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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022  

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to

 

Commission file number: 000-50796

 

 

 

SP Plus Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware

 

16-1171179

(State or Other Jurisdiction of

 

(I.R.S. Employer Identification No.)

Incorporation or Organization)

 

 

 

200 E. Randolph Street, Suite 7700

ChicagoIllinois 60601-7702

(Address of Principal Executive Offices, Including Zip Code)

(312) 274-2000

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

SP

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

 

 

Emerging Growth Company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at May 4, 2022

Common Stock, $0.001 par value per share

23,261,694

 

Shares

 

 


Table of Contents

 

SP PLUS CORPORATION

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

2

Item 1. Financial Statements

2

Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

2

Condensed Consolidated Statements of Income (unaudited) for the three months ended March 31, 2022 and 2021

3

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Stockholders' Equity (unaudited) for the three months ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Quantitative and Qualitative Disclosures about Market Risk

30

Item 4. Controls and Procedures

31

 

 

PART II. OTHER INFORMATION

32

Item 1. Legal Proceedings

32

Item 1A. Risk Factors

32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3. Defaults Upon Senior Securities

33

Item 4. Mine Safety Disclosures

33

Item 5. Other Information

33

Item 6. Exhibits

34

 

 

Signatures

35

 

 

 

1


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SP Plus Corporation

Condensed Consolidated Balance Sheets

 

(millions, except for share and per share data)

 

March 31, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23.4

 

 

$

15.7

 

Accounts and notes receivable, net

 

 

136.0

 

 

 

139.6

 

Prepaid expenses and other current assets

 

 

13.3

 

 

 

32.2

 

Total current assets

 

 

172.7

 

 

 

187.5

 

Leasehold improvements, equipment and construction in progress, net

 

 

52.1

 

 

 

48.9

 

Right-of-use assets

 

 

191.1

 

 

 

201.2

 

Goodwill

 

 

526.7

 

 

 

526.6

 

Other intangible assets, net

 

 

51.6

 

 

 

54.4

 

Deferred taxes

 

 

49.3

 

 

 

50.6

 

Other noncurrent assets, net

 

 

45.6

 

 

 

47.0

 

Total noncurrent assets

 

 

916.4

 

 

 

928.7

 

Total assets

 

$

1,089.1

 

 

$

1,116.2

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

118.5

 

 

$

118.5

 

Accrued and other current liabilities

 

 

111.9

 

 

 

123.3

 

Short-term lease liabilities

 

 

63.4

 

 

 

65.4

 

Current portion of long-term borrowings

 

 

25.4

 

 

 

25.6

 

Total current liabilities

 

 

319.2

 

 

 

332.8

 

Long-term borrowings, excluding current portion

 

 

286.2

 

 

 

298.4

 

Long-term lease liabilities

 

 

187.8

 

 

 

200.3

 

Other noncurrent liabilities

 

 

60.7

 

 

 

62.6

 

Total noncurrent liabilities

 

 

534.7

 

 

 

561.3

 

Total liabilities

 

$

853.9

 

 

$

894.1

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, par value $0.01 per share; 5,000,000 shares authorized as of March 31, 2022 and December 31, 2021, respectively; no shares issued or outstanding

 

$

 

 

$

 

Common stock, par value $0.001 per share; 50,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 25,296,436 and 23,261,694 shares issued and outstanding as of March 31, 2022, respectively, and 25,259,201 and 23,224,459 shares issued and outstanding as of December 31, 2021, respectively

 

 

 

 

 

 

Treasury stock, at cost; 2,034,742 shares as of March 31, 2022 and December 31, 2021

 

 

(70.6

)

 

 

(70.6

)

Additional paid-in capital

 

 

269.3

 

 

 

267.5

 

Accumulated other comprehensive loss

 

 

(2.3

)

 

 

(2.8

)

Retained earnings

 

 

39.1

 

 

 

28.4

 

Total SP Plus Corporation stockholders’ equity

 

 

235.5

 

 

 

222.5

 

Noncontrolling interest

 

 

(0.3

)

 

 

(0.4

)

Total stockholders’ equity

 

 

235.2

 

 

 

222.1

 

Total liabilities and stockholders’ equity

 

$

1,089.1

 

 

$

1,116.2

 

 

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

SP Plus Corporation

Condensed Consolidated Statements of Income

 

 

 

Three Months Ended

 

(millions, except for share and per share data) (unaudited)

 

March 31, 2022

 

 

March 31, 2021

 

Services revenue

 

 

 

 

 

 

 

 

Lease type contracts

 

$

62.6

 

 

$

42.7

 

Management type contracts

 

 

121.8

 

 

 

86.0

 

 

 

 

184.4

 

 

 

128.7

 

Reimbursed management type contract revenue

 

 

165.4

 

 

 

118.0

 

Total services revenue

 

 

349.8

 

 

 

246.7

 

Cost of services (exclusive of depreciation and amortization)

 

 

 

 

 

 

 

 

Lease type contracts

 

 

52.0

 

 

 

35.3

 

Management type contracts

 

 

81.0

 

 

 

55.0

 

Lease impairment

 

 

 

 

 

0.1

 

 

 

 

133.0

 

 

 

90.4

 

Reimbursed management type contract expense

 

 

165.4

 

 

 

118.0

 

Total cost of services (exclusive of depreciation and amortization)

 

 

298.4

 

 

 

208.4

 

General and administrative expenses

 

 

24.5

 

 

 

21.0

 

Depreciation and amortization

 

 

6.8

 

 

 

6.3

 

Operating income

 

 

20.1

 

 

 

11.0

 

Other expense (income)

 

 

 

 

 

 

 

 

Interest expense

 

 

4.8

 

 

 

5.8

 

Interest income

 

 

(0.2

)

 

 

(0.1

)

Total other expenses

 

 

4.6

 

 

 

5.7

 

Earnings before income taxes

 

 

15.5

 

 

 

5.3

 

Income tax expense

 

 

4.2

 

 

 

1.4

 

Net income

 

 

11.3

 

 

 

3.9

 

Less: Net income attributable to noncontrolling interest

 

 

0.6

 

 

 

1.6

 

Net income attributable to SP Plus Corporation

 

$

10.7

 

 

$

2.3

 

Common stock data

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

Basic

 

$

0.50

 

 

$

0.11

 

Diluted

 

$

0.50

 

 

$

0.11

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

21,226,952

 

 

 

21,113,494

 

Diluted

 

 

21,338,299

 

 

 

21,304,068

 

 

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

SP Plus Corporation

Condensed Consolidated Statements of Comprehensive Income

 

 

 

Three Months Ended

 

(millions) (unaudited)

 

March 31, 2022

 

 

March 31, 2021

 

Net income

 

$

11.3

 

 

$

3.9

 

Reclassification of de-designated interest rate collars

 

 

0.4

 

 

 

0.4

 

Foreign currency translation gain

 

 

0.1

 

 

 

 

Comprehensive income

 

 

11.8

 

 

 

4.3

 

Less: Comprehensive income attributable to noncontrolling interest

 

 

0.6

 

 

 

1.6

 

Comprehensive income attributable to SP Plus Corporation

 

$

11.2

 

 

$

2.7

 

 

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

SP Plus Corporation

Condensed Consolidated Statements of Stockholders' Equity

 

Three months ended March 31, 2022 (unaudited)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions, except share data)

Number

of

Shares

 

Par

Value

 

Additional

Paid-In

Capital

 

Accumulated

Other

Comprehensive

Loss

 

Retained Earnings

 

Treasury

Stock

 

Noncontrolling

Interest

 

Total

 

Balance at January 1, 2022

 

23,224,459

 

$

 

$

267.5

 

$

(2.8

)

$

28.4

 

$

(70.6

)

$

(0.4

)

$

222.1

 

Net income

 

 

 

 

 

 

 

 

 

10.7

 

 

 

 

0.6

 

 

11.3

 

Foreign currency translation

 

 

 

 

 

 

 

0.1

 

 

 

 

 

 

 

 

0.1

 

Reclassification of de-designated interest rate collars

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

 

 

0.4

 

Issuance of restricted stock units

 

37,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash stock-based compensation

 

 

 

 

 

1.8

 

 

 

 

 

 

 

 

 

 

1.8

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.5

)

 

(0.5

)

Balance at March 31, 2022

 

23,261,694

 

$

 

$

269.3

 

$

(2.3

)

$

39.1

 

$

(70.6

)

$

(0.3

)

$

235.2

 

 

Three months ended March 31, 2021 (unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions, except share data)

 

Number

of

Shares

 

 

Par

Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated Deficit

 

 

Treasury

Stock

 

 

Noncontrolling

Interest

 

 

Total

 

Balance at January 1, 2021

 

 

23,088,386

 

 

$

 

 

$

261.4

 

 

$

(4.4

)

 

$

(3.3

)

 

$

(70.6

)

 

$

(1.7

)

 

$

181.4

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.3

 

 

 

 

 

 

1.6

 

 

 

3.9

 

Reclassification of de-designated interest rate collars

 

 

 

 

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

0.4

 

Issuance of restricted stock units

 

 

35,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of performance stock units

 

 

81,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash stock-based compensation

 

 

 

 

 

 

 

 

0.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.9

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.4

)

 

 

(0.4

)

Balance at March 31, 2021

 

 

23,205,424

 

 

$

 

 

$

262.3

 

 

$

(4.0

)

 

$

(1.0

)

 

$

(70.6

)

 

$

(0.5

)

 

$

186.2

 

See Notes to Condensed Consolidated Financial Statements.

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SP Plus Corporation

Condensed Consolidated Statements of Cash Flows

 

 

 

Three Months Ended

 

(millions) (unaudited)

 

March 31, 2022

 

 

March 31, 2021

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

11.3

 

 

$

3.9

 

Adjustments to reconcile net income to net cash provided (used in) by operations:

 

 

 

 

 

 

 

 

Impairment

 

 

 

 

 

0.1

 

Depreciation and amortization

 

 

6.8

 

 

 

6.3

 

Non-cash stock-based compensation

 

 

1.8

 

 

 

0.9

 

(Reversals) provisions for credit losses on accounts receivable

 

 

(0.3

)

 

 

0.3

 

Deferred income taxes

 

 

1.2

 

 

 

1.4

 

Other

 

 

0.9

 

 

 

1.3

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts and notes receivable

 

 

3.9

 

 

 

8.8

 

Prepaid expenses and other current assets

 

 

18.9

 

 

 

(4.7

)

Accounts payable

 

 

 

 

 

1.3

 

Accrued liabilities and other

 

 

(18.1

)

 

 

(20.6

)

Net cash provided by (used in) operating activities

 

 

26.4

 

 

 

(1.0

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of leasehold improvements and equipment

 

 

(2.3

)

 

 

(2.3

)

Cost of contracts

 

 

 

 

 

(0.4

)

Proceeds from sale of equipment

 

 

0.1

 

 

 

0.1

 

Net cash used in investing activities

 

 

(2.2

)

 

 

(2.6

)

Financing activities

 

 

 

 

 

 

 

 

Payments on credit facility revolver

 

 

(118.3

)

 

 

(83.1

)

Proceeds from credit facility revolver

 

 

108.7

 

 

 

97.4

 

Payments on credit facility term loan

 

 

(4.2

)

 

 

(2.8

)

Payments of debt issuance costs

 

 

 

 

 

(1.3

)

Payments on other long-term borrowings

 

 

(2.3

)

 

 

(2.1

)

Distributions to noncontrolling interest

 

 

(0.5

)

 

 

(0.4

)

Net cash (used in) provided by financing activities

 

 

(16.6

)

 

 

7.7

 

Effect of exchange rate changes on cash and cash equivalents

 

 

0.1

 

 

 

 

Increase in cash and cash equivalents

 

 

7.7

 

 

 

4.1

 

Cash and cash equivalents at beginning of year

 

 

15.7

 

 

 

13.9

 

Cash and cash equivalents at end of period

 

$

23.4

 

 

$

18.0

 

Supplemental disclosures

 

 

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

4.5

 

 

$

5.0

 

Income taxes

 

$

(20.6

)

 

$

0.2

 

 

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

SP Plus Corporation

Notes to Condensed Consolidated Financial Statements

 

1. Significant Accounting Policies and Practices

The Company

SP Plus Corporation (the "Company") facilitates the efficient movement of people, vehicles and personal belongings with the goal of enhancing the consumer experience while improving bottom line results for the Company’s clients. The Company provides technology-driven mobility solutions, professional parking management, ground transportation, remote baggage check-in and handling, facility maintenance, security and event logistics to aviation, commercial, hospitality, healthcare and government clients across North America. The Company typically enters into contractual agreements with property owners or managers as opposed to owning facilities. Substantially all of the Company’s operations are conducted in the United States.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the financial statements have been condensed or omitted as permitted by such rules and regulations.

In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation have been included. Operating results during the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for any other interim period or the fiscal year ending December 31, 2022. The financial statements presented in this report should be read in conjunction with the Company’s annual Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 28, 2022 with the Securities and Exchange Commission.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and Variable Interest Entities ("VIEs") in which the Company is the primary beneficiary. The Company is the primary beneficiary of a VIE when the Company has the power to direct activities that most significantly affect the economic performance of the VIE. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment in the VIE in accordance with applicable U.S. GAAP. As of March 31, 2022 and December 31, 2021, assets related to consolidated VIEs were $55.3 million and $54.9 million, respectively, which were primarily related to right-of-use (“ROU”) assets and leasehold improvements, equipment and construction in progress, net. As of March 31, 2022 and December 31, 2021, liabilities related to consolidated VIEs were $52.6 million and $52.7 million, respectively, which were primarily related to operating and finance lease liabilities. All significant intercompany profits, transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

Cash equivalents represent funds temporarily invested in money market instruments with maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements were $0.8 million and $0.2 million as of March 31, 2022 and December 31, 2021, respectively, and were included in Cash and cash equivalents within the Condensed Consolidated Balance Sheets.

Equity Investments in Unconsolidated Entities

The Company has ownership interests in 31 active partnerships, joint ventures or similar arrangements that operate parking facilities, of which 25 are consolidated under the VIE or voting interest models and 6 are unconsolidated where the Company’s ownership interests range from 30-50 percent and for which there are no indicators of control. The Company accounts for such investments under the equity method of accounting, and the Company’s underlying share of each investee’s equity of $11.3 million and $10.8 million as of March 31, 2022 and December 31, 2021, respectively, was included in Other noncurrent assets, net, within the Condensed Consolidated Balance Sheets. As the operations of these entities are consistent with the Company’s underlying core business operations, the equity in earnings of these investments were included in Services revenue - lease type contracts within the Condensed Consolidated Statements of Income. The equity earnings in these related investments were $0.9 million and $0.1 million during the three months ended March 31, 2022 and 2021, respectively.

Other Noncurrent Assets

Other noncurrent assets consisted of equity investments of unconsolidated entities, advances, deposits and cost of contracts, net, as of March 31, 2022 and December 31, 2021.

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Table of Contents

Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of insurance, accrued rent, compensation, payroll withholdings, property, payroll and other taxes and other accrued expenses as of March 31, 2022 and December 31, 2021.

Noncontrolling Interests

Noncontrolling interests represent the noncontrolling holders’ percentage share of income (losses) from the subsidiaries in which the Company holds a controlling interest, but less than 100 percent, ownership interest. The results of these subsidiaries are consolidated and included in the Condensed Consolidated Financial Statements.

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired. In accordance with the Financial Accounting Standards Board's ("FASB") authoritative accounting guidance on goodwill, the Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired. The Company has elected to assess the impairment of goodwill annually on October 1 or at an interim date if there is an event or change in circumstances indicating the carrying value may not be recoverable. The goodwill impairment test is performed at the reporting unit level; the Company's reporting units represent its operating segments, consisting of Commercial and Aviation. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the use of acquired assets or the Company’s business strategy, and significant negative industry or economic trends.

The Company may perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. If the Company determines impairment is present, the Company would need to perform a quantitative assessment. The determination of fair value of a reporting unit utilizes cash flow projections that assume certain future revenue and cost levels, comparable marketplace data, comparable company market valuations, assumed discount rates based upon current market conditions and other valuation factors, all of which involve the use of significant judgment and estimates. The Company also assesses critical areas that may impact its business, including economic conditions, market related exposures, competition, changes in service offerings and changes in key personnel.

Other Intangible Assets, net

Other intangible assets represent assets with finite lives that are amortized on a straight-line basis over their estimated useful lives. The Company evaluates other intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to their remaining useful lives. In addition, other intangible assets are reviewed for impairment when circumstances change that would indicate the carrying value may not be recoverable. Assumptions and estimates about future values and remaining useful lives of intangible assets are complex and subjective, and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors, such as changes in the Company's business strategy and forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact reported financial results.

For both goodwill and intangible assets, future events may indicate differences from management’s judgments and estimates which could, in turn, result in impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of the ongoing COVID-19 pandemic (“COVID-19”), increases in interest rates, which would impact discount rates, or other factors which could decrease revenues and profitability of existing locations and changes in the cost structure of existing facilities, such as increasing labor and benefit costs.

Long-Lived Assets

The Company evaluates long-lived assets, including ROU assets, leasehold improvements, equipment and construction in progress, for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. The Company groups assets at the lowest level for which cash flows are separately identified in order to measure an impairment. Events or circumstances that would result in an impairment review include a significant change in the use of an asset, the planned sale or disposal of an asset, or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset or asset group to future undiscounted cash flows expected to be generated by the asset or asset group. If the asset or asset group is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset or asset group exceeds its fair value.

Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any future changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, or other factors which could decrease revenues and profitability of existing locations.

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Table of Contents

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

During the three months ended March 31, 2022, the Company adopted the following Accounting Standards Updates (“ASUs”), none of which had a material impact on the Condensed Consolidated Financial Statements or financial statement disclosures.

 

ASU

Topic

Method of Adoption

2021-10

Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance

Prospective

2021-08

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

Prospective

 

2. Leases

The Company leases parking facilities, office space, warehouses, vehicles and equipment and determines if an arrangement is a lease at inception. The Company subleases certain real estate to third parties. The Company's sublease portfolio consists of operating leases for space within leased parking facilities.

The Company accounts for leases in accordance with Topic 842. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent the Company's "right-of-use" over an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The ROU asset includes cumulative prepaid or accrued rent, as well as lease incentives, initial direct costs and acquired lease contracts. The short term lease exception has been applied to leases with an initial term of 12 months or less and these leases were not recorded within the Condensed Consolidated Balance Sheets.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. Lease expense is recognized on a straight-line basis over the lease term.

For leases that include one or more options to renew, the exercise of such renewal options is at the Company's sole discretion or mutual agreement. The Company’s lease term may include renewal options that are at the Company’s sole discretion and are reasonably certain to be exercised. Equipment and vehicle leases may also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Variable lease components comprising of payments that are a percentage of parking services revenue based on contractual levels and rental payments adjusted periodically for inflation are not included in the lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As discussed in Note 1. Significant Accounting Policies and Practices, the Company tests ROU assets when impairment indicators are present.

In April 2020, the FASB provided accounting elections for entities that receive or provide lease-related concessions to mitigate the economic effects of COVID-19 on lessees. The Company elected not to evaluate whether certain concessions provided by lessors in response to COVID-19, that are within the scope of additional interpretation provided by the FASB in April 2020, were lease modifications and also elected not to apply modification guidance under Topic 842. These concessions were recognized as a reduction of rent expense in the month they occurred and were recorded in Cost of services – lease type contracts within the Condensed Consolidated Statements of Income.

As a result of COVID-19, the Company has been able to negotiate lease concessions with certain landlords. These rent concessions were recorded in accordance with the guidance noted above. As a result, the Company recorded $2.2 million and $5.0 million related to rent concessions as a reduction to Cost of services – lease type contracts during the three months ended March 31, 2022 and 2021, respectively.

Costs associated with the right to use the infrastructure on service concession arrangements are recorded as a reduction of revenue in accordance with the scope of ASU No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services. See Note 4. Revenue for further discussion on service concession arrangements.

9


Table of Contents

The components of ROU assets and lease liabilities and the classification within the Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 were as follows:

 

(millions)

 

Classification

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

 

 

 

 

Operating

 

Right-of-use assets

 

$

191.1

 

 

$

201.2

 

Finance

 

Leasehold improvements, equipment and construction in progress, net

 

 

24.7

 

 

 

22.4

 

Total leased assets

 

 

 

$

215.8

 

 

$

223.6

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

Operating

 

Short-term lease liabilities

 

$

63.4

 

 

$

65.4

 

Finance

 

Current portion of long-term borrowings

 

 

7.0

 

 

 

6.7

 

Noncurrent

 

 

 

 

 

 

 

 

 

 

Operating

 

Long-term lease liabilities

 

 

187.8

 

 

 

200.3

 

Finance

 

Long-term borrowings, excluding current portion

 

 

15.6

 

 

 

14.0

 

Total lease liabilities

 

 

 

$

273.8

 

 

$

286.4

 

 

The components of lease cost and classification in the Condensed Consolidated Statements of Income during the three months ended March 31, 2022 and 2021 (unaudited) were as follows:

 

 

 

 

 

Three Months Ended

 

(millions)

 

Classification

 

March 31, 2022

 

 

March 31, 2021

 

Operating lease cost (a)(b)

 

Cost of services - lease type contracts

 

$

15.1

 

 

$

14.0

 

Short-term lease (a)

 

Cost of services - lease type contracts

 

 

5.1

 

 

 

4.7