SP Plus Corp - Quarter Report: 2013 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

Commission file number: 000-50796

STANDARD PARKING 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)

900 N. Michigan Avenue, Suite 1600

Chicago, Illinois 60611-1542

(Address of Principal Executive Offices, Including Zip Code)

(312) 274-2000

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

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

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of August 1, 2013, there were 21,913,346 shares of common stock of the registrant outstanding.

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STANDARD PARKING CORPORATION

FORM 10-Q INDEX

Part I. Financial Information	3
Item 1. Financial Statements:	3
Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012	3
Condensed Consolidated Statements of Income (Unaudited) for the three and six months ended June 30, 2013 and 2012	4
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2013 and 2012	5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012	6
Notes to Condensed Consolidated Interim 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	35
Item 4. Controls and Procedures	36
Part II. Other Information	37
Item 1. Legal Proceedings	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 6. Exhibits	38
Signatures	39

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share data)

	June 30, 2013			December 31, 2012
	(Unaudited)			(See Note)
ASSETS
Current assets:
Cash and cash equivalents	$	20,457		$	28,450
Notes and accounts receivable, net	119,976			110,617
Prepaid expenses and supplies	17,740			25,923
Deferred taxes	14,824			14,824
Total current assets	172,997			179,814
Leasehold improvements, equipment, land and construction in progress, net	41,795			40,010
Other assets:
Advances and deposits	7,863			8,539
Long-term receivables, net	14,989			15,346
Intangible assets, net	160,231			175,587
Other assets, net	23,249			22,314
Cost of contracts, net	12,412			14,215
Goodwill	433,877			435,122
	652,621			671,123
Total assets	$	867,413		$	890,947
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	120,857		$	129,034
Accrued and other current liabilities	94,514			109,239
Current portion of unfavorable lease contracts	13,029			15,002
Current portion of long-term debt obligations	21,559			21,752
Total current liabilities	249,959			275,027
Deferred taxes	28,043			27,521
Long-term borrowings, excluding current portion:
Obligations under senior credit facility	282,914			286,727
Other long-term debt obligations	1,914			1,995
	284,828			288,722
Unfavorable lease contracts	37,622			44,335
Other long-term liabilities	63,313			58,086
Stockholders’ equity:
Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of June 30, 2013 and December 31, 2012; no shares issued	—			—
Common stock, par value $.001 per share; 50,000,000 shares authorized as of June 30, 2013 and December 31, 2012; 21,906,254 and 21,870,770 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively	22			22
Additional paid-in capital	238,763			236,375
Accumulated other comprehensive (loss) income	508			(381		)
Accumulated deficit	(36,134		)	(39,512		)
Total Standard Parking Corporation stockholders’ equity	203,159			196,504
Noncontrolling interest	489			752
Total equity	203,648			197,256
Total liabilities and stockholders’ equity	$	867,413		$	890,947

Note: The balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See Notes to Condensed Consolidated Interim Financial Statements.

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STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for share and per share data, unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Parking services revenue:
Lease contracts	$	123,232		$	42,414		$	246,368		$	79,958
Management contracts	88,659			44,372			176,054			92,336
	211,891			86,786			422,422			172,294
Reimbursed management contract revenue	158,402			104,160			317,879			208,097
Total revenue	370,293			190,946			740,301			380,391
Cost of parking services:
Lease contracts	111,566			38,000			223,066			73,387
Management contracts	54,653			24,018			112,987			52,510
	166,219			62,018			336,053			125,897
Reimbursed management contract expense	158,402			104,160			317,879			208,097
Total cost of parking services	324,621			166,178			653,932			333,994
Gross profit:
Lease contracts	11,666			4,414			23,302			6,571
Management contracts	34,006			20,354			63,067			39,826
Total gross profit	45,672			24,768			86,369			46,397
General and administrative expenses	26,869			14,868			54,694			29,913
Depreciation and amortization	8,074			1,807			15,382			3,535
Operating income	10,729			8,093			16,293			12,949
Other expenses (income):
Interest expense	4,763			1,132			9,770			2,262
Interest income	(188		)	(135		)	(299		)	(205		)
	4,575			997			9,471			2,057
Income before income taxes	6,154			7,096			6,822			10,892
Income tax expense	2,049			2,856			2,095			4,384
Net income	4,105			4,240			4,727			6,508
Less: Net income attributable to noncontrolling interest	780			85			1,349			157
Net income attributable to Standard Parking Corporation	$	3,325		$	4,155		$	3,378		$	6,351
Common stock data:
Net income per share:
Basic	$	0.15		$	0.27		$	0.15		$	0.41
Diluted	$	0.15		$	0.26		$	0.15		$	0.40
Weighted average shares outstanding:
Basic	21,889,777			15,665,263			21,880,274			15,614,868
Diluted	22,221,102			15,900,659			22,195,953			15,860,668

See Notes to Condensed Consolidated Interim Financial Statements.

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STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, unaudited)

	Three Months Ended					Six Months Ended
	June 30, 2013		June 30, 2012			June 30, 2013		June 30, 2012
Net income	$	4,105	$	4,240		$	4,727	$	6,508
Other comprehensive (expense) income, before tax	870		(80		)	889		6
Comprehensive income	4,975		4,160			5,616		6,514
Less: comprehensive income attributable to noncontrolling interest	780		85			1,349		157
Comprehensive income attributable to Standard Parking Corporation	$	4,195	$	4,075		$	4,267	$	6,357

See Notes to Condensed Consolidated Interim Financial Statements.

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STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except for share and per share data, unaudited)

	Six Months Ended
	June 30, 2013			June 30, 2012
Operating activities:
Net income	$	4,727		$	6,508
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	14,807			3,496
Net accretion of acquired lease contracts	(3,013		)	—
Loss on sale and abandonment of assets	590			41
Amortization of debt issuance costs and original issue discount on borrowings	1,530			311
Non-cash stock-based compensation	2,468			863
Excess tax benefit related to stock option exercises	—			(221		)
Provisions for losses on accounts receivable	149			92
Deferred income taxes	(867		)	1,493
Net change in operating assets and liabilities	(13,384		)	(2,903		)
Net cash provided by operating activities	7,007			9,680
Investing activities:
Purchase of leasehold improvements and equipment	(7,906		)	(1,863		)
Cost of contracts purchased	(337		)	(237		)
Proceeds from sale of assets	52			15
Capitalized interest	—			(8		)
Contingent payments for businesses acquired	—			(46		)
Net cash used in investing activities	(8,191		)	(2,139		)
Financing activities:
Proceeds from exercise of stock options	—			154
Earn-out payments made	(142		)	(1,525		)
Tax benefit related to stock option exercises	—			221
Payments on term loan	(11,250		)	—
Borrowings from senior credit facility	6,850			(10,000		)
Distribution to noncontrolling interest	(1,612		)	(128		)
Payments on long-term borrowings	(383		)	(345		)
Net cash used in financing activities	(6,537		)	(11,623		)
Effect of exchange rate changes on cash and cash equivalents	(272		)	(83		)
Decrease in cash and cash equivalents	(7,993		)	(4,165		)
Cash and cash equivalents at beginning of period	28,450			13,220
Cash and cash equivalents at end of period	$	20,457		$	9,055
Supplemental disclosures:
Cash paid during the period for:
Interest	$	8,179		$	1,779
Income taxes	1,062			2,813

See Notes to Condensed Consolidated Interim Financial Statements.

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STANDARD PARKING CORPORATION

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In thousands except for share and per share data, unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Standard Parking Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results for the three and six-month periods ended June 30, 2013 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ended December 31, 2013. The financial statements presented in this report should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K filed on March 18, 2013.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and variable interest entities in which the Company is the primary beneficiary. Noncontrolling interest recorded in the consolidated statement of income is the interest in consolidated variable interest entities not held by the Company. The Company has ownership interests in thirty-eight partnerships, joint ventures or similar arrangements that operate parking facilities. Twenty-nine are Variable Interest Entities (VIE) and nine are voting interest model entities where the company’s ownership ranges from 20-50% and it does not control the entities. The Company consolidates those VIEs where it is the primary beneficiary and accounts for voting interest entities that it does not control using the equity method of accounting. The assets and liabilities of the VIEs are not material to the Company’s Consolidated Balance Sheets. All significant intercompany profits, transactions and balances have been eliminated in consolidation.

Financial Instruments

The carrying values of cash and cash equivalents, notes and accounts receivable and accounts payable are reasonable estimates of their fair value due to the short-term nature of these financial instruments. Long-term debt has a carrying value that approximates fair value because these instruments bear interest at market rates.

Interest Rate Swaps

We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.

On October 25, 2012, the Company entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A. (“JPMorgan Chase Bank”), Bank of America, N.A. (“Bank of America”) and PNC Bank, N.A. in an initial aggregate Notional Amount of $150,000 (the “Notional Amount”). The Interest Rate Swaps have an effective date of October 31, 2012 and a termination date of September 30, 2017. The Interest Rate Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under the Credit Agreement (“the Credit Agreement”), originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the Credit Agreement determined based upon the Company’s consolidated total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the Credit Agreement. These Interest Rate Swaps are classified as cash flow hedges, and we calculate the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase of interest expense. As of June 30, 2013, no ineffectiveness of the hedge has been recognized. The fair value of the Interest Rate Swaps at June 30, 2013 and December 31, 2012 was an asset of $1,142 and a liability of $794, respectively, and is included in prepaid expenses at June 30, 2013 and other long-term liabilities at December 31, 2012.

2. Acquisition

On October 2, 2012 (“Closing Date”), we completed our acquisition (the “Central Merger”) of 100% of the outstanding common shares of KCPC Holdings, Inc. (“KCPC”), which was the ultimate parent of Central Parking Corporation (“Central”) for 6,161,332 shares of our common stock and the assumption of $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, subject to adjustment, to be paid three years after closing to the extent it is not used to satisfy certain obligations that the Company has been indemnified for, by or from the former Central shareholders.

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Pursuant to the Central Merger agreement, we are entitled to indemnification from the former stockholders of KCPC if and to the extent Central’s combined net debt and the absolute value of Central’s working capital (as determined in accordance with the Merger Agreement) (the “Net Debt Working Capital”) exceeded $285,000 as of September 30, 2012. While we have not made a formal indemnity claim under the Merger Agreement relating to Net Debt Working Capital, the Net Debt Working Capital was $300,546 as of September 30, 2012 and, accordingly, the Net Debt Working Capital exceeded $285,000 by $15,546.

Central Net Debt Working Capital at September 30, 2012 as defined in the Merger Agreement	$	(300,546	)
Threshold	285,000
Excess over the threshold	(15,546		)
Cash consideration payable in three years	27,000
Cash consideration	$	11,454
Present value of cash consideration at the acquisition date	$	8,943

Accordingly, the fair value of the final consideration transferred to acquire all of Central’s outstanding stock at the acquisition date is as follows:

Stock consideration	$	140,726
Present value of cash consideration to be issued	8,943
Total consideration transferred	$	149,669

The Company incurred certain acquisition and integration related costs associated with the transaction that were expensed as incurred and are reflected in the Condensed Consolidated Statements of Income. The Company recognized $3,093 and $7,317 of these costs in its Condensed Consolidated Statement of Income for the three and six months ended June 30, 2013 in general and administrative expenses, respectively.

The acquisition has been accounted for using the acquisition method of accounting (in accordance with the provisions of 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 table below summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date. Certain estimated values are not yet finalized (see below) and are subject to change, which could be significant. The Company will finalize the amounts recognized as information necessary to complete the analyses is obtained. The Company expects to finalize these amounts as soon as possible but no later than one year from the acquisition date.

The Company financed the acquisition through additional term borrowings under the Senior Credit Facility (defined in Note 11) and consisting of a revolving credit facility up to $200,000 and a term loan of $250,000. The results of operations of this acquisition are included in the Company’s Consolidated Statements of Income from the date of acquisition.

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The following table summarizes the preliminary values of assets acquired and liabilities assumed as of the acquisition date:

	Amounts recorded as of the acquisition date
Net current liabilities	$	(52,475	)
Leasehold improvements, equipment, land and construction in progress, net	24,154
Identified intangible assets:
Management contracts	81,000
Favorable lease contracts	51,650
Trade name / Trademarks	14,900
Existing Technology	34,000
Non-competition Agreements	2,600
Other noncurrent assets	17,748
Long-term debt	(237,223		)
Unfavorable lease contracts	(69,316		)
Other noncurrent liabilities	(19,523		)
Net deferred tax liability	(82		)
Net liabilities assumed	(152,567		)
Goodwill	302,236
Total consideration transferred	$	149,669

The acquired management contracts are being amortized over a weighted average life of 16 years. The favorable and unfavorable lease contracts are being amortized over their contractual lives which results in a weighted average life of 10 and 7 years, respectively. The trade names and trademarks are being amortized over 7 years. The non-compete agreements are being amortized over 1 year. The existing technology is being amortized over 4.5 years. See Note 8 for further disclosure regarding the amortization of the intangible assets.

Goodwill is calculated as the excess of the consideration transferred over the fair value of net assets acquired. Goodwill is not amortized and is not deductible for tax purposes. Goodwill represents expected synergies with the Company’s existing operations, which include growth of new and existing customers, elimination of corporate overhead redundancies, and logistical improvements.

The recorded amounts are preliminary and subject to change. The following items are still subject to change:

· Amounts for intangible assets, unfavorable lease contracts, existing technology, leasehold improvements, equipment, land and construction in progress, pending finalization of valuation efforts.

· Amounts for deferred tax assets and liabilities pending the finalization of the valuations of assets acquired, liabilities assumed and resulting goodwill.

A single estimate of fair value results from a complex series of the Company’s judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations.

3. Stock-Based Compensation

We measure share-based compensation expense at the grant date, based on the fair value of the award, and the expense is recognized over the requisite employee service period (the vesting period) for awards expected to vest (considering estimated forfeitures).

The Company has an amended and restated Long-Term Incentive Plan that was adopted in conjunction with our initial public offering. On April 24, 2013, our shareholders approved an amendment to our Long-Term Incentive Plan that increased the maximum number of shares of common stock available for awards under the Long-Term Incentive Plan from 2,175,000 shares to 2,975,000 shares. The Plan terminates on April 22, 2028. Forfeited and expired options under the Plan become generally available for reissuance. At June 30, 2013, 673,069 shares remained available for award under the Plan.

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Stock Options and Grants

We use the Black-Scholes option-pricing model to estimate the fair value of each option grant as of the date of grant. The volatilities are based on the 90-day historical volatility of our common stock as of the grant date. The risk free interest rate is based on zero-coupon U.S. government issues with a remaining term equal to the expected life of the option.

There were no options granted during the six months ended June 30, 2013 and 2012. The Company recognized no stock-based compensation expense related to stock options for the six months ended June 30, 2013 and 2012, as all options previously granted were fully vested. As of June 30, 2013, there were no unrecognized compensation costs related to unvested options.

On April 24, 2013, the Company authorized vested stock grants to certain directors totaling 21,949 shares. The total value of the grant, based on the fair value of the stock on the grant date, was $465 and is included in general and administrative expenses.

Restricted Stock Units

In March 2008, the Company’s Compensation Committee and the Board of Directors authorized a grant of 750,000 restricted stock units that subsequently were awarded to members of our senior management team on July 1, 2008. In November 2008, an additional 5,000 restricted stock units were awarded. The restricted stock units vest primarily in one-third installments on each of the tenth, eleventh and twelfth year anniversaries of the grant date. The restricted stock unit agreements provide for accelerated vesting upon the recipient reaching their retirement age.

In October 2012, the Company’s Board of Directors authorized a grant of 191,895 restricted stock units that were awarded to our senior management team. In June 2013, an additional 4,247 restricted stock units were awarded. The restricted stock units vest in one-third installments on each of the first, second and third anniversaries of the grant date. The restricted stock unit agreements were awarded to members of the executive team who played a key role in the due diligence and subsequent planning that led to the successful closing of the Central Merger as well as retention of the team through the integration period. The restricted stock units vest over a three-year period. Additionally in October 2012, as part of employment agreements, 30,529 restricted stock units were awarded and shall become vested on the third anniversary of the Grant Date.

The fair value of restricted stock units is determined using the fair value of our common stock on the date of the grant, and compensation expense is recognized over the vesting period. In accordance with the guidance related to share-based payments, we estimated forfeitures at the time of the grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

During the three and six months ended June 30, 2013, 27,000 restricted stock units vested. During the three and six months ended June 30, 2012, 104,000 and 146,000 restricted stock units vested, respectively. No restricted stock units were forfeited.

The Company recognized $1,017 and $2,059 of stock-based compensation expense related to the restricted stock units for the three and six months ended June 30, 2013, respectively, which is included in general and administrative expenses. The Company recognized $257 and $618 of stock-based compensation expenses related to restricted stock units for the three and six months ended June 30, 2012, respectively, which is included in general and administrative expenses. As of June 30, 2013, there was $7,095 of unrecognized stock-based compensation costs, net of estimated forfeitures, related to the restricted stock units that are expected to be recognized over a weighted average remaining period of approximately 3.9 years.

4. Net Income Per Common Share

Companies are required to present basic and diluted earnings per share. Basic net income per share is computed by dividing net income by the weighted daily average number of shares of common stock outstanding during the period. Diluted net income per share is based upon the weighted daily average number of shares of common stock outstanding for the period plus dilutive potential common shares, including stock options and restricted stock units using the treasury-stock method.

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A reconciliation of the weighted average basic common shares outstanding to the weighted average diluted common shares outstanding is as follows (unaudited):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Weighted average common basic shares outstanding	21,889,777		15,665,263		21,880,274		15,614,868
Effect of dilutive stock options and restricted stock units	331,325		235,396		315,679		245,800
Weighted average common diluted shares outstanding	22,221,102		15,900,659		22,195,953		15,860,668
Net income per share:
Basic	$	0.15	$	0.27	$	0.15	$	0.41
Diluted	$	0.15	$	0.26	$	0.15	$	0.40

There are no additional securities that could dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share, other than those disclosed.

5. Recently Issued Accounting Pronouncements

Accounting Standards Adopted

In July 2012, the FASB issued ASU 2012-2, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This update provides an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired and then determine whether it should perform a quantitative impairment test. The amendment is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption permitted. Although the Company has not performed its annual impairment test, we adopted the guidance in 2013 and do not expect the adoption to have a material effect on the Company’s financial position, results of operations or cash flows.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220), which deferred the effective date for applying ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, in respect of certain provisions relating to the presentation of separate line items on the income statement for reclassifications of items out of accumulated other comprehensive income into income, in order for the FASB to further evaluate this change in standard before implementation. The deferral is temporary and other provisions of ASU 2011-05 were effective for the Company beginning January 1, 2012. The adoption of this update impacted the presentation and disclosure of the Company’s financial statements but did not impact the Company’s results of operations, financial position, or cash flows.

In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This update requires additional disclosures about offsetting and related arrangements on assets and liabilities to enable users of financial statements to understand the effect of such arrangements on an entity’s financial position as reported. This amendment is effective for fiscal 2013. We adopted the guidance in the first quarter of 2013 and it did not have a material effect on the Company’s financial position, results of operations or cash flows.

6. Leasehold Improvements, Equipment, Construction in Progress and Land, Net

A summary of leasehold improvements, equipment, and construction in progress and related accumulated depreciation and amortization is as follows:

		June 30, 2013			December 31, 2012
	Ranges of Estimated Useful Life	(Unaudited)
Equipment	2 - 5 Years	$	30,450		$	28,498
Software	3 - 10 Years	16,225			15,031
Vehicles	4 Years	7,240			9,353
Other	10 Years	516			367
Leasehold improvements	Shorter of lease term or economic life up to 10 years	18,450			17,920
Construction in progress		4,691			2,086
		77,572			73,255
Less accumulated depreciation and amortization		(37,449		)	(34,917		)
		40,123			38,338
Land		1,672			1,672
Leasehold improvements, equipment, land and construction in progress, net		$	41,795		$	40,010

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Depreciation expense was $2,504 and $5,216 for the three and six months ended June 30, 2013, respectively. Depreciation expense was $1,121 and $2,163 for the three and six months ended June 30, 2012, respectively. Depreciation includes losses on sale and abandonment of leasehold improvements and equipment of $675 and $671 for the three and six months ended June 30, 2013, respectively. Depreciation includes gains on sale and abandonment of leasehold improvements and equipment of $44 and $48 for the three and six months ended June 30, 2012, respectively.

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7. Cost of Contracts, Net

Cost of contracts represents the contractual rights associated with providing parking services at a managed or leased facility. Cost consists of capitalized payments made to third parties, amortized over the estimated life of the contracts, including anticipated renewals and terminations.

The balance of cost of contracts is comprised of the following:

	June 30, 2013			December 31, 2012
	(Unaudited)

Cost of contracts	$	26,357		$	26,599
Accumulated amortization	(13,945		)	(12,384		)
Cost of contracts, net	$	12,412		$	14,215

Amortization expense related to cost of contracts was $672 and $1,362 for the three and six months ended June 30, 2013, respectively. Amortization expense related to cost of contracts was $611 and $1,219 for the three and six months ended June 30, 2012, respectively. The weighted average useful life is 9.5 years for 2013 and 9.5 years for 2012.

8. Intangible assets, net

The balance of intangible assets is comprised of the following:

	June 30, 2013			December 31, 2012
	(Unaudited)
Covenant not to compete	$	3,533		$	3,533
Trade names	15,443			15,088
Proprietary know how	34,650			34,650
Lease contract rights	51,650			51,650
Management contract rights	81,000			81,000
Accumulated amortization	(26,045		)	(10,334		)
Intangible assets, net	$	160,231		$	175,587

Amortization expense related to intangible assets included in depreciation and amortization was $4,983 and $8,902 for the three and six months ended June 30, 2013, respectively. Amortization for lease contracts rights was $2,633 and $5,824 for the three and six months ended June 30, 2013, respectively, and is included in cost of parking services of lease contracts. There was no amortization for lease contracts included in cost of parking services for lease contracts for the three and six months ended June 30, 2012.

9. Goodwill

Goodwill is assigned to reporting units based upon the specific region where the assets are acquired and associated goodwill resided.

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The following table reflects the changes in the carrying amounts of goodwill by reportable segment for the six months ended June 30, 2013 (unaudited):

	Region One			Region Two			Region Three			Region Four			Region Five			Total
Balance as of December 31, 2012	$	191,941		$	31,840		$	65,770		$	62,052		$	83,519		$	435,122
Contingent payments related to acquisitions	—						—			—			—			—
Adjustment to purchase price allocation (1)	(312		)	(103		)	(111		)	(145		)	(295		)	(966		)
Foreign currency translation							(279		)							(279		)
Balance as of June 30, 2013	$	191,629		$	31,737		$	65,380		$	61,907		$	83,224		$	433,877

(1) Primarily related to fair value adjustments on accounts receivable.

10. Long-Term Receivables, Net

	June 30, 2013			December 31, 2012
	(Unaudited)
Deficiency payments:
Balance at beginning of year	$	14,598		$	13,407
Deficiency payments made	403			1,658
Deficiency repayment received	(760		)	(467		)
Balance at end of period	14,241			14,598
Other Bradley related, net	3,203			3,203
Valuation allowance	(2,484		)	(2,484		)
Total Bradley receivable	14,960			15,317
Other long-term receivables	29			29
Total long-term receivables	$	14,989		$	15,346

Agreement

We entered into a 25-year agreement (the “Bradley Agreement”) with the State of Connecticut that expires on April 6, 2025, under which we operate the surface parking and 3,500 garage parking spaces at Bradley International Airport (“Bradley”) located in the Hartford, Connecticut metropolitan area. The Company manages the facility for which it is expected to receive a management fee.

The parking garage was financed on April 6, 2000 through the issuance of $53,800 of State of Connecticut (“State”) special facility revenue bonds, representing $47,700 non-taxable Series A bonds and a separate taxable issuance of $6,100 Series B bonds. The Series B bonds were retired on July 1, 2006 according to the terms of the indenture. The Bradley Agreement provides that we deposit with a trustee for the bondholders all gross revenues collected from operations of the surface and garage parking, and from these gross revenues, the trustee pays debt service on the special facility revenue bonds outstanding, operating and capital maintenance expenses of the surface and garage parking facilities excluding our management fee discussed below, and specific annual guaranteed minimum payments to the State. Principal and interest on the Bradley special facility revenue bonds increase from approximately $3,600 in lease year 2002 to approximately $4,500 in lease year 2025. Annual guaranteed minimum payments to the State will increase from approximately $8,300 in lease year 2002 to approximately $13,200 in lease year 2024. The annual minimum guaranteed payment to the State by the trustee for the three and six months ended June 30, 2013 and 2012 was $5,241 and $5,134, respectively.

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All of the cash flow from the parking facilities is pledged to the security of the special facility revenue bonds and is collected and deposited with the bond trustee. Each month the bond trustee makes certain required monthly distributions, which are characterized as “Guaranteed Payments.” To the extent the monthly gross receipts generated by the parking facilities are not sufficient for the trustee to make the required Guaranteed Payments, we are obligated to deliver the deficiency amount to the trustee. Additionally, the Guaranteed Payments are required to be paid before we are reimbursed for deficiency payments or management fees.

The following is the list of Guaranteed Payments:

· Garage and surface operating expenses,

· Principal and interest on the special facility revenue bonds,

· Trustee expenses,

· Major maintenance and capital improvement deposits, and

· State Minimum Guarantee.

However, to the extent there is a cash surplus in any month during the term of the Bradley Agreement, we have the right to be repaid the principal amount of any and all deficiency payments previously made, together with actual interest expenses and a premium, not to exceed 10% of the initial deficiency payment. We calculate and record interest income and premium income in the period the associated deficiency payment is received from the trustee.

Deficiency Payments

To the extent that monthly gross receipts are not sufficient for the trustee to make the required payments, we are obligated pursuant to our agreement to deliver the deficiency amount to the trustee within three business days of being notified. We are responsible for these deficiency payments regardless of the amount of utilization for the Bradley parking facilities. The deficiency payments represent contingent interest bearing advances to the trustee to cover operating cash flow requirements. To the extent sufficient funds are available in the appropriate fund, the trustee is then directed by the State to reimburse us for deficiency payments up to the amount of the calculated surplus.

In the six months ended June 30, 2013, we received deficiency repayments (net of deficiency payments made) of $357. In addition, we received $60 of interest income related to deficiency repayments from the trustee. In the six months ended June 30, 2012, we made deficiency payments (net of repayments received) of $917 and received $85 for interest income related to deficiency repayments from the trustee. There was no receivable from the trustee for interest and premium income related to deficiency repayments as of June 30, 2013 and 2012.

The deficiency payments, if any, are recorded as a receivable by us for which we are reimbursed from time to time as provided in the trust agreement. As of June 30, 2013 and December 31, 2012, we have a receivable of $14,241 and $14,598, respectively, comprised of cumulative deficiency payments to the trustee, net of reimbursements. We believe these advances to be fully recoverable as the Construction, Financing and Operating Special Facility Lease Agreement, which governs reimbursement of Guarantor Payments, places no time restriction on the Company’s right to reimbursement and therefore have not recorded a valuation allowance. We do not guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.

Compensation

In addition to the recovery of certain general and administrative expenses incurred, the Bradley Agreement provides for an annual management fee payment that is based on three operating profit tiers calculated for each year during the term of the agreement. The management fee is further apportioned 60% to us and 40% to an un-affiliated entity. To the extent that funds are available for the trustee to make a distribution, the annual management fee is paid when sufficient cash is available after the Guaranteed Payments (as defined in our agreement) are paid, and after the repayment of all deficiency payments, including accrued interest and premium. However, our right to the management fee accrues each year during the term of the agreement and is paid when sufficient cash is available for the trustee to make a distribution.

The annual management fee is paid after the repayment of all deficiency payments, including accrued interest and premium therefore due to the existence and length of time for repayment of the deficiency amounts to the Company, no management fees have been recognized in the accompanying financial statements. Management fees will be recognized in accordance with SAB 104 when “collectability is reasonably assured” and the deficiency payments have been repaid.

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Cumulative management fees of $6,300 have not been recognized as of June 30, 2013, and no management fee income was recognized during the six months ended June 30, 2013 and 2012.

11. Borrowing Arrangements

Long-term borrowings, in order of preference, consist of:

		Amount Outstanding
	Maturity Date	June 30, 2013		December 31, 2012
		(Unaudited)
Senior credit facility	October 2, 2017	$	304,191	$	307,854
Other obligations	Various	2,196		2,620
Total debt		306,387		310,474
Less current portion		21,559		21,752
Total long-term debt		$	284,828	$	288,722

Senior Credit Facility

In connection with the Central Merger, on the Closing Date, the Company entered into a Credit Agreement with Bank of America, as administrative agent, Wells Fargo Bank, N.A. (“Wells Fargo Bank”) and JPMorgan Chase Bank, as co-syndication agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto (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 secured Senior Credit Facility (the “Senior Credit Facility”) that permits aggregate borrowings of $450,000 consisting of (i) a revolving credit facility of up to $200,000 at any time outstanding, which includes a letter of credit facility that is limited to $100,000 at any time outstanding, and (ii) a term loan facility of $250,000. The Senior Credit Facility matures on October 2, 2017.

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 payments of principal based on the following annualized amounts: (i) $22,500 in the first year, (ii) $22,500 in the second year, (iii) $30,000 in the third year, (iv) $30,000 in the fourth year and (v) $37,500 in the fifth year. The Company also borrowed $72,800 under the revolving credit facility on the Closing Date. The proceeds from these borrowings were used by the Company to repay outstanding indebtedness of the Company and Central, and will also be used to pay costs and expenses related to the Central Merger and the related financing and fund ongoing working capital and other general corporate purposes. At June 30, 2013, the Company had $304,191 outstanding on the Senior Credit Facility.

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 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%.

Under the terms of the Credit Agreement, the Company is required to maintain a maximum consolidated total debt to EBITDA ratio of not greater than 4.5:1.0 (with certain step-downs described in the Credit Agreement). In addition, the Company is required to maintain a minimum consolidated fixed charge coverage ratio of not less than 1:25:1.0 (with certain step-ups described in the Credit Agreement).

Events of default under the Credit Agreement include failure to pay principal or interest when due, failure to comply with the financial and operational covenants, the occurrence of any cross default event, non-compliance with other loan documents, the occurrence of a change of control event, and bankruptcy and other insolvency events. If an event of default occurs and is continuing, the Lenders holding a majority of the commitments and outstanding term loan under the Credit Agreement have the right, among others, to (i) terminate the commitments under the Credit Agreement, (ii) accelerate and require the Company to repay all the outstanding amounts owed under the Credit Agreement and (iii) require the Company to cash collateralize any outstanding letters of credit.

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Each wholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Credit Agreement.

In connection with and effective upon the execution and delivery of the Credit Agreement on October 2, 2012, the Company terminated its then-existing Amended and Restated Credit Agreement (the “Former Credit Agreement”), dated as of July 15, 2008. There were no termination penalties incurred by the Company in connection with the termination of the Former Credit Agreement.

We are in compliance with all of our covenants as of June 30, 2013.

The weighted average interest rate on our Senior Credit Facility at June 30, 2013 and December 31, 2012 was 3.6% and 3.7%, respectively. The rate includes all outstanding LIBOR contracts, cash flow hedge effectiveness effect and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 3.8% and 3.9% at June 30, 2013 and December 31, 2012, respectively.

At June 30, 2013, we had $59,272 of letters of credit outstanding under the Senior Credit Facility, borrowings against the Senior Credit Facility aggregated $304,191, and we had $60,396 available under the Senior Credit Facility.

The Company acquired Subordinated Convertible Debentures (“Convertible Debentures”) that prior to the acquisition of Central, were convertible at the option of the holder thereof into shares of Central common stock. As a result of the acquisition, the subordinated debenture holders no longer have the right to convert the Convertible Debentures to common stock of the Company, but do have the right to redeem the Convertible Debentures for $19.18 cash per share upon their stated maturity (April 1, 2028) or upon acceleration or earlier repayment of the Convertible Debentures. There were no redemptions during the six months ended June 30, 2013. Approximately 65,308 Convertible Debentures or $1,254 (redemption value) remain outstanding at June 30, 2013.

The remaining $942 of other obligations at June 30, 2013 relates to various financing arrangements.

12. Business Unit Segment Information

Segment information is presented in accordance with a “management approach,” which designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s segments are organized in a manner consistent with which separate financial information is available and evaluated regularly by our CODM in deciding how to allocate resources and in assessing performance.

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by our CODM. Our CODM is the Company’s president and chief executive officer.

Each of the operating segments is directly responsible for revenue and expenses related to their operations including direct regional administrative costs. Finance, information technology, human resources, and legal are shared functions that are not allocated back to the four operating segments. The CODM assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest, taxes, and depreciation and amortization, but does not evaluate segments using discrete asset information. There are no inter-segment transactions and the Company does not allocate interest and other income, interest expense, depreciation and amortization or taxes to operating segments. The accounting policies for segment reporting are the same as for the Company as a whole.

Our business is managed based on regions administered by executive vice presidents. The following is summary of revenues (excluding reimbursed management contract revenue) and gross profit by regions for the three and six months ended June 30, 2013 and 2012 with information related to prior periods recast to conform to the current regional alignment (unaudited):

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	For the three months ended										For the six months ended
	June 30, 2013			Gross Margin %		June 30, 2012			Gross Margin %		June 30, 2013			Gross Margin %		June 30, 2012			Gross Margin %
Revenues(a):
Region One
Lease contracts(b)	$	76,252				$	18,327				$	151,292				$	35,469
Management contracts	26,466					12,718					52,357					24,727
Total Region One	102,718					31,045					203,649					60,196
Region Two
Lease contracts	1,031					—					2,357					—
Management contracts	5,742					1,044					15,963					8,146
Total Region Two	6,773					1,044					18,320					8,146
Region Three
Lease contracts	12,614					5,882					24,903					11,299
Management contracts	18,537					13,585					36,513					27,065
Total Region Three	31,151					19,467					61,416					38,364
Region Four
Lease contracts	11,208					10,702					22,473					21,539
Management contracts	24,248					12,213					48,962					24,224
Total Region Four	35,456					22,915					71,435					45,763
Region Five
Lease contracts	22,227					7,503					45,494					11,651
Management contracts	8,805					4,526					17,884					7,593
Total Region Five	31,032					12,029					63,378					19,244
Other
Lease contracts	(100		)			—					(151		)			—
Management contracts	4,861					286					4,375					581
Total Other	4,761					286					4,224					581
Reimbursed management contract revenue	158,402					104,160					317,879					208,097
Total revenues	370,293					$	190,946				740,301					$	380,391
Gross Profit
Region One
Lease contracts	5,270			7	%	1,269			7	%	10,424			7	%	1,878			5	%
Management contracts	11,711			44	%	7,107			56	%	22,959			44	%	13,412			54	%
Total Region One	16,981					8,376					33,383					15,290
Region Two
Lease contracts	63			6	%	—			0	%	329			14	%	—			0	%
Management contracts	1,918			33	%	273			26	%	4,199			26	%	1,470			18	%
Total Region Two	1,981					273					4,528					1,470
Region Three
Lease contracts	1,144			9	%	555			9	%	1,925			8	%	1,001			9	%
Management contracts	6,993			38	%	5,764			42	%	13,678			37	%	11,260			42	%
Total Region Three	8,137					6,319					15,603			8	%	12,261
Region Four
Lease contracts	1,098			10	%	809			8	%	1,849			8	%	1,568			7	%
Management contracts	6,351			26	%	4,324			35	%	12,254			25	%	8,285			34	%
Total Region Four	7,449					5,133					14,103					9,853
Region Five
Lease contracts	3,937			18	%	621			8	%	8,605			19	%	978			8	%
Management contracts	3,391			39	%	1,586			35	%	7,170			40	%	3,035			40	%
Total Region Five	7,328					2,207					15,774					4,013
Other
Lease contracts	153			-153	%	1,160			100	%	170			-113	%	1,146			100	%
Management contracts	3,643			75	%	1,300			454	%	2,807			64	%	2,363			407	%
Total Other	3,796					2,460					2,977					3,509
Total gross profit	45,672					24,768					86,369					46,397
General and administrative expenses	26,869					14,868					54,694					29,913
General and administrative expense percentage of gross profit	59		%			60		%			63		%			64		%
Depreciation and amortization	8,074					1,807					15,382					3,535
Operating income	10,729					8,093					16,293					12,949
Other expenses (income):
Interest expense	4,763					1,132					9,770					2,262
Interest income	(188		)			(135		)			(299		)			(205		)
	4,575					997					9,471					2,057
Income before income taxes	6,154					7,096					6,822					10,892
Income tax expense	2,049					2,856					2,095					4,384
Net income	4,105					4,240					4,727					6,508
Less: Net income attributable to noncontrolling interest	780					85					1,349					157
Net income attributable to Standard Parking Corporation	$	3,325				$	4,155				$	3,378				$	6,351

(a)		Excludes reimbursed management contract revenue.

(b)		The six months ended June 30, 2013 includes a net gain of $2,101 related to the sale of rights associated with certain contracts. There were no similar payments received in 2012.

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Region One encompasses operations in Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Virginia, West Virginia and Wisconsin.

Region Two encompasses event planning and transportation, our acquired valet business and our technology-based parking and traffic management systems.

Region Three encompasses operations in Canada, Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

Region Four encompasses all major airport and transportation operations nationwide.

Region Five encompasses Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Puerto Rico, Tennessee, and Texas.

Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years.

Our CODM does not evaluate segments using discrete asset information.

13. Comprehensive Income

Comprehensive income consists of the following components, net of tax (unaudited):

	For the three months ended						For the six months ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Net income	$	4,105		$	4,240		$	4,727		$	6,508
Effective portion of cash flow hedge	1,007			53			1,161			89
Effect of foreign currency translation	(137		)	(133		)	(272		)	(83		)
Comprehensive income	4,975			4,160			5,616			6,514
Less: comprehensive income attributable to noncontrolling interest	780			85			1,349			157
Comprehensive income attributable to Standard Parking Corporation	$	4,195		$	4,075		$	4,267		$	6,357

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14. Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income consists of the following components, net of tax (unaudited):

	For the six months ended June 30, 2013
	Cash flow hedge			Foreign Currency			Total
Balance at December 31, 2012	$	(476	)	$	95		$	(381	)
Other comprehensive income before reclassifications	1,161			(272		)	889
Amounts reclassified from accumulated other comprehensive income	—			—			—
Net current period other comprehensive income	1,161			(272		)	889
Balance at June 30, 2013	$	685		$	(177	)	$	508

15. Income Taxes

For the three months ended June 30, 2013, the Company recognized income tax expense of $2,049 on pre-tax earnings of $6,153 compared to $2,856 income tax expense on pre-tax earnings of $7,096 for the three months ended June 30, 2012. For the six months ended June 30, 2013, the Company recognized income tax expense of $2,095 on pre-tax earnings of $6,821 compared to $4,384 income tax expense on pre-tax earnings of $10,892 for the six months ended June 30, 2012. The effective tax rate is approximately 30.7% for the six months ended June 30, 2013 compared to approximately 40.2% for the six months ended June 30, 2012. The effective tax rate for the six months ended June 30, 2013 was decreased to 30.7% from 36.2% for a discrete benefit of approximately $371 for the retroactive extension of the Work Opportunity Tax Credit (“WOTC”) and other similar federal income tax credit programs that were enacted as part of the American Taxpayer Relief Act in January of 2013.

As of June 30, 2013, the Company has not identified any uncertain tax positions that would have a material impact on the Company’s financial position or income tax expense in future periods. The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense.

The tax years that remain subject to examination for the Company’s major tax jurisdictions at June 30, 2013 are shown below:

2007 – 2012		United States—federal income tax
2007 – 2012		United States—state and local income tax
2010 – 2013		Canada

16. Legal Proceedings

We are subject to litigation in the normal course of our business. The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. We accrue a charge against income when our management determines that it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we accrue for the authoritative judgments or assertions made against us by government agencies at the time of their rendering regardless of our intent to appeal. In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss. We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment. In addition, the Company is subject to various legal proceedings, claims and other matters that arise in the ordinary course of business. In the opinion of management, the amount of the liability, if any, with respect to these matters will not materially affect the Company’s consolidated financial statements. We maintain liability insurance coverage to assist in protecting our assets from losses arising from or related to activities associated with business operations.

17. Fair Value Measurement

The Company applies ASC 820 for fair value measurements and disclosures for its financial assets and financial liabilities. The standard requires disclosures about assets and liabilities measured at fair value. As of June 30, 2013, the Company’s financial assets relate to Interest Rate Swaps of $1,142 and the Company’s financial liabilities relate to contingent acquisition consideration payments of $2,874.

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The accounting guidance for fair value measurements and disclosures includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:

· Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.

· Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-corroborated inputs, which are derived principally from or corroborated by observable market data.

· Level 3: Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The significant inputs used to derive the fair value of the amounts due to seller include financial forecasts of future operating results, the probability of reaching the forecast and the associated discount rate. The probability of the contingent consideration ranges from 10% to 95%, with a weighted average discount rate of 11%. The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and the basis of measurement at June 30, 2013 and December 31, 2012 (unaudited):

	Total Fair Value Measurement at June 30, 2013			Level 1	Level 2	Level 3
Assets:
Interest Rate Swaps	$	1,142		—	1,142	—
Liabilities:				—	—
Contingent acquisition consideration	$	(2,874	)			(2,874	)

	Total Fair Value Measurement at December 31, 2012			Level 1	Level 2		Level 3
Liabilities:
Interest Rate Swaps	$	(794	)	—	(794	)	—
Contingent acquisition consideration	$	(3,324	)	—	—		(3,324	)

The following table provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3, unaudited):

	Contingent acquisition consideration
Balance at December 31, 2012	$	(3,324	)
Contingent earn-out payments-payments made to seller	142
Contingent earn-out payments-change in fair value	308
Balance at June 30, 2013	$	(2,874	)

For the three and six months ended June 30, 2013 and 2012, the Company recorded adjustments to the original contingent consideration obligation recorded upon the acquisition of Gameday Management Group U.S. and Expert Parking. The adjustments were the result of using revised forecasts and updated fair value measurements that adjusted the Company’s potential earn-out payments related to the purchase of these businesses.

The Company recognized no benefit in the three months ended June 30, 2013 and a benefit of $308 in the six months ended June 30, 2013 which is included in general and administrative expenses in the statement of income due to the change in fair value measurements using level three valuation techniques. For the three and six months ended June 30, 2012, the Company recognized a benefit of $169 and $368, respectively, which is included in general and administrative expenses in the statement of income due to the change in fair value measurements using level three valuation techniques.

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Nonrecurring Fair Value Measurements

The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value. Non-financial assets such as goodwill, intangible assets, and leasehold improvements, equipment land and construction in progress are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable. We have not recorded impairment charges related to our business acquisitions.

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

The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and the notes thereto included in our Annual Report on our Form 10-K for the year ended December 31, 2012.

Important Information Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding our merger with the parent of Central Parking Corporation (“Central”), and the other expectations, beliefs, plans, intentions and strategies of the Company. We have tried to identify these statements by using words such as “expect,” “anticipate,” “believe, “could,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” and “will” and similar terms and phrases, but such words, terms and phrases are not the exclusive means of identifying such statements. These forward-looking statements are made based on management’s expectations and beliefs concerning future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict and many of which are beyond management’s control. Actual results, performance and achievements could differ materially from those expressed in, or implied by, these forward-looking statements due to a variety of risks, uncertainties and other factors, including, but not limited to, the following: our ability to integrate Central into the business of the Company successfully and the amount of time and expense spent and incurred in connection with the integration; the risk that the economic benefits, cost savings and other synergies that we anticipate as a result of the Central Merger (defined below) are not fully realized or take longer to realize than expected; our substantially increased indebtedness incurred in connection with the Central Merger, which may reduce available cash flow, increase vulnerability to adverse economic conditions, and limit flexibility in planning for, or reacting to, changes in or challenges related to our business; unanticipated Central Merger and integration expenses; other losses, or renewals on less favorable terms, of management contracts and leases; adverse litigation judgments or settlements; the economic impact to areas damaged by Hurricane Sandy; changes in general economic and business conditions or demographic trends; the loss of customers, clients or strategic alliances as a result of the Central Merger; the effect on our strategy and operations due to changes to the Board of Directors that occurred upon the completion of the Central Merger; the impact of the divestitures of management contracts and leases required by the agreement entered into by the Company with the Department of Justice in connection with the Central Merger; the impact of public and private regulations; financial difficulties or bankruptcy of major clients; intense competition; insurance losses that are worse than expected or adverse events not covered by insurance; labor disputes; extraordinary events affecting parking at facilities that we manage, including emergency safety measures, military or terrorist attacks, cyber terrorism and natural disasters; the risk that state and municipal government clients sell or enter into long-term leases of parking-related assets to competitors or clients of our competitors; uncertainty in the credit markets; availability, terms and deployment of capital; our ability to obtain performance bonds on acceptable terms; and the impact of Federal health care reform.

For a detailed discussion of factors that could affect our future operating results, please see our filings with the Securities and Exchange Commission, including the disclosures under “Risk Factors” in those filings. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances, future events or for any other reason.

Explanatory Note

Central Merger

On October 2, 2012, we completed our acquisition (the “Central Merger”) of Central Parking Corporation. Central, together with its affiliates, was a leading provider of parking and related services, which operated parking facilities in 38 states, the District of

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Columbia and Puerto Rico and provided ancillary products and services, including parking consulting, shuttle, valet, on-street and parking meter enforcement and billing and collection services. Our consolidated results of operations for the three and six months ended June 30, 2013 include Central’s results of operations for the period. Our consolidated results of operations for the three and six months ended June 30, 2012 do not include any of Central’s results of operations.

Overview

Our Business

We manage parking facilities in urban markets and at airports across the United States and in four Canadian provinces. We do not own any facilities, but instead enter into contractual relationships with property owners or managers.

We operate our clients’ properties through two types of arrangements: management contracts and leases. Under a management contract, we typically receive a base monthly fee for managing the facility, and we may also receive an incentive fee based on the achievement of facility performance objectives. We also receive fees for ancillary services. Typically, all of the underlying revenue and expenses under a standard management contract flow through to our clients rather than to us. However, some management contracts, which are referred to as “reverse” management contracts, usually provide for larger management fees and require us to pay various costs. Under lease arrangements, we generally pay to the property owner either a fixed annual rent, a percentage of gross customer collections or a combination thereof. We collect all revenue under lease arrangements and we are responsible for most operating expenses, but we are typically not responsible for major maintenance, capital expenditures or real estate taxes. Margins for lease contracts vary significantly, not only due to operating performance, but also due to variability of parking rates in different cities and varying space utilization by parking facility type and location. As of June 30, 2013, we operated approximately 80% of our locations under management contracts and approximately 20% of our locations under leases. For the six months ended June 30, 2013, we derived approximately 73% of our gross profit under management contracts and approximately 27% of our gross profit under leases.

In evaluating our financial condition and operating performance, management’s primary focus is on our gross profit, total general and administrative expenses and general and administrative expenses as a percentage of our gross profit. Although the underlying economics to us of management contracts and leases are similar, the manner in which we are required to account for them differs. Revenue from leases includes all gross customer collections derived from our leased locations (net of parking tax), whereas revenue from management contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management contracts, therefore, are not included in our revenue. Accordingly, while a change in the proportion of our operating agreements that are structured as leases versus management contracts may cause significant fluctuations in reported revenue and expense of parking services, that change will not artificially affect our gross profit. For example, as of June 30, 2013, we operated approximately 80% of our locations under management contracts, and for the six months ended June 30, 2013 we derived approximately 73% of our gross profit under management contracts. Only approximately 42% of total revenue (excluding reimbursed management contract revenue), however, was from management contracts because under those contracts the revenue collected from parking customers belongs to our clients. Therefore, gross profit and total general and administrative expenses, rather than revenue, are management’s primary focus.

General Business Trends

We believe that sophisticated commercial real estate developers and property managers and owners recognize the opportunity for parking and related services to be a profit generator rather than a cost center. Often, the parking experience makes both the first and the last impressions on their properties’ tenants and visitors. By outsourcing these services, they are able to capture additional profit by leveraging the unique operational skills and controls that an experienced parking management company can offer. Our ability to consistently deliver a uniformly high level of parking and related services and maximize the profit to our clients improves our ability to win contracts and retain existing locations. Our location retention, excluding Central, rate for the twelve-month period ended June 30, 2013 was approximately 88%, compared to approximately 90% for the twelve-month period ended June 30, 2012, which also reflects our decision not to renew, or to terminate, unprofitable contracts and divestitures required to be made by the Department of Justice in connection with the Central Merger.

Excluding Central, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012, average gross profit per location increased to $21.9 thousand in 2013 compared to $21.5 thousand in 2012 primarily due to an increase in same location gross profit, as well as gross profit from new business in excess of contract expirations.

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Summary of Operating Facilities

We focus our operations in core markets where a concentration of locations improves customer service levels and operating margins. The following table reflects our facilities operated at the end of the periods indicated:

	June 30, 2013	December 31, 2012	June 30, 2012
Managed facilities	3,473	3,325	1,971
Leased facilities	873	939	187
Total facilities	4,346	4,264	2,158

Revenue

We recognize parking services revenue from lease and management contracts as the related services are provided. Substantially all of our revenue comes from the following two sources:

· Parking services revenue—lease contracts. Parking services revenue related to lease contracts consist of all revenue received at a leased facility, including parking receipts (net of parking tax), consulting and real estate development fees, gains on sales of contracts and payments for exercising termination rights.

· Parking services revenue—management contracts. Management contract revenue consists of management fees, including both fixed and performance-based fees, and amounts attributable to ancillary services such as accounting, equipment leasing, payments received for exercising termination rights, consulting, developmental fees, gains on sales of contracts, as well as insurance and other value-added services with respect to managed locations. We believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker’s compensation claims by maintaining a large per-claim deductible. As a result, we have generated operating income on the insurance provided under our management contracts by focusing on our risk management efforts and controlling losses. Management contract revenue does not include gross customer collections at the managed locations as this revenue belongs to the property owner rather than to us. Management contracts generally provide us with a management fee regardless of the operating performance of the underlying facility.

Conversions between types of contracts (lease or management) are typically determined by our client and not us. Although the underlying economics to us of management contracts and leases are similar, the manner in which we account for them differs substantially.

Reimbursed Management Contract Revenue

Reimbursed management contract revenue consists of the direct reimbursement from the property owner for operating expenses incurred under a management contract, which is reflected in our revenue.

Cost of Parking Services

Our cost of parking services consists of the following:

· Cost of parking services—lease contracts. The cost of parking services under a lease arrangement consists of contractual rental fees paid to the facility owner and all operating expenses incurred in connection with operating the leased facility. Contractual fees paid to the facility owner are generally based on either a fixed contractual amount or a percentage of gross revenue or a combination thereof. Generally, under a lease arrangement we are not responsible for major capital expenditures or real estate taxes.

· Cost of parking services—management contracts. The cost of parking services under a management contract is generally the responsibility of the facility owner. As a result, these costs are not included in our results of operations. However, our reverse management contracts, which typically provide for larger management fees, do require us to pay for certain costs, which are included in cost of parking services.

Reimbursed Management Contract Expense

Reimbursed management contract expense consists of direct reimbursed costs incurred on behalf of property owners under a management contract, which is reflected in our cost of parking services.

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Gross Profit

Gross profit equals our revenue less the cost of generating such revenue. This is the key metric we use to examine our performance because it captures the underlying economic benefit to us of both lease contracts and management contracts.

General and Administrative Expenses

General and administrative expenses include salaries, wages, payroll taxes, insurance, travel and office related expenses for our headquarters, field offices, supervisory employees, and board of directors.

Depreciation and Amortization

Depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes or in the case of leasehold improvements, over the initial term of the operating lease or its useful life, whichever is shorter. Intangible assets determined to have finite lives are amortized over their remaining useful life.

Results of Operations

Segments

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by our Chief Operating Decision Maker (“CODM”), in deciding how to allocate resources. Our CODM is our president and chief executive officer.

Region Two encompasses event planning and transportation, our acquired valet business and our technology-based parking and traffic management systems.

Region Three encompasses operations in Canada, Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

Region Four encompasses all major airport and transportation operations nationwide.

Region Five encompasses Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Puerto Rico, Tennessee, and Texas.

Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years.

Our business is managed based on regions administered by executive vice presidents. The following is a summary of revenues (excluding reimbursed management contract revenue) and gross profit by regions for the three and six months ended June 30, 2013 and 2012 with information related to prior periods recast to conform to the current regional alignment:

As noted previously, the financial results for the three and six months ended June 30, 2012 do not include any of Central’s results of operations for the period due to the timing of the closing of the Central Merger on October 2, 2012. The financial results for the three and six months ended June 30, 2013 include Central’s results of operations for the periods. To help understand the operating results for these quarters, the term “Central Operations” refers to the results of Central on a stand-alone basis for the period from January 1, 2013 to June 30, 2013 and the term “Standard Operations” refers to the results of Standard on a stand-alone basis and not inclusive of results from the acquired operations of Central for the three and six months ended June 30, 2013.

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Three Months ended June 30, 2013 Compared to Three Months ended June 30, 2012

Segment revenue information is summarized as follows (unaudited):


	Three Months Ended June 30,
	Region One				Region Two				Region Three				Region Four				Region Five				Other					Total				Variance
	2013		2012		2013		2012		2013		2012		2013		2012		2013		2012		2013			2012		2013		2012		Amount			%
	(In millions)
Lease contract revenue:
New location	$	1.3	$	—	$	—	$	—	$	0.2	$	0.1	$	0.2	$	—	$	0.1	$	0.1	$	—		$	—	$	1.9	$	0.2	$	1.7		850.0	%
Contract expirations	—		0.8		—		—		—		0.1		—		0.2		—		0.8		—			—		—		1.8		(1.8		)	(100.0	)%
Same location	19.4		17.4		—		—		5.9		5.7		11.0		10.3		7.1		6.7		—			—		43.4		40.1		3.3			8.3	%
Conversions	0.1		0.1		—		—		—		—		—		0.2		—		—		—			—		0.1		0.3		(0.2		)	(66.7	)%
Acquisitions	55.4		—		1.0		—		6.5		—		—		—		15.0		—		(0.1		)	—		77.8		—		77.8			100	%
Total lease contract revenue	$	76.3	$	18.3	$	1.0	$	—	$	12.6	$	5.9	$	11.2	$	10.7	$	22.2	$	7.6	$	(0.1	)	$	—	$	123.2	$	42.4	$	80.8		190.6	%
Management contract revenue:
New location	$	1.7	$	0.1	$	0.1	$	0.2	$	1.2	$	0.1	$	0.8	$	—	$	0.4	$	—	$	—		$	—	$	4.2	$	0.4	$	3.8		950.0	%
Contract expirations	0.3		1.4		—		0.2		0.1		2.0		—		0.5		—		0.3		—			—		0.4		4.4		(4.0		)	(90.9	)%
Same location	11.8		11.3		0.6		0.7		11.7		11.5		11.5		11.7		3.4		4.3		2.4			0.3		41.4		39.6		1.8			4.5	%
Conversions	—		—		—		—		—		—		—		—		—		—		—			—		—		—		—			—	%
Acquisitions	12.6		—		5.1		—		5.6		—		11.9		—		4.9		—		2.5			—		42.6		—		42.6			100.0	%
Total management contract revenue	$	26.4	$	12.8	$	5.8	$	1.1	$	18.6	$	13.6	$	24.2	$	12.2	$	8.7	$	4.6	$	4.9		$	0.3	$	88.6	$	44.4	$	44.2		99.5	%

Parking services revenue—lease contracts. Lease contract revenue increased $80.8 million, or 190.6%, to $123.2 million for the three months ended June 30, 2013, compared to $42.4 million for the three months ended June 30, 2012. The increase in lease contract revenue consisted of an increase from the Standard Operations of $3.0 million, or 7.1%, and $77.8 million from the Central Operations. The increase resulted primarily from increases in revenue from new locations and acquisitions, partially offset by decreases in revenue from contract expirations and fewer locations that converted from management contracts during the current year. Same location revenue for those facilities, which as of June 30, 2013 are the comparative periods for the two years presented, increased 82%. The increase in same location revenue was due to increases in short-term parking revenue of $2.4 million, or 8.9%, and increases in monthly parking revenue of $0.9 million, or 7.1%. Revenue associated with contract expirations relates to contracts that expired during the current period.

Parking services revenue—management contracts. Management contract revenue increased $44.2 million, or 99.5%, to $88.6 million for the three months ended June 30, 2013, compared to $44.4 million for the three months ended June 30, 2012. The increase in management contracts revenue consisted of an increase from the Central Operations of $42.6 million, and an increase in revenue from the Standard Operations of $1.6 million, or 3.6%. The increase resulted primarily from increases in revenue from new locations, which was offset by contract expirations. Same location revenue for those facilities, which as of June 30, 2013 are the comparative periods for the two years presented, increased 4.5%, primarily due to increased fees from reverse management locations and ancillary services.

Reimbursed management contract revenue. Reimbursed management contract revenue increased $54.2 million, or 52.1%, to $158.4 million for the three months ended June 30, 2013, compared to $104.2 million for the three months ended June 30, 2012. This increase resulted from additional reimbursements for costs incurred on behalf of owners, and the additional reimbursements related to Central Operations.

Lease contract revenue increased primarily due to new locations and same locations in regions one, three, four and five, combined with acquisitions in regions one and five. This was partially offset by decreases in contract expirations in regions one and five. Same location revenue increases for the aforementioned regions were primarily due to increases in short-term and monthly parking revenue.

Management contract revenue increased primarily due to new locations and acquisitions in all five operating regions, combined with same location revenue in regions one, three and other. This was partially offset by contract expirations in all five operating regions, same locations in regions one, three and acquisitions in other. The increase in same location revenue were primarily due to an increase in fees from reverse management locations and ancillary services. For comparability purposes, revenue associated with contract expirations relate to the contracts that expired during the current period.

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Segment cost of parking services information is summarized as follows (unaudited):


	Three Months Ended June 30,
	Region One				Region Two				Region Three				Region Four					Region Five				Other						Total				Variance
	2013		2012		2013		2012		2013		2012		2013			2012		2013		2012		2013			2012			2013		2012		Amount			%
	(In millions)
Cost of parking services lease contracts:
New location	$	1.0	$	—	$	—	$	—	$	0.2	$	0.1	$	0.2		$	—	$	0.1	$	0.1	$	—		$	—		$	1.5	$	0.2	$	1.3		650.0	%
Contract expirations	—		0.7		—		—		—		0.1		—			0.1		—		0.7		—			—			—		1.6		(1.6		)	(100.0	)%
Same location	18.5		16.3		—		—		5.5		5.1		10.2			9.6		6.6		6.1		(0.8		)	(1.2		)	40.0		35.9		4.1			11.4	%
Conversions	0.1		0.1		—		—		—		—		—			0.2		—		—		—			—			0.1		0.3		(0.2		)	(66.7	)%
Acquisitions	51.4		—		1.0		—		5.8		—		(0.3		)	—		11.6		—		0.5			—			70.0		—		70.0			100.0	%
Total cost of parking services lease contracts	$	71.0	$	17.1	$	1.0	$	—	$	11.5	$	5.3	$	10.1		$	9.9	$	18.3	$	6.9	$	(0.3	)	$	(1.2	)	$	111.6	$	38.0	$	73.6		193.6	%
Cost of parking services management contracts:
New location	$	1.1	$	—	$	—	$	0.2	$	0.6	$	—	$	0.4		$	—	$	0.3	$	—	$	—		$	—		$	2.4	$	0.2	$	2.2		1,100	%
Contract expirations	0.2		0.5		—		0.1		0.1		1.3		—			0.4		—		0.1		—			—			0.3		2.4		(2.1		)	87.5	%
Same location	5.0		5.1		0.4		0.5		6.7		6.5		7.7			7.5		2.2		2.8		(1.3		)	(1.0		)	20.7		21.4		(0.6		)	(3.3	)%
Conversions	—		—		—		—		—		—		—			—		—		—		—			—			—		—		—			—	%
Acquisitions	8.5		—		3.4		—		4.1		—		9.8			—		2.9		—		2.5			—			31.2		—		31.2			100.0	%
Total cost of parking services management contracts	$	14.8	$	5.6	$	3.8	$	0.8	$	11.5	$	7.8	$	17.9		$	7.9	$	5.4	$	2.9	$	1.2		$	(1.0	)	$	54.6	$	24.0	$	30.6		127.5	%

Cost of parking services—lease contracts. Cost of parking services for lease contracts increased $73.6 million, or 193.6%, to $111.6 million for the three months ended June 30, 2013, compared to $38.0 million for the three months ended June 30, 2012. The increase in cost of parking services for lease contracts consisted of an increase from the Standard Operations of $3.6 million, or 9.5%, and $70.0 million from the Central Operations. The increase resulted primarily from increases in costs from new locations and acquisitions, which was partially offset by decreases in contract expirations and fewer locations that converted from management contracts during the current year. Same location costs for those facilities, which as of June 30, 2013 are the comparative for the two years presented, increased 11.4%. Same location costs increased $4.1 million due to rent expense, primarily as a result of contingent rental payments on the increase in revenue for same locations, payroll and payroll related costs of $0.8 and $24.0, $0.8 million related to other operating costs.

Cost of parking services—management contracts. Cost of parking services for management contracts increased $30.6 million, or 127.5%, to $54.6 million for the three months ended June 30, 2013, compared to $24.0 million for the three months ended June 30, 2012. The increase in cost of parking services for management contracts consisted of a decrease from the Standard Operations of $0.5 million, or 2.1%, and an increase of $31.2 million from the Central Operations. The decrease resulted from decreases in costs related to contract expirations, improvement in same location costs offset by acquisitions. Same location costs for those facilities, which as of June 30, 2013 are the comparative for the two years presented, decreased 3.3%. Same location decrease in operating expenses for management contracts primarily resulted from decreases in costs associated with reverse management contracts and the cost of providing management services. Same location cost also includes a favorable change in net insurance loss experience reserve estimates relating to prior years of $1.2 million.

Reimbursed management contract expense. Reimbursed management contract expense increased $54.2 million, or 52.1%, to $158.4 million for the three months ended June 30, 2013, compared to $104.2 million for the three months ended June 30, 2012. This increase resulted from additional reimbursements for costs incurred on behalf of owners, and the additional reimbursements related to Central Operations.

Cost of parking services for lease contracts increased primarily due to new locations in regions one, three, four and five, combined with same locations in regions one, three, four, five and other, acquisitions in regions one, two, three and five and conversions in region one, which was partially offset by contract expirations in regions one, three, four and five, conversions in region four and acquisitions in other. Same location cost increased primarily due to increases in contingent rent payments on the increase in revenue, payroll and payroll related costs, other operating costs, offset by a favorable health insurance dividend related to prior years. The other region amounts in same location primarily represent a reduced health insurance dividend related to prior years and costs that are not specifically identifiable to a region.

Cost of parking services for management contracts increased due to new locations in regions one, three, four and five and acquisitions in all five operating regions, offset by decreases in same locations in region five and decreases due to contract expirations in all five operating regions. Same location cost decrease primarily resulted from decreases in costs associated with reverse management contracts and the cost of providing management services. The other region amounts in same location primarily represent prior year insurance reserve adjustments and costs that are not specifically identifiable to a region.

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Segment gross profit/gross profit percentage information is summarized as follows (unaudited):


	Three Months Ended June 30,
	Region One				Region Two				Region Three				Region Four				Region Five				Other					Total				Variance
	2013		2012		2013		2012		2013		2012		2013		2012		2013		2012		2013			2012		2013		2012		Amount			%
	(In millions)
Gross profit lease contracts:
New location	$	0.3	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—	$	0.4	$	—	$	0.4		100.0	%
Contract expirations	—		—		0.1		—		—		—		—		—		—		0.1		—			—		—		0.1		(0.1		)	(100.0	)%
Same location	0.9		1.2		—		—		0.4		0.5		0.8		0.8		0.5		0.5		0.8			1.2		3.4		4.2		(0.8		)	(19.0	)%
Conversions	—		—		—		—		—		—		—		—		—		—		—			—		—		0.1		(0.1		)	(100.0	)%
Acquisitions	4.0		—		0.1		—		0.7		—		0.3		—		3.4		—		(0.6		)	—		7.8		—		7.8			100.0	%
Total gross profit lease contracts	$	5.2	$	1.2	$	0.1	$	—	$	1.1	$	0.5	$	1.1	$	0.8	$	3.9	$	0.6	$	0.2		$	1.2	$	11.6	$	4.4	$	7.2		163.6	%

	(Percentages)
Gross profit percentage lease contracts:
New location	23.1		—		—		—		—		—		—		—		—		—		—			—		21.1		—
Contract expirations	—		—		100.0		—		—		—		—		—		—		12.5		—			—		—		5.5
Same location	4.6		6.9		—		—		6.8		8.8		7.8		7.8		7.0		7.5		100.0			100.0		7.8		10.5
Conversions	—		—		—		—		—		—		—		—		—		—		—			—		—		33.3
Acquisitions	7.2		—		10.0		—		10.8		—		100.0		—		22.7		—		600.0			—		10.0		—
Total gross profit percentage	6.8		6.6		10.0		—		8.7		8.5		9.8		7.5		17.6		7.9		(200.0		)	100.0		9.4		10.4

	(In millions)
Gross profit management contracts:
New location	$	0.6	$	0.1	$	0.1	$	—	$	0.5	$	0.1	$	0.4	$	—	$	0.1	$	—	$	—		$	—	$	1.7	$	0.2	$	1.5		750	%
Contract expirations	0.1		0.8		—		0.1		—		0.7		—		0.2		—		0.1		—			—		—		1.9		(1.9		)	(100.0	)%
Same location	6.8		6.2		0.1		0.2		5.0		5.0		3.8		4.1		1.2		1.5		3.7			1.3		20.7		18.3		2.4			13.1	%
Conversions	—		—		—		—		—		—		—		—		—		—		—			—		—		—		—			—	%
Acquisitions	4.2		—		1.7		—		1.5		—		2.1		—		2.1		—		—			—		11.6		—		11.6			100.0	%
Total gross profit management contracts	$	11.7	$	7.1	$	1.9	$	0.3	$	7.0	$	5.8	$	6.4	$	4.3	$	3.4	$	1.6	$	3.7		$	1.3	$	34.0	$	20.4	$	13.7		67.2	%

	(Percentages)
Gross profit percentage management contracts:
New location	35.3		100.0		100.0		—		41.7		100.0		50.0		—		25.0		—		—			—		44.4		50.0
Contract expirations	33.3		57.1		—		50.0		—		35.0		—		40.0		—		33.3		—			—		—		43.2
Same location	57.6		54.9		33.3		28.6		42.7		43.5		33.0		35.0		35.3		34.9		154.2			433.3		49.6		46.2
Conversions	—		—		—		—		—		—		—		—		—		—		—			—		—		—
Acquisitions	33.3		—		33.3		—		26.8		—		17.6		—		42.8		—		—			—		27.2		—
Total gross profit percentage	44.3		55.5		32.8		27.3		37.6		42.6		26.4		35.2		39.1		34.8		75.5			433.3		38.4		45.9

Gross profit—lease contracts. Gross profit for lease contracts increased $7.2 million, or 163.6%, to $11.6 million for the three months ended June 30, 2013, compared to $4.4 million for three months ended June 30, 2012. The increase in gross profit for lease contracts consisted of a decrease from the Standard Operations of $0.4 million, or 11.4%, and $7.8 million from the Central Operations. Gross profit percentage for lease contracts decreased to 9.4% for the three months ended June 30, 2013, compared to 10.4% for the three months ended June 30, 2012. Gross profit lease contracts decrease were primarily the result of decreases in same locations and acquisitions, contract expirations and conversions partially offset by new locations. Gross profit lease contracts decreases on same locations were primarily the result of increases in expenses. Gross profit percentage on acquisitions and same locations accounted for most of the decrease on a percentage basis.

Gross profit—management contracts. Gross profit for management contracts increased $13.7 million, or 67.2%, to $34.0 million for the three months ended June 30, 2013, compared to $20.4 million for the three months ended June 30, 2012. The increase in gross profit for management contracts consisted of an increase from the Standard Operations of $2.1 million, or 10.3%, and an increase of $11.6 million from Central Operations. Gross profit percentage for management contracts decreased to 38.4% for the three months ended June 30, 2013, compared to 45.9% for the three months ended June 30, 2012. Gross profit for management contracts increases were primarily the result of new locations, acquisitions and same locations, offset by decreases in contract expirations. Gross profit management contracts increases on same locations were primarily the result of decreases in costs associated with reverse management contracts and the cost of providing management services, in addition to an increase in revenue. Gross profit percentage on contract expirations and acquisitions accounted for most of the decline on a percentage basis.

Gross profit for lease contracts increased primarily due to new locations in region one and acquisitions in regions one, three, four and five. Partially offsetting, were same locations in regions one, three and other. Gross profit lease contracts on same locations decreased primarily due to increases in operating expenses greater than revenue increases.

Gross profit for management contracts increased primarily due to new locations and acquisitions in all five operating regions and same locations in region one and other. Partially offsetting, were contract expirations in all five operating regions, same locations in regions two, four and five. Gross profit for management contracts increases on same locations were primarily the result of decreases in costs associated with reverse management contracts and the cost of providing management services. The other region amounts in same location primarily represent prior year insurance reserve adjustments and amounts that are not specifically identifiable to a specific region.

General and administrative expenses. General and administrative expenses increased $12.0 million, or 180.7%, to $26.9 million for the three months ended June 30, 2013, compared to $14.9 million for the three months ended June 30, 2012. This increase was

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primarily related to integration costs incurred in connection with the Central Merger of $2.4 million, the addition of general and administrative expenses related to Central of $10.4 million, $0.7 million due to the additional RSUs that were granted in the fourth quarter of 2012, payroll and payroll relates expenses of $1.1 million, partially offset by decreases in, professional fees of $1.2 million, and cost savings from process efficiencies of $1.5 million.

Depreciation and amortization. Depreciation and amortization increased $6.3 million, or 346.8%, to $8.1 million as compared to $1.8 million for the three months ended June 30, 2012. This increase is a result of the additional amortization and depreciation for the fair value of acquired tangible and intangible assets from the Central Merger.

Interest expense. Interest expense increased $3.7 million, or 336.4%, to $4.8 million for the three months ended June 30, 2013, as compared to $1.1 million for the three months ended June 30, 2012. This increase resulted primarily from an increase in borrowings and an increase in the borrowing rate on our Senior Credit Facility.

Interest income. Interest income increased $0.1 million, or 100.0%, to $0.2 million for the three months ended June 30, 2013 as compared to $0.1 million for the three months ended June 30, 2012. This increase resulted primarily from an interest payment received on our Bradley receivable.

Income tax expense Income tax expense decreased $0.8 million, or 27.6%, to $2.1 million for the three months ended June 30, 2013 as compared to $2.9 million for the three months ended June 30, 2012. A decrease in our pre-tax income resulted in a $0.3 million decrease in income tax expense and a decrease in our effective tax rate resulted in a $0.5 million decrease in our tax expense. Our effective tax rate was 33.3% for the three months ended June 30, 2013 and 40.2% for the three months ended June 30, 2012. The effective tax rate for the three months ended June 30, 2013 decreased to 33.3% from 36.2% as a result of a discrete benefit of approximately $371 for the retroactive extension of the Work Opportunity Tax Credit (WOTC) and other similar federal income tax credit programs that were enacted as part of the American Taxpayer Relief Act in January of 2013.

Six Months ended June 30, 2013 Compared to Six Months ended June 30, 2012

Segment revenue information is summarized as follows (unaudited):


	Six Months Ended June 30,
	Region One				Region Two				Region Three				Region Four				Region Five				Other					Total				Variance
	2013		2012		2013		2012		2013		2012		2013		2012		2013		2012		2013			2012		2013		2012		Amount			%
	(In millions)
Lease contract revenue:
New location	$	1.6	$	—	$	—	$	—	$	1.8	$	0.9	$	0.4	$	—	$	7.3	$	3.4	$	—		$	—	$	11.1	$	4.3	$	6.8		158.1	%
Contract expirations	0.2		2.0		—		—		0.1		0.4		—		0.3		—		1.4		—			—		0.3		4.0		(3.7		)	(92.5	)%
Same location	37.3		33.3		—		—		10.3		10.0		22.1		20.7		7.4		6.9		—			—		77.1		71.0		6.1			8.6	%
Conversions	0.2		0.2		—		—		—		—		—		0.5		—		—		—			—		0.2		0.7		(0.5		)	(71.4	)%
Acquisitions	112.0		—		2.4		—		12.7		—		—		—		30.8		—		(0.2		)	—		157.7		—		157.7			100.0	%
Total lease contract revenue	$	151.3	$	35.5	$	2.4	$	—	$	24.9	$	11.3	$	22.5	$	21.5	$	45.5	$	11.7	$	(0.2	)	$	—	$	246.4	$	80.0	$	166.4		208.0	%
Management contract revenue:
New location	$	3.0	$	0.2	$	0.1	$	0.2	$	2.0	$	0.3	$	2.0	$	0.2	$	0.9	$	0.1	$	—		$	—	8.0		$	1.0	$	7.0		700.0	%
Contract expirations	0.6		3.2		—		0.5		0.9		4.7		0.1		1.1		0.1		0.6		—			—		1.6		10.1		(8.5		)	84.2	%
Same location	23.1		21.3		5.4		7.4		22.5		22.1		22.5		22.9		6.0		6.9		2.5			0.6		82.0		81.2		0.8			1.0	%
	—		—		—		—		—		—		—		—		—		—		—			—		—		—		—			—	%
Acquisitions	25.7		—		10.5		—		11.1		—		24.4		—		10.9		—		1.9			—		84.5		—		84.5			100.0	%
Total management contract revenue	$	52.4	$	24.7	$	16.0	$	8.1	$	36.5	$	27.1	$	49.0	$	24.2	$	17.9	$	7.6	$	4.4		$	0.6	176.1		$	92.3	$	83.8		90.8	%

Parking services revenue—lease contracts. Lease contract revenue increased $166.4 million, or 208.0%, to 246.4 million for the six months ended June 30, 2013, compared to $80.0 million for the six months ended June 30, 2012. The increase of $166.4 million in lease contract revenue consisted of an increase from the Standard Operations of $8.7 million, or 5.2%, and $157.7 million from the Central Operations. The increase resulted primarily from increases in revenue from new locations and acquisitions, partially offset by decreases in revenue from contract expirations and fewer locations that converted from management contracts during the current year. Same location revenue for those facilities, which as of June 30, 2013 are the comparative periods for the two years presented, increased 8.6%. The increase in same location revenue was due to increases in transient parking revenue of $3.8 million, or 43.7%, and increases in monthly parking revenue of $1.5 million, or 17.2%. Revenue associated with contract expirations relates to contracts that expired during the current period. Acquisition revenue also includes a $2.1 million net benefit that resulted from the sale of contract rights.

Parking services revenue—management contracts. Management contract revenue increased $83.8 million, or 90.8%, to $176.1 million for the six months ended June 30, 2013, compared to $92.3 million for the six months ended June 30, 2012. The increase in management contract revenue consisted of an increase from the Central Operations of $84.5 million, partially offset by the decrease in revenue from the Standard Operations of $0.7 million, or 0.8%. The increase resulted primarily from increases in revenue from new locations and acquisitions, which was partially offset by a decrease in contract expirations. Same location revenue for those facilities, which as of June 30, 2013 are the comparative periods for the two years presented, increased 1.0%, primarily due to increased fees from reverse management locations and ancillary services.

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Reimbursed management contract revenue. Reimbursed management contract revenue increased $109.8 million, or 52.8%, to $317.9 million for the six months ended June 30, 2013, compared to $208.1 million for the six months ended June 30, 2012. This increase resulted from additional reimbursements for costs incurred on behalf of owners, and the additional reimbursements related to Central.

Lease contract revenue increased primarily due to new locations and same locations in regions one, three, four and five, combined with acquisitions in regions one, two, three and five and conversions in region one. This was partially offset by decreases in contract expirations in regions one, three, four and five and conversions in region four. Same location revenue increases for the aforementioned regions were primarily due to increases in transient and monthly parking revenue.

Management contract revenue increased primarily due to new locations and acquisitions in all five operating regions, combined with same location revenue in regions one, three and other. This was partially offset by contract expirations in all five operating regions, same locations in regions two and three and acquisitions in other. The decreases in same location revenue were primarily due to a decrease in fees from reverse management locations and ancillary services. For comparability purposes, revenue associated with contract expirations relate to the contracts that expired during the current period.

Segment cost of parking services information is summarized as follows (unaudited):


	Six Months Ended June 30,
	Region One				Region Two				Region Three				Region Four					Region Five				Other						Total				Variance
	2013		2012		2013		2012		2013		2012		2013			2012		2013		2012		2013			2012			2013		2012		Amount			%
	(In millions)
Cost of parking services lease contracts:
New location	$	1.5	$	—	$	—	$	—	$	1.6	$	0.9	$	0.4		$	—	$	6.7	$	3.0	$	—		$	—		$	10.2	$	3.9	$	6.3		161.5	%
Contract expirations	0.2		1.9		—		—		0.1		0.3		—			0.3		—		1.2		—			—			0.3		3.7		(3.4		)	(91.9	)%
Same location	35.5		31.6		—		—		9.7		9.1		20.6			19.3		6.8		6.4		(0.6		)	(1.1		)	71.9		65.2		6.7			10.3	%
Conversions	0.2		0.1		—		—		—		—		—			0.4		—		—		—			—			0.2		0.6		(0.4		)	(66.7	)%
Acquisitions	103.5		—		2.0		—		11.6		—		(0.4		)	—		23.4		—		0.3			—			140.5		—		140.5			100	%
Total cost of parking services lease contracts	$	140.9	$	33.6	$	2.0	$	—	$	23.0	$	10.3	$	20.6		$	20.0	$	36.9	$	10.6	$	(0.3	)	$	(1.1	)	$	223.1	$	73.4	$	149.7		203.9	%
Cost of parking services management contracts:
New location	$	1.8	$	—	$	0.3	$	0.2	$	1.1	$	0.1	$	1.0		$	0.1	$	0.7	$	0.1	$	—		$	—		$	4.9	$	0.5	$	4.4		880.0	%
Contract expirations	0.4		1.3		—		0.4		0.7		2.7		—			0.7		—		0.3		—			—			1.2		5.4		(4.2		)	(77.8	)%
Same location	10.3		10.0		4.3		6.1		13.3		13.0		15.3			15.1		3.8		4.2		(0.5		)	(1.8		)	46.4		46.6		(0.2		)	(0.4	)%
Conversions	—		—		—		—		—		—		—			—		—		—		—			—			—		—		—			—	%
Acquisitions	17.0		—		7.1		—		7.7		—		20.4			—		6.2		—		2.1			—			60.5		—		60.5			100.0	%
Total cost of parking services management contracts	$	29.5	$	11.3	$	11.7	$	6.7	$	22.8	$	15.8	$	36.7		$	15.9	$	10.7	$	4.6	$	1.6		$	(1.8	)	$	113.0	$	52.5	$	60.5		115.2	%

Cost of parking services—lease contracts. Cost of parking services for lease contracts increased $149.7 million, or 203.9%, to $233.1 million for the six months ended June 30, 2013, compared to $73.4 million for the six months ended June 30, 2012. The increase in cost of parking services for lease contracts consisted of an increase from the Standard Operations of $9.2 million, or 6.1%, and $140.5 million from the Central Operations. The increase resulted primarily from increases in costs from new locations and acquisitions, which was partially offset by decreases in contract expirations and fewer locations that converted from management contracts during the current year. Same location costs for those facilities, which as of June 30, 2013 are the comparative for the two years presented, increased 10.3%. Same location costs increased $6.7 million due to rent expense, primarily as a result of contingent rental payments on the increase in revenue for same locations, payroll and payroll related costs of $0.4 million, $0.7 million related to other operating costs.

Cost of parking services—management contracts. Cost of parking services for management contracts increased $60.5 million, or 115.2%, to $113.0 million for the six months ended June 30, 2013, compared to $52.5 million for the six months ended June 30, 2012. The increase in cost of parking services for management contracts consisted of an increase from the Central Operations of $60.5 million. Same location costs for those facilities, which as of June 30, 2013 are the comparative for the two years presented, decreased 0.4%. Same location decrease in operating expenses for management contracts primarily resulted from decreases in costs associated with reverse management contracts and the cost of providing management services.

Reimbursed management contract expense. Reimbursed management contract expense increased $109.8 million, or 52.8%, to $317.9 million for the six months ended June 30, 2013, compared to $208.1 million for the six months ended June 30, 2012. This increase resulted from additional reimbursements for costs incurred on behalf of owners, and the additional reimbursements related to Central.

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Cost of parking services for lease contracts increased primarily due to new locations in regions one, three, four and five, combined with same locations in regions one, three, four, five and other, acquisitions in regions one, two, three and five and conversions in region one, which was partially offset by contract expirations in regions one, three, four and five, conversions in region four and acquisitions in other. Same location cost increased primarily due to increases in contingent rent payments on the increase in revenue, payroll and payroll related costs, other operating costs, offset by a favorable health insurance dividend related to prior years. The other region amounts in same location primarily represent a favorable health insurance dividend related to prior years and costs that are not specifically identifiable to a region.

Cost of parking services for management contracts increased due to new locations and acquisitions in all five operating regions, combined with increases in same locations in regions one, three, five and other. Partially offsetting, were decreases due to contract expirations in all five operating regions, same locations in regions two and four and acquisitions in the other region. Same location cost increases primarily resulted from increases in costs associated with reverse management contracts and the cost of providing management services. The other region amounts in same location primarily represent prior year insurance reserve adjustments and costs that are not specifically identifiable to a region.

Segment gross profit/gross profit percentage information is summarized as follows (unaudited):


	Six Months Ended June 30,
	Region One				Region Two					Region Three				Region Four				Region Five				Other					Total				Variance
	2013		2012		2013			2012		2013		2012		2013		2012		2013		2012		2013			2012		2013		2012		Amount			%
	(In millions)
Gross profit lease contracts:
New location	$	0.1	$	—	$	—		$	—	$	0.1	$	—	$	—	$	—	$	0.6	$	0.4	$	—		$	—	$	0.9	$	0.4	$	0.5		125.0	%
Contract expirations	—		0.1		—			—		—		—		—		—		—		0.1		—			0.1		—		0.3		(0.3		)	(100.0	)%
Same location	1.8		1.7		—			—		0.7		0.9		1.5		1.5		0.6		0.5		0.6			1.1		5.2		5.8		(0.6		)	(10.3	)%
Conversions	—		—		—			—		—		—		—		0.1		—		—		—			—		—		0.1		(0.1		)	(100.0	)%
Acquisitions	8.5		—		0.4			—		1.1		—		0.4		—		7.4		—		(0.5		)	—		17.2		—		17.2			100.0	%
Total gross profit lease contracts	$	10.4	$	1.8	$	0.3		$	—	$	1.9	$	1.0	$	1.9	$	1.6	$	8.6	$	1.1	$	0.2		$	1.1	$	23.3	$	6.6	$	16.6		251.5	%

	(Percentages)
Gross profit percentage lease contracts:
New location	6.25		—		—			—		5.6		—		—		—		8.2		5.1		—			—		8.1		9.3
Contract expirations	—		5.0		—			—		—		—		—		—		—		7.1		—			100.0		—		7.5
Same location	4.8		5.1		—			—		6.8		9.0		6.8		7.2		8.1		7.2		100.0			100.0		6.7		8.2
Conversions	—		—		—			—		—		—		—		20.0		—		—		—			—		—		14.3
Acquisitions	7.6		—		16.7			—		8.7		—		100.0		—		24.0		—		250.0			—		10.9		—
Total gross profit percentage	6.9		5.1		16.7			—		16.8		4.0		8.4		7.4		16.7		8.5		(500.0		)	100.0		9.5		8.3

	(In millions)
Gross profit management contracts:
New location	$	1.2	$	0.2	$	(0.2	)	$	—	$	0.9	$	0.1	$	1.0	$	0.1	$	0.2	$	—	$	—		$	—	$	3.8	$	0.5	$	3.3		660.0	%
Contract expirations	0.2		1.9		—			0.1		0.2		2.0		—		0.4		—		0.3		—			—		0.4		10.8		(10.4		)	(96.3	)%
Same location	12.8		11.3		1.0			1.4		9.2		9.1		7.2		7.8		2.3		2.7		3.0			2.4		34.9		28.5		6.5			22.5	%
Conversions	—		—		—			—		—		—		—		—		—		—		—			—		—		—		—			—	%
Acquisitions	8.7		—		3.4			—		3.4		—		4.1		—		4.7		—		(0.2		)	—		24.0		—		24.0			100.0	%
Total gross profit management contracts	$	23.0	$	13.4	$	4.2		$	1.5	$	13.7	$	11.3	$	12.3	$	8.3	$	7.2	$	3.0	$	2.8		$	2.4	$	63.0	$	39.7	$	23.3		58.6	%

	(Percentages)
Gross profit percentage management contracts:
New location	40.0		100.0		(200.0		)	—		45.0		33.3		50.0		50.0		22.2		—		—			—		43.7		50.0
Contract expirations	33.3		59.4		—			20.0		20.2		42.6		—		36.4		—		50.0		—			—		25.0		66.7
Same location	55.4		53.1		18.5			18.9		40.9		41.2		32.0		34.1		38.3		39.1		120.0			100.0		42.9		37.9
Conversions	—		—		—			—		—		—		—		—		—		—		—			—		—		—
Acquisitions	25.6		—		32.4			—		30.1		—		16.8		—		43.2		—		(10.5		)	—		28.4		—
Total gross profit percentage	43.9		54.3		26.3			18.5		37.5		41.7		25.1		34.3		40.2		39.5		63.6			100.0		35.8		43.0

Gross profit—lease contracts. Gross profit for lease contracts increased $16.6 million, or 251.5%, to $23.3 million for the six months ended June 30, 2013, compared to $6.6 million for six months ended June 30, 2012. The increase in gross profit for lease contracts consisted of a decrease from the Standard Operations of $0.6 million, or 3.6%, offset by an increase of $12.2 million from the Central Operations. Gross profit percentage for lease contracts increased to 9.5% for the six months ended June 30, 2013, compared to 9.3% for the six months ended June 30, 2012. Gross profit lease contracts increases were primarily the result of new locations, same locations and acquisitions, partially offset by contract expirations and conversions. Gross profit lease contracts increases on same locations were primarily the result of increases in short-term and monthly parking revenue. Gross profit lease contracts on acquisitions includes a $2.1 million net benefit that resulted from the sale of contract rights. Gross profit percentage on acquisitions and new locations accounted for most of the increase on a percentage basis.

Gross profit—management contracts. Gross profit for management contracts increased $23.3 million, or 58.6%, to $63.0 million for the six months ended June 30, 2013, compared to $39.7 million for the six months ended June 30, 2012. The increase in gross profit for management contracts consisted of a decrease from the Standard Operations of $0.7 million, or 3.0%, and

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an increase of $24.0 million from Central Operations. Gross profit percentage for management contracts decreased to 35.8% for the six months ended June 30, 2013, compared to 43.0% for the six months ended June 30, 2012. Gross profit for management contracts increases were primarily the result of new locations, acquisitions and conversions, offset by decreases in gross profit from same locations and contract expirations. Gross profit management contracts decreases on same locations were primarily the result of increases in costs associated with reverse management contracts and the cost of providing management services, in addition to a decrease in revenue. Gross profit percentage on same locations and contract expirations accounted for most of the decline on a percentage basis.

Gross profit for lease contracts increased primarily due to new locations in regions three and five, conversions in region one, same locations in regions one and five, acquisitions in regions one two, three, five and other and contract expirations in region four. Partially offsetting, were contract expirations in regions one and five, conversions in region four, new locations in region one and same locations in regions three, four and other. Gross profit lease contracts on same locations increased primarily due to increases in short-term and monthly parking revenue and a net benefit that resulted from the sale of contract rights.

Gross profit for management contracts increased primarily due to new locations and acquisitions in all five operating regions and same locations in region one. Partially offsetting, were contract expirations in all five operating regions, same locations in regions two, three, four, five and other and acquisitions in other. Gross profit for management contracts decreases on same locations were primarily the result of increases in costs associated with reverse management contracts and the cost of providing management services, in addition to decreased revenue. The other region amounts in same location primarily represent prior year insurance reserve adjustments and amounts that are not specifically identifiable to a specific region.

General and administrative expenses. General and administrative expenses increased $24.8 million, or 82.8%, to $54.7 million for the six months ended June 30, 2013, compared to $29.9 million for the six months ended June 30, 2012. This increase was primarily related to costs incurred in connection with the Central Merger, the addition of general and administrative expenses related to Central Operations of $21.6 million, $5.4 million related to integration costs, $1.5 million due to the additional RSUs that were granted in the fourth quarter of 2012, payroll and payroll relates expenses of $2.4 million, partially offset by, reductions in professional fees of $2.3 million, acquisition earn-out valuation changes of $0.3 million and cost savings from process efficiencies of $3.5 million.

Depreciation and amortization. Depreciation and amortization increased $11.9 million, or 335.1%, to $15.4 million as compared to $3.5 million for the six months ended June 30, 2012. This increase is a result of the additional amortization and depreciation for the fair value of acquired tangible and intangible assets from the Central Merger.

Interest expense. Interest expense increased $7.5 million, or 331.9%, to $9.8 million for the six months ended June 30, 2013, as compared to $2.3 million for the six months ended June 30, 2012. This increase resulted primarily from an increase in borrowings and an increase in the borrowing rate on our Senior Credit Facility.

Interest income. Interest income increased $0.1 million, or 45.9%, to $0.3 million for the six months ended June 30, 2013, as compared to $0.2 million for the six months ended June 30, 2012. This increase resulted primarily from an increase in interest received related to the Bradley receivable.

Income tax expense Income tax expense decreased $2.3 million, or 52.2%, to $2.1 million for the six months ended June 30, 2013, as compared to $4.4 million for the six months ended June 30, 2012. A decrease in our pre-tax income resulted in a $1.3 million decrease in income tax expense and a decrease in our effective tax rate resulted in a $1.0 million decrease in our tax expense. Our effective tax rate was 30.7% for the six months ended June 30, 2013 and 40.2% for the six months ended June 30, 2012. The effective tax rate for the six months ended June 30, 2013 was favorably decreased to 30.7% from 36.2% as a result of a discrete benefit of approximately $371 for the retroactive extension of the Work Opportunity Tax Credit (WOTC) and other similar federal income tax credit programs that were enacted as part of the American Taxpayer Relief Act in January of 2013.

Liquidity and Capital Resources

Outstanding Indebtedness

On June 30, 2013, we had total indebtedness of approximately $306.4 million, a decrease of $4.1 million from December 31, 2012. The $306.4 million includes:

· $304.2 million (net of original issue discount of $4.2 million) under our Senior Credit Facility (defined below); and

· $2.2 million of other debt including capital lease obligations and obligations on seller notes and other indebtedness.

We believe that our cash flow from operations, combined with availability under our Senior Credit Facility, which amounted to $60.4 million at June 30, 2013, will be sufficient to enable us to pay our indebtedness, or to fund other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before their respective maturities. We believe that we will be able to refinance our indebtedness on commercially reasonable terms.

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Senior Credit Facility

On October 2, 2012, pursuant to the terms of the Agreement and Plan of Merger dated as of February 28, 2012, we completed the Central Merger. Central stockholders received 6,161,332 shares of our common stock and we assumed $217.7 million of Central’s debt net of cash acquired. Additionally, Central’s former stockholders will be entitled to receive $27.0 million, subject to adjustment, to be paid three years after closing to the extent it is not used to satisfy indemnity obligations.

In connection with the Central Merger, we entered into a credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A., as co-syndication agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto (the “Lenders”).

Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the Lenders have made available to us a new secured Senior Credit Facility (“Senior Credit Facility”) that permits aggregate borrowings of $450.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which includes a letter of credit facility that is limited to $100.0 million at any time outstanding, and (ii) a term loan facility of $250.0 million. The Senior Credit Facility matures on October 2, 2017.

We drew down the entire amount of the term loan portion of the Senior Credit Facility in connection with the closing of the Central Merger. The $250.0 million obligation is subject to scheduled quarterly amortization of principal based on the following amounts: (i) $22.5 million in the first year, (ii) $22.5 million in the second year, (iii) $30.0 million in the third year, (iv) $30.0 million in the fourth year; and (v) $37.5 million in the fifth year. We also borrowed $72.8 million under the revolving credit facility in connection with the Central Merger closing. We used the proceeds from these borrowings to repay outstanding indebtedness of Standard and Central affiliates. The revolving credit facility has been and will also be used to pay costs and expenses related to the Central Merger and the related financing and to fund ongoing working capital and other general corporate purposes.

Borrowings under the Senior Credit Facility bear interest, at our option, (i) at a rate per annum based on our 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 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, N.A. prime rate and (z) a daily rate equal to the applicable LIBOR rate plus 1.0%.

Under the terms of the Credit Agreement, we are required to maintain a maximum consolidated total debt to EBITDA ratio of not greater than 4.5:1.0 (with certain step-downs described in the Credit Agreement). In addition, we are required to maintain a minimum consolidated fixed charge coverage ratio of not less than 1:25:1.0 (with certain step-ups described in the Credit Agreement).

Events of default under the Credit Agreement include failure to pay principal or interest when due, failure to comply with the financial and operational covenants, the occurrence of any cross default event, non-compliance with other loan documents, the occurrence of a change of control event, and bankruptcy and other insolvency events. If an event of default occurs and is continuing, the Lenders holding a majority of the commitments and outstanding term loan under the Credit Agreement have the right, among others, to (i) terminate the commitments under the Credit Agreement, (ii) accelerate and require us to repay all the outstanding amounts owed under the Credit Agreement and (iii) require us to cash collateralize any outstanding letters of credit.

Each of our wholly owned domestic subsidiaries (subject to certain exceptions set forth in the Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and Standard arising under the Credit Agreement.

We are in compliance with all of our financial covenants.

The weighted average interest rate on our Senior Credit Facility at June 30, 2013 and December 31, 2012 was 3.6% and 3.7%, respectively. The rate includes all outstanding LIBOR contracts, interest rate swap effect and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 3.8% and 3.9% at June 30, 2013 and December 31, 2012, respectively.

At June 30, 2013, we had $59.3 million of letters of credit outstanding under the Senior Credit Facility, borrowings against the Senior Credit Facility aggregated $304.2 million and we had $60.4 million available under the Senior Credit Facility.

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Interest Rate Swap Transactions

We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.

October 25, 2012, the Company entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0 million (the “Notional Amount”). The Interest Rate Swaps have an effective date of October 31, 2012 and a termination date of September 30, 2017. The Interest Rate Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under the Credit Agreement, originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the Credit Agreement determined based upon the Company’s consolidated total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the Credit Agreement. These Interest Rate Swaps are classified as cash flow hedges, and we calculate the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase of interest expense. As of June 30, 2013, no ineffectiveness of the hedge has been recognized. The fair value of the Interest Rate Swaps at June 30, 2013 is $1.1 million and is included in prepaid expenses.

Letters of Credit

At June 30, 2013, we have provided letters of credit totaling $59.2 million to our casualty insurance carriers to collateralize our casualty insurance program.

As of June 30, 2013, we provided $9.1 million in letters of credit to collateralize other obligations.

Deficiency Payments

Pursuant to our obligations with respect to the parking garage operations at Bradley International Airport, we are required to make certain payments for the benefit of the State of Connecticut and for holders of special facility revenue bonds. The deficiency payments represent contingent interest bearing advances to the trustee to cover operating cash flow requirements. The payments, if any, are recorded as a receivable by us for which we are reimbursed from time to time as provided in the trust agreement. As of June 30, 2013, we have a receivable of $14.2 million, comprised of cumulative deficiency payments to the trustee, net of reimbursements. We believe these advances to be fully recoverable and therefore have not recorded a valuation allowance for them. We do not guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.

We received deficiency payments (net of repayments made) of $0.4 million in the six months ended June 30, 2013 compared to making net deficiency payments $0.9 million in the six months ended June 30, 2012. We did not record or receive any interest or premium income on deficiency repayments in the six months ended June 30, 2013 compared to $0.1 million in the six months ended June 30, 2012. We received $0.1 million of premium income on deficiency repayments in the six months ended June 30, 2013 compared to no premium income in the six months ended June 30, 2012. There was no receivable from the trustee for interest and premium income related to deficiency repayments as of June 30, 2013 and December 31, 2012.

Daily Cash Collections

As a result of day-to-day activity at our parking locations, we collect significant amounts of cash. Lease contract revenue is generally deposited into our local bank accounts, with a portion remitted to our clients in the form of rental payments according to the terms of the leases. Under management contracts, some clients require us to deposit the daily receipts into one of our local bank accounts, with the cash in excess of our operating expenses and management fees remitted to the clients at negotiated intervals. Other clients require us to deposit the daily receipts into client accounts and the clients then reimburse us for operating expenses and pay our management fee subsequent to month-end. Some clients require a segregated account for the receipts and disbursements at locations. Our working capital and liquidity may be adversely affected if a significant number of our clients require us to deposit all parking revenue into their respective accounts.

Our liquidity also fluctuates on an intra-month and intra-year basis depending on the contract mix and timing of significant cash payments. Additionally, our ability to utilize cash deposited into our local accounts is dependent upon the availability and movement of that cash into our corporate account. For all these reasons, from time to time, we carry a significant cash balance, while also utilizing our Senior Credit Facility.

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Net Cash Provided by Operating Activities

Our primary sources of funds are cash flows from operating activities and changes in working capital. Net cash provided by operating activities totaled $7.0 million for the first six months of 2013. Cash provided included cash provided from operations of $20.4 million, partially offset by changes in operating assets and liabilities of $13.4 million. The net change in operating assets and liabilities resulted primarily from (i) an increase of $8.3 million in notes and accounts receivable due to timing of customer collections; (ii) a decrease of $8.2 million in accounts payable due primarily to the timing on payments to our clients and new business under management contracts as described under “Daily Cash Collections” (iii) a decrease of $8.4 million in other liabilities primarily related to the payment of our performance-based compensation accrual paid in the first quarter of 2013 of $3.7 million, $10.4 million in reductions in insurance reserves $3.1 million for payments on divestitures, partially offset by an increase of $4.2 million in accrued rent and $5.3 million in other long-term liabilities primarily due to insurance reserves and an increase in the non-qualified deferred compensation plan; (iv) partially offset by a net decrease in prepaid expenses and other assets of $11.6 million.

Our primary sources of funds are cash flows from operating activities and changes in working capital. Net cash provided by operating activities totaled $9.7 million for the first six months of 2012. Cash provided included cash provided from operations of $12.6 million, partially offset by changes in operating assets and liabilities of $2.9 million. The net change in operating assets and liabilities resulted primarily from (i) an increase of $11.8 million in notes and accounts receivable due to timing of customer collections; (ii) an increase of $0.7 million in prepaid and other assets related to the timing of certain insurance policies and other expenses and an increase in the cash surrender values related to the non-qualified deferred compensation plan; (iii) a decrease of $0.2 million in other liabilities primarily due to the payment of earn-out payments on previously acquired businesses of $1.5 million paid in the first six months of 2012, a decrease of $1.1 million for professional fees related to the planned merger accrued at year end, partially offset by an increase in insurance loss estimates and non-qualified deferred compensation plan; (iv) partially offset by an increase of $9.8 million in accounts payable due primarily to the timing on payments to our clients and new business under management contracts as described under “Daily Cash Collections.”

Net Cash Used in Investing Activities

Net cash used in investing activities totaled $8.2 million in the first six months of 2013. Cash used in investing activities for the first six months of 2013 included capital expenditures of $7.9 million for capital investments needed to secure and/or extend leased facilities and investments in IT projects and cost of contract purchases of $0.3 million.

Net cash used in investing activities totaled $2.1 million in the first six months of 2012. Cash used in investing activities for the first six months of 2012 included capital expenditures of $1.9 million for capital investments needed to secure and/or extend leased facilities and cost of contract purchases of $0.2 million.

Net Cash Used in Financing Activities

Net cash used in financing activities totaled $6.5 million in the first six months of 2013. Cash used in financing activities for 2013 included $0.1 million for earn-out payments on previously acquired businesses, $4.4 million for payments on our Senior Credit Facility, $0.4 million for payments on other long-term borrowings, and $1.6 million for distributions to noncontrolling interest.

Net cash used in financing activities totaled $11.6 million in the first six months of 2012. Cash used in financing activities for 2012 included $1.5 million for earn-out payments on previously acquired businesses, $0.3 million for payments on capital leases, $0.1 million for payments on long-term borrowings, $10.0 million for payments on our, $0.1 million for distributions to noncontrolling interest, partially offset by $0.2 million from the exercise of stock options and $0.2 million from the tax benefit related to stock option exercises.

Cash and Cash Equivalents

We had cash and cash equivalents of $20.5 million and $28.5 million at June 30, 2013 and December 31, 2012, respectively. The cash balances reflect our ability to utilize funds deposited into our local accounts and which based upon availability, timing of deposits and the subsequent movement of that cash into our corporate accounts may result in significant changes to our cash balances.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rates

Our primary market risk exposure consists of risk related to changes in interest rates. We use a variable rate Senior Credit Facility to finance our operations. This facility exposes us to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases and conversely, if interest rates decrease, interest expense also decreases. We believe that it is prudent to limit the exposure of an increase in interest rates.

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We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.

October 25, 2012, the Company entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0 million (the “Notional Amount”). The Interest Rate Swaps have an effective date of October 31, 2012 and a termination date of September 30, 2017. The Interest Rate Swaps effectively fix the interest rate on an amount of variable interest rate borrowings under the Credit Agreement (“the Credit Agreement”), originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under the Credit Agreement determined based upon the Company’s consolidated total debt to EBITDA ratio. The Notional Amount is subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under the Credit Agreement. These Interest Rate Swaps are classified as cash flow hedges, and we calculate the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge is recognized in earnings as an increase of interest expense. As of June 30, 2013, no ineffectiveness of the hedge has been recognized. The fair value of the Interest Rate Swaps at June 30, 2013 is $1.1 million and is included in prepaid expenses.

Our $450.0 million Senior Credit Facility provides for a $200.0 million variable rate revolving facility and a term loan facility of $250.0 million. In addition, the variable rate revolving facility includes a letter of credit sub-facility with a sublimit of $100.0 million. Interest expense on such borrowing is sensitive to changes in the market rate of interest. If we were to borrow the entire non-hedged variable rate debt of $300.0 million available under the Senior Credit Facility, a 1% increase in the average market rate would result in an increase in our annual interest expense of $3.0 million. This amount is determined by considering the impact of the hypothetical interest rates on our borrowing cost, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Due to the uncertainty of the specific changes and their possible effects, the foregoing sensitivity analysis assumes no changes in our financial structure.

Foreign Currency Risk

Our exposure to foreign exchange risk is minimal. All foreign investments are denominated in U.S. dollars, with the exception of Canada. We had approximately $0.2 million of Canadian dollar denominated cash instruments at June 30, 2013. We had no Canadian dollar denominated debt instruments at June 30, 2013. We do not hold any hedging instruments related to foreign currency transactions. We monitor foreign currency positions and may enter into certain hedging instruments in the future should we determine that exposure to foreign exchange risk has increased.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, our chief executive officer, chief financial officer and corporate controller carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon their evaluation, our chief executive officer, chief financial officer and corporate controller concluded that our disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to us (including our consolidated subsidiaries) required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the required time periods.

Changes in Internal Controls Over Financial Reporting

There have been no significant changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity and Use of Proceeds

There were no sales or repurchases of stock in the three months ended June 30, 2013.

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Item 6. Exhibits

INDEX TO EXHIBITS

Exhibit Number		Description

31.1*		Section 302 Certification dated August 9, 2013 for James A. Wilhelm, Director, President and Chief Executive Officer (Principal Executive Officer).

31.2*		Section 302 Certification dated August 9, 2013 for G. Marc Baumann, Chief Financial Officer, Treasurer & President of Urban Operations (Principal Financial Officer).

31.3*		Section 302 Certification dated August 9, 2013 for Daniel R. Meyer, Senior Vice President, Corporate Controller and Assistant Treasurer (Principal Accounting Officer).

32**		Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 9, 2013.
101.INS **†		XBRL Instance Document
101.SCH**†		XBRL Taxonomy Extension Schema
101.CAL**†		XBRL Taxonomy Extension Calculation Linkbase
101.DEF**†		XBRL Taxonomy Extension Definition Linkbase
101.LAB**†		XBRL Taxonomy Extension Label Linkbase
101.PRE**†		XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith

** Furnished herewith

(†) Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings.

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SIGNATURES

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

	STANDARD PARKING CORPORATION

Dated: August 9, 2013	By:	/s/ JAMES A. WILHELM
		James A. Wilhelm
		Director, President and Chief Executive Officer
		(Principal Executive Officer)

Dated: August 9, 2013	By:	/s/ G. MARC BAUMANN
		G. Marc Baumann
		Chief Financial Officer, Treasurer & President of Urban Operations
		(Principal Financial Officer)

Dated: August 9, 2013	By:	/s/ DANIEL R. MEYER
		Daniel R. Meyer
		Senior Vice President,
		Corporate Controller and Assistant Treasurer
		(Principal Accounting Officer and Duly Authorized Officer)