ITEM 1. BUSINESS
GENERAL
AP Holdings is a subsidiary of Holberg Industries, Inc. ("Holberg"), which owns 84% of the outstanding voting stock of APCOA/Standard Parking, Inc. ("APCOA/Standard" or "the Company"), formerly known as APCOA, Inc. ("APCOA"). APCOA/Standard accounts for all of AP Holdings' assets and AP Holdings conducts substantially all of its business through APCOA/Standard. APCOA/Standard is a leading national provider of parking facility management services. The Company provides on-site management services at multi-level and surface parking facilities in the two major markets of the parking industry: urban parking and airport parking. The Company manages 1,852 parking facilities, containing approximately 1,000,000 parking spaces in over 200 cities across the United States and Canada. The Company's gross customer collections, parking services revenue, gross profit and net loss for the years ended December 31, 1999 and 1998 were $1,369.3 and $1,026.1 million, $247.9 and $195.5 million, $54.8 and $40.3 million and ($16.2) and $(27.0) million, respectively.
The Company believes that its superior management services coupled with its focus on increasing market share in select core cities helps to maximize profitability per parking facility. The Company believes that it enhances its leading position by providing: (i) Ambiance in Parking (R), an approach to parking that includes a number of on-site, value-added services and amenities; (ii) state-of-the-art information technology, including Client View(R), a proprietary client reporting system which allows the Company to provide clients with real-time access to site-level financial and operating information; and (iii) award-winning training programs for on-site employees that promote customer service and client retention. In addition, the Company believes that it distinguishes itself from its competitors because of its long-standing experience in securing contracts, particularly with regard to the airport parking market.
The Company's diversified client base includes some of the nation's largest owners and developers of major office building complexes, shopping centers, sports complexes, hotels and hospitals. In addition, the Company manages parking operations at 130 locations at 67 airports, including many of the major airports in North America.
The Company does not own any parking facilities and, as a result, the Company assumes few of the risks of real estate ownership. The Company operates its clients' parking properties through two types of arrangements: management contracts and leases. Under a management contract, the Company typically receives a base monthly fee for managing the property, and may also receive an incentive fee based on the achievement of facility revenues above a set amount. In some instances, the Company also receives certain fees for ancillary services. Typically, all of the underlying revenues and expenses under a management contract flow through to the property owner, not to the Company. Under lease arrangements, the Company generally pays either a fixed annual rental, a percentage of gross customer collections, or a combination thereof to the property owner. The Company collects all revenues under lease arrangements and is responsible for most operating expenses, but it is typically not responsible for major maintenance or capital expenditures. As of
December 31, 1999, the Company operated approximately 78% of its 1,852 parking facilities under management contracts and approximately 22% under leases. Renewal rates for the Company's management contracts and leases averaged approximately 91% for the last three years.
THE COMBINATION
Pursuant to the Combination Agreement, dated as of January 15, 1998 by and among Myron C. Warshauer, Stanley Warshauer, Steven A. Warshauer, Dosher Partners, L.P., a Delaware limited partnership, SP Parking Associates, an Illinois general partnership, and SP Associates, an Illinois general partnership (collectively, the "Standard Owners") and APCOA, APCOA acquired (the "Combination"), on March 30, 1998, all of the outstanding capital stock, partnership and other equity interests of Standard Parking Corporation, an Illinois corporation; Standard Auto Park, Inc., an Illinois Corporation; Standard Parking Corporation MW, an Illinois corporation; Standard Parking, L.P., a Delaware limited partnership; Standard Parking Corporation IL, an Illinois corporation; and Standard/Wabash Parking Corporation, an Illinois corporation (all such entities, collectively, "Standard") for consideration consisting of $65.0 million in cash, 5.01 shares or 16%, of the common stock of the Company outstanding as of January 15, 1998, and the assumption of certain liabilities including a $5.0 million consulting and non-compete obligation for one of the former owners of Standard, which represents the current value of the payments to be made, as determined by consulting actuaries. In addition, on March 30, 1998, APCOA paid to the Standard Owners $2.8 million, generally representing Standard's earnings from January 1, 1998 through the date of the Combination and Standard's cash on hand at such time.
In connection with the Standard acquisition, on March 30, 1998 the Company issued $140 million principal amount of 9 1/4% Senior Subordinated Notes due 2008 in a Rule 144A private placement. Effective September 14, 1998 the Company completed an offer to exchange all the outstanding Senior Subordinated Notes with new notes with substantially identical terms that are registered under the Securities Act of 1933.
Upon the closing of the Combination, the Company entered into a $40.0 million secured revolving Senior Credit Facility with The First National Bank of Chicago. Borrowings under the Senior Credit Facility bear interest at variable rates based, at the Company's option, either on LIBOR, the federal funds rate, or the Agent's base rate.
Also in connection with the Combination, AP Holdings contributed $40.7 million of cash to the Company in exchange for $40.7 million initial liquidation preference of new preferred stock of the Company. The contribution was financed through AP Holdings' offering of $70.0 million in aggregate principal amount of its 11 1/4% Senior Discount Notes due 2008.
OTHER ACQUISITIONS AND AMALGAMATIONS
On January 22, 1998, the Company acquired the assets of Huger Parking Company, LLC, d/b/a Dixie Parking, for $1.0 million in cash at closing and $3.3 million in notes payable. On May 1, 1998, the Company acquired the remaining 76% interest in Executive Parking Industries LLC, through the acquisition of all of the outstanding capital stock of S&S Parking, Inc., the sole asset of which was such 76% interest in EPI, for $7.0 million in cash. In addition, on June 1, 1998, APCOA/Standard acquired all of the outstanding capital stock of Century Parking, Inc., and Sentry Parking Corporation, for $5.2 million in cash at closing and $1.0 million payable on the third anniversary of the closing date. On September 1, 1998, APCOA/Standard acquired the operations of Virginia Parking Service, Inc. in a stock purchase transaction for $3.1 million in cash, including direct costs, and up to $1.3 million in notes payable over five years with interest at the prime rate.
On April 1, 1999, the Company acquired the assets of Pacific Rim Parking, Inc. ("Pacific Rim") in Los Angeles for $.75 million in cash and up to $.75 million in non-interest bearing notes payable over five years. On May 1, 1999 the Company acquired various contracts of System Parking Inc. in Atlanta for $.25 million in cash. Effective as of July 1, 1999 the Company acquired all of the outstanding stock of Universal Park Holdings, Inc., operating under the names U-Park and Select Valet Parking, in Vancouver B.C. for Canadian $1.61 million plus a multiple of EBITDA on a future earnout as defined in the agreement.
All of these acquisitions have been accounted for under the purchase method and their operating results have been included in the consolidated results since their respective date of acquisition. The historical operating results of the businesses prior to acquisition were not material relative to the consolidated results of APCOA/Standard.
On January 5, 1998, APCOA Holdings Canada Inc, a wholly owned subsidiary of APCOA, Inc. (now known as APCOA/Standard Parking, Inc.), formed under the laws of the Province of Ontario, Canada, filed Articles of Amalgamation with the Ministry of Consumer and Commercial Relations for the Province of Ontario, Canada, pursuant to the Business Corporations Act of Ontario, amalgamating with Mainarun Holdings Inc. APCOA Holdings Canada Inc. was the surviving company. On July 20, 1998 APCOA Holdings Canada Inc. filed Articles of Amendment with the Ministry of Consumer and Commercial Relations for the Province of Ontario, Canada, pursuant to the Business Corporations Act of Ontario, changing the name to Standard Parking of Canada LTD. On September 1, 1998, Standard Parking of Canada filed Articles of Amalgamation pursuant to the Canada Business Corporations Act amalgamating APCOA Parking Development & Management LTD with Standard Parking of Canada LTD. Standard Parking of Canada LTD was the resulting corporation.
INDUSTRY OVERVIEW
General. The International Parking Institute, a trade organization of parking professionals, estimates that as of December 1998 there were approximately 35,000 parking facilities in the United States generating over $26.0 billion in gross customer collections. The parking industry is highly fragmented, with over 1,700 commercial parking operators in the United States, as estimated by the Parking Market Research Company, an independent research company. Industry participants, the vast majority of which are privately-held companies, consist of relatively few nationwide companies and a large number of small regional or local operators, including a substantial number of companies providing parking as an ancillary service in connection with property management or ownership. Clients of parking facility managers include the owners of office buildings, major airports, shopping centers, sports complexes, hotels and hospitals, which provide parking to customers.
Operating Arrangements. Parking facilities operate under two general types of arrangements: management contracts and leases. The general terms and benefits of these two types of arrangements are as follows:
Management Contracts. Under a management contract, the facility manager generally receives a base monthly fee for managing the facility and often receives an incentive fee based on the achievement of facility revenues above a base amount. Facility managers generally charge fees for various ancillary services such as accounting, equipment leasing and consulting. Responsibilities under a management contract include hiring, training and staffing parking personnel, and providing collections, accounting, record-keeping, insurance and facility marketing services. In general, the facility manager is not responsible for structural or mechanical repairs, and typically is not responsible for providing security or guard services. Under typical management contracts, the facility owner is responsible for operating expenses such as taxes, license and permit fees, insurance premiums, payroll and accounts receivable processing and wages of personnel assigned to the facility. In addition, the facility owner is responsible for non-routine maintenance, repair costs and capital improvements. The typical management contract is for a term of one to three years (though the owner often reserves the right to terminate, without cause, on 30 days' notice) and may contain a renewal clause.
Leases. Under a lease arrangement, the parking facility operator generally pays either a fixed annual rent, a percentage of gross customer collections, or a combination thereof to the property owner. The parking facility operator collects all revenues and is responsible for most operating expenses, but is typically not responsible for major maintenance. In contrast to management contracts, lease arrangements are typically for terms of three to ten years and typically contain a renewal term, and provide for a fixed payment to the facility owner regardless of the operating earnings of the parking facility. As a result, leased facilities generally require a longer commitment and a larger capital investment by the parking facility operator than do managed facilities.
Parking Industry Markets. The parking industry is comprised of two major markets: urban parking and airport parking. The urban parking market consists of many sub-markets with differing clients including commercial, office, residential, event, entertainment, retail, shopping centers, hospitals and hotels. In contrast, the airport parking market consists of a relatively small number of clients with large revenue-generating parking operations and needs that are unique to airport parking facilities.
Industry Growth Dynamics. A number of opportunities for growth exist for parking facility operators:
Industry Consolidation. There are many opportunities for industry consolidation, both domestically and abroad. Consolidation among operators provides opportunity to achieve accelerated growth in the parking industry because of the limitations on growth in revenues of existing operations. While some growth in revenues from existing operations is possible through redesign, increased operational efficiency or increased facility use and prices, such growth is ultimately limited by the size of a facility and market conditions.
Privatization of Government-Owned and Operated Facilities. Additional growth in the industry has been a function of the trend for parking facility owners to move from owner-operation to outsourcing the management of operations to private operators. This is particularly true in the case of privatization of government operations and facilities, which is resulting in new opportunities for the parking industry. The Company believes that cities and municipal authorities are increasingly retaining private firms to operate facilities and parking-related services in an effort to reduce operating budgets and increase efficiency.
Expanding Relationships with Large Property Managers, Owners and Developers. Generally, the overall parking industry expansion is created by new construction of parking facilities by property managers, owners and developers. Because new construction in the United States slowed in the late 1980s and has only gradually begun to increase in recent years, growth for parking facility operators during such period generally resulted from more established parking facility operators leveraging their relationships with property managers and owners to take market share from smaller companies. As new construction of parking facilities increases, the Company believes that facility operators with established relationships with such parking facility developers can leverage such relationships to capture incremental market share.
BUSINESS STRATEGY AND COMPETITIVE ADVANTAGES
The Company believes its innovative parking facility amenities, services and management, coupled with its state-of-the-art information technology and reporting systems, position the Company to enhance its standing as a leading provider of parking services. Specific elements of the Company's business strategy and competitive advantages include:
Focus on Core Cities. Part of the Company's business strategy is to focus on increasing system-wide profitability by maximizing operating leverage. As part of this strategy, the Company operates in certain core cities and realizes certain economies of scale, including the ability to spread administrative overhead costs across a large number of parking facilities in a single market.
Stable Operating Portfolio. From 1994 to 1999, the Company reduced exposure to increasing cost of parking services by (i) increasing the proportion of its management contracts, which generally pass cost of parking services on to the Company's clients, and (ii) maintaining low minimum rental commitments under its non-cancelable leases. Additionally, the Company's average management and lease contract renewal rate over the last three years was approximately 91%.
Strategic Growth Through Acquisitions. The parking industry is highly fragmented, with over 1,700 commercial parking operators. In addition to pursuing individual contracts, the Company is seeking to capitalize on this industry fragmentation by pursuing a focused acquisition strategy which includes: (i) acquiring parking management companies within core cities and targeted growth markets where the Company believes it can attain a significant market share, and (ii) acquiring larger, regional parking management companies. In less than two years since the combination, the Company has successfully acquired and integrated five companies with 489 new facilities.
Leading Client Base. The Company's diversified, long-standing customer base comprises many of the premier national property management and ownership organizations in the United States and Canada. The Company is a market leader in airport parking, operating approximately 130 parking facilities at 67 airports in the United States and Canada. The Company's focus on select core cities enables the Company to maintain broader and stronger relationships with the local client base, which the Company believes improves its client retention rates and its ability to compete for new contracts.
Value-Added Services and Award-Winning Information Systems. The Company believes that it can continue to increase profitability and attract new clients by providing: (i) Ambiance in Parking(R); (ii) state-of-the-art information technology, including Client View(R); and (iii) award-winning training programs for on-site employees. In addition, these capabilities facilitate development opportunities that typically lead to long-term lease and management contracts on new facilities.
AMBIANCE IN PARKING(R)
The Company offers a comprehensive package of value-added, on-site parking services and amenities which the Company characterizes as Ambiance in Parking(R). The package includes:
Patented Musical Theme Floor Reminder System. The Company's patented musical theme floor reminder system is designed to help customers remember the garage level on which they had parked. A different song is played on each floor of the parking garage. Each floor also displays distinctive signs and graphics which correspond with the floor's theme. For example, in one garage with U.S. cities as a theme, songs played include "I Left My Heart in San Francisco" on one floor and "New York, New York" on a different floor. Other garages have themes such as college fight songs, broadway musicals, classic movies and professional sports teams.
Books-To-Go(R) is an audiotape library which is provided free-of-charge for monthly parkers.
Films-To-Go(C) is a videotape library which is provided free-of-charge for monthly parkers.
ParkNet(R) traffic information system allows parking customers to obtain continuous, site-specific traffic reports relating to current traffic conditions on area expressways as well as the routes utilized to get from the specific parking facility to the expressways.
CarCare service program is provided in conjunction with Midas International Corporation. Parking customers can have their cars picked up from the parking facility, serviced and returned before the end of the business day.
Complimentary Windshield and Headlight Cleaning. During off-peak hours, the Company's parking attendants clean windshields and headlights of cars and place a card on the windshield informing the parking customer that this service has been provided.
Emergency Car Services. The Company offers complimentary services such as battery starts, lost car assistance, tire inflation, tire change and vehicle escort service.
STATE-OF-THE-ART INFORMATION TECHNOLOGY
The Company's information technology provides valuable benefits to the Company's clients. Client View(C), a proprietary Windows(R)-based client reporting system, allows the Company's clients to access, on a real-time basis, site-level financial and operating information.
The Company has created advanced information systems that connect local offices across the country to its corporate office. A centralized staff provides accounting and administrative expertise and controls that eliminate duplication of administrative and accounting functions at the field level. ParkStat(R), one of the Company's proprietary software tools, enhances the performance of parking facilities managed by the Company. By automatically polling information from on-site collection devices, ParkStat(R) uses location-specific information to calculate the impact of pricing alternatives, optimize staffing levels, improve forecasting
and assist in long-range planning. Technological innovations such as an automated credit card lane and a radio-activated hands-free parking access system allow fast and hassle-free service for parking customers.
COMPETITION
The parking industry is fragmented and highly competitive, with limited barriers to entry. The Company faces direct competition for additional facilities to manage or lease, while the Company's facilities themselves compete with nearby facilities for its parking customers, and in the labor market generally for qualified employees. Moreover, the construction of new parking facilities near the Company's existing facilities can adversely affect the Company's business.
The Company competes for additional facilities with a variety of other companies. Although there are relatively few large, national parking companies that compete with the Company, the Company also faces competition from numerous smaller, locally-owned independent operators, as well as from developers, hotels, national financial services companies and other institutions that self-manage both their own parking facilities as well as facilities owned by others. Many municipalities and other governmental entities also operate their own parking facilities, thus eliminating those facilities as potential management or lease opportunities for the Company.
REGULATION
The Company's business is not substantially affected by direct governmental regulation, although parking facilities are sometimes directly regulated by both municipal and state authorities. The Company is affected by laws and regulations (such as zoning ordinances) that are common to any business that deals with real estate and by regulations (such as labor and tax laws) that affect companies with a large number of employees. In addition, several state and local laws have been passed in recent years that encourage car pooling and the use of mass transit, including, for example, a Los Angeles, California law prohibiting employers from reimbursing employee parking expenses. Laws and regulations that reduce the number of cars and vehicles being driven could adversely impact the Company's business.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws typically impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with the operation of parking facilities, the Company may be potentially liable for any such costs. Although the Company is currently not aware of any material environmental claims pending or threatened against it or any of the parking facilities which it operates, there can be no assurance that a material environmental claim will not be asserted against the Company or against the parking facilities which it operates. The cost of defending against claims of liability, or of remediating a contaminated property, could have a material adverse effect on the Company's financial condition or results of operations.
Various other governmental regulations affect the Company's operation of parking facilities, both directly and indirectly, including the ADA. Under the ADA, all public accommodations, including parking facilities, are required to meet certain federal requirements related to access and use by disabled persons. For example, the ADA requires parking facilities to include handicapped spaces, headroom for wheelchair vans, attendants' booths that accommodate wheelchairs, and elevators that are operable by disabled persons. When negotiating management contracts and leases with clients, the Company generally has the property owner contractually assume responsibility for any ADA liability in connection with the property; however, there can be no assurance that the property owner has assumed such liability for any given property and there can be no assurance that the Company would not be held liable despite assumption of responsibility for such liability by the property owner. Management believes that the parking facilities the Company operates are in substantial compliance with ADA requirements.
EMPLOYEES
AP Holdings does not have any paid employees. As of December 31, 1999, the Company employed approximately 13,300 individuals, including approximately 8,000 full-time and 5,300 part-time employees. As of December 31, 1998, the Company employed approximately 11,700 individuals, including approximately 7,000 full-time and 4,700 part-time employees. The Company believes that its employee relations are good.
INTELLECTUAL PROPERTY
The APCOA name and logo and the Standard name and logo are registered with the United States Patent and Trademark Office. In addition, the Company has registered the names and, as applicable, the logos of all material subsidiaries and divisions of the Company in the United States Patent and Trademark Office or the equivalent State registry, including the right to the exclusive use of the name Central Park in the Chicago metropolitan area. The Company has also obtained a United States patent for its Multi-Level Vehicle Parking Facility (the Musical Theme Floor Reminder System) and trademark protection for its proprietary parker programs, such as Books-To-Go(R) and Ambiance in Parking(R). Proprietary software developed by the Company, such as Client View(R), Hand Held Program(R), License Plate Inventory Program(R) and ParkStat(C) are registered in the United States Copyright Office.
ITEM 2.
ITEM 2. PROPERTIES
PARKING FACILITIES
The Company operates parking facilities in 39 states, Washington D.C. and three provinces of Canada pursuant to management contracts or leases. The Company does not currently own any parking facilities. The following table summarizes certain information regarding the Company's facilities as of December 31, 1999:
The Company has interests in 20 joint ventures that each operate between one and three parking facilities. The Company is the general partner of nine limited partnerships that each operates between one and twelve parking facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Summary of Operating Facilities."
The Company leases approximately 40,000 square feet of office space for its corporate offices in Chicago, Illinois. The lease expires in 2008, and includes a renewal option for an additional five years. The lease also includes expansion options for up to 9,000 additional square feet of space, and the Company has a right of first refusal on 24,000 square feet more. The Company believes that the leased facility, together with expansion options, is adequate to meet current and foreseeable future needs.
The Company also leases regional offices. These lease agreements generally include renewal and expansion options, and the Company believes that these facilities are adequate to meet its current and foreseeable future needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings which consist principally of lease and contract disputes and includes litigation with The County of Wayne relating to the management of parking lots at the Detroit Metropolitan Airport. These claims and legal proceedings are considered ordinary, routine, and incidental to the Company's business, and in the opinion of management, the ultimate liability with respect these proceedings and claims will not materially affect the financial position, operations, or liquidity of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is no public trading market for the common stock of AP Holdings. AP Holdings did not pay a dividend in respect of its common stock in 1999, 1998 or 1997. The indenture governing AP Holdings' Senior Discount Notes limits the ability of AP Holdings and APCOA/Standard to pay cash dividends. Unless AP Holdings meets certain financial ratios, neither AP Holdings nor the Company may pay cash dividends except those payable in additional shares stock or proceeds therefrom. AP Holdings paid dividends in respect of its preferred stock in additional shares of preferred stock, aggregating $3.6 million, $3.2 million and $3.7 million, in 1999, 1998 and 1997, respectively.
APCOA/Standard did not pay a cash dividend in respect of its common stock in 1999, 1998 or 1997. By the terms of the Company's Revolving Credit Facility, the Company is restricted from paying cash dividends on its capital stock until September 30, 2003. From and after September 30, 2003, the Company may pay cash dividends in respect of its Redeemable Preferred Stock of up to $8.5 million annually, subject to certain conditions, to enable AP Holdings to service its Senior Discount Notes. The Company paid dividends in respect of its Redeemable Preferred Stock in additional shares of Redeemable Preferred Stock aggregating $5.1 million, $3.5 million and $.89 million in 1999, 1998 and 1997, respectively.
The indenture governing the Company's Senior Subordinated Notes also limits the Company's ability to pay cash dividends. Unless the Company meets certain financial ratios, it may not pay dividends in respect of its stock except for those payable in additional shares of stock.
There are no restrictions on the ability of APCOA/Standard's wholly-owned subsidiaries to pay cash dividends to APCOA/Standard.
ITEM 6.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical consolidated financial data at and for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, which have been derived from the audited financial statements of AP Holdings. The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and notes thereto included elsewhere herein.
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(1) Includes the results of Standard Parking effective March 30, 1998.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of AP Holdings' results of operations should be read in conjunction with the consolidated financial statements of AP Holdings and the notes thereto included elsewhere herein.
OVERVIEW
APCOA/Standard operates facilities under two types of arrangements: management contracts and leases. Under a management contract, APCOA/Standard typically receives a base monthly fee for managing the property, and may also receive an incentive fee based on the achievement of facility revenues above a base amount. In some instances, APCOA/Standard also receives certain fees for ancillary services. Typically, all of the underlying revenues, expenses and capital expenditures under a management contract flow through to the property owner, not to APCOA/Standard. Under lease arrangements, APCOA/Standard generally pays to the property owner either a fixed annual rental, a percentage of gross customer collections or a combination thereof. APCOA/Standard collects all revenues under lease arrangements and is responsible for most operating expenses, but it is typically not responsible for major maintenance or capital expenditures. As of December 31, 1999, the Company operated approximately 78% of its 1,852 parking facilities under management contracts and approximately 22% under leases.
Parking services revenue -- leases. Lease parking services revenues consist of all revenues received at a leased facility.
Parking services revenue -- management contracts. Management contract revenues consist of management fees, including both fixed and revenue-based, and fees for ancillary services such as accounting, equipment leasing, consulting, and other value-added services with respect to managed locations, but exclude gross customer collections at such locations. Management contracts generally provide APCOA/Standard a management fee regardless of the operating performance of the underlying facility.
Cost of parking services -- leases. Cost of parking services under lease arrangements consist of (i) contractual rental fees paid to the facility owner and (ii) all operating expenses incurred in connection with operating the leased facility. Contractual fees paid to the facility owner are based on either a fixed contractual amount or a percentage of gross revenue, or a combination thereof. Generally under a lease arrangement, APCOA/Standard is not responsible for major capital expenditures or property taxes.
Cost of parking services -- management contracts. Cost of parking services under management contracts is generally passed through to the facility owner, therefore these costs are not included in the results of operations of the Company. Several APCOA/Standard contracts, however, require APCOA/Standard to pay for certain costs that are offset by larger management fees. These contracts tend to be large airport properties with high cost structures.
General and administrative expenses. General and administrative expenses include primarily salaries, wages, travel and office related expenses for the headquarters, field offices and supervisory employees.
SUMMARY OF OPERATING FACILITIES
The following table reflects the Company's facilities at the end of the periods indicated taking into consideration the combination with Standard on a pro forma basis:
The Company's strategy is to add locations in core cities where a concentration of locations improves customer service levels and operating margins. In general, contracts added as set forth in the table above followed this strategy.
RESULTS OF OPERATIONS
In analyzing gross margins of APCOA/Standard, it should be noted that the cost of parking services for parking facilities under management contracts is generally paid by the Company's clients. Margins for lease contracts vary significantly not only due to operating performance, but also variability of parking rates in different cities and space utilization by parking facility type and location.
FISCAL 1999 COMPARED TO FISCAL 1998
Gross Customer Collections. Gross customer collections consist of gross receipts collected at all leased and managed properties, including unconsolidated affiliates. Gross customer collections increased $343.2 million, or 33.4%, to $1,369.3 million in fiscal 1999, compared to $1,026.1 million in fiscal 1998. This increase is attributable $120.9 million to the combination with Standard and $222.3 million to the addition of other locations during the period and growth at existing locations.
Parking services revenue -- leases. Lease revenue increased $33.8 million, or 20.8%, to $196.4 million in the year ended December 31, 1999 as compared to $162.6 million in the year-ago period. This resulted from the net addition of 39 leases through the combination with Standard and a net loss of 72 leases that were converted to management contracts or lost.
Parking services revenue -- management contracts. Management contract revenue increased $18.6 million, or 56.2% to $51.5 million in 1999 as compared to $32.9 million in 1998. During 1999, a net 281 management contracts were added through internal growth and acquisitions.
Cost of parking services -- leases. Cost of parking for leases increased $28.1 million, or 19.5% to $172.2 million for the year ended December 31, 1999 from $144.1 million during the year-ago period. This increase resulted from the addition of 39 leases through the combination with Standard and a net reduction of 72 leases through conversion to management contracts and lost contracts. Gross margin for leases increased to 12.3% during 1999 compared to 11.4% during 1998. This increase resulted from improvement in operations, conversion of leases to management contracts and the termination of marginal contracts.
Cost of parking services -- management contracts. Cost of parking for management contracts increased $9.7 million, or 87.3% to $20.8 million in 1999 as compared to $11.1 million in 1998. This increase resulted from the net addition in 1999 of 281 management contracts through internal growth and acquisitions made in 1999. Gross margin for management contracts declined to 59.4% in the current year compared to 66.2% in the prior year. Most management contracts have no cost of parking services related to them as all costs are reimbursable to the Company. However, several contracts (primarily large airport properties and several urban locations), require the Company to pay for certain costs which are offset by larger management fees. The increase in cost of parking management contracts was related to the addition of several contracts of this type.
General and administrative expenses. General and administrative costs increased $8.9 million, or 38.1%, to $32.4 million during 1999 as compared to $23.5 million during 1998. The increase resulted from costs associated with the acquired companies, inflation, and investment in the Company's infrastructure in anticipation of future growth.
Restructuring and other special charges. AP Holdings and the Company incurred $6.8 million of restructuring and other special charges during 1999. The charge included (A) $1.6 million of severance costs, (B) $3.1 million of integration costs related primarily to actions to facilitate the accounting system consolidation and activities to realign and centralize administrative and other support functions, (C) $2.1 million of expenses incurred for acquisition activity that was terminated including the cost of a former APCOA/Standard executive. The Company may incur additional restructuring charges in the future related to its acquisition strategy. The Company incurred $18.1 million of restructuring and other special charges during 1998 in connection with the combination with Standard and the other acquisitions completed during 1998, which were based upon a thorough analysis of the costs associated with implementing the business plan of consolidating the Company's headquarters in Chicago and costs related to APCOA/Standard staff reductions. The charge included (A) $5.0 million of relocation costs in connection with the headquarters relocation of the Company, the relocation of two major field offices, moving the families of 20 Cleveland headquarters staff members to Chicago and other relocations within the field organization, (B) $6.9 million in severance costs consisting of cash compensation to 54 people and (C) the write-off of $2.6 million related to abandoned and impaired assets that will no longer be used in the business, (D) a $2.6 million increase in insurance reserves resulting from a buyout of APCOA's insurance program in connection with the combination of the APCOA and Standard insurance programs and (E) $1.0 million of other restructuring costs.
Other income and expense. Interest expense, net of interest income, totaled $21.1 million in the current year, up $6.6 million from 1998. This is the result of debt financing incurred in connection with the combination with Standard and other acquisitions and increased borrowings under the Company's Senior Credit Facility. Minority interest was $0.5 for both years. Income taxes consist primarily of Canadian income tax, and increased to $0.8 million in 1999 from $0.4 million in 1998 as a result of the increase in Canadian income.
FISCAL 1998 COMPARED TO FISCAL 1997
Gross Customer Collections. Gross customer collections consist of gross receipts collected at all leased and managed properties, including unconsolidated affiliates. Gross customer collections increased $549.9 million, or 115.5%, to $1,026.1 million in fiscal 1998 compared to $476.2 million in fiscal 1997. This increase is attributable $417.4 million to the combination with Standard and $132.5 million to the addition of other locations during the period.
Parking services revenue -- leases. Lease revenue increased $63.0 million, or 63.2%, to $162.6 million in the year ended December 31, 1998 as compared to $99.6 million in the year-ago period. This resulted from the net addition of 30 leases through internal growth, and the net addition of 149 leases through the combination with Standard and the other acquisitions completed in 1998 (see Note B of the Notes to Consolidated Financial Statements).
Parking services revenue -- management contracts. Management contract revenue increased $14.8 million, or 81.9%, to $32.9 million in 1998 as compared to $18.1 million in 1997. During 1998, a net 228 management contracts were added through internal growth and 584 were added as a result of the combination with Standard and the other 1998 acquisitions.
Cost of parking services -- leases. Cost of parking for leases increased $58.7 million, or 68.8%, to $144.1 million for the year ended December 31, 1998 from $85.4 million during the year-ago period. This increase resulted from the addition of a net total of 179 new leases through internal growth and acquisitions. Acquisition-related cost savings of $0.2 million were realized during 1998. Gross margin for leases declined to 11.4% during 1998 compared to 14.3% during 1997. This decline resulted from the average gross margin on acquired leases from the Standard and other 1998 acquisitions being approximately 10%, which reduced the average lease gross margin.
Cost of parking services -- management contracts. Cost of parking for management contracts increased by $1.6 million, or 17.4%, to $11.1 million in 1998 as compared to $9.5 million in 1997. Partially offsetting this increase were acquisition-related cost savings of $0.7 million. Gross margin for management contracts, however, improved to 66.2% in the current year compared to 47.6% in the prior year. This improvement results from the relative mix of locations that were added compared to those already in the contract portfolio. The locations added during 1998 for the most part do not carry any cost of parking since all of these costs are paid by the clients. Some of the older management contracts do carry some costs.
General and administrative expenses. General and administrative costs increased $10.0 million, or 73.8%, to $23.5 million during 1998 as compared to $13.5 million during 1997. This increase resulted from costs associated with the acquired companies, inflation, and investment in the Company's infrastructure in anticipation of future growth. Partially offsetting these increases were acquisition-related cost savings of $1.2 million realized during 1998.
Restructuring and other special charges. The Company incurred $18.1 million of Restructuring and other special charges during 1998 in connection with the combination with Standard and the other acquisitions completed during 1998, which were based upon a thorough analysis of the costs associated with implementing the business plan of consolidating the Company's headquarters in Chicago and costs related to APCOA/ Standard staff reductions. The charge included (A) $5.0 million of relocation costs in connection with the headquarters relocation of the Company, the relocation of two major field offices, moving the families of 20 Cleveland headquarters staff members to Chicago and other relocations within the field organization, (B) $6.9 million in severance costs consisting of cash compensation to 54 people, (C) the write-off of
$2.6 million related to abandoned and impaired assets that will no longer be used in the business, (D) a $2.6 million increase in insurance reserves resulting from a buyout of APCOA's insurance program in connection with the combination of the APCOA and Standard insurance programs and (E) $1.0 million of other restructuring costs. Of the $15.5 million cash component of this restructuring charge, $9.9 million had been disbursed through December 31, 1998.
Other income and expenses. Interest expense, net of interest income, totaled $14.5 million in 1998, up $11.3 million from 1997. This is a result of debt financing incurred in connection with the combination with Standard and other acquisitions. In connection with the debt refinancing, an extraordinary loss was recognized in the first quarter of 1998 of $2.8 million. This loss is comprised of $2.1 million from a prepayment penalty for early extinguishment of debt and $0.7 million from a write-off of the unamortized balance of deferred financing costs associated with the extinguished debt. Minority interest for the current year totaled $0.5 million, compared to $0.3 million for 1997, which is reflective of increasing joint venture income. Income taxes consist primarily of Canadian income tax, and have increased to $0.4 million from $0.1 million as a result of increasing Canadian income.
COMPARISON OF RESULTS OF OPERATIONS ON A COMBINED BASIS
The following supplementary information is provided to enhance the analysis of results of operations. The results presented below represent the combined historical results of APCOA and Standard for the periods presented, without pro forma adjustments for the impact of the acquisition of Standard. These combined results do not purport to represent what the actual results would have been if the acquisition had occurred at the beginning of 1998.
FISCAL 1999 COMPARED TO FISCAL 1998
Gross customer collections. Gross customer collections increased $266.3 million, or 24.1% to $1,369.3 in 1999 as compared to $1,103.0 in 1998. This resulted from the net addition of 248 new contracts during 1999.
Parking services revenue -- leases. Lease revenue increased $21.8 million, or 12.5%, to $196.4 million in the year ended December 31, 1999 as compared to $174.6 million in the year-ago period. This resulted from the acquisitions made in 1998 and 1999 which was partially offset by a net reduction of 33 leases in 1999, many of which were converted to management contracts.
Parking services revenue -- management contracts. Management contract revenue increased $16.0 million, or 45.1%, to $51.5 million in 1999 as compared to $35.5 million in 1998. During 1999, a net 281 management contracts were added through internal growth and acquisitions made in 1999.
Cost of parking services -- leases. Cost of parking for leases increased $16.9 million, or 10.9% to $172.2 million for the year ended December 31, 1999 from $155.3 million during the year-ago period. This increase resulted from acquisitions made in 1998 and 1999. Gross margin for leases increased to 12.3% during 1999 compared to 11.1% during 1998. This increase resulted from improvement in operations, conversion of leases to management contracts and the loss of marginal contracts.
Cost of parking services -- management services. Cost of parking for management contracts increased by $9.7 million, or 87.3%, to $20.8 million in 1999 as compared to $11.1 million in 1998. This increase resulted from the net addition of 281 management contracts through internal growth and acquisitions made in 1999. Gross margin for management contracts declined to 59.4% in the current year compared to 68.6% in the prior year. Most management contracts have no cost of parking services related to them as all costs are reimbursable to the Company. However, several contracts (primarily large airport properties and several urban locations), require the Company to pay for certain costs which are offset by larger management fees. The increase in cost of parking management contracts was related to the addition of several contracts of this type.
General and administrative expenses. General and administrative costs increased $6.9 million, or 27.1% to $32.4 million during 1999 as compared to $25.5 million during 1998. This increase resulted from costs associated with the acquired companies, inflation, and investment in the Company's infrastructure in anticipation of future growth.
LIQUIDITY AND CAPITAL RESOURCES
As a result of day-to-day activity at the parking locations, APCOA/Standard collects significant amounts of cash. Under lease contracts, this revenue is deposited into local APCOA/Standard bank accounts, with a portion remitted to the clients in the form of rental payments according to the terms of the leases. Under management contracts, some clients require APCOA/Standard to deposit the daily receipts into a local APCOA/Standard bank account. Others require the deposit into a client account, and some have a segregated account for the receipts and disbursements of the property.
Locations with revenues deposited into the APCOA/Standard banks enable the Company to operate with a negative working capital. This negative working capital arises from the liability that is created for the amount of revenue that will be remitted to the clients in the form of rents or net profit distributions subsequent to month end, after the books are closed and reconciled. Since the Company operates with a revolving Senior Credit Facility, all funds held for future remittance to the clients are used to reduce the credit line until the payments are made to the clients.
Locations with revenues deposited into client accounts or segregated accounts can, depending upon timing of rent or net profit distributions, result in significant amounts of cash being temporarily inaccessible to the Company for use for operating needs. Additionally, the ability to utilize cash deposited into local APCOA/Standard accounts is dependent upon the movement of that cash into the Company's corporate account. For these reasons, the Company from time to time carries significant cash balances, while utilizing its Senior Credit Facility.
FISCAL 1999 COMPARED TO FISCAL 1998
AP Holdings had cash and cash equivalents of $5.2 million at December 31, 1999 compared to $19.2 million at December 31, 1998.
Net cash used in operating activities totaled $17.7 million for 1999 compared to cash used of $16.4 million for 1998. Cash used during 1999 included $8.9 million of cash for restructuring and other special charges, $5.6 million for the purchase of an insurance tail policy to cover claims for all years prior to 1999 under APCOA's previous insurance program, and $2.2 million to affiliated companies. Notes and accounts receivable increased $11.9 million in 1999 relating to acquired contracts and existing locations and were
partially offset by increases in accounts payable of $6.8 million and decreases in prepaid and other assets of $1.1 million and $2.4 million, respectively.
Cash used in investing activities totaled $13.5 million in 1999 compared to $96.0 million in 1998. Cash used included the acquisitions of the assets of Pacific Rim in Los Angeles for $0.8 million, various contracts of System Parking in Atlanta for $0.3, the outstanding stock of Universal Park Holdings, Inc. in Vancouver B.C. for $1.6 million and the buy-out of a lease in Los Angeles for $0.4 million. In addition, cash used in investing activities included capital expenditures of $10.3 million which were used for the investment in information system enhancements, furnishing and improvement of the Company's combined office space in Chicago, and capital investments to secure and/or extend leased facilities.
Cash generated from financing activities totaled $16.8 million compared to $128.3 million in 1998. The 1999 activity included $18.1 million in borrowings from the revolving Senior Credit Facility and $1.3 million in joint venture borrowings which was partially offset by repayments on long term borrowings and joint venture borrowings of $2.2 million. In addition, the Company incurred additional debt issuance costs of $0.3 million in connection with amendments to the Company's Senior Credit Facility.
FISCAL 1998 COMPARED TO FISCAL 1997
AP Holdings had cash and cash equivalents of $19.2 million at December 31, 1998 compared to $3.3 million at December 31, 1997.
Net cash used in operating activities totaled $16.4 million for 1998 compared to cash provided of $0.9 million for 1997. Cash used during 1998 included $9.9 million of cash restructuring charges and increases in accounts receivable relating to acquired contracts and existing locations of $14.1 million, partially offset by increases in accrued liabilities of $18.8 million. This increase in accrued liabilities was driven primarily by increases in accrued payroll and related taxes in keeping with the Company's growth, and increased insurance reserves in connection with the buyout of APCOA's insurance program, which was completed in January of 1999.
Cash used in investing activities totaled $96.0 million in 1998 compared to $3.6 million in 1997. The change was a result of the acquisitions of Standard and Dixie Parking by the Company in the first quarter of 1998, the acquisitions of Executive Parking and Century Parking and Sentry Parking in the second quarter, and the acquisition of Virginia Parking Service in the third quarter of 1998. In addition, the Company had $7.7 million of capital purchases in 1998. Significant capital purchases included the furnishing and improvement of the Company's combined office space in Chicago, investment in management information system enhancements, and capital investments on leased facilities. On August 4, 1998, AP Holdings repurchased 10% of its common stock outstanding and all warrants to purchase additional common stock held by Delaware North Companies Incorporated ("Delaware North") for $4.0 million in cash. This transaction was entered into pursuant to a put/call contained in the Stockholders' Agreement dated April 1989. The repurchase was funded by an intercompany loan from the Company.
Cash generated from financing activities totaled $128.3 million in 1998 compared to $3.5 million in 1997. The 1998 activity included $140.0 million of proceeds from the issuance of debt, $40.7 million of proceeds from the issuance of preferred stock, $32.3 million in debt repayments and $8.0 million for the redemption of preferred stock. These transactions were consummated in connection with the combination with Standard and other acquisitions.
OTHER LIQUIDITY AND CAPITAL RESOURCES INFORMATION
The Company's Senior Credit Facility ("the Facility) provides for borrowings up to $40 million at variable rates based, at the Company's option, either on LIBOR, the overnight federal funds rate, or the bank's base rate. From time to time the company utilizes the Facility to provide readily-accessible cash for working capital purposes. The Facility includes covenants that limit the Company from incurring additional indebtedness, issuing preferred stock or paying dividends, and contains certain other restrictions. At December 31, 1999, the Company had $1.3 million of letters of credit outstanding under the Facility. As of
December 31, 1999, the Company was in compliance with the covenants contained in the Senior Credit Facility or has obtained the necessary waivers on or before March 30, 2000. The Facility was amended on March 30, 2000, with the principle changes to the agreement providing for revisions to interest rates charged on borrowings and certain financial covenants.
The Company's primary capital requirements are for working capital, capital expenditures and debt service. The Company believes that cash flow from operating activities, cash and cash equivalents and borrowings under the Senior Credit Facility will be adequate to meet the Company's short-term liquidity requirements prior to the maturity of its long-term indebtedness, although no assurance can be provided in this regard.
The Company has lease commitments of $24.6 million for fiscal 2000. The leased properties generate sufficient cash flow to meet the base rent payments.
If the Company identifies investment opportunities requiring cash in excess of the Company's cash flows and existing cash, the Company may borrow under the Senior Credit Facility, or may seek additional sources of capital including the sale or issuance of common stock. From time to time the Company utilizes the Facility to provide readily-accessible cash for working capital purposes. The Company has begun to streamline its cash management and receivables collection process by standardizing the procedures used by all acquired companies. Management anticipates that this process will provide substantial additional liquidity in 2000 and thus partially reduce reliance upon the Senior Credit Facility as a working capital resource. The Company has in the past utilized non-recourse financing to fund specific projects.
In January 1999, the Company completed the combination of the insurance programs of APCOA and Standard into one program. In conjunction therewith, the Company purchased an insurance policy to cover amounts previously self-insured by APCOA and its affiliates. The APCOA insurance program had historically included a self-insured retention component, which required the establishment of reserves to reflect the estimated final settlement value of open claims. The purchase of a tail policy to eliminate future exposure from retrospective adjustments resulted in a use of cash of $5.6 million in January of 1999, $2.6 million of which was included in restructuring and other unusual charges. This transaction provided an offsetting increase in availability of funds by allowing the elimination of letters of credit in the amount of $4.7 million.
The Company has in the past and expects in the future to pursue a strategy of growth through acquisition. In addition to the Standard acquisition, on January 22, 1998, the Company acquired the assets of Huger Parking Company, LLC, d/b/a Dixie Parking, for $1.0 million in cash and notes aggregating $3.25 million. On May 1, 1998, the Company acquired the remaining 76% interest in Executive Parking Industries, LLC, through acquisition of its parent company for $7.0 million in cash. On June 1, 1998, the Company completed the acquisition of Century Parking and Sentry Parking for consideration consisting of $5.2 million in cash at closing and $1.0 million payable on the third anniversary of the closing date. In addition, on September 1, 1998 the Company acquired the capital stock of Virginia Parking Services, Inc. for $2.7 million in cash including direct costs, and up to $1.25 million in notes. On April 1, 1999, the Company acquired the assets of Pacific Rim Parking, Inc. ("Pacific Rim") in Los Angeles for $.75 million in cash and up to $.75 million in non-interest bearing notes payable over five years. On May 1, 1999 the Company acquired various contracts of System Parking Inc. in Atlanta for $.25 million in cash. Effective as of July 1, 1999 the Company acquired all of the outstanding stock of Universal Park Holdings, Inc., operating under the names U-Park and Select Valet Parking, in Vancouver B.C. for Canadian $1.61 million plus a multiple of EBITDA on a future earnout as defined in the agreement. All of the acquisitions have been accounted for under the purchase method and their operating results have been included in the consolidated results since their respective date of acquisition.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues,
with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure consists of risk related to changes in interest rates. Historically, the Company has not used derivative financial instruments for speculative or trading purposes.
The Company entered into a $40 million revolving variable rate Senior Credit Facility (see Note D of the Notes to the Consolidated Financial Statements). Interest expense on such borrowing is sensitive to changes in the market rate of interest. If the Company were to borrow the entire $40 million available under the Facility, a 1% increase in the average market rate would result in an increase in the Company's annual interest expense of $0.4 million.
This amount is determined by considering the impact of the hypothetical interest rates on the Company's borrowing cost, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Due to the uncertainty of the specific changes and their possible effects, the foregoing sensitivity analysis assumes no changes in the Company's financial structure.
AP Holdings' parent company is Holberg Industries, Inc. ("Holberg"); a privately held diversified service company located in Greenwich, Connecticut. Holberg also owns AmeriServe Food Distribution, Inc. ("AmeriServe"), one of the nation's largest food service distributors servicing quick-service and casual dining restaurants in the United States, Canada and Mexico. AmeriServe filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on January 31, 2000.
AP Holdings and AmeriServe are separate and distinct companies with independent sources of funding. However, the AmeriServe Chapter 11 filing is a default under certain debt instruments of Holberg. As a result of such defaults, the creditors of Holberg could take control of Holberg or its subsidiary, AP Holdings, Inc. ("Holdings"). A change in control of Holberg or Holdings would also constitute a change in control of APCOA under the APCOA/Standard debt instruments and of Holdings under its bond indenture. In the event of such a change in control of APCOA/Standard of Holdings, the terms of APCOA/Standard's senior bank credit facility and subordinated bond indenture and of Holdings' bond indenture permit the APCOA/Standard and Holdings creditors, if they believe it were in their interest to do so, to call for immediate payment under such instruments, and APCOA/Standard's or Holdings' failure to pay on such terms would constitute a default thereunder. Holberg and its creditors are negotiating to restructure the debt and eliminate the defaults created as a result of the AmeriServe Chapter 11 filing. Although Holberg currently expects to complete the restructuring of the debt, and further currently expects that its creditors will not in any event seek to obtain control of Holberg, there can be no assurance that Holberg will be successful in restructuring its debt and eliminating the existing defaults, or that Holberg's creditors will not seek to obtain control of Holberg, and should APCOA/Standard's or Holdings' indebtedness be accelerated as a result of any action by Holberg's creditors, there is no assurance that APCOA/Standard or Holdings would have sufficient funds to satisfy such obligations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are attached to and are hereby incorporated into this Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10.
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
AP HOLDINGS
The following table sets forth certain information with respect to each person who is an executive officer or director of AP Holdings, as indicated below:
John V. Holten. Mr. Holten has served as Chairman and Chief Executive Officer of Holberg since its inception in 1986, and as a Director and Chairman of APCOA since 1989. Mr. Holten was Managing Director of DnC Capital Corporation, a merchant banking firm in New York City, from 1984 to 1986. Mr. Holten received his M.B.A. from Harvard University in 1982 and he graduated from the Norwegian School of Economics and Business Administration in 1980.
G. Walter Stuelpe, Jr. Mr. Stuelpe has been associated with APCOA for over 25 years, serving as its President from 1986 to February 1, 2000. Mr. Stuelpe was elected to APCOA's Board in 1986 and continues to serve on the Company's Board of Directors. His prior executive positions have included sales and marketing, corporate development and strategic planning, as well as having headed up different operational divisions in a variety of cities in the United States and Europe. Mr. Stuelpe is an alumnus of Indiana University, class of 1967. Mr. Stuelpe has since participated in numerous executive programs specifically designed to address managing business change and growth. He has also had an active leadership role in industry-related associations, having served as president, chairman and now as a member of the Board of the National Parking Association as well as the International Parking Institute, and is a full member of the Urban Land Institute.
Gunnar E. Klintberg. Mr. Klintberg has served as Vice Chairman of Holberg since its inception in 1986, and as a Director of APCOA since 1989. Mr. Klintberg was a Managing Partner of DnC Capital Corporation, a merchant banking firm in New York City, from 1983 to 1986. From 1975 to 1983, Mr. Klintberg held various management positions with the Axel Johnson Group, headquartered in Stockholm, Sweden. Mr. Klintberg headed up the Axel Johnson Group's headquarters in Moscow from 1976 to 1979 and served as assistant to the President of Axel Johnson Group's operation in the U.S., headquartered in New York City, from 1979 to 1983. Mr. Klintberg received his undergraduate degree from Dartmouth College in 1972 and a degree in Business Administration and Economics from the University of Uppsala, Sweden in 1974.
A. Petter Ostberg. Mr. Ostberg joined Holberg in 1994 and was appointed Senior Vice President and Chief Financial Officer of Holberg in 1997. Mr. Ostberg is currently a Vice President of APCOA/Standard. From 1990 to 1994 he held various financial positions with New York Cruise Lines, Inc.
Michael J. Celebrezze. Mr. Celebrezze joined APCOA in 1984 as Manager, Treasury and Financial Planning. Since then he has held the positions of Vice President, Controller, Senior Vice President, Chief Financial Officer and Treasurer, since the Combination, Mr. Celebrezze has served as Executive Vice President, Chief Financial Officer and Treasurer of the Company. His responsibilities include the operations of accounting, tax, corporate security, finance and banking. Mr. Celebrezze graduated cum laude from Kent
State University with a Degree in Business Administration, majoring in Accounting, and he subsequently earned a Masters in Business Administration from John Carroll University. He is a Certified Public Accountant in the State of Ohio.
Robert N. Sacks. Mr. Sacks joined APCOA in 1988, serving as General Counsel and Secretary since 1988, serving as Vice President, Secretary, and General Counsel since 1989 and serving as Senior Vice President, Secretary and General Counsel since 1997 and as Executive Vice President since 1998. Mr. Sacks has overall responsibility for the Legal Department, which includes negotiation, documentation and approval of parking and corporate contracts, financing documentation and coordination of outside counsel. In his position, Mr. Sacks is also responsible for maintaining field compliance with corporate legal and financial policies. Mr. Sacks received his B.A. Degree, cum laude, from Northwestern University in 1976 and, in 1979, received his J.D. Degree from Suffolk University. Mr. Sacks has spoken on legal issues concerning the parking industry at the National Parking Association National Convention and the Institutional and Municipal Parking Congress.
THE COMPANY
The following table sets forth certain information with respect to each person who is an executive officer or director of the Company:
Myron C. Warshauer. Mr. Warshauer has served as a Director and as the Chief Executive Officer of the Company since the consummation of the Combination. Mr. Warshauer served as President and Chief Executive Officer of Standard from 1973 and, prior to such time, was associated with Standard since 1963. Since February 1, 2000, Mr. Warshauer has served as President and Chief Executive Officer of the Company. Mr. Warshauer received his B.S. Degree in Finance from the University of Illinois in 1962, and received a Masters Degree in Business Administration from Northwestern University in 1963.
James A. Wilhelm. Mr. Wilhelm served as Executive Vice President -- Operations of the Company since the consummation of the Combination and has served the Company as Senior Executive Vice President and Chief Operations Officer since September 1, 1999. Mr. Wilhelm joined Standard in 1985, serving as Executive Vice President since January 1, 1998. Prior to the consummation of the Combination, Mr. Wilhelm was responsible for managing Standard's Midwest and Western Regions, which include parking facilities in Chicago and sixteen other cities throughout the United States and Canada. Mr. Wilhelm received his B.A. Degree from Northeastern Illinois University in 1976. Mr. Wilhelm is a member of the National Parking Association and the International Parking Institute.
Herbert W. Anderson, Jr. Mr. Anderson has served as Executive Vice President, Operations of the Company since the consummation of the Combination. Mr. Anderson joined APCOA in 1994, and served as Corporate Vice President -- Urban Properties since 1995. Mr. Anderson graduated from LaSalle University and began his career in the parking industry in 1984. Mr. Anderson is a member of the Board of the National Parking Association.
Steven A. Warshauer. Mr. Warshauer has served as Executive Vice President, Operations of the Company since the consummation of the Combination. Mr. Warshauer joined Standard in 1982, initially servicing as Vice President, then becoming Senior Vice President and, since January 1, 1998, serving as Executive Vice President. Mr. Warshauer is a Certified Public Accountant and a member of both the American Institute of Certified Public Accountants and the Illinois Society of Certified Public Accountants. Mr. Warshauer received his Bachelor of Science Degree from the University of Northern Colorado in 1976 with dual majors in Accounting and Finance. Prior to joining Standard, he practiced with a national accounting firm.
Douglas R. Warshauer. Mr. Warshauer has served as Executive Vice President, Marketing/Business Development of the company since the consummation of the Combination. Mr. Warshauer joined Standard in 1994, initially serving as Vice President. Upon receiving his Masters of Management Degree with distinction from the J.L. Kellogg School of Management at Northwestern University, Mr. Warshauer became Standard's Executive Vice President - Finance. Mr. Warshauer also holds a Bachelors Degree with highest honors in Social Science from the University of California at Berkeley.
Michael K. Wolf. Mr. Wolf has served as Executive Vice President - Chief Administrative Officer of the Company since the consummation of the Combination. Mr. Wolf joined Standard as Senior Vice President and General Counsel in 1990, after sixteen years in the private practice of law. Mr. Wolf was subsequently appointed Executive Vice President of Standard. Prior to joining Standard, Mr. Wolf was a partner of the international law firm of Jones, Day, Reavis & Pogue, resident in the Chicago office, where his primary concentration was in the field of real estate. Mr. Wolf received his B.A. Degree in 1971 from the University of Pennsylvania, and in 1974 received his J.D. Degree from Washington University, where he served as Notes and Commentseditor of the Washington University Law Quarterly. Upon graduation from law school, Mr. Wolf was elected to the Order of the Coif.
Patrick J. Meara. Mr. Meara became a director of the Company upon consummation of the Combination. Mr. Meara is a Senior Vice President of JMB Realty Corporation, which held an interest in Standard prior to the Combination, and acquired an interest in the Company as a result of the Combination.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for 1999, 1998 and 1997 with regard to compensation for services rendered in all capacities. Information set forth in the table reflects compensation earned by such individuals for services with APCOA/Standard, APCOA, Standard or its respective subsidiaries.
SUMMARY COMPENSATION TABLE
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(1) The amount shown includes amounts contributed by the Company to its 401(k) plans under a contribution matching program.
(2) The amount shown reflects deposits made by APCOA/Standard on behalf of Named Executive Officers into a supplemental pension plan pursuant to which the Named Executive Officers will be entitled to monthly cash retirement and death benefit payments.
(3) The amount shown includes car allowances, club dues, health insurance premiums and legal fees related to estate planning.
(4) The amount shown reflects premiums paid by APCOA/Standard on behalf of Myron C. Warshauer for life insurance policies to which Mr. Warshauer is entitled to the cash surrender value.
(5) The amount shown includes car allowance, club dues, health and term life insurance premiums, and in 1998, amounts paid by the Company to Mr. Stuelpe in connection with his relocation to the Chicago area.
DIRECTOR COMPENSATION
Directors of AP Holdings and Directors of the Company do not receive compensation for serving on AP Holdings' and the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee in the year ended December 31, 1999. The Company intends to form a Compensation Committee in 2000. The members of such committee have not yet been determined. During 1999, no executive officer of the Company served as a member of the Compensation Committee of another entity.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
The Employment Agreement between the Company and Myron C. Warshauer (the "Warshauer Employment Agreement") provides that Myron C. Warshauer serve as Chief Executive Officer of the Company, and be appointed as a member of the Board of Directors of the Company (the "Board") and each committee of the Board, for a period beginning on the date of the consummation of the Combination and ending on Myron C. Warshauer's 65th birthday (the "Employment Period"). Myron C. Warshauer will receive during the Employment Period an annual base salary of $600,000 ("Annual Base Salary"). The Warshauer Employment Agreement also provides for certain perquisites.
Under the Warshauer Employment Agreement, if Myron C. Warshauer's employment were to be terminated by Myron C. Warshauer for Good Reason (as defined below), or by the Company other than for Cause (as defined below), death or Disability (as defined below), the Company would be obligated to (i) pay Myron C. Warshauer a lump sum cash payment in an amount equal to the aggregate Annual Base Salary that he would have received for the remainder of the Employment Period, reduced to present value using as a discount rate the "applicable federal rate," as defined in Section 1274(d) of the Internal Revenue Code of 1986, as amended, and (ii) continue to provide for the same period welfare benefits to Myron C. Warshauer and/or his family, at least as favorable as those that would have been provided to them under the Warshauer Employment Agreement if Myron C. Warshauer's employment had continued until the end of the Employment Period, provided, however, that during any period when Myron C. Warshauer is eligible to receive such benefits under another employer-provided plan, such benefits provided by the Company may be made secondary to those provided under such other plan. If Myron C. Warshauer's employment were to be terminated by reason of his Disability during the Employment Period, the Company would be obligated to pay Myron C. Warshauer, or his legal representative, as applicable, the Annual Base Salary for the duration of the Employment Period in effect at the time of the termination of employment.
In addition to the above compensation and benefits, if Myron C. Warshauer's employment were to be terminated for any reason other than by the Company for Cause, the Company would be obligated, beginning on the date of such termination in the case of a voluntary termination by Myron C. Warshauer, and beginning on Myron C. Warshauer's 65th birthday in all other cases, and ending on the first to occur of Myron C. Warshauer's 75th birthday and Myron C. Warshauer's death (such ending date, the "Cutoff Date"), to (i) pay Myron C. Warshauer $200,000 annually, adjusted for inflation and (ii) provide Myron C. Warshauer with an executive office and secretarial services. In consideration for such benefits, Myron C. Warshauer is obligated to provide reasonable consulting services to the Company from the date of termination of his employment through the Cutoff Date.
As used in the Warshauer Employment Agreement: (i) "Cause" means (a) illegal conduct, or gross misconduct, that results in material damage to the business or reputation of the Company; or (b) any willful and continued failure by Myron C. Warshauer to perform his duties under the Warshauer Employment Agreement, (ii) "Disability" means that Myron C. Warshauer has been unable, for a period of 180 consecutive days, or for periods aggregating 180 business days in any period of twelve months, to perform a material portion of his duties under the Warshauer Employment Agreement, as a result of physical or mental illness or injury, and a physician selected by the Company has determined that Myron C. Warshauer's incapacity is total and permanent, and (iii) "Good Reason" means (a) the relocation of Myron C. Warshauer's principal place of business outside of the central business district and northern suburbs of Chicago; (b) a material reduction in Myron C. Warshauer's responsibilities; (c) the assignment to Myron C. Warshauer of duties inconsistent with his position as set forth in the Warshauer Employment Agreement; (d) a change in Myron C. Warshauer's title from that required under the Warshauer Employment Agreement; (e) a removal of Myron C. Warshauer from the Board or any committee thereof; (f) a requirement that Myron C. Warshauer report to anyone other than the Chairman of the Board; or (g) any material breach by the Company of any other term of the Warshauer Employment Agreement.
The Warshauer Employment Agreement also provides that during the period beginning on the date of the consummation of the Combination and ending on Myron C. Warshauer's 75th birthday (the "Noncompetition Period"), Myron C. Warshauer shall not, without written consent of the Board, engage in or become
associated with any business or other endeavor that engages in construction, ownership, leasing, design and/or management of parking lots, parking garages, or other parking facilities or consulting with respect thereto, provided, however, that Myron C. Warshauer may own or sell investments in certain parking facilities ("Permitted Investments") during the Noncompetition Period, and may own or sell any interest in any other real estate ("Other Real Estate") at any time after the Employment Period for the remainder of the Noncompetition Period. The Warshauer Employment Agreement provides that, if such Permitted Investment or Other Real Estate includes a parking facility, Myron C. Warshauer shall initiate negotiations, or, under certain circumstances, use reasonable and good-faith efforts to cause such negotiations, with the Company in an attempt to determine mutually agreeable terms pursuant to which the Company will manage or lease the parking facility and, if such negotiations fail, that, under certain circumstances, the Company shall have a right of first refusal with respect to any management agreement or lease that may be negotiated with any independent third party.
Pursuant to the Warshauer Employment Agreement, the Company shall establish a stock option or phantom stock option plan (the "Option Plan") providing for grants of actual or phantom options with respect to the common stock of the Company ("Company Common Stock"), under which Myron C. Warshauer will be granted options to purchase a number of shares of the Company Common Stock equal to 1% of the total number of shares of Company Common Stock. All such options will have a term of ten years from the date of the grant. The Option Plan was to be implemented within 120 days after the Closing Date.
As of February 29, 2000, Mr. Stuelpe's employment with the Company terminated pursuant to a written settlement agreement and release. Under the terms of the settlement agreement, the Company agreed to continue to pay Mr. Stuelpe his Salary (as defined in the settlement agreement), in the normal course, through June 30, 2001 and make one final lump sum payment in the amount of $245,827.00 on July 1, 2001, in full satisfaction of any further obligation of the Company to pay Salary to Mr. Stuelpe; provided, however, Mr. Stuelpe shall be paid his 1999 bonus at the same time as the Company's other senior executives receive their bonuses for calendar year 1999. The Company agreed, for the period from March 1, 2000 to December 31, 2000 to (i) pay standard premium charges for health continuation coverage, if Mr. Stuelpe should exercise his right to elect such continuation coverage with the Company (ii) pay required premiums, subject to contribution by Mr. Stuelpe in certain instances, so that Mr. Stuelpe will continue to be covered by life insurance, accidental death and dismemberment insurance, business travel accident insurance and long term disability insurance, presently covered under the Company's group coverage (iii) pay Mr. Stuelpe the Additional Contributions (as defined in the settlement agreement) with respect to the Company's matching contributions for the 401(k) Plan and the 401(k) Wrap Around Plan for calendar year 2000 (iv) continue to provide Mr. Stuelpe with an automobile, in accordance with past practice and (v) continue to pay, consistent with past practice, Mr. Stuelpe's dues and assessments for various clubs and organizations to which he belongs.
The remaining outstanding balance of the Promissory Note (as defined in the settlement agreement) shall be forgiven as of February 29, 2000. The Company also agreed to pay a portion of Mr. Stuelpe's legal fees incurred in connection with the settlement agreement.
As soon as practicable after the Effective Date (as defined in the settlement agreement), the Company will assign to Mr. Stuelpe a certain life insurance policy on Mr. Stuelpe's life, together with its cash surrender value and paid up premiums through December 31, 2000, in full satisfaction of any and all obligations of the Company under the Supplemental Pension Plan (as defined in the settlement agreement). On April 1, 2000, the Company will pay Mr. Stuelpe, $1,270,424, which represents the lump sum value of Mr. Stuelpe's accrued benefits under the Key Executive Officers Retirement Plan (as defined in the settlement agreement).
Mr. Stuelpe agrees he will not, from and after February 29, 2000, disclose any confidential information of the Company if such disclosure would have a materially adverse effect on the Company. For a period commencing on March 1, 2000 and ending December 31, 2001, Mr. Stuelpe shall not render services to, or have any ownership interest in, any business which is competitive with the Company.
Mr. Wolf's current employment agreement with the Company provides for a three-year term, scheduled to lapse on March 26, 2001, default annual renewals, and an annual base salary of not less than $376,400,
subject to annual review, plus an annual bonus based on a percentage of the annual base salary to be mutually agreed upon by the Company and Mr. Wolf, as well as certain other benefits. Mr. Wolf shall hold all confidential information in strict confidence and not publish or otherwise disclose any portion thereof to any person whatsoever except with the prior written consent of the Company. During the term of the employment agreement and for two years after its termination (or eighteen months if such termination follows a Change in Control (as defined in the agreement)), Mr. Wolf shall not render services to, or have any ownership interest in, any business which is competitive with the Company in certain geographic areas.
If Mr. Wolf's employment is terminated by reason of his death, the Company is obligated to pay Mr. Wolf's estate an amount equal to the sum of (i) Mr. Wolf's annual base salary through the end of the calendar month in which death occurs and (ii) any earned and unpaid annual bonus, vacation pay and other vested benefits.
If Mr. Wolf's employment is terminated by reason of his Disability (as defined in the agreement), the Company is obligated to pay Mr. Wolf or his legal representative (a) an amount equal to Mr. Wolf's annual base salary for the duration of the employment period in effect on the date of termination, reduced by amounts received under any disability benefit program and (b) any earned and unpaid annual bonus and other vested benefits.
If Mr. Wolf's employment is terminated by the Company other than for death or Disability and without Cause (as defined in the agreement), the Company is required to continue (A) to pay Mr. Wolf for the remainder of the employment period in effect immediately before the date of termination his annual base salary and annual bonus(es) through the end of the then-current employment period and (B) to provide Mr. Wolf and/or his family with certain other benefits.
If Mr. Wolf's employment is terminated by the Company for any reason other than Cause during the three-year period following a Change in Control (as defined in the agreement), the Company is obligated to (x) pay Mr. Wolf an amount ("Severance Pay") equal to the greater of (1) one and one-half times the sum of (I) Mr. Wolf's current annual base salary plus (II) the amount of any bonus paid to Mr. Wolf in the preceding twelve months and (2) the annual base salary and annual bonuses through the end of the then-current employment period and (y) continue to provide Mr. Wolf with certain other benefits for a certain period of time. If Mr. Wolf terminates his employment voluntarily following a Change in Control, he shall not be entitled to Severance Pay, provided, however, that any such termination by Mr. Wolf for Good Reason (as defined in the agreement) shall not be considered a voluntary termination and Mr. Wolf will be treated as if he had been terminated by the Company other than for Cause.
Effective as of August 1, 1999, Mr. Wilhelm entered into a new employment agreement with the Company. Mr. Wilhelm's new employment agreement with the Company provides for a three-year term, scheduled to lapse on July 31, 2002, default annual renewals and an annual base salary of not less than $300,000, subject to annual review, plus an annual bonus based on an annual bonus program to be established by the Company, as well as certain other benefits. Mr. Wilhelm shall hold all confidential information in strict confidence and not publish or otherwise disclose any portion thereof to any person whatsoever except with the prior consent of the Company. During the term of the employment agreement and for 18 months thereafter, Mr. Wilhelm has agreed not to solicit existing clients of the Company or solicit any employees of the Company. These obligations are in addition to Mr. Wilhelm's obligations regarding the Company's confidential information. In consideration for Mr. Wilhelm's agreements regarding confidential information and non-solicitation of the Company's clients and employees, the Company has agreed to pay Mr. Wilhelm Salary Continuation Payments (as defined in the agreement) for a period of 18 months following the Date of Termination (as defined in the agreement).
If Mr. Wilhelm's employment is terminated for any reason, the Company is obligated to pay Mr. Wilhelm or Mr. Wilhelm's estate, as applicable, an amount equal to the sum of (a) Mr. Wilhelm's annual base salary through the date of termination and (b) accrued but unused vacation pay and other vested benefits. If Mr. Wilhelm's employment shall be terminated for Cause or Performance Reasons (each term as defined in the agreement), the Company shall also pay Mr. Wilhelm the Salary Continuation Payments.
If Mr. Wilhelm shall voluntarily terminate his employment with the Company, then the Company shall be obligated to pay Mr. Wilhelm (a) his annual base salary through the date of termination, (b) any accrued but unused vacation pay and other vested benefits and (c) Salary Continuation Payments for 18 months. If Mr. Wilhelm terminates his employment voluntarily he shall not be entitled to Severance Pay (as thereafter described); provided however, that any such termination by Mr. Wilhelm for Good Reason ( as defined in the agreement) shall not be considered a voluntary termination and Mr. Wilhelm will be treated as if he had been terminated by the Company other than for Cause or Performance Reasons.
If Mr. Wilhelm's employment is terminated by the Company other than for death or disability, without Cause and not due to Performance Reasons, the Company is required to (a) pay Mr. Wilhelm Severance Pay equal to the product of two times the sum of (x) Mr. Wilhelm's current annual Salary, plus (y) the amount of any Annual Bonus (as defined in the agreement) paid to Mr. Wilhelm for the preceding calendar year, minus the aggregate amount of Salary Continuation Payments, payable in equal monthly installments over a 24 month period commencing on the Date of Termination, (b) pay Mr. Wilhelm Salary Continuation Payments, and (c) provide Mr. Wilhelm and his family with certain other welfare benefits.
Mr. Steven Warshauer's current employment agreement with the Company provides for a three-year term, scheduled to lapse on March 26, 2001, default annual renewals, and an annual base salary of not less than $300,000, subject to annual review, plus an annual bonus based on a percentage of the annual base salary to be mutually agreed upon by the Company and Mr. Warshauer, as well as certain other benefits. Mr. Warshauer shall hold all confidential information in strict confidence and not publish or otherwise disclose any portion thereof to any person whatsoever except with the prior written consent of the Company. During the term of the employment agreement and for two years after its termination (or eighteen months if such termination follows a Change in Control (as defined in the agreement)), Mr. Warshauer shall not render services to, or have any ownership interest in, any business which is competitive with the Company in certain geographical areas; provided, however, from and after such time as Mr. Warshauer is no longer employed by the Company for any reason, he may become involved in the operation and management of the Auditorium Garage located in Chicago, as well as own an equity interest in this garage.
If Mr. Warshauer's employment is terminated by reason of his death, the Company is obligated to pay Mr. Warshauer's estate an amount equal to the sum of (i) Mr. Warshauer's annual base salary through the end of the calendar month in which death occurs and (ii) any earned and unpaid annual bonus, vacation pay and other vested benefits.
If Mr. Warshauer's employment is terminated by reason of his Disability (as defined in the agreement), the Company is obligated to pay Mr. Warshauer or his legal representative (a) an amount equal to Mr. Warshauer's annual base salary for the duration of the employment period in effect on the date of termination, reduced by amounts received under any disability program and (b) any earned and unpaid annual bonus and other vested benefits.
If Mr. Warshauer's employment is terminated by the Company other than for death or Disability and without Cause (as defined in the agreement), the Company is required to continue (A) to pay Mr. Warshauer for the remainder of the employment period in effect immediately before the date of termination his annual base salary and annual bonus(es) through the end of the then current employment period and (B) to provide Mr. Warshauer and/or his family with certain other benefits.
If Mr. Warshauer's employment is terminated by the Company for any reason other than Cause during the three-year period following a Change in Control (as defined in the agreement), the Company is obligated to (x) pay Mr. Warshauer an amount ("Severance Pay") equal to the greater (1) one and one-half times the sum of (I) Mr. Warshauer's current annual base salary plus (II) the amount of any bonus paid to Mr. Warshauer in the preceding twelve months and (2) the annual base salary and annual bonuses through the end of the then current employment period and (y) continue to provide Mr. Warshauer with certain other benefits for a certain period of time. If Mr. Warshauer terminates his employment voluntarily following a Change of Control, he shall not be entitled to Severance Pay, provided, however, that any such termination by Mr. Warshauer for Good Reason (as defined in the agreement) shall not be considered a voluntarily termination and Mr. Warshauer will be treated as if he had been terminated by the Company other than for Cause.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
AP HOLDINGS
The following table sets forth certain information regarding the beneficial ownership of the common stock of AP Holdings, par value $0.01 per share ("AP Holdings Common Stock"), by (i) each person known to AP Holdings to own beneficially more than 5% of AP Holdings Common Stock, (ii) each director of AP Holdings, (iii) each Named Executive Officer of AP Holdings, and (iv) all executive officers and directors of AP Holdings, as a group. All information with respect to beneficial ownership has been furnished to AP Holdings by the respective stockholders of AP Holdings. Except as otherwise indicated in the footnote, each beneficial owner has the sole power to vote and to dispose of all shares held by such older.
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* The address of Holberg is 545 Steamboat Road, Greenwich, Connecticut 06830. The address of Orkla and the business address of Mr. Holten, Lise Stolt-Nielsen Holten and L&V Trust is the same as that of Holberg. Lise Stolt-Nielsen Holten is married to Mr. Holten and the L&V Trust is a trust for the benefit of certain relatives of Mr. Holten, and of which he is a trustee.
** There are no issued and outstanding shares of Class A Common Stock. The above information as to beneficial ownership of Class A Common Stock and of Total Common Stock on a combined basis assumes the conversion of all outstanding shares of preferred stock of Holberg into shares of Class A Common Stock, and the ownership percentages reflect the respective interests that would result if all of such shares of Preferred Stock were converted, and the corresponding issuance of all of the underlying shares of Class A Common Stock. If fewer shares of Preferred Stock were converted, and fewer shares of Class A Common Stock, the relative percentage ownership represented by those shares of Class A Common Stock outstanding would be greater.
*** The shares of Class A Common Stock and Class B Common Stock are identical with the exception of voting rights. The shares of Class B Common Stock have ten votes per share and the shares of Class A Common Stock have one vote per share.
(1) Holberg also owns a portion of the AP Holdings Preferred Stock. See "Certain Relationships and Related Party Transactions -- Stockholders' Equity."
(2) Mr. Holten owns all of the outstanding common stock of the corporate parent of Holberg Industries, Inc. ("Holberg"), which parent entity owns approximately 66% of the outstanding common stock of Holberg, which in turn owns 91.67% of the outstanding common stock of AP Holdings.
(3) Orkla owns approximately 34% of the outstanding common stock of Holberg.
THE COMPANY
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* The address of AP Holdings, Dosher Partners, L.P., Waverly Partners, L.P. and the business address of Messrs. Warshauer, Stuelpe and LaRocco is 900 N. Michigan Avenue, Chicago, Illinois 60611-1542.
** The address of Orkla and the business address of Mr. Holten is 545 Steamboat Road, Greenwich, Connecticut 06830.
++ The address of SP Associates is 900 North Michigan Avenue, Chicago, Illinois 60611-1542.
(1) Mr. Holten owns all of the outstanding common stock of the corporate parent of Holberg Industries, Inc. ("Holberg"), which parent entity owns approximately 66% of the outstanding common stock of Holberg, which in turn owns 91.67% of the outstanding common stock of AP Holdings.
(2) Orkla owns approximately 34% of the outstanding common stock of Holberg.
(3) All of the interests in Dosher Partners, L.P. are beneficially owned by Myron C. Warshauer and trusts for the benefit of certain members of his family. Mr. Warshauer disclaims beneficial ownership of the assets of Dosher Partners, L.P., including the shares of Common Stock held by it, to the extent those interests are held for the benefit of such trusts.
(4) Waverly Partners, L.P. ("Waverly") is a limited partnership in which Myron C. Warshauer is general partner. Mr. Warshauer disclaims beneficial ownership of the assets of Waverly, including the shares of Common Stock held by it.
(5) SP Associates is a general partnership controlled by affiliates of JMB Realty Corp.
(6) Mr. Stuelpe owns approximately 3.5% of the common stock of AP Holdings.
(7) Mr. LaRocco owns approximately 1.8% of the common stock of AP Holdings.
(8) Certain other executive officers of APCOA/Standard in the aggregate own approximately 3.1% of the common stock of AP Holdings.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
COMPANY STOCKHOLDERS AGREEMENT
Upon consummation of the March 30, 1998 combination with Standard ("the Combination"), the Company entered into a Stockholders Agreement (the "Stockholders Agreement") with Dosher Partners, L.P. ("Dosher"), and SP Associates (collectively, the "Standard Parties") and Holberg and AP Holdings (collectively with the Standard Parties, the "Stockholders"). The Stockholders Agreement provides, among other things, for (i) prior to the earliest of (a) the seventh anniversary of the consummation of the Combination, (b) the termination of Myron C. Warshauer's employment with the Company under certain circumstances and (c) the consummation of an initial public offering of Company Common Stock (as such offering will be defined in the Stockholders Agreement), certain obligations of Holberg to allow Dosher the opportunity to acquire all, but not less than all, of the Company Common Stock held by Holberg and/or its
affiliates before Holberg may directly or indirectly sell an amount of Company Common Stock which would constitute a Control Transaction (as defined in the Stockholders Agreement); provided that, under certain circumstances, Holberg may sell such shares to a party other than Dosher if the terms of such other party's offer are more favorable to Holberg, (ii) until the consummation of an initial public offering of Company Common Stock, certain rights of each Standard Party to purchase shares of Company Common Stock to the extent necessary to maintain such Standard Party's percentage ownership of the Company, (iii) the right of the Standard Parties to participate in, and the right of Holberg to require the Standard Parties to participate in, certain sales of Company Common Stock, (iv) following the third anniversary of the consummation of the Combination and prior to an initial public offering of Company Common Stock, certain rights of the Company to purchase, and certain rights of the Standard Parties to require the Company to purchase, shares of Company Common Stock at prices determined in accordance with the Stockholders Agreement and (v) certain additional restrictions on the rights of the Standard Parties to transfer shares of Company Common Stock. The Stockholders Agreement also contains certain provisions granting the Stockholders certain rights in connection with registrations of Company Common Stock in certain offerings and provides for indemnification and certain other rights, restrictions and obligations in connection with such registrations.
Effective October 1, 1998, Dosher transferred a 4% interest in APCOA/Standard common stock to Waverly Partners, L.P. ("Waverly"), a limited partnership in which Myron C. Warshauer is general partner, Douglas Warshauer individually is a limited partner and Douglas Warshauer as Trustee for the Douglas Warshauer Family Trust is a limited partner. Waverly and each original signatory to the Stockholders Agreement consented to the transfer pursuant to a Consent and Joinder to Stockholders' Agreement dated as of October 1, 1998.
AP HOLDINGS STOCKHOLDERS AGREEMENT
AP Holdings is party to a Stockholders Agreement with Holberg, and each of the members of APCOA management who is a stockholder of AP Holdings, which provides for, among other things, (i) a board of directors consisting of three or more Holberg nominees, and one management nominee, (ii) certain restrictions on the sale, assignment, transfer, encumbrance or other disposition of the common stock of AP Holdings, (iii) certain first offer, repurchase and put/call rights (a summary of which is set forth below), with respect to the AP Holdings common stock held by the management investors (iv) certain pre-emptive rights in favor of the management investors with respect to the issuance of AP Holdings common stock, and (v) certain put/call rights with respect to the AP Holdings common stock held by Delaware North. As of August 4, 1998, AP Holdings repurchased the shares of its common stock and warrants formerly held by Delaware North for $4.0 million in cash. In connection with such repurchase, the Delaware North nominee to the AP Holdings Board of Directors resigned as a director of AP Holdings.
The AP Holdings Stockholders Agreement provides that, subject to any direct or indirect restrictions imposed by financing agreements or arrangements entered into by AP Holdings or the Company, upon the termination of employment of a management investor for death, retirement, complete disability, or otherwise, (a) such management investor, or his estate or heir (in the case of death, retirement or complete disability), shall have the right to cause AP Holdings to, and (b) AP Holdings shall have the right to, repurchase such management investor's AP Holdings common stock, at a purchase price, which, under some circumstances, is partially payable in subordinated notes, equal to, (X) in the case of a termination of employment for death, retirement or complete disability or by AP Holdings without Cause (as defined in the AP Holdings Stockholders Agreement) or a voluntary termination of employment by such management investor, the greatest of, or (Y) in the case of a termination of employment by AP Holdings for Cause, the lowest of, (i) the price per share paid by such management investor for such AP Holdings common stock, (ii) the adjusted book value per share of AP Holdings common stock and (iii) the sum, on a per share basis, of (x) the product of the cash contribution from operations of AP Holdings for the immediately preceding four fiscal quarters multiplied by 6.84 minus (y) the amount of debt reflected in AP Holdings most recent consolidated financial statements.
TAX SHARING AGREEMENT
The Company is a party to the Tax Sharing Agreement, dated April 28, 1989, by and among Holberg, AP Holdings and the Company (the "Tax Sharing Agreement"), which applies to each of Holberg's consolidated return years beginning with 1989. The Tax Sharing Agreement provides that each member of Holberg's affiliated group, including the Company, will pay to Holberg the amount of federal income tax that such member would be required to pay on a separate return basis for the year in question, except that the amount that the Company is required to pay to Holberg will not exceed the tax liabilities of the Company on a separate return basis for all taxable years to which the Tax Sharing Agreement applies and for which the Company joined in the Holberg consolidated return, computed as if the Company had actually filed separate returns for all such years and taking into account any net operating loss carryforward the Company would have had if it had filed a separate return for all such years. Holberg is not required to make a payment to the Company by virtue of the utilization by the Holberg affiliated group of any net operating loss generated by the Company. In the event that the consolidated federal income tax liability of the Holberg affiliated group is adjusted for any taxable period, whether by means of an amended return, claim for refund, or tax audit by the Internal Revenue Service, the liability of the Company under the Tax Sharing Agreement will be recomputed to give effect to such adjustments.
STOCKHOLDERS' EQUITY
Prior to the consummation of the Combination, Holberg held $8.7 million of preferred stock of APCOA. A portion of the proceeds of the financing obtained in conjunction with the combination with Standard (see Note B of the Notes to Consolidated Financial Statements) was used to redeem $8.0 million of the preferred stock. The remaining $0.7 million was contributed to the capital of the Company.
The preferred stock issued by the Company to AP Holdings in conjunction with the combination with Standard has the same maturity as the debt securities of AP Holdings issued to finance the preferred stock contribution, has an initial liquidation preference equal to the issue price of such debt securities, increases in liquidation preference at the same rate as such debt securities accrue interest, such that the liquidation preference of the preferred stock will at all times be equal to the then principal amount of such debt securities, and accrues cash dividends commencing at such times as such debt securities commence to accrue cash interest, at the same rate as such debt securities.
On December 29, 1999, AP Holdings' Board of Directors approved the following recapitalization actions:
(a) Twenty thousand shares of Class A common stock, par value $.01 per share, were authorized. No shares were issued. Each share issued will have one vote.
(b) Each of the outstanding shares of common stock (7,920 shares) was converted to 7,920 shares of Class B Common Stock, par value $.01 per share. Twenty thousand shares of Class B common stock were authorized. Each share issued will have ten votes. The previously issued common shares were reclassified as Class B. Each Class B share is convertible into one Class A share at any time.
(c) Twenty three thousand shares of Preferred Stock, par value $.01 per share, were authorized. Nine thousand shares were designated as Series A Cumulative Preferred Stock. Dividends are payable quarterly at 13%. The preferred shares are mandatorily redeemable on December 31, 2008 at a redemption price of $9,000 per share, plus accrued and unpaid dividends. Each Series A share is convertible into 1.04762 shares of Class A Common Stock.
MANAGEMENT CONTRACTS AND RELATED ARRANGEMENTS WITH AFFILIATES
The Company had a management contract to operate one parking facility in Chicago with an Illinois land trust that is beneficially owned by a partnership which Myron C. Warshauer, Steven A. Warshauer and Stanley Warshauer have an equity interest. All expenses that are typically borne by a facility owner under a management contract, such as salaries, wages and benefits associated with employees at the parking facility and an allocable portion of such costs for supervisory management personnel, the cost of uniforms, supplies, utilities and other direct operating costs ("property-level expenses") are paid by the facility owner. Pursuant
to the management contract, the Company received a management fee of approximately $42,000 in 1999. However, certain subordination provisions in the loan agreement between the facility owner and its lender would result in the non-payment of this management fee if operating revenues are insufficient to defray all operating expenses and debt service costs relating to the property. The parking facility was sold to an unaffiliated third party on February 15, 2000. At closing, the Company's management contract was terminated, effective immediately, in consideration for which the Company received a $550,000 termination fee.
The Company has a management contract with the Buckingham Plaza Limited Partnership ("BPLP") to operate the parking facility at a condominium complex in Chicago of which BPLP was the developer. Myron C. Warshauer and SP Associates own an equity interest in one of BPLP's limited partners. The Company receives an annual management fee of $18,000 pursuant to such management contract. The Company estimates that such management fee is no less than would normally be obtained through arms-length negotiations.
The Company has management contracts to operate two surface parking lots in Chicago. Myron C. Warshauer, Steven A. Warshauer, Stanley Warshauer, Michael K. Wolf and SP Associates own membership interests in a limited liability company that is a member of the limited liability companies that own such surface parking lots. The Company received a total of $133,000 in management fees for such lots in 1999 under the applicable management contracts. The Company estimates that such management fees are no less favorable than would normally be obtained through arms-length negotiations The Company operates the Clark Fullerton Self Park, a parking facility in which Myron C. Warshauer had a 50% equity interest until the facility was sold to an unaffiliated third party in January, 1999, in connection with which Mr. Warshauer sold his entire equity interest. The Company continues to manage the parking facility pursuant to a management contract that paid the Company a management fee of $23,500 for 1999. Both before and after the sale, the facility owner has paid all of the property-level expenses.
The Company provides office and related support services to Auditorium Garage, Inc. ("Auditorium"), an Illinois corporation owned by Stanley Warshauer and his wife, in conjunction with Auditorium's management of a parking facility. Auditorium reimbursed the Company for the general and administrative costs associated with providing these services approximately $25,000 in 1999.
The Company provides office and related support services for a parking facility (the "Theater District Garage") that is leased to Standard/Tremont Parking Corporation ("Standard Tremont"), an Illinois corporation that is owned by Stanley Warshauer, Steven A. Warshauer and Myron C. Warshauer. Standard Tremont reimburses the Company for the general and administrate costs associated with providing these services, which reimbursement totaled $5,000 in 1999.
The Company pays 15.0% of the lease net operating income derived from one parking facility to Warshauer Management Corporation for services rendered in obtaining the right to operate the facility.
SP Associates is an affiliate of JMB Realty Corp., from which the Company leases office space for its corporate offices in Chicago. Payments pursuant to the lease agreement aggregated approximately $916,000 during 1999.
The Company purchases workers' compensation and health insurance covering certain parking facilities from JMB Insurance Agency, Inc., an affiliate of JMB Realty Corp. which in turn is an affiliate of SP Associates. The Company estimates that the premiums and commissions paid for such insurance are comparable to premiums it would pay for comparable coverage from an unrelated third party. Additionally, the Company paid $25,000 to JMB Insurance Agency, Inc. for consulting services during 1999.
In March of 1998, the Company acquired a lease for $1.4 million from an entity which is 15% owned by certain members of the management group. The lease is for a term of eleven years and calls for annual rent of $185,000 per year plus percentage rent if the property achieves certain earnings levels. In 1999, APCOA/ Standard earned $64,400 in net lease revenue under this agreement. The Company believes the terms of this agreement are no less favorable than would normally be obtained through arms-lengths negotiations.
LIABILITY INSURANCE
Until January 1999, the Company participated in a master insurance program with Holberg which served to reduce the insurance costs of the combined group. In connection with the insurance program, during 1998 the Company placed $2.2 million on deposit with an affiliate for insurance collateral purposes.
In January of 1999, the Company completed the combination of its insurance programs into one program. In connection therewith the Company purchased coverage for its previously self-insured layer, and a tail policy to eliminate future exposure from retrospective adjustments.
CONSULTING AGREEMENT WITH SIDNEY WARSHAUER
Consummation of the Combination was conditioned by Standard, among other things, upon the execution of a Consulting Agreement (the "Agreement") between the Company and Sidney Warshauer, the father of Myron C. Warshauer. Sidney Warshauer is 84 years old.
The Agreement provides that Sidney Warshauer render such services as may be requested, from time to time, by the Board of Directors of the Company (the "Board") and/or the Chief Executive Officer of the Company, consistent with Mr. Warshauer's past practices and experience, for a period beginning on the date of the consummation of the Combination and ending on Sidney Warshauer's death. Sidney Warshauer will receive, during such period, annual payments of $552,000 along with certain other benefits.
The Agreement provides that, from the date of the closing of the Combination until his death, Sidney Warshauer will not disclose Company confidential information or compete with the Company. The Agreement is not terminable by the Company for any reason other than the death of Sidney Warshauer, or a breach by Sidney Warshauer of his obligations under the Agreement with respect to non-disclosure of Company confidential information or his obligation to refrain from engaging in competition with the Company. The parties intended that all payments under the Agreement represent additional purchase price in the form of supplemental retirement benefits in recognition of Sidney Warshauer's significant contributions to Standard. The actuarial value, as of March 30, 1998, of the payments under the Agreement was approximately $5.0 million. See Note B of the Notes to the Consolidated Financial Statements.
CERTAIN OTHER MATTERS RELATING TO HOLBERG
Holberg has received customary investment banking and advisory fees from APCOA in connection with certain prior transactions, and received a $1.0 million advisory fee (and reimbursement of expenses) upon consummation of the Combination. The Company also may pay an annual management fee to Holberg and otherwise reimburse Holberg for certain expenses incurred by Holberg on behalf of the Company. In addition, the Company currently leases a plane on behalf of Holberg. Holberg pays all costs under the lease other than amounts that may be charged to the Company in connection with use of the plane and indemnifies the Company for all obligations under the lease. All of these fees and other amounts paid to Holberg are subject to the limits and restrictions imposed by the Indenture.
APCOA/Standard and Holberg and its affiliates periodically engage in bi-lateral loans and advances. These loans and advances are interest bearing at a variable rate that approximates the prime interest rate. The accumulated interest is added to, or deducted from (as appropriate), the balance in the loan or advance account. In connection with the Combination, APCOA made a $6.5 million non-cash distribution to Holberg of the receivable in such amount due from Holberg to APCOA, at the date of the Combination.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements.
Report of Independent Auditors Audited Consolidated Financial Statements Consolidated Balance Sheets at December 31, 1999 and 1998 For the years ended December 31, 1999, 1998 and 1997: Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity (Deficit) Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial statement schedule.
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
3. Exhibits
INDEX TO HISTORICAL FINANCIAL STATEMENTS
AP HOLDINGS, INC.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors AP HOLDINGS, INC.
We have audited the accompanying consolidated balance sheets of AP Holdings, Inc. ("AP Holdings") as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of AP Holdings' management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AP Holdings at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois March 30, 2000
AP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE DATA)
See Notes to Consolidated Financial Statements
AP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
See Notes to Consolidated Financial Statements.
AP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS, EXCEPT FOR SHARE DATA)
See Notes to Consolidated Financial Statements.
AP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
See Notes to Consolidated Financial Statements.
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
AP Holdings, Inc. ("AP Holdings"), is a subsidiary of Holberg Industries, Inc. ("Holberg"), and owns 84% of the voting stock of APCOA/Standard Parking, Inc. ("APCOA/Standard" or "the Company"), formerly known as APCOA, Inc. ("APCOA"). APCOA/Standard and its subsidiaries and affiliates manage, operate and develop parking properties throughout the United States and Canada. The Company is a majority-owned subsidiary of AP Holdings, Inc. ("AP Holdings"). The Company provides on-site management services at multi-level and surface facilities in the two major markets of the parking industry: urban parking and airport parking. The Company manages approximately 1,852 parking facilities, containing approximately 1,000,000 parking spaces in over 200 cities across the United States and Canada.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures in which the Company has more than 50% ownership interest. Minority interest recorded in the consolidated statement of operations is the joint venture partner's noncontrolling interest in consolidated joint ventures. Minority interest included in the consolidated balance sheets was $5 and $147 at December 31, 1999 and 1998, respectively. Investments in joint ventures of 50% or less ownership interest are reported on the equity method. Investments in joint ventures accounted for using the equity method in the consolidated balance sheets were $315 and $32 at December 31, 1999 and 1998, respectively. All significant intercompany profits, transactions and balances have been eliminated in consolidation.
GROSS CUSTOMER COLLECTIONS -- Gross customer collections represent gross receipts collected at all leased and managed properties, including unconsolidated affiliates.
PARKING REVENUE -- The Company recognizes gross receipts from leased locations and management fees earned from management contract properties as parking revenue as the related services are provided. Also included in parking revenue were $2,116 in 1999, $127 in 1998 and $1,207 in 1997 from gains on sales of parking contracts in the ordinary course of business.
COST OF PARKING SERVICES -- The Company recognizes costs for leases and nonreimbursed costs from managed facilities as cost of parking services. Cost of parking services consists primarily of rent and payroll related costs.
ADVERTISING COSTS -- Advertising costs are expensed as incurred and are included in general and administrative expenses. Advertising expenses aggregated $402, $343 and $440 for 1999, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS -- Cash equivalents represent funds temporarily invested in money market instruments with maturities of one to five days. Cash equivalents are stated at cost, which approximates market value.
LEASEHOLDS AND EQUIPMENT -- Leaseholds, equipment and leasehold improvements are stated at cost. Leaseholds (cost of parking contracts) are amortized on a straight-line basis over the average contract life of 7 years. Equipment is depreciated on the straight-line basis over the estimated useful lives of approximately 5 years on average. Leasehold improvements are amortized on the straight-line basis over the terms of the respective leases or the service lives of the improvements, whichever is shorter (average of approximately 7 years). Depreciation and amortization includes losses on abandonments of leaseholds of $105, $260 and $478 in 1999, 1998 and 1997, respectively.
COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL) -- Cost in excess of net assets acquired arising from acquisitions is amortized using the straight-line method over 40 years.
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
LONG LIVED ASSETS -- The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company periodically reviews the carrying value of long-lived assets, including goodwill, contract and lease rights, and non-compete agreements, to determine if the net book values of such assets continue to be recoverable over the remainder of the original estimated useful life. In performing this review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected net future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the estimated diminution of value. If the assets involved are to be held and used in the operations of the Company, consideration is also given to actions or remediations the Company might take in order to achieve the original estimates of cash flows.
INTANGIBLE ASSETS -- Transaction costs incurred to acquire certain parking businesses and establish parking joint ventures ($576 at December 31, 1999) are being amortized on a straight-line basis over ten years, the estimated life of the underlying parking contracts. Debt issuance costs of $6,576 and $7,020 at December 31, 1999 and 1998 respectively, are amortized over the terms of the credit agreements using the straight-line method which approximates the interest method. Additionally, $4,720 and $6,317 of intangibles at December 31, 1999 and 1998 respectively, consisting primarily of a covenant not to compete, (see Note B) are being amortized on a straight-line basis over the term of the respective agreements which range from 5 to 10 years.
FINANCIAL INSTRUMENTS -- The carrying values of cash, accounts receivable and accounts payable are reasonable estimates of their fair value due to the short-term nature of these financial instruments. The Company's 9.25% Senior Subordinated Notes are included in the Consolidated Balance Sheet at $140,000, which represents the aggregate face value of the notes. Market value at December 31, 1999 aggregated $98,000. Other long-term assets and debt have a carrying value that approximates fair value.
FOREIGN CURRENCY TRANSLATION -- The functional currency of the Company's foreign operations is the local currency. Accordingly, assets and liabilities of the Company's foreign operations are translated from foreign currencies into U.S. dollars at the rates in effect on the balance sheet date while income and expenses are translated at the weighted-average exchange rates for the year. Adjustments resulting from the translations of foreign currency financial statements are accumulated and classified as a separate component of stockholders' equity.
USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS -- In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133), which is required to be adopted on January 1, 2001. Statement 133 requires all derivatives to be recognized in the balance sheet as either assets or liabilities at fair value. Derivatives that are not hedged must be adjusted to fair value through income. In addition, all
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
hedging relationships must be designated, reassessed and documented pursuant to the provisions of SFAS No. 133. Management believes the adoption of this statement will not have a material effect on the Company.
RECLASSIFICATIONS -- Certain amounts previously presented in the financial statements of prior periods have been reclassified to conform to current year presentation.
NOTE B. ACQUISITIONS
In January 1998, APCOA entered into a definitive combination agreement to acquire all of the outstanding capital stock, partnership and other equity interests of Standard Parking Corp. and certain of its affiliates ("Standard"). On March 30, 1998, APCOA acquired Standard for consideration consisting of $65,000 in cash, 16% of the common stock of APCOA outstanding as of January 15, 1998 and the assumption of certain liabilities, including a $5,000 consulting and non-compete obligation for one of the former owners of Standard, which represents the current value of the payments to be made, as determined by consulting actuaries. In addition, on March 30, 1998, APCOA paid to the Standard owners $2,822, generally representing Standard's earnings from January 1 through the date of the acquisition and Standard's cash on hand at such time. Financing of the acquisition included a contribution from AP Holdings of $40,683, in exchange for redeemable preferred stock, and other transactions as described below and in Notes D and H.
The acquisition has been accounted for under the purchase method; accordingly, Standard's results are included in the consolidated financial statements of APCOA/Standard from the date of acquisition. Following is the final purchase price allocation, based on the estimated fair value of assets acquired and liabilities assumed.
The put/call value above is based primarily upon a multiple of EBITDA, as defined, of the Company. Under certain circumstances the Company can be required to repurchase these shares, however in no case will the Company be obligated to do so prior to March 2001. Direct acquisition costs incurred in connection with the acquisition include investment banking fees of $3,289 and legal and other professional fees of $3,890. AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
The following unaudited pro forma results of operations for 1998 assume the acquisition of Standard occurred on January 1, 1998.
This pro forma information does not purport to be indicative of the results that actually would have been obtained if the combination had taken place at the beginning of the periods presented and is not intended to be a projection of future results.
On January 22, 1998, the Company acquired the assets of Huger Parking Company, LLC, d/b/a Dixie Parking, for $1,000 in cash at closing and $3,250 in notes payable, of which $1,000 was repaid in March of 1998. The $2,250 balance is payable over 20 years with interest based on prime. On May 1, 1998, the Company acquired the remaining 76% interest in Executive Parking Industries LLC, through the acquisition of all of the outstanding capital stock of S&S Parking, Inc., the sole asset of which was such 76% interest in EPI, for $7,020 in cash. In addition, on June 1, 1998, APCOA/Standard acquired all of the outstanding capital stock of Century Parking, Inc., and Sentry Parking Corporation, for $5,168 in cash at closing including direct acquisition costs and $1,000 payable on the third anniversary of the closing date. On September 1, 1998, APCOA/Standard acquired the operations of Virginia Parking Service, Inc. in a stock purchase transaction for $3,114 in cash including direct costs, and up to $1,250 in notes payable over five years with interest at the prime rate.
On April 1, 1999, the Company acquired the assets of Pacific Rim Parking, Inc. ("Pacific Rim") in Los Angeles for $750 in cash and up to $750 in non-interest bearing notes payable over five years. On May 1, 1999 the Company acquired various contracts of System Parking Inc. in Atlanta for $250 in cash. Effective as of July 1, 1999 the Company acquired all of the outstanding stock of Universal Park Holdings, Inc., operating under the names U-Park and Select Valet Parking, in Vancouver B.C. for Canadian $1,610 plus a multiple of EBITDA on a future earnout as defined in the agreement.
All of these acquisitions have been accounted for under the purchase method and their operating results have been included in the consolidated results since their respective date of acquisition. The historical operating results of the businesses prior to acquisition were not material relative to the consolidated results of APCOA/Standard.
NOTE C. RESTRUCTURING AND OTHER SPECIAL CHARGES
During 1998, management performed an analysis of the costs associated with implementing the business plan of consolidating the Company's headquarters in Chicago and costs related to Company staff reductions. Included in "restructuring and other special charges" in the accompanying consolidated statement of
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
operations for the years ended December 31, 1999 and 1998 are the following (expenses are cash unless otherwise stated):
In 1998, the employee severance costs consist of cash compensation and related expenses to 54 people for whom employment was terminated. The employee relocation costs are in connection with the relocation and consolidation of the headquarters of the Company, the relocation of two major field offices, moving Cleveland headquarters staff members to Chicago and other relocations within the field organization. The $2,600 increase in insurance reserves results from a buyout of the insurance program of APCOA in connection with the combination of APCOA and Standard insurance programs. The impairment and abandonment of assets that will no longer be used consists of the write-off of $2,600 of capitalized costs and leasehold improvements. Other incremental integration costs associated with the restructuring plan that do not qualify as exit costs are expensed as incurred and included in "Restructuring and other special charges" in the consolidated statements of operations. These integration costs relate primarily to actions to facilitate the accounting system consolidation and activities to realign and centralize administrative and other support functions. In 1999, the employee severance costs relate primarily to a provision for key management severance. The integration costs relate primarily to actions to facilitate the accounting system consolidation and activities to realign and centralize administrative and other support functions. The costs associated with terminated transactions relate to expenses incurred for acquisition activity that was terminated including the cost of a former APCOA/Standard executive.
NOTE D. BORROWING ARRANGEMENTS
Long-term borrowings consist of:
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
APCOA/Standard's 9 1/4% Senior Subordinated Notes were issued in September of 1998 and are due in March of 2008. The Notes are registered with the Securities and Exchange Commission. The issuance was exchanged for unregistered notes with substantially identical terms, which had been issued earlier in 1998 to finance the acquisition of Standard and retire certain existing indebtedness, and for general working capital purposes.
AP Holdings' 11 1/4% Senior Discount Notes were issued in September of 1998 and are due in March of 2008. The Discount Notes are registered with the Securities and Exchange Commission. The issuance was exchanged for unregistered notes with substantially identical terms, which had been issued earlier in 1998 to finance the purchase of new preferred stock of the Company.
The Company's Senior Credit Facility ("the Facility") provides for borrowings of up to $40 million at variable rates based, at the Company's option, either on LIBOR, the overnight federal funds rate, or the bank's base rate. Borrowings outstanding at December 31, 1999 bore interest at 9.125% based on the LIBOR rate. From time to time the Company utilizes the Facility to provide readily-accessible cash for working capital purposes. The Facility includes covenants that limit APCOA/Standard from incurring additional indebtedness, issuing preferred stock or paying dividends, and contains certain other restrictions. At December 31, 1999, borrowings against the Facility aggregated $18,100, and letters of credit outstanding against the Facility aggregated $1,250. As of December 31, 1999, the Company was in compliance with the covenants contained in the Senior Credit Facility or has obtained the necessary waivers on or before March 30, 2000. The Facility was amended on March 30, 2000, with the principle changes to the agreement providing for revisions to interest rates charged on borrowings and certain financial covenants.
The Notes, Senior Discount Notes, and Senior Credit Facility contain covenants that limit AP Holdings and APCOA/Standard from incurring additional indebtedness and issuing preferred stock, restrict dividend payments, limit transactions with affiliates and restrict certain other transactions. Substantially all of AP Holdings and APCOA/Standard's net assets are restricted under these provisions and covenants (See Note J).
Consolidated joint ventures have entered into four agreements for stand-alone development projects providing nonrecourse funding. These joint venture debentures are collateralized by the specific contracts that were funded and approximate the net book value of the related assets.
The Company has entered into capital leases and various financing agreements, which were used for the purchase of equipment and on November 1, 1997, the Company signed interest free promissory notes in the amount of $1,123 to purchase the remaining interest of an unconsolidated subsidiary. The notes were paid in January 1998.
The Company paid interest of $15,778; $8,572 and $3,878 in 1999, 1998, and 1997, respectively.
The aggregate maturities of borrowings outstanding at December 31, 1999 are as follows:
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
NOTE E. INCOME TAXES
AP Holdings is included in the consolidated federal income tax return filed with its affiliates and has a tax sharing agreement with the affiliates. AP Holdings's income tax provision is determined on a separate return basis. Income tax expense consists of foreign, state and local taxes.
At December 31, 1999, AP Holdings has net operating loss carryforwards of $64,653 for income tax purposes that expire in years 2004 through 2019. Net operating loss carryforwards have been utilized to eliminate federal income tax expense in 1997.
A reconciliation of AP Holdings' reported income tax expense to the amount computed by multiplying income (loss) before minority interest and income taxes by the effective federal income tax rate is as follows:
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Company's deferred tax assets and liabilities as of December 31, 1999 and 1998 are as follows:
For financial reporting purposes, a valuation allowance for deferred tax assets will continue to be recorded until realization is more likely than not.
NOTE F. BENEFIT PLANS
The Company offers deferred compensation arrangements for certain key executives and sponsors an employees' savings and retirement plan in which certain employees are eligible to participate. Subject to their continued employment by the Company, employees offered supplemental pension arrangements will receive a defined monthly benefit upon attaining age 65. At December 31, 1999 and 1998, the Company has accrued $3,890 and $4,415, respectively, representing the present value of the future benefit payments. Participants in the savings and retirement plan may elect to contribute a portion of their compensation to the plan. The Company, in turn, contributes an amount in cash or other property as required by the plan. Expenses related to these plans amounted to $750, $663 and $612 in 1999, 1998 and 1997, respectively.
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
The Company also contributes to two multi-employer defined contribution and nine multi-employer defined benefit plans which cover certain union employees. Expenses related to these plans were $815, $732 and $418 in 1999, 1998 and 1997, respectively.
NOTE G. LEASES
The Company operates parking facilities under operating leases expiring on various dates, generally prior to the year 2012. Certain of the leases contain options to renew at the Company's discretion.
At December 31, 1999, the Company was committed to install in future years, at an estimated cost of $444, certain capital improvements at leased facilities.
Future annual rent expense is not determinable due to the application of percentage factors based on revenues. At December 31, 1999, the Company's minimum rental commitments, under all non-cancelable leases with remaining terms of more than one year, are as follows:
Rent expense, including percentage rents, was $133,962, $105,452 and $69,113 in 1999, 1998 and 1997, respectively.
NOTE H. STOCKHOLDERS' EQUITY
On December 29, 1999, AP Holdings' Board of Directors approved the following recapitalization actions:
(a) Twenty thousand shares of Class A common stock, par value $.01 per share, were authorized. No shares were issued. Each share issued will have one vote.
(b) Each of the outstanding shares of common stock (7,920 shares) was converted to 7,920 shares of Class B Common Stock, par value $.01 per share. Twenty thousand shares of Class B common stock were authorized. Each share issued will have ten votes. The previously issued common shares were reclassified as Class B. Each Class B share is convertible into one Class A share at any time.
(c) Twenty three thousand shares of Preferred Stock, par value $.01 per share, were authorized. Nine thousand shares were designated as Series A Cumulative Preferred Stock. Each Series A share is convertible into 1.04762 shares of Class A Common Stock. Dividends are payable quarterly at 13%. The preferred shares are mandatorily redeemable on December 31, 2008 at a redemption price of $9 per share, plus accrued and unpaid dividends. Accordingly, the Preferred Stock was reclassified to Redeemable Preferred Stock as of December 29, 1999.
NOTE I. CONTINGENCY AND RELATED PARTY TRANSACTIONS
AP Holdings' parent company is Holberg Industries, Inc. ("Holberg"); a privately held diversified service company located in Greenwich, Connecticut. Holberg also owns AmeriServe Food Distribution, Inc. ("AmeriServe"), one of the nation's largest food service distributors servicing quick-service and casual dining restaurants in the United States, Canada and Mexico. AmeriServe filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on January 31, 2000.
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
AP Holdings and AmeriServe are separate and distinct companies with independent sources of funding. However, the AmeriServe Chapter 11 filing is a default under certain debt instruments of Holberg. As a result of such defaults, the creditors of Holberg could take control of Holberg or its subsidiary, AP Holdings, Inc. ("Holdings"). A change in control of Holberg or Holdings would also constitute a change in control of APCOA under the APCOA/Standard debt instruments and of Holdings under its bond indenture. In the event of such a change in control of APCOA/Standard of Holdings, the terms of APCOA/Standard's senior bank credit facility and subordinated bond indenture and of Holdings' bond indenture permit the APCOA/Standard and Holdings creditors, if they believe it were in their interest to do so, to call for immediate payment under such instruments, and APCOA/Standard's or Holdings' failure to pay on such terms would constitute a default thereunder. Holberg and its creditors are negotiating to restructure the debt and eliminate the defaults created as a result of the AmeriServe Chapter 11 filing. Although Holberg currently expects to complete the restructuring of the debt, and further currently expects that its creditors will not in any event seek to obtain control of Holberg, there can be no assurance that Holberg will be successful in restructuring its debt and eliminating the existing defaults, or that Holberg's creditors will not seek to obtain control of Holberg, and should APCOA/Standard's or Holdings' indebtedness be accelerated as a result of any action by Holberg's creditors, there is no assurance that APCOA/Standard or Holdings would have sufficient funds to satisfy such obligations.
Due from affiliates includes an amount due from Holberg of $2,620 as the result of various transactions between the Company and Holberg including net cash transferred and reimbursement of certain expenses paid by APCOA/Standard on AP Holdings behalf. Interest is recorded on amounts due based on current investment rates of return.
Until January 1999, the Company participated in a master insurance program with Holberg which served to reduce the insurance costs of the combined group. In connection with the insurance program, during 1998 the Company placed $2,200 on deposit with a Holberg affiliate for insurance collateral purposes.
Due to the current financial situation of AmeriServe and its potential impact on Holberg and indirectly AP Holdings, the Company has reclassified the $4,820 of advances to and deposits with these affiliates from a long-term asset to stockholders' equity. Such reclassification was made due to uncertainty regarding the ability of the affiliates to repay such amounts without potentially receiving distributions from the Company.
Other Related Party Transactions
In connection with the acquisition of Standard in 1998, the Company made a $6,511 non-cash distribution to Holberg of a receivable for that amount due from Holberg to the Company.
The Company used $8,728 of proceeds from the financing obtained in connection with the acquisition of Standard to redeem $8,000 of preferred stock held by Holberg. The remaining $728 was contributed by Holberg to the capital of the Company.
NOTE J. SUBSIDIARY GUARANTORS
All of the Company's direct or indirect wholly owned domestic subsidiaries, including Standard, other than inactive subsidiaries, fully, unconditionally, jointly and severally guarantee the Senior Subordinated Notes discussed in Note D. Separate financial statements of the guarantor subsidiaries are not separately presented because, in the opinion of management, such financial statements are not material to investors. The non-guarantor subsidiaries include joint ventures, wholly owned subsidiaries of the Company organized under the laws of foreign jurisdictions and inactive subsidiaries, all of which are included in the consolidated financial
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
statements. The following is summarized combining financial information for APCOA/Standard, the guarantor subsidiaries of the Company and the non-guarantor subsidiaries of the Company:
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
AP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
NOTE K. LEGAL PROCEEDINGS
In the normal course of business, the Company is involved in disputes, generally regarding the terms of lease agreements. In the opinion of management, the outcome of these disputes and litigation will not have a material adverse effect on the consolidated financial position or operating results of the Company.
AP HOLDINGS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
- ---------------
(1) Represents uncollectible account written off, net of recoveries.
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.
AP HOLDINGS, INC.
By: /s/ JOHN V. HOLTEN ------------------------------------ John V. Holten Chairman and Director
Date 3/30/00 -----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
INDEX TO EXHIBITS