5. Acquisition

On October 2, 2012 (“Closing Date”), the Company completed its acquisition (the “Central Merger” or “Merger”) of 100% of the outstanding common shares of KCPC Holdings, Inc., which was the ultimate parent of Central Parking Corporation (collectively, “Central”), for 6,161,332 shares of Company common stock and the assumption of approximately $217,675 of Central’s debt, net of cash acquired. Additionally, Central’s former stockholders will be entitled to receive cash consideration of $27,000 to be paid three years after closing, to the extent the $27,000 is not used to satisfy seller indemnity obligations pursuant to the Agreement and Plan of Merger dated February 28, 2012 (the “Merger Agreement”). The Company financed the acquisition through the issuance of its common stock and borrowings under the Senior Credit Facility (defined in Note 9. Borrowing Arrangements).

Pursuant to the Merger Agreement, the Company is entitled to indemnification from Central’s former stockholders (i) if and to the extent Central’s combined net debt and the absolute value of Central’s negative working capital (as determined in accordance with the Merger Agreement) (the “Net Debt Working Capital”) exceeded $285,000 as of September 30, 2012 and (ii) for certain defined adverse consequences as set forth in the Merger Agreement (including with respect to Structural and Repair Costs). Pursuant to the Merger Agreement, Central’s former stockholders are required to satisfy certain indemnity obligations, which are capped at the $27,000 cash consideration (the “Capped Items”) only through a reduction of the $27,000 cash consideration. For certain other indemnity obligations set forth in the Merger Agreement which are not capped at the $27,000 cash consideration (the “Uncapped Items”), including the Net Debt Working Capital indemnity obligations described above, Central’s former stockholders may satisfy any amount payable pursuant to such indemnity obligations as follows (provided that the Company reserves the right to reject the cash and stock alternatives and choose to reduce the $27,000 cash consideration):

· Central’s former stockholders can elect to pay such amount with cash;

· Central’s former stockholders can elect to pay such amount with the Company’s common stock (valued at $23.64 per share, the market value as of the closing date of the Merger Agreement); or

· Central’s former stockholders can elect to reduce the $27,000 cash consideration by such amount, subject to the condition that the cash consideration remains at least $17,000 to cover Capped Items.

The Company has determined and concluded that the Net Debt Working Capital was $296,399 as of September 30, 2012 and that; accordingly, the Net Debt Working Capital exceeded the threshold by $11,399. In addition, the Company has determined that it currently has indemnity claims for certain defined adverse consequences (including indemnity claims with respect to Structural and Repair Costs incurred through September 30, 2014), which would reduce the cash consideration payable in three years from the acquisition date by $14,122. In addition, the Company expects to have additional indemnity claims in the future as new matters arise. The Company has periodically given Central’s former stockholders notice regarding indemnification matters since the closing date of the Merger and has made adjustments for known matters, although Central’s former stockholders have not agreed to such adjustments nor made any elections with respect to the payment of any Uncapped Items. Furthermore, following the Company’s notices of indemnification matters, the representative of Central’s former stockholders has indicated that they may make additional inquiries and potentially raise issues with respect to the Company’s indemnification claims (including, specifically, as to the Company’s Net Debt Working Capital calculation and as to Structural and Repair Costs) and that they may assert various claims of their own relating to the Merger Agreement. Under the Merger Agreement, all post-closing claims and disputes, including as to indemnification matters, are ultimately subject to resolution through binding arbitration or, in the case of a dispute as to the calculation of Net Debt Working Capital, resolution by an independent public accounting firm. The Company intends to pursue these dispute resolution processes, as applicable, in a timely manner, although the Company’s pursuit of these processes may be delayed by actions taken by representatives of Centrals former stockholders.

In determining the excess over the threshold of Net Debt Working Capital as of September 30, 2012 of $11,399 and the indemnity claims for certain defined adverse consequences of $14,122, the Company has evaluated the nature of the costs and related indemnity claims and has concluded that it is probable that such indemnified claims will sustain any challenge from Central’s former stockholders and recoverability of these indemnified claims are reasonably assured. As previously discussed in Note 3. Legal and Other Contingencies, certain lease contracts acquired in the Central Merger include provisions allocating to the Company responsibility for all or a defined portion of structural or other improvement and repair costs required on the property, including improvement and repair costs arising as a result of ordinary wear and tear. As the Company incurs additional Structural and Repair Costs, that meet the indemnification provisions established in the Merger Agreement, the Company will seek indemnification for a significant portion, generally 80%, of these costs pursuant to the Merger Agreement and reduce the cash consideration payable in three years from the acquisition date by such amounts.

The following table sets forth the adjustments to the cash consideration payable by the Company to the former stockholders of Central, based upon the foregoing determinations:

Cash consideration payable in three years from the acquisition date, pursuant to the Merger Agreement and prior to Central Net Debt Working Capital and indemnification of certain defined adverse consequences, net				$	27,000

Net Debt Working Capital at September 30, 2012 as defined in the Merger Agreement	$	(296,399	)
Threshold of Net Debt Working Capital, pursuant to the Merger Agreement	$	285,000
Excess over the threshold of Net Debt Working Capital				(11,399		)

Indemnification of certain defined adverse consequences, net				(14,122		)

Settled cash consideration				$	1,479

Present value of cash consideration liability as of September 30, 2014 (included within Other Long-Term Liabilities in the Consolidated Balance Sheet)				$	1,279

The acquisition has been accounted for using the acquisition method of accounting (in accordance with the provisions of Accounting Standards Codification (“ASC”) 805, Business Combinations), which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The purchase price has been allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the acquisition. The Company finalized the purchase price allocation during the third quarter of 2013, which resulted in revision to the previously reported preliminary amounts, applied retrospectively back to the date of the acquisition.

The Company has incurred certain acquisition and integration costs associated with the transaction that have been expensed as incurred and reflected in the Consolidated Statements of Income. The Company recognized $2,989 and $1,893 of these costs in the Consolidated Statement of Income for the three months ended September 30, 2014 and 2013, respectively, in General and Administrative Expenses. The Company recognized $5,031 and $9,210 of these costs in the Consolidated Statement of Income for the nine months ended September 30, 2014 and 2013, respectively, in General and Administrative Expenses.