and construction in progress, net	26.3			1.6		—				27.9
Other assets
Advances and deposits	4.2			0.2		—				4.4
Other intangible assets, net	50.1			0.2		117.8			5C	168.1
Favorable acquired lease contracts, net	18.5			—		—				18.5
Equity investments in unconsolidated entities	9.9			—		—				9.9
Other assets, net	19.1			—		—				19.1
Deferred taxes	15.8			—		—				15.8
Cost of contracts, net	8.2			—		—				8.2
Goodwill	431.6			3.4		147.9			5B	582.9
Total other assets	557.4			3.8		265.7				826.9
Total assets	$	753.4		$	29.6	$	265.7			$	1,048.7
Liabilities and stockholders’ equity
Accounts payable	$	93.5		$	8.2	$	—			$	101.7
Accrued rent	22.8					—				22.8
Compensation and payroll withholdings	22.4			—		—				22.4
Property, payroll and other taxes	10.0			—		—				10.0
Accrued insurance	18.0			—		—				18.0
Accrued expenses	30.4			3.5		—				33.9
Current portion of obligations under Credit Facility and other long-term borrowings	20.9			2.8		(11.6		)	5D	12.1
Total current liabilities	218.0			14.5		(11.6		)		220.9
Long-term borrowings, excluding current portion
Obligations under Credit Facility	85.8			—		295.4			5D	381.2
Other long-term borrowings	1.1			6.2		(6.2		)	5D	1.1
	86.9			6.2		289.2				382.3
Unfavorable acquired lease contracts, net	26.3			—		—				26.3
Other long-term liabilities	63.5			0.1		(0.1		)	5D	63.5
Total noncurrent liabilities	176.7			6.3		289.1				472.1
Stockholders’ equity
Preferred stock	—			—		—				—
Common stock	—			—		—				—
Treasury stock	(7.5		)			—				(7.5		)
Additional paid-in capital	256.7			6.0		(6.0		)	5E	256.7
Accumulated other comprehensive loss	(1.6		)	—		—				(1.6		)
Retained earnings	111.1			1.8		(4.8		)	5E	108.1
Total stockholders’ equity	358.7			7.8		(10.8		)		355.7
Noncontrolling interest	—			1.0		(1.0		)	5E	—
Total stockholders’ equity	358.7			8.8		(11.8		)		355.7
Total liabilities and stockholders’ equity	$	753.4		$	29.6	$	265.7			$	1,048.7

SP Plus Corporation

Pro Forma Condensed Combined Statements of Income

For the Nine Months Ended September 30, 2018



	Historical
(millions, except for share and per share data) (unaudited)	SP Plus Corporation (Note 7)			Bags Investment Group (Note 7)		Pro Forma Adjustments			Note	Pro Forma Combined
Services revenue										138.5
Lease type contracts	$	311.6		$	—	$	—			$	311.6
Management type contracts	264.8			123.8		—				388.6
	576.4			123.8		—				700.2
Reimbursed management type contract revenue	514.8			—		—				514.8
Total revenue services	1,091.2			123.8		—				1,215.0
Cost of services
Lease type contracts	283.2			—		—				283.2
Management type contracts	157.6			94.4		—				252.0
	440.8			94.4		—				535.2
Reimbursed management type contract expense	514.8			—		—				514.8
Total cost of services	955.6			94.4		—				1,050.0
Gross profit				94.4
Lease type contracts	28.4			—		—				28.4
Management type contracts	107.2			29.4		—				136.6
Total gross profit	135.6			29.4		—				165.0
General and administrative expenses	63.3			13.3		(2.3		)	6E	74.3
Depreciation and amortization	12.7			1.0		7.1			6A	20.8
Operating income	59.6			15.1		(4.8		)		69.9
Other expenses (income)				15.1
Interest expense	6.5			0.4		5.8			6B	12.7
Interest income	(0.3		)	—		—				(0.3		)
Gain on sale of a business	—			—		—				—
Equity in (earnings) losses from investment in unconsolidated entity	(10.1		)	—		—				(10.1		)
Total other expenses (income)	(3.9		)	0.4		5.8				2.3
Earnings before income taxes	63.5			14.7		(10.6		)		67.6
Income tax expense	16.9			—		1.1			6C	18.0
Net income	46.6			14.7		(11.7		)		49.6
Less: Net income attributable to noncontrolling interest	2.5			0.3		(0.3		)	6D	2.5
Net income attributable to stockholders	$	44.1		$	14.4	$	(11.4	)		$	47.1
Common stock data				$ 14.4
Net income per common share
Basic	$	1.97								$	2.11
Diluted	$	1.95								$	2.08
Weighted average shares outstanding
Basic	22,370,789									22,370,789
Diluted	22,607,274									22,607,274

SP Plus Corporation

Pro Forma Condensed Combined Statements of Income

For the Year Ended December 31, 2017



	Historical
(millions, except for share and per share data) (unaudited)	SP Plus Corporation (Note 7)			Bags Investment Group (Note 7)		Pro Forma Adjustments			Note	Pro Forma Combined
Services revenue										138.5
Lease type contracts	$	563.1		$	—	$	—			$	563.1
Management type contracts	348.2			144.6		—				492.8
	911.3			144.6		—				1,055.9
Reimbursed management type contract revenue	679.2			—		—				679.2
Total services revenue	1,590.5			144.6		—				1,735.1
Cost of services
Lease type contracts	518.4					—				518.4
Management type contracts	207.6			106.6		—				314.2
	726.0			106.6		—				832.6
Reimbursed management type contract expense	679.2					—				679.2
Total cost of services	1,405.2			106.6		—				1,511.8
Gross profit				94.4
Lease type contracts	44.7			—		—				44.7
Management type contracts	140.6			38.0		—				178.6
Total gross profit	185.3			38.0		—				223.3
General and administrative expenses	82.9			18.3		—				101.2
Depreciation and amortization	21.0			1.9		9.4			6A	32.3
Operating income	81.4			17.8		(9.4		)		89.8
Other expenses (income)				15.1
Interest expense	9.2			0.4		7.7			6B	17.3
Interest income	(0.6		)	—		—				(0.6		)
Gain on sale of a business	(0.1		)	—		—				(0.1		)
Equity in losses (earnings) from investment in unconsolidated entity	0.7			—		—				0.7
Total other expenses (income)	9.2			0.4		7.7				17.3
Earnings before income taxes	72.2			17.4		(17.1		)		72.5
Income tax expense	27.7			—		0.1			6C	27.8
Net income	44.5			17.4		(17.2		)		44.7
Less: Net income attributable to noncontrolling interest	3.3			0.3		(0.3		)	6D	3.3
Net income attributable to stockholders	$	41.2		$	17.1	$	(16.9	)		$	41.4
Common stock data				$ 14.4
Net income per common share
Basic	$	1.86								$	1.87
Diluted	$	1.83								$	1.84
Weighted average shares outstanding
Basic	22,195,350									22,195,350
Diluted	22,508,288									22,508,288

SP PLUS CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1. Description of the Transaction

Purchase Agreement

On October 16, 2018, SP Plus entered into the Stock Purchase Agreement by and among SP Plus (as “Purchaser”) and the Bags Investment Group (as “Seller”) pursuant to which SP Plus acquired Bags Investment Group. The transaction was completed on November 30, 2018.

Subject to the terms and conditions of the Stock Purchase Agreement, as consideration for the acquisition of Bags Investment Group, SP Plus paid to the Sellers approximately $275.0 million of contractual cash consideration with additional cash considerations of $8.2 million paid at close related to the preliminary net working capital (inclusive of $5.9 million of cash acquired) and $0.5 million for certain individual taxes to be paid by the Seller (the “Purchase Price”). The completion of the transaction was subject to certain customary closing conditions.

Credit Agreement Borrowing

In connection with the Acquisition, the Company entered into a credit agreement (the “Credit Agreement”) with Bank of America, N.A. (“Bank of America”), as administrative agent, swing-line lender and a letter of credit issuer; Wells Fargo Bank, N.A., as syndication agent; BMO Harris Bank N.A., JPMorgan Chase Bank, N.A., KeyBank National Association and U.S. Bank National Association, as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint lead arrangers and joint bookrunners; and the lenders party thereto (the “Lenders”). Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders have made available to the Company a new senior secured credit facility (the “Senior Credit Facility”) that permits aggregate borrowings of $550 million consisting of (i) a revolving credit facility of up to $325 million at any time outstanding, which includes a letter of credit facility that is limited to $100 million at any time outstanding, and (ii) a term loan facility of $225 million. The Senior Credit Facility matures on November 30, 2023.

The entire amount of the term loan portion of the Senior Credit Facility was drawn by the Company on the Closing Date and is subject to scheduled quarterly amortization of principal in installments equal to 1.25% of the initial aggregate principal amount of such term loan. The Company also borrowed $174.75 million under the revolving credit facility on the Closing Date. The proceeds from these borrowings have been used by the Company to pay the Purchase Price and pay other costs and expenses related to the Acquisition and the related financing and to refinance existing indebtedness of the Company, and also may be used to finance working capital, capital expenditures and other acquisitions, payments and general corporate purposes.

Note 2. Basis of Presentation

The unaudited pro forma condensed combined financial statements are prepared in accordance with Article 11 of Regulation S-X under the Securities Act ("Article 11 of Regulation S-X") using accounting policies in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and include all material adjustments necessary to be in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined financial information was derived from historical financial consolidated financial statements of SP Plus and Bags Investment Group and gives effect to events related to the Acquisition that are (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of income, expected to have a continuing impact on the operating results of the combined company and reflects estimates deemed appropriate by SP Plus management to give effect to the Acquisition and related borrowings under the Credit Agreement, as defined in Note 1, as if each had been completed effective September 30, 2018, with respect to the unaudited pro forma condensed combined balance sheet and as of January 1, 2017, with respect to the unaudited pro forma condensed combined statements of income. The historical financial information of SP Plus and Bags is presented in accordance with U.S. GAAP.

The acquisition accounting adjustments relating to the Acquisition are preliminary and subject to change, as additional information becomes available and as additional analyses are performed. Accordingly, although these amounts represent SP Plus management's current best estimate of fair value, the final purchase price allocation may differ materially from the preliminary allocation utilized as described in Note 4. The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of any anticipated benefits from revenue synergies, cost savings or operating synergies that may result from the Acquisition or to any future disynergies and integration related costs. The unaudited pro forma condensed combined financial statements do not purport to project the future operating results or financial position of the combined company following the Acquisition. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2017, as updated by the Company's subsequent filings with the SEC.

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with Accounting Standard Codification (ASC) 805 "Business Combinations," with SP Plus being the acquiring entity

and requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The acquisition method of accounting, in accordance with ASC 805, uses the fair value concepts defined in ASC 820, “Fair Value Measurement” (“ASC 820”).

ASC 820 defines fair value, establishes the framework for measuring fair value for any asset acquired or liability assumed under GAAP, expands disclosures about fair value measurements, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measurements. Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of an asset or liability. Market participants are assumed to be buyers or sellers in the most advantageous market for the asset or liability. Fair value measurement for an asset assumes the highest and best use by these market participants, and as a result, assets may be required to be recorded which are not intended to be used or sold. Additionally, the fair value may not reflect management’s intended use for those assets.

Fair value measurements can be highly subjective, and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances.

Fair value estimates were determined based on discussions between SP Plus and Bags management, due diligence efforts, and other information available. The allocation of the aggregate transaction consideration used in the preliminary unaudited pro forma condensed combined financial information is based on initial estimates. The final determination of the allocation of the aggregate transaction consideration will be based on the actual tangible and intangible assets and the liabilities of Bags Investment Group at the effective time of the transaction.

The unaudited pro forma condensed combined financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed combined financial information has not been adjusted to give effect to certain expected financial benefits of the transaction, such as tax savings, revenue or cost and operating synergies, or the anticipated costs to achieve these potential benefits, including the cost of integration activities and any potential disynergies. Also, the unaudited pro forma condensed combined financial information does not reflect possible adjustments related to potential restructuring or integration activities that have yet to be determined or transaction or other costs following the combination that are not expected to have a continuing impact on the business of the combined company.

Certain amounts from the historical financial statements of Bags Investment Group were reclassified to conform their presentation to that of SP Plus.

Note 3: Accounting Policies

For purposes of presenting the unaudited pro forma condensed combined financial statements and related information, SP Plus has completed a review of Bags Investment Group's significant accounting policies (e.g., revenue recognition, accounts receivable allowance for doubtful accounts and inventory reserves) for purposes of identifying adjustments to align with SP Plus’ accounting policies. At this time, the Company has not identified any material differences in these policies. Review of such accounting policies will continue; policy differences may be identified at a later date and may be deemed material at that time.

Note 4. Preliminary Purchase Price Allocation

On November 30, 2018, SP Pus acquired Bags Investment Group for total consideration of approximately $283.6 million. The Company financed the Acquisition through the Credit Agreement (see Note 1). The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Bags Investment Group, and is based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.

The Company’s acquisition of Bags Investment Group has been accounted for as a business combination, and assets acquired and liabilities assumed were recorded at their estimated fair values as of November 30, 2018. Goodwill as of the acquisition date is measured as the excess of consideration transferred, which is also generally measured at fair value or the net acquisition date fair values of the assets acquired and the liabilities assumed.

For the unaudited pro forma condensed combined balance sheet, the $283.6 million purchase price has been allocated based on Bags Investment Group's September 30, 2018 financial information and SP Plus' preliminary estimate of the fair value of the assets acquired and liabilities assumed. Under the acquisition method of accounting, the final purchase price allocation will be based on the fair value of the final assets acquired and liabilities assumed as of the closing date of the Acquisition.

The preliminary estimated consideration is allocated as follows:



(millions)
Cash	$	6.4
Notes and accounts receivable, net	15.3
Prepaid expenses and other	2.5
Advances and deposits	0.2
Fixed assets	1.6
Intangible assets	118.0
Goodwill	151.3
Accounts payable	(8.2		)
Accrued expenses	(3.5		)
Total purchase price	$	283.6

Note 5. Notes to Unaudited Pro Forma Condensed Combined Balance Sheet

The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet:

A—Leasehold improvements, equipment and construction in progress

Computer equipment, software, vehicles and furniture and fixtures have not been adjusted as their net book value is estimated to approximate fair market value. The estimated useful lives are as follows: 1 - 3 years for computer equipment, 1-4 years for furniture and equipment, 1-4 years for vehicles and 1-3 years for software.

The final determination of fair value of plant and equipment, as well as estimated useful lives, remains subject to change. The finalization is not expected to have a material impact on the valuation of the property and equipment and the purchase price allocation, which is expected to be finalized subsequent to the closing of the Acquisition but within the measurement period of one year.

B—Goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is calculated as the excess of consideration transferred in the acquisition over the fair value of the tangible assets, and identifiable intangible assets acquired, and liabilities assumed in a business combination. Goodwill acquired in the transaction is estimated to be $151.3 million and Bag Investment Group's historical goodwill of $3.4 million is eliminated, for a net adjustment of $147.9 million. The estimated goodwill to be recognized is attributable primarily to expanded revenue synergies and expanded opportunities in the aviation and hospitality businesses, and other benefits that SP Plus believes will result from combining its operations with the operations of Bags. The goodwill created in the Acquisition is expected to be deductible for tax purposes (see Note 5F).



(millions)
Purchase Price of Acquisition	$	283.6

Cash	6.4
Current assets	18.0
Property and equipment	1.6
Other intangibles	118.0
Current liabilities	(11.7		)
Pro forma goodwill	$	151.3

C—Intangible assets

Represents adjustments to record the preliminary estimated fair value of intangibles of approximately $118.0 million, which is an increase of $117.8 million over Bags Investment Group's historical book value of intangibles of $0.2 million prior to the Acquisition.

Identified intangibles assets expected to be acquired consist of the following:



(millions)	Estimated Life (1)	Estimated Fair Value
Trade names	5.0 years	$	5.6
Customer relationships	12.4 - 15.8 years	100.4
Existing technology	5.0 - 6.0 years	10.4
Non-compete agreements	5.0 years	1.6
Estimated fair value of identified intangibles		$	118.0

(1) Represents preliminary estimated life of assets acquired.

The fair value estimate for all identifiable intangible assets is based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). The estimated fair value of trade names were determined with the relief from royalty savings method, which is a commonly-used variation of the income approach. The Company considered the return on assets and market comparable methods when estimating an appropriate royalty rate for the trade names. The estimated fair value of acquired customer relationships was determined with the excess earnings method, which is a variation of the income approach. This approach calculates the excess of the future cash inflows (i.e., revenue from customers generated from the relationships) over the related cash outflows (i.e., customer servicing expenses) generated over the useful life of the relationship. The estimated fair value of developed or existing technology was determined utilizing the relief from royalty savings method under the income approach, with additional consideration given to asset deterioration rates.

The final determination of fair value of intangible assets, as well as estimated useful lives, remains subject to change. The finalization may have a material impact on the valuation of intangible assets and the purchase price allocation, which is expected to be finalized subsequent to the Acquisition but within the measurement period.

D—Debt:

Borrowings under the Senior Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s consolidated total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance with the applicable pricing levels set forth in the Credit Agreement (the “Applicable Margin”) for London Interbank Offered Rate (or a comparable or successor rate approved by Bank of America) (“LIBOR”) loans, plus the applicable LIBOR rate or (ii) the Applicable Margin for base rate loans plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a daily rate equal to the applicable LIBOR rate plus 1.0%.

For the purposes of presenting pro forma financial statements, the following represents borrowings under the Credit Agreement and extinguishment of existing Bags Investment Group debt:



(millions)
Short-term debt
Decrease for extinguishment of existing Bags Investment Group debt	$	(2.8	)
Reclassification of short-term debt to long-term debt	(8.8		)
Less: debt issuance and deferred financing	—
Total adjustments to short-term debt	$	(11.6	)

Long-term debt
Decrease for extinguishment of existing Bags Investment Group other long term borrowings	$	(6.2	)
Proceeds under the Credit Agreement	297.9
Less: debt issuance and deferred financing (1)	(2.5		)
Total adjustments to long-term debt	$	289.2

(1) Represents $2.5 million of deferred financing and debt discount; with payment of such amounts being made with proceeds under the Credit Agreement.

Additionally, $0.1 million of Bags Investment Group long-term liabilities have been eliminated, as such liabilities were extinguished with the Acquisition.

E—Total stockholders’ equity

Represents the elimination of Bags Investment Group common stock, additional paid-in capital, retained earnings and non-controlling interest. Noncontrolling interest represents the portion of equity in Bag Investment Group subsidiary and affiliates not attributable to Bags Investment Group. As a result of the Acquisition, these equity interests were settled and will not exist going forward and therefore were eliminated for pro forma presentation purposes.



(millions)
Elimination of Bags Investment Group historical common stock, paid-in capital and retained earnings	$	(7.8	)
Elimination of Bags Investment Group historical noncontrolling interest	(1.0		)
Transaction expenses (1)	(3.0		)
Total adjustments to stockholders' equity	$	(11.8	)

(1) Represents $3.0 million of transaction-related expenses, not yet incurred as of the pro forma balance sheet, September 30, 2018; with payment of such transaction-related expenses being made with proceeds under the Credit Agreement.

F—Income taxes

For U.S. federal tax purposes, the transaction is structured as stock acquisitions of the operations of Bags Investment Group, with a Section 338(h)(10) election being made for the Acquisition. The Section 338(h)(10) election treats the Acquisition as a deemed asset acquisition allowing a depreciable and amortizable step-up in tax basis at the transaction close. The valuation relating to the purchase accounting is preliminary; therefore the final impact on the deferred tax assets and liabilities cannot be determined at this time. Upon finalization of the purchase price allocation and detailed analysis of the acquired assets and assumed liabilities, there may be adjustments to the deferred tax balances, and these adjustments could be material.

Note 6. Notes to Unaudited Pro Forma Condensed Combined Statement of Income

The following represents an explanation of the various adjustments to the unaudited pro forma condensed combined statement of income.

A—Amortization of other intangibles

In conjunction with the acquisition accounting, the Company performed a fair value assessment of the definite-lived intangible assets. These valuations generate estimated amortization expense related to the pro forma valuation adjustments to intangible assets (see Note 5C). Pro forma amortization has been estimated on a preliminary basis as follows:



(millions)	Nine Months Ended September 30, 2018			Twelve Months Ended December 31, 2017
Estimated amortization for acquired definite lived intangible assets	7.3			$	9.8
Historical Bags Investment Group definite-lived intangible amortization expense	(0.2		)	(0.4		)
Total pro form adjustment to amortization expense of other intangibles	$	7.1		$	9.4

The estimated intangible amortization expense for customer relationships, existing technology, trade names and non-compete agreement was calculated using useful lives 15.2 years (weighted average useful life), 5.8 years (weighted average useful life), 5.6 years and 1.6 years, respectively, on a straight-line basis.

B—Interest expense

The interest rates used for the new SP Plus debt for purposes of the pro forma condensed combined financial information are based on contractual variable interest rates reflected in the Credit Agreement related to the debt financing for the transaction (see Note 1 and 5D) and the market rates associated with LIBOR USD borrowings at the time of this filing. The LIBOR USD rate for the floating debt that rolls over on a one-month basis is assumed to be 2.50%. As such, the variable interest rate inclusive of a 1.75% spread for the debt that rolls over on a one-month basis are assumed to be 4.25%. Pro forma amortization has been estimated on a preliminary basis as follows:



(millions)	Nine Months Ended September 30, 2018			Twelve Months Ended December 31, 2017
Estimated additional pro forma interest expense	$	6.2		$	8.1
Historical Bags Investment Group interest expense	(0.4		)	(0.4		)
Total pro forma adjustment to interest expense	$	5.8		$	7.7

A 1/8% or 0.125% change in the interest rate payable on the outstanding amount of the borrowing under the Credit Agreement (see Note 1 and 5D) would change annual interest expense by approximately $0.5 million before the effect of income taxes on an annual basis.

C—Income taxes

Assumed statutory tax rates of 26.0% and 40.0% were utilized for the nine months ended September 30, 2018 and the twelve months ended December 31, 2017, respectively. The assumed statutory tax rates do not take into account any possible future tax events that may impact the combined company.

D—Net income attributable to noncontrollng interest

Noncontrolling interest represents the portion of equity in Bags Investment Group subsidiary and affiliates not attributable to Bag Investment Group. As a result of the Acquisition, these equity interests were settled and will not exist going forward and therefore net income attributable to noncontrolling interest were eliminated for pro forma presentation purposes, assuming the transaction was consummated on January 1, 2017.



(millions)	Nine Months Ended September 30, 2018			Twelve Months Ended December 31, 2017
Historical Bags Investment Group net income attributable to noncontrolling interest	$	(0.3	)	$	(0.3	)

E—Non-recurring transaction costs

Adjustments have been made to the unaudited pro forma condensed combined statements of income for the following transaction costs as they are not expected to have a continuing impact on the Company's financial statements subsequent to the Acquisition:


•	Transaction costs directly attributable to the transaction of $1.8 million incurred during the nine months ended September 30, 2018 by SP Plus for the Acquisition; and


•	Transaction costs directly attributable to the transaction of $0.5 million incurred during the nine months ended September 30, 2018 by Bags Investment Group for the Acquisition.

Note 7. Reclassification of Bags Investment Group's historical financial information

Certain reclassifications have been made to Bags Investment Group's historical financial statements to conform to SP Plus' financial statement presentation.

Reclassifications reflected in the unaudited proforma condensed combined balance sheet are presented below:



(millions)	Bags Investment Group		Reclassifications			Bags Investment Group after Reclassifications
Inventories	$	1.3	$	(1.3	)	$	—
Prepaid expenses and other	1.2		1.3			2.5
Deposits payable	3.3		(3.3		)	—
Deferred revenue	0.2		(0.2		)	—
Accrued expenses	—		3.5			3.5
Current portion of long-term debt	2.8		(2.8		)	—
Current portion of obligations under Credit Facility and other long-term borrowings	—		2.8			2.8

Additionally, SP Plus has modified the historical income statement category descriptions of "Parking services revenue" and "Cost of parking services" to "Services revenue" and "Cost of services", respectively, as included in the the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2018 and for the year ended December 31, 2017.

Reclassifications reflected in the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2018 and for the year ended December 31, 2017 include the following:


•	Historical Bags Investment Group "Revenues" have been classified as "Services revenue - Management type contracts"


•	Historical Bags Investment Group "Operating expenses" have been classified as "Cost of services - Management type contracts"

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