<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER: 333-50433
AP HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 06-1269403
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
900 N. MICHIGAN AVENUE, (312) 274-2000
CHICAGO, ILLINOIS 60611-1542 (Registrant's Telephone Number,
(Address of Principal Executive Offices) Including Area Code)
Former name, address and fiscal year, if changed since last report: 800 Superior
Avenue, Cleveland, Ohio 44114-2601
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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AP HOLDINGS, INC.
FORM 10-Q INDEX
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997...............................................................................3
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 1998 and September 30, 1997.........................................4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and September 30, 1997..............................................5
Notes to Condensed Consolidated Financial Statements................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........................................18
Part II. Other Information
Item 1. Legal Proceedings..................................................................................19
Item 2. Changes in Securities and Use of Proceeds..........................................................19
Item 3. Defaults upon Senior Securities....................................................................19
Item 4. Submission of Matters to a Vote of Security Holders................................................19
Item 5. Other Information..................................................................................19
Item 6. Exhibits and Reports on Form 8-K...................................................................19
Signatures.........................................................................................................20
Exhibits...........................................................................................................21
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AP HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 18,616 $ 3,322
Notes and accounts receivable, net ...................................... 29,509 13,806
Prepaid expenses and supplies ........................................... 2,290 1,126
--------- ---------
Total current assets ....................................................... 50,415 18,254
Leaseholds and equipment, net .............................................. 25,057 12,340
Intangible assets, net ..................................................... 121,824 22,470
Other assets ............................................................... 2,243 6,031
--------- ---------
Total assets ............................................................ $ 199,539 $ 59,095
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ........................................................ $ 13,897 $ 16,401
Accrued and other current liabilities ................................... 29,775 14,810
Current portion of long-term borrowings ................................. 1,235 4,102
--------- ---------
Total current liabilities .................................................. 44,907 35,313
Long-term borrowings, excluding current portion ............................ 191,078 34,181
Other long-term liabilities ................................................ 11,727 3,132
Redeemable preferred stock of subsidiary ................................... -- 8,728
Common stock of subsidiary subject to put/call rights ...................... 4,589 --
Common stock, 880 shares issued and outstanding and warrants to purchase 200
common shares, subject to put/call rights, at current value ............ -- 4,000
Stockholders' deficit:
Preferred stock, 12% quarterly, cumulative, par value $.01 per share, 10,000
shares authorized; 2970.74 shares at September 30, 1998
and 2,800.20 shares at December 31, 1997 issued and outstanding ........ 27,538 25,201
Common stock, par value $.01 per share, 20,000 shares
Authorized, 7920 shares issued and outstanding ......................... 1 1
Additional paid-in cash capital ............................................ 2,088 7,871
Accumulated deficit ........................................................ (82,389) (59,332)
--------- ---------
Total stockholders' deficit ................................................ (52,762) (26,259)
--------- ---------
Total liabilities and stockholders' deficit ............................. $ 199,539 $ 59,095
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statement at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
3
<PAGE> 4
AP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- --------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Parking services revenue:
Lease contracts ................................. $ 45,426 $ 25,625 $ 110,727 $ 73,651
Management contracts ............................ 10,532 4,569 24,079 13,692
--------- --------- --------- ---------
55,958 30,194 134,806 87,343
Costs and expenses:
Cost of parking services:
Lease contracts .............................. 40,294 21,850 98,446 64,351
Management contracts ......................... 3,473 2,199 8,284 6,799
--------- --------- --------- ---------
43,767 24,049 106,730 71,150
General and administrative ................... 7,302 3,530 16,663 9,715
Restructuring charge ......................... -- -- 14,100 --
Depreciation and amortization ................ 1,948 908 4,919 3,122
--------- --------- --------- ---------
Total costs and expenses .......................... 53,017 28,487 142,412 83,987
--------- --------- --------- ---------
Operating income (loss) ........................... 2,941 1,707 (7,606) 3,356
Interest expense (income):
Interest expense ............................. 4,927 956 10,922 2,755
Interest income .............................. (478) (107) (1,264) (339)
--------- --------- --------- ---------
4,449 849 9,658 2,416
--------- --------- --------- ---------
Income (loss) before minority interest, income
taxes and extraordinary item ................. (1,508) 858 (17,264) 940
Minority interest ................................. 144 104 395 234
Income tax expense ................................ 185 66 245 186
--------- --------- --------- ---------
Income (loss) before extraordinary item ........... (1,837) 688 (17,904) 520
Extraordinary loss ................................ -- -- 2,816 --
--------- --------- --------- ---------
Net income (loss) ................................. (1,837) 688 $ (20,720) 520
Preferred stock dividends ......................... (802) (934) (2,337) (2,742)
--------- --------- --------- ---------
Net loss available for common
stockholders .................................... $ (2,639) $ (246) $ (23,057) $ (2,222)
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
AP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ........................................... ($ 20,720) $ 520
Adjustments to reconcile net income (loss) to net cash used
in operations:
Depreciation and amortization ............................ 4,919 3,122
Restructuring charge (non-cash)........................... 2,400 --
Interest accreted on long-term borrowings ................ 2,346 --
Change in operating assets and liabilities ............... (10,114) (8,406)
--------- ---------
Net cash used in operating activities ....................... (21,169) (4,764)
INVESTING ACTIVITIES:
Business acquired, net of cash, and including direct
acquisition costs ....................................... (87,648) (478)
Purchase of leaseholds and equipment ........................ (4,275) (810)
Purchase of leaseholds and equipment by joint ventures ...... (299) (293)
Increase in other assets .................................... (1,073) (450)
--------- ---------
Net cash used in investing activities ....................... (93,295) (2,031)
FINANCING ACTIVITIES:
Proceeds from long-term borrowings .......................... 190,139 9,339
Payments on long-term borrowings ............................ (41,801) (659)
Payments on joint venture borrowings ........................ (400) (317)
Payments on debt issuance costs ............................. (6,180) --
Proceeds from issuance of preferred stock ................... (8,000) --
Redemption of redeemable preferred stock .................... (4,000) --
--------- ---------
Net cash provided by financing activities ................... 129,758 8,363
Increase in cash and cash equivalents ....................... 15,294 1,568
Cash and cash equivalents at beginning of period ............ 3,322 2,532
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 18,616 $ 4,100
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest ................................................. $ 8,619 $ 2,813
Taxes .................................................... 219 186
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(IN THOUSANDS, UNAUDITED)
1. INTERIM FINANCIAL DATA
The accompanying unaudited condensed consolidated financial statements
of AP Holdings, Inc. ("the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements.
AP Holdings, Inc. is a holding company which owns APCOA/Standard
Parking, Inc. and its subsidiaries ("APCOA/Standard"), formerly APCOA, Inc.
("APCOA"), which manages, operates and develops parking properties throughout
the United States and Canada.
In the opinion of management, all adjustments (consisting only of
adjustments of a normal and recurring nature) considered necessary for a fair
presentation of the financial position and results of operations have been
included. Operating results for the nine-month period ended September 30, 1998
are not necessarily indicative of the results that might be expected for the
fiscal year ending December 31, 1998. The financial statements presented in this
Report should be read in conjunction with the consolidated financial statements
and footnotes thereto included in the Company's Registration Statement on Form
S-4 No. 333-50433 effective August 14, 1998.
Certain reclassifications have been made to the 1997 financial
information to conform to the 1998 presentation.
2. 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 Corporation and certain affiliates "Standard". On
March 30, 1998, APCOA acquired Standard for consideration consisting of $65
million in cash, 16% of the common stock of APCOA 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 through the date
of the acquisition and Standard's cash on hand at such time.
The acquisition has been accounted for under the purchase method;
accordingly, its results are included in the consolidated financial statements
of the Company from the date of acquisition. Following is the preliminary
purchase price allocation (the final purchase price allocation will be based on
a final determination of the fair value of assets acquired and liabilities
assumed). Management believes that the final allocation of the purchase price
will not materially differ from the preliminary estimated amounts.
<TABLE>
<S> <C>
Cash consideration ..................................................... $ 65,000
5.01 shares of common stock of subsidiary issued, at calculated put/call
value ................................................................ 4,589
Closing distribution to the Standard owners ............................ 2,822
Consulting and non-compete agreement with former owner ................. 5,000
Direct acquisition costs ............................................... 5,219
--------
Total purchase price ................................................... $ 82,630
========
Cash ................................................................... $ 1,711
Notes and accounts receivable .......................................... 2,687
Prepaid expenses ....................................................... 150
Leaseholds and equipment ............................................... 7,971
Consulting and non-compete agreement ................................... 5,000
Cost in excess of net assets acquired .................................. 69,162
Other assets ........................................................... 991
Accounts payable and accrued expenses .................................. (1,872)
Restructuring reserves ($1.6 million cash, $0.4 million non-cash) ...... (2,000)
Other liabilities ...................................................... (1,170)
--------
$ 82,630
========
</TABLE>
6
<PAGE> 7
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The put/call value is based primarily upon a multiple of EBITDA of
APCOA/Standard. Direct acquisition costs incurred in connection with the
acquisition include investment banking fees of $3,289 and legal and other
professional fees of $1,930.
The restructuring reserves represent the estimated costs to integrate
existing information and operating systems of Standard in connection with the
Company's business plan. These costs include software modifications of $868,
re-branding costs of $510 and estimated severance costs of $622.
The following unaudited pro forma results of operations for the nine
months ended September 30, 1998 and 1997, assume the acquisition of Standard and
related transactions occurred at the beginning of each period presented:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998 September 30, 1997
--------------------- ----------------------
<S> <C> <C>
Net revenue................................... $149,365 126,934
Loss before extraordinary item................ (17,993) (6,057)
</TABLE>
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, APCOA/Standard acquired Huger Parking Company,
LLC, d/b/a Dixie Parking, for $4.2 million. On May 1, 1998, APCOA/Standard
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 $2.7
million in cash, subject to adjustment, including direct costs and up to $1.25
million in notes payable over five years with interest at the prime rate. These
acquisitions have been or will be accounted for under the purchase method. The
historical operating results of the businesses were not material to the
consolidated results of the Company.
3. RESTRUCTURING CHARGE
During the first quarter of 1998, management performed an analysis of
the costs associated with implementing the business plan of consolidating
APCOA/Standard's headquarters in Chicago and costs related to APCOA/Standard
staff reductions. Included in the "restructuring charge" in the accompanying
condensed consolidated statement of operations for the nine months ended
September 30, 1998 are the following (expenses are cash unless otherwise
stated):
<TABLE>
<S> <C>
Employee severance costs............................................................ $ 5,400
Employee relocation costs........................................................... 5,000
Impairment of assets that will no longer be used (non-cash expense)................. 2,400
Other restructuring costs........................................................... 1,300
---------
$ 14,100
=========
</TABLE>
The $5.4 million of employee severance costs consists of cash
compensation to 54 people. The $5.0 million of employee relocation costs are in
connection with the relocation and consolidation of the headquarters of
APCOA/Standard, the relocation of two major field offices, moving Cleveland
headquarters staff members to Chicago and other relocations within the field
organization. The impairment of assets that will no longer be used refers to the
write-off of $2.4 million of capitalized organization and software development
costs. The $1.3 million of other restructuring costs consists largely of a $1.0
million increase in insurance reserves resulting from a planned buyout of the
insurance program of APCOA in connection with the combination of APCOA and
Standard insurance programs.
7
<PAGE> 8
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Of the $11.7 million cash restructuring costs identified above, $4.1 million was
disbursed during the third quarter of 1998 and $7.9 million has been disbursed
to date. It is expected that substantially all actions related to the
restructuring will be completed by early 1999 and the remaining cash component
of the restructuring charge will be disbursed by the middle of 1999.
4. LONG-TERM DEBT
In connection with the Standard acquisition, on March 30, 1998, APCOA
issued $140 million principal amount of 9 1/4% Senior Subordinated Notes due
2008 in a Rule 144A private placement, and entered into a $40 million senior
credit facility. In addition, the Company received proceeds of approximately
$40.7 million from issuance of $70.0 million principal amount of 11 1/4% Senior
Discount Notes due 2008 in a Rule 144A private placement. The Company
contributed the proceeds from the offering of the Senior Discount Notes to APCOA
in exchange for redeemable preferred stock of APCOA. The net proceeds from the
offering and the preferred stock contribution were used by APCOA to fund the
cash portion of the consideration for the acquisition of Standard, to repay
certain existing debt of APCOA and Standard, for general corporate purposes and
to redeem preferred stock held by an affiliate.
In connection with the early extinguishment of debt in March 1998,
APCOA recorded an extraordinary loss of $2,816. The extraordinary loss
represents the unamortized balance of debt issuance costs related to APCOA's
previous credit agreement of $727 and a prepayment penalty of $2,089 related to
APCOA's previous credit agreement.
Effective September 14, 1998, the Company and APCOA/Standard,
respectively, completed offers to exchange all the outstanding Senior Discount
Notes and Senior Subordinated Notes due March 15, 2008 for New Notes with
substantially identical terms that are registered under the Securities Act of
1933.
5. STOCKHOLDERS' EQUITY (DEFICIT)
Following is a summary of transactions affecting stockholders' equity
(deficit) for the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- -----------------
Additional
Number Of Number Of Paid-In Accumulated
Shares Par Value Shares Par Value Capital Deficit Total
------ --------- ------ --------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance (deficit) at December 31, 1997..... 2,800.20 $25,201 7,920 $1 7,871 ($59,332) ($26,259)
Net loss (unaudited) for the nine
months ended September 30, 1998.......... (20,720) (20,720)
Preferred stock dividends.................. 259.67 2,337 (2,337)
Non-cash distribution to affiliate
(unaudited).............................. (6,511) (6,511)
Contribution to capital (unaudited)........ 728 728
-------- ------- ----- -- ------ --------- ---------
Balance (deficit) at September 30,
1998 (unaudited)......................... 3,059.87 $27,538 7,920 $1 $2,088 ($82,389) ($52,762)
======== ======= ===== == ====== ========= =========
</TABLE>
On August 4, 1998 the Company repurchased 10% of its common stock
outstanding and all warrants to purchase additional common stock held by a
minority investor for $4.0 million in cash. This transaction was entered into
pursuant to a put/call agreement dated April 1989. The repurchase was funded by
an intercompany loan from APCOA/Standard.
6. SUBSIDIARY GUARANTORS
All of APCOA/Standard's direct or indirect wholly owned domestic
subsidiaries, other than inactive subsidiaries, fully, unconditionally, jointly
and severally guarantee the Senior Subordinated Notes discussed in Note 4.
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 APCOA/Standard organized under the laws
of foreign jurisdictions and inactive subsidiaries, all of which are included in
the consolidated financial statements. The following is summarized combining
financial information for APCOA/Standard, the guarantor subsidiaries of
APCOA/Standard and the non-guarantor subsidiaries of APCOA/Standard:
8
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AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
APCOA SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
SEPTEMBER 30, 1998
Cash and cash equivalents ............................... $ 11,310 $ 6,235 $ 1,071 $ -- $ 18,616
Notes and accounts receivable ........................... 23,102 5,228 1,179 -- 29,509
Current assets .......................................... 35,576 12,293 2,546 -- 50,415
Leaseholds and equipment, net ........................... 9,062 10,521 5,474 -- 25,057
Cost in excess of net assets acquired, net .............. 24,098 84,632 819 -- 109,549
Investment in subsidiaries .............................. 111,328 -- -- (111,328) --
Total assets ............................................ 188,019 116,122 10,726 (111,328) 203,539
Accounts payable ........................................ 6,311 4,700 2,886 -- 13,897
Current liabilities ..................................... 26,225 11,609 7,073 -- 44,907
Long-term borrowings, excluding current portion.......... 142,791 115 5,143 -- 148,049
Redeemable preferred stock .............................. 43,029 -- -- -- 43,029
Common stock subject to put/call rights ................. 4,589 -- -- -- 4,589
Total stockholders' equity (deficit) .................... (37,936) 102,944 (2,442) (111,328) (48,762)
Total liabilities and stockholders' equity (deficit) .... 188,019 116,122 10,726 (111,328) 203,539
DECEMBER 31, 1997
Cash and cash equivalents ............................... $ 1,255 $ 1,019 $ 1,048 $ -- $ 3,322
Notes and accounts receivable ........................... 10,587 326 2,893 -- 13,806
Current assets .......................................... 12,801 1,292 4,161 -- 18,254
Leaseholds and equipment, net ........................... 6,246 227 5,867 -- 12,340
Cost in excess of net assets acquired, net .............. 16,190 1,432 835 -- 18,457
Investment in subsidiaries .............................. 3,652 -- -- (3,652) --
Total assets ............................................ 46,000 3,477 13,270 (3,652) 59,095
Accounts payable ........................................ 13,574 1,756 1,071 -- 16,401
Current liabilities ..................................... 26,593 2,178 6,542 -- 35,313
Long-term borrowings, excluding current portion ......... 28,747 -- 5,434 -- 34,181
Redeemable preferred stock .............................. 8,728 -- -- -- 8,728
Total stockholders' equity (deficit) .................... (20,229) 1,219 403 (3,652) (22,259)
Total liabilities and stockholders' equity (deficit) .... 46,000 3,477 13,270 (3,652) 59,095
INCOME STATEMENT DATA:
THREE MONTHS ENDED SEPTEMBER 30, 1998
Parking Revenue ......................................... $ 22,341 $ 25,456 $ 8,161 $ -- $ 55,958
Gross profit ............................................ 5,279 6,649 263 -- 12,191
Depreciation and amortization ........................... 857 841 250 -- 1,948
Operating income ........................................ 181 3,334 (574) -- 2,941
Interest expense (income), net .......................... 3,139 (1) 153 -- 3,291
Equity in earnings of subsidiaries ...................... (2,510) -- -- 2,510 --
Net income (loss) ....................................... (679) 3,330 (820) (2,510) (679)
THREE MONTHS ENDED SEPTEMBER 30, 1997
Parking Revenue ......................................... $ 20,795 $ 1,038 $ 8,361 $ -- $ 30,494
Gross profit ............................................ 4,773 368 1,004 -- 6,145
Depreciation and amortization ........................... 655 18 235 -- 908
Operating income ........................................ 1,169 243 295 -- 1,707
Interest expense (income), net .......................... 705 -- 144 -- 849
Equity in earnings of subsidiaries ...................... (284) -- -- 284 --
Net income (loss) ....................................... 688 243 41 (284) 688
NINE MONTHS ENDED SEPTEMBER 30, 1998
Parking Revenue ......................................... $ 61,156 $ 45,919 $ 27,731 $ -- $ 134,806
Gross profit ............................................ 13,970 12,089 2,017 -- 28,076
Depreciation and amortization ........................... 2,457 1,681 781 -- 4,919
Restructuring charge .................................... 14,100 -- -- -- 14,100
Operating income ........................................ (13,787) 6,358 (177) -- (7,606)
Interest expense (income), net .......................... 6,843 (11) 480 -- 7,312
Equity in earnings of subsidiaries ...................... (5,365) -- -- 5,365 --
Net income (loss) ....................................... (18,375) 6,364 (998) (5,365) (18,374)
</TABLE>
9
<PAGE> 10
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1997
Parking Revenue ........................................ $ 59,457 $ 2,114 $ 25,750 $ -- $ 87,343
Gross profit ........................................... 13,018 486 2,689 -- 16,193
Depreciation and amortization .......................... 2,454 48 620 -- 3,122
Operating income ....................................... 2,527 124 705 -- 3,356
Interest expense (income), net ......................... 1,971 -- 445 -- 2,416
Equity in earnings of subsidiaries ..................... (145) -- -- 145 --
Net income (loss) ...................................... 520 124 21 (145) 520
STATEMENT OF CASH FLOW DATA:
NINE MONTHS ENDED SEPTEMBER 30, 1998
Net cash provided by (used in) operating activities .... $ (24,031) $ 2,140 $ 722 $ -- $ (21,169)
Investing activities:
Purchase of leaseholds and equipment ................. (2,902) (1,373) -- -- (4,275)
Purchase of leaseholds and equipment by joint ventures -- -- (299) -- (299)
Businesses acquired .................................. (92,097) 4,449 -- -- (87,648)
Other ................................................ (5,073) -- -- (5,073)
Net cash provided by (used in) investing activities .... (100,072) 3,076 (299) -- (97,295)
Financing activities:
Proceeds from long-term borrowings ................... 149,456 -- -- -- 149,456
Payments on long-term borrowings ..................... (41,801) -- -- -- (41,801)
Payments of debt issuance costs ...................... (6,180) -- -- -- (6,180)
Payment on joint venture debt ........................ -- (400) -- (400)
Proceeds from issuance of preferred stock ............ 40,683 -- -- -- 40,683
Redemption of redeemable preferred stock ............. (8,000) -- -- -- (8,000)
Net cash provided by (used in) financing activities .... 134,158 -- (400) -- 133,758
NINE MONTHS ENDED SEPTEMBER 30, 1997
Net cash provided by (used in) operating activities .... $ (7,325) $ 1,355 $ 1,206 $ -- $ (4,764)
Investing activities:
Purchase of leaseholds and equipment ................. (580) (230) -- -- (810)
Purchase of leaseholds and equipment by joint
ventures............................................ -- -- (293) -- (293)
Businesses acquired .................................. (478) -- -- -- (478)
Other ................................................ (450) -- -- -- (450)
Net cash used in investing activities .................. (1,508) (230) (293) -- (2,031)
Proceeds from long-term borrowings ................... 9,339 -- -- -- 9,339
Payments on long-term borrowings ..................... (659) -- -- -- (659)
Payments on joint venture borrowings.................. -- -- (317) -- (317)
Net cash provided by (used in) financing activities .... 8,680 -- (317) -- 8,363
</TABLE>
10
<PAGE> 11
PART I FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The assets of AP Holdings, Inc. ("Holdings" or "the Company") consist
solely of capital stock of APCOA/Standard Parking, Inc. ("APCOA/Standard"), and
Holdings conducts all of its operations through APCOA/Standard.
APCOA/Standard operates parking facilities under two types of
arrangements: management contracts and leases. APCOA/Standard does not own any
parking facilities and, as a result, APCOA/Standard assumes few of the risks of
real estate ownership. 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
September 30, 1998, APCOA/Standard operated approximately 72% of its
approximately 1,457 parking facilities under management contracts and
approximately 28% under leases.
Parking services revenue--leases. Lease parking services revenues
consist of all gross customer collections 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 and field office and supervisory employees.
11
<PAGE> 12
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
Parking Corporation and affiliates ("Standard") on a pro forma basis:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
MANAGED FACILITIES:
APCOA/Standard Parking................. 675 607 553
Other Acquisitions..................... 371 187 55
------ ------ -----
Combined............................... 1,046 794 608
LEASED FACILITIES:
APCOA/Standard Parking................. 264 262 266
Other Acquisitions..................... 147 46 25
------ ------ -----
Combined............................... 411 308 291
------ ------ -----
TOTAL FACILITIES....................... 1,457 1,102 899
====== ====== =====
</TABLE>
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
Gross customer collections consist of gross receipts collected at all
leased and managed properties, including unconsolidated affiliates. Gross
customer collections increased $169.6 million, or 131.4%, to $298.7 million in
the third quarter of 1998 compared to $129.1 million in the third quarter of
1997. This increase is attributable $139.5 million to the combination with
Standard and $30.1 million to the addition of other locations during the period.
Gross customer collections increased $364.9 million, or 103.8% to $716.4 million
in the first nine months of 1998 compared to $351.5 million in the first nine
months of 1997. This increase is attributable $285.9 million to the combination
with Standard and $79.0 million to the addition of other locations during the
period.
In analyzing gross margins of APCOA/Standard, it should be noted that
the cost of parking services in connection with the provision of management
services is generally paid by the clients. Margins for lease arrangements are
significantly impacted by variables other than operating performance, such as
variability in parking rates in different cities and widely varying space
utilization by parking facility type.
The following should be read in conjunction with the Condensed
Consolidated Financial Statements and notes thereto in Item 1.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Parking services revenue--leases. Lease revenue increased $19.8
million, or 77.3%, to $45.4 million in the third quarter of 1998 as compared to
$25.6 million in the third quarter of 1997. This increase was driven by revenue
from acquired leases of $19.1 million and core business growth of $0.7 million.
Parking services revenue--management contracts. Management contract
revenue increased $5.9 million, or 130.5%, to $10.5 million in the third quarter
of 1998 as compared to $4.6 million in the third quarter of 1997. Of this
increase, $4.9 million resulted from acquired management contracts. The
remaining $1.0 million increase resulted from management fees at new locations
added subsequent to September 30, 1997 through internal growth, and increases at
existing locations.
Cost of parking service--leases. Cost of parking for leases increased
$18.4 million, or 84.4%, to $40.3 million in the third quarter of 1998 from
$21.9 million in the third quarter of 1997. This increase resulted $18.0 million
from acquired leases and $0.4 million from expense growth at existing locations,
primarily attributable to percentage rent paid on incremental revenue. Gross
margin for leases declined to 11.3% for the third quarter of 1998 compared to
14.7% for the third quarter of 1997. This reduction was caused by the average
gross margin on acquired leases being lower than that of existing leases.
Cost of parking services--management contracts. Cost of parking for
management contracts increased by $1.3
12
<PAGE> 13
million, or 57.9%, to $3.5 million in the third quarter of 1998 from $2.2
million in the third quarter of 1997. This increase resulted $0.8 million from
acquired management contracts and $0.5 million from expense growth at existing
locations. During the same period, however, gross margin for management
contracts improved to 67.0% compared to 51.9% in the third quarter of 1997. This
improvement in margin results from the relative mix of locations that were added
compared to those already in the contract portfolio. Most new locations do not
carry any cost of parking since all of these costs are paid by the clients while
some of the existing management contracts do carry some costs.
General and administrative expenses. General and administrative costs
increased $3.8 million, or 106.9%, to $7.3 million for the third quarter of 1998
as compared to $3.5 million for the third quarter of 1997. This increase results
primarily from administrative costs associated with the acquired companies and
inflation.
Other income and expenses. Interest expense, net of interest income,
totaled $4.4 million in the third quarter of 1998, an increase of $3.6 million
over the third quarter of 1997. This increase resulted from the debt financing
incurred in connection with the combination with Standard in March 1998,
partially offset by the resulting interest earned on excess cash balances.
Minority interest expense for the third quarter of 1998 totaled $0.1 million
while income taxes were $0.2 million, compared to $0.1 million and $0.1 million,
respectively, for the same period of the prior year. Income taxes consist
primarily of state and local income taxes, because the Company continues to
benefit from significant net operating loss carry-forwards for federal income
tax purposes.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Parking services revenue--leases. Lease revenue increased $37.0
million, or 50.3%, to $110.7 million in the nine month period ended September
30, 1998 as compared to $73.7 million in the year-ago period. This increase was
driven by revenue from acquired leases of $34.5 million and core business growth
of $4.5 million, partially offset by two terminated leases of $2.0 million.
Parking services revenue--management contracts. Management contract
revenue increased $10.4 million, or 75.9%, to $24.1 million in the first nine
months of 1998 as compared to $13.7 million in the first nine months of 1997.
This increase resulted $8.6 million from the impact of acquired management
contracts. The remaining $1.8 million increase results from management fees at
new locations added subsequent to September 30, 1997 through internal growth,
and modest increases at existing locations.
Cost of parking services--leases. Cost of parking for leases increased
$34.1 million, or 53.0%, to $98.4 million for the first nine months of 1998 from
$64.3 million in the same period of 1997. This increase resulted $31.9 million
from acquired leases, savings of $1.8 million from terminated leases and $4.0
million from expense growth at existing locations primarily attributable to
percentage rent paid on incremental revenue. Gross margin for leases declined to
11.1% for the nine-month period compared to 12.6% for the first nine months of
1997. This decline resulted from the average gross margin on acquired leases
being lower, which drove down the average lease gross margin.
Cost of parking services--management contracts. Cost of parking for
management contracts increased by $1.5 million, or 21.8%, to $8.3 million in the
first nine months of 1998 from $6.8 million in the first nine months of 1997.
This increase resulted $0.8 million from acquired contracts and $0.7 million
from expense growth at existing locations. Gross margin for management
contracts, however, improved to 65.6% in the current nine-month period compared
to 50.3% for the first nine months of 1997. As noted above, this improvement
results from the relative mix of locations that were added compared to those
already in the contract portfolio. Most new locations do not carry any cost of
parking since all of these costs are paid by the clients while some of the
existing management contracts do carry some costs.
General and administrative expenses. General and administrative costs
increased $7.0 million, or 71.5%, to $16.7 million for the first nine months of
1998 as compared to $9.7 million for the first nine months of 1997. This
increase resulted primarily from costs associated with the acquired companies
and inflation.
Restructuring charge. APCOA/Standard took a $14.1 million restructuring
charge in the first quarter of 1998 in connection with the combination with
Standard, which was based upon an analysis of the costs associated with
implementing the business plan of consolidating the Company's headquarters in
Chicago, consolidating the Company's field operations, and costs related to
APCOA 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 Cleveland headquarters staff members to Chicago
and other relocations within the field organization, (B) $5.4 million in
severance costs consisting of cash compensation to 54 people, (C) the write-off
of $2.4 million of assets that will no longer be used in the business consisting
of $0.7 million of capitalized assets which were abandoned as a result of the
combination with Standard and $1.7 million of software development costs and (D)
$1.3 million of other restructuring costs, the largest component of which was a
$1.0 million increase in insurance reserves resulting from a planned buyout of
the insurance program of APCOA in connection with the combination of the APCOA
and Standard insurance programs. Of the $11.7 million cash component of this
13
<PAGE> 14
restructuring charge, $7.9 million has been disbursed to date and the balance is
expected to be disbursed by the middle of 1999.
Other income and expenses. Interest expense, net of interest income,
totaled $9.7 million in the nine months ended September 30, 1998, up $7.3
million from the same period of 1997, as a result of debt financing incurred in
connection with the combination with Standard and other acquisitions. Earnings
for the nine month period include an extraordinary loss recorded in the first
quarter 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 expense for the first nine months of
1998 totaled $0.4 million, compared to $0.2 million for the year-ago period,
which is reflective of increasing joint venture income. Income taxes for both
the current and the year-ago nine-month period were $0.2 million.
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 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- --------------------------------
September 30 September 30 September 30 September 30
1998 1997 1998 1997
------------- ------------ ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Parking services revenue:
Lease contracts $45,426 $ 37,719 $122,772 $106,577
Management contracts 10,532 6,855 26,593 20,357
------------- ------------ ------------- -------------
55,958 44,574 149,365 126,934
------------- ------------ ------------- -------------
Cost of parking services:
Lease contracts 40,294 32,928 109,635 94,239
Management contracts 3,473 2,199 8,284 6,800
------------- ------------ ------------- -------------
43,767 35,127 117,919 101,039
------------- ------------ ------------- -------------
General and administrative expenses 7,302 5,808 18,681 15,085
------------- ------------ ------------- -------------
Operating income before depreciation,
Amortization and restructuring charges $ 4,889 $ 3,639 $ 12,765 $ 10,810
============= ============ ============= =============
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Parking services revenue--leases. Lease revenue increased $7.7 million, or
20.4%, to $45.4 million in the third quarter of 1998 as compared to $37.7
million in the third quarter of 1997. This increase was driven by revenue from
acquired leases of $5.8 million and core business growth of $1.9 million.
Parking services revenue--management contracts. Management contract revenue
increased $3.6 million, or 53.6%, to $10.5 million in the third quarter of 1998
as compared to $6.9 million in the third quarter of 1997. Of this increase, $1.8
million resulted from acquired management contracts. The remaining $1.8 million
increase resulted from management fees at new locations added subsequent to
September 30, 1997, and increases at existing locations.
Cost of parking service--leases. Cost of parking for leases increased $7.4
million, or 22.4%, to $40.3 million in the third quarter of 1998 from $32.9
million in the third quarter of 1997. This increase resulted $5.7 million from
acquired leases and $1.7 million from expense growth at existing locations,
primarily attributable to percentage rent paid on incremental revenue. Gross
margin for leases on a combined basis decreased to 11.3% for the third quarter
of 1998 compared to 12.7% for the third quarter of 1997. This reduction was
caused by the average gross margin on acquired leases being lower than that of
existing leases.
14
<PAGE> 15
Cost of parking services--management contracts. Cost of parking for
management contracts increased by $1.3 million, or 57.9%, to $3.5 million in the
third quarter of 1998 from $2.2 million in the third quarter of 1997. This
increase resulted $0.7 million from acquired contracts and $0.6 million from
expense growth at existing locations. During the same period, however, gross
margin for management contracts decreased to 67.0% compared to 67.9% in the
third quarter of 1997. This change in margin resulted from the relative mix of
locations that were added compared to those already in the contract portfolio.
General and administrative expenses. General and administrative costs
increased $1.5 million, or 25.7%, to $7.3 million for the third quarter of 1998
as compared to $5.8 million for the third quarter of 1997. This increase
resulted from inflation and $1.5 million of additional costs from acquired
contracts, partially offset by savings generated in connection with the
APCOA/Standard combination.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Parking services revenue--leases. Lease revenue increased $16.2 million, or
15.2%, to $122.8 million in the nine month period ended September 30, 1998 as
compared to $106.6 million in the year-ago period. This increase was driven by
revenue from acquired leases of $8.6 million and core business growth of $9.6
million, partially offset by two terminated leases of $2.0 million.
Parking services revenue--management contracts. Management contract revenue
increased $6.2 million, or 30.6%, to $26.6 million in the first nine months of
1998 as compared to $20.4 million in the first nine months of 1997. This
increase resulted $3.0 million from the impact of acquired management contracts.
The remaining $3.2 million increase resulted from management fees at new
locations added subsequent to September 30, 1997, and increases at
existing locations.
Cost of parking services--leases. Cost of parking for leases increased
$15.4 million, or 16.3%, to $109.6 million for the first nine months of 1998
from $94.2 million in the same period of 1997. This increase resulted $8.4
million from acquired leases, savings of $1.8 million from terminated leases
and $8.8 million from expense growth at existing locations primarily
attributable to percentage rent paid on incremental revenue. Gross margin for
leases declined to 10.7% for the nine-month period compared to 11.6% for the
first nine months of 1997. This decline resulted from the average gross margin
on acquired leases being lower, which drove down the average lease gross margin.
Cost of parking services--management contracts. Cost of parking for
management contracts increased by $1.5 million, or 21.8%, to $8.3 million in the
first nine months of 1998 from $6.8 million in the first nine months of 1997.
This increase resulted $0.8 million from acquired contracts and $0.7 million
from expense growth at existing locations. Gross margin for management
contracts, however, improved to 68.8% in the current nine-month period compared
to 66.6% for the first nine months of 1997. This improvement resulted from the
relative mix of locations that were added compared to those already in the
contract portfolio.
General and administrative expenses. General and administrative costs
increased $3.6 million, or 23.8%, to $18.7 million for the first nine months of
1998 as compared to $15.1 million for the first nine months of 1997. This
increase results from inflation and $2.7 million of additional costs from
acquired contracts, partially offset by savings generated in connection with the
APCOA/Standard combination.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
The Company had $5.5 million of working capital at September 30, 1998
as compared to a $17.1 million working capital deficit at December 31, 1997.
This fluctuation resulted primarily from the excess cash that the Company
received pursuant to the debt financing obtained in connection with the
combination with Standard. The Company had cash and cash equivalents of $18.6
million at September 30, 1998 compared to $3.3 million at December 31, 1997.
Net cash used in operating activities totaled $21.2 million for the
first nine months of 1998 compared to $4.8 million for the first nine months of
1997. Cash used during the first nine months of 1998 included $7.9 million of
cash restructuring charges, $2.1 million prepayment penalty on early
extinguishment of debt and increases in accounts receivable relating to acquired
contracts of $6.3 million.
Cash used in investing activities totaled $93.3 million in the first
nine months of 1998 compared to $2.0 million in the same period of 1997. The
change was a result of the acquisitions of Standard and Dixie Parking by
APCOA/Standard 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, APCOA/Standard expended $4.3 million in capital purchases in the first
nine months of 1998. Significant capital purchases included the acquisition of
a twelve-year lease in March 1998 and the furnishing and improvement of
APCOA/Standard's combined office space in Chicago.
Cash generated from financing activities totaled $129.8 million in the
first nine months of 1998 compared to $8.4 million for the first nine months of
1997. The 1998 activity included $190.1 million of proceeds from the issuance of
debt, $42.2 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. On August 4, 1998, the Company
repurchased 10% of its common stock outstanding and all warrants to purchase
additional common stock held by a minority investor for $4.0 million in cash.
This transaction was entered into pursuant to a put/call agreement dated April
1989. The repurchase was funded by an intercompany loan from APCOA/Standard.
APCOA/Standard has lease commitments of $51.4 million for fiscal 1998.
The leased properties generate sufficient cash flow to meet the base rent
payments.
In connection with the combination with Standard, APCOA entered into a
new credit facility for $40.0 million of secured revolving credit. Borrowings
under the credit facility bear interest at variable rates based, at the
Company's option, either on LIBOR, the overnight federal funds rate, or the
bank's base rate. The credit facility contains certain covenants with which the
Company must comply, including restrictions on debt limits relative to EBITDA,
capital expenditures, and other customary requirements.
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 new
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.
On September 30, 1998, the planned consolidation of APCOA/Standard's
headquarters in Chicago was completed and the planned 35-person reduction in
administrative headcount was realized.
Additionally, the accounting for two of APCOA/Standard's five regions
was converted to the APCOA management information systems. A third region is
being converted during the month of November 1998 and APCOA/Standard's business
plan includes the conversion of the final two regions in early 1999.
APCOA/Standard has finalized a combined aesthetics program, which will create a
common look and theme for all of the Company's parking facilities. This program
is being implemented over a period of time based upon client input and approval.
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 new credit facility, or may seek additional sources of capital
including the sale or issuance of common stock. APCOA/Standard has in the past
utilized non-recourse financing to fund specific projects and
16
<PAGE> 17
is presently negotiating a $1.8 million non-recourse financing facility to fund
improvements at two parking facilities which are being made in consideration of
the contract extension and new agreement granted to the Company.
APCOA/Standard is in the process of combining the insurance programs of
all subsidiaries into one program. In conjunction therewith, APCOA/Standard
expects to purchase 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. It is
currently estimated that buying a tail policy to eliminate future exposure from
retrospective adjustments would result in a use of cash in a range of $4.0 to
$5.0 million in the fourth quarter of 1998. This transaction would provide an
equally offsetting increase in liquidity by allowing the elimination of letters
of credit.
APCOA/Standard has in the past and expects in the future to pursue a
strategy of growth through acquisition. On June 1, 1998, APCOA/Standard
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. The results of operations
of Century Parking and Sentry Parking prior to acquisition were not material to
the Company. In addition, on September 1, 1998 the Company acquired the capital
stock of Virginia Parking Service, Inc. ("VAPARK") for $2.7 million in cash,
subject to adjustment, plus an additional aggregate amount of up to $1.25
million payable over the five-year period immediately following the closing. The
results of operations of VAPARK prior to acquisition were not material to
APCOA/Standard. APCOA/Standard is currently in negotiations with respect to
several possible acquisitions, none of which are "probable" as of the date
hereof. There can be no assurance as to the Company's ability to effect future
acquisitions, nor as to the effect of any such acquisition on the Company's
operations, financial condition and profitability.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any such
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions or engage in normal business activities.
In conjunction with the integration of the Company's operations
described above, the Company's business plan includes the integration of
existing information and operating systems of the acquired companies with those
of APCOA. This integration is expected to be completed during 1999.
The core business applications and technical infrastructure that will
continue in use when the integration is completed have been tested and are
believed to be Year 2000 compliant. The Company has not, however, evaluated the
degree of compliance of the various systems that will be discontinued. If the
Company does not complete its planned integration within the scheduled time
frame, the impact could potentially be material.
The Company has no material systems that interface directly with those
of third parties. The Company does, however, rely on certain third party vendors
for routine transaction processing such as the clearing of checks and payment of
certain payroll. The Company is monitoring the degree of compliance of these
vendors, and those who are unable to provide assurance of compliance will be
replaced prior to the year 2000. The Company anticipates no difficulty in
locating appropriate replacement vendors should it become necessary, and the
impact to the Company is not expected to be material.
The Company expects to incur no significant costs as a direct result of
the Year 2000 issue. Costs incurred in connection with the Company's integration
plan are described in Note 3 of the Notes to Condensed Consolidated Financial
Statements.
17
<PAGE> 18
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
intended to be covered by the safe harbors created thereby. Those statements
include, but may not be limited to, the discussions of the Company's
expectations concerning its future profitability, the discussion of the
Company's strategic relationships, discussions about Year 2000 compliance plans,
and the Company's operating and growth assumptions regarding certain matters,
including anticipated cost savings, in preparation of the unaudited financial
information. Investors are cautioned that forward-looking statements involve
risks and uncertainties. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included will prove to be accurate. In light
of the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.1 -- Financial Data Schedule
</TABLE>
- - ------------------------
(b) Reports on Form 8-K
No current report on Form 8-K was filed by AP Holdings, Inc.
during the quarter ended September 30, 1998.
19
<PAGE> 20
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.
(Registrant)
September 28, 1998
By: /s/ G. Walter Stuelpe, Jr.
-------------------------------------------
G. Walter Stuelpe, Jr.,
Chief Executive Officer, President
and Director
September 28, 1998
By: /s/ Michael J. Celebrezze
-------------------------------------------
Michael J. Celebrezze,
Treasurer
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,616
<SECURITIES> 0
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27,538
0
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</TABLE>
