<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 Including Area Code)
Offices,
Including Zip Code)
Former name, address and fiscal year, if changed since last report:
----------------
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 [_]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
AP HOLDINGS, INC.
FORM 10-Q INDEX
<TABLE>
<C> <C> <S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999.............................. 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2000 and September 30,
1999 and for the nine months ended September 30, 2000
and September 30, 1999.................................. 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2000 and September 30,
1999.................................................... 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.................................................... 16
Part II. Other Information
Item 1. Legal Proceedings........................................ 17
Item 2. Changes in Securities and Use of Proceeds................ 17
Item 3. Defaults upon Senior Securities.......................... 17
Item 4. Submission of Matters to a Vote of Security Holders...... 17
Item 5. Other Information........................................ 17
Item 6. Exhibits and Reports on Form 8-K......................... 17
Signatures................................................................. 18
Exhibits................................................................... 19
</TABLE>
<PAGE>
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, December 31,
2000 1999
------------- ------------
(Unaudited) (see Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 7,364 $ 5,215
Notes and accounts receivable, net................ 43,427 42,715
Prepaid expenses and supplies..................... 1,804 1,645
--------- ---------
Total current assets............................ 52,595 49,575
Leaseholds and equipment, net....................... 31,001 32,659
Advances and deposits............................... 1,820 2,040
Cost in excess of net assets acquired............... 114,065 114,923
Intangible and other assets......................... 12,689 14,073
--------- ---------
Total assets.................................... $ 212,170 $ 213,270
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................. $ 31,643 $ 25,289
Accrued and other current liabilities............. 23,237 35,138
Current portion of long-term borrowings........... 1,472 1,328
--------- ---------
Total current liabilities....................... 56,352 61,755
Long-term borrowings, excluding current portion..... 230,418 215,421
Other long-term liabilities......................... 11,667 11,116
Redeemable preferred stock.......................... 35,140 31,924
Common stock of subsidiary subject to put/call
rights; 5.01 shares issued and Outstanding......... 4,589 4,589
Stockholders' deficit:
Class A voting common stock, $.01 par value per
share, 20,000 shares authorized, no shares
outstanding...................................... -- --
Class B voting common stock, $.01 par value per
share, 20,000 shares authorized, 8,800 shares
issued, 7,920 share outstanding.................. 1 1
Additional paid-in capital........................ 2,088 2,088
Advances to and deposits with affiliate........... (4,990) (4,820)
Accumulated other comprehensive (loss) income..... (504) 428
Accumulated deficit............................... (122,591) (109,232)
--------- ---------
Total stockholders' deficit..................... (125,996) (111,535)
--------- ---------
Total liabilities and stockholders' deficit... $ 212,170 $ 213,270
========= =========
</TABLE>
--------
Note: The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
AP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross customer
collections............ $402,444 $356,500 $1,154,537 $1,012,100
======== ======== ========== ==========
Parking services
revenue:
Lease contracts....... $ 45,075 $ 46,841 $ 138,892 $ 147,366
Management contracts.. 18,042 13,435 49,383 36,609
-------- -------- ---------- ----------
63,117 60,276 188,275 183,975
Cost of parking
services:
Lease contracts....... 39,001 40,523 121,852 129,415
Management contracts.. 8,979 5,018 21,747 13,180
-------- -------- ---------- ----------
47,980 45,541 143,599 142,595
-------- -------- ---------- ----------
Gross profit............ 15,137 14,735 44,676 41,380
General and
administrative
expenses............... 8,734 8,580 26,996 23,096
Restructuring and other
special charges........ 1,219 955 1,642 1,365
Depreciation and
amortization........... 2,911 2,284 8,127 6,434
-------- -------- ---------- ----------
Operating income........ 2,273 2,916 7,911 10,485
Interest expense
(income):
Interest expense...... 5,961 5,342 17,624 15,807
Interest income....... (100) (354) (258) (461)
-------- -------- ---------- ----------
5,861 4,988 17,366 15,346
-------- -------- ---------- ----------
Loss before minority
interest and income
taxes.................. (3,588) (2,072) (9,455) (4,861)
Minority interest....... 155 102 314 359
Income tax expense...... 124 241 374 524
-------- -------- ---------- ----------
Net loss................ (3,867) (2,415) (10,143) (5,744)
Preferred stock
dividends.............. (1,106) (904) (3,216) (2,631)
-------- -------- ---------- ----------
Net loss available for
common stockholders.... $ (4,973) $ (3,319) $ (13,359) $ (8,375)
======== ======== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
AP HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Operating activities:
Net loss.......................................... $(10,143) $ (5,744)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization................... 8,127 6,434
Interest accreted on long-term borrowing........ 3,216 3,777
Change in operating assets and liabilities, net
of acquisitions................................ (4,986) (25,296)
-------- --------
Net cash used in operating activities......... (3,786) (20,829)
Investing activities:
Businesses acquired, net of cash, and including
direct acquisition costs......................... -- (3,104)
Purchase of leaseholds and equipment.............. (3,813) (6,996)
Purchase of leaseholds and equipment by joint
ventures......................................... (169) (303)
-------- --------
Net cash used in investing activities......... (3,982) (10,403)
Financing activities:
Proceeds from long-term borrowings................ 11,900 20,550
Payments on long-term borrowings.................. (455) (1,284)
Payments on joint venture borrowings.............. (596) (330)
-------- --------
Net cash provided by financing activities..... 10,849 18,936
Effect of exchange rate on cash and cash
equivalents...................................... (932) --
-------- --------
Increase (decrease) in cash and cash equivalents.. 2,149 (12,296)
Cash and cash equivalents at beginning of period.. 5,215 19,183
-------- --------
Cash and cash equivalents at end of period........ $ 7,364 $ 6,887
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest........................................ $ 16,048 $ 13,557
Taxes........................................... 524 487
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(in thousands, unaudited)
1. Interim Financial Data
AP Holdings ("Holdings") is a subsidiary of Holberg Industries, Inc.
("Holberg"), which owns 84% of the outstanding voting stock and 100% of the
preferred stock of APCOA/Standard Parking, Inc. ("APCOA/Standard" or the
"Company"). APCOA/Standard accounts for all of Holdings' assets and Holdings
conducts substantially all of its business through APCOA/Standard.
The accompanying unaudited condensed consolidated financial statements of
Holdings, 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.
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, 2000
are not necessarily indicative of the results that might be expected for the
fiscal year ending December 31, 2000. The financial statements presented in
this Report should be read in conjunction with the consolidated financial
statements and footnotes thereto included in Holdings' 1999 Form 10-K filed
March 31, 2000.
Certain reclassifications have been made to the 1999 financial information
to conform to the 2000 presentation.
2. Restructuring, Integration Costs and Other Special Charges
Included in "Restructuring, integration costs and other special charges" in
the accompanying condensed consolidated statements of operations for the nine
months ended September 30, 2000 and 1999 are the following:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Restructuring, integration costs and other
special charges.............................. $1,437 $1,365
Costs associated with terminated
transactions................................. 205 --
------ ------
$1,642 $1,365
====== ======
</TABLE>
The integration costs and other special charges relate primarily to pre-
merger costs of $0.7 million, severance costs in connection with
reorganization of administrative and other support functions of $0.6 million
and other integration costs of $0.1 million. The costs associated with
terminated transactions relate to expense incurred for acquisition activity
that was terminated.
3. Borrowing Arrangements
APCOA/Standard's $140,000 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 Notes were 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.
6
<PAGE>
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 March 1998 acquisitions of Standard.
In March of 1998, the Company entered into a $40,000 revolving Senior
Credit Facility (the "Facility") with a group of banks. Rates of interest on
borrowings against the Facility are indexed to certain key variable rates. At
September 30, 2000, borrowings under the Facility aggregated $30,000 and there
were letters of credit outstanding against this Facility of $250.
The Notes and Senior Credit Facility contain covenants that limit
APCOA/Standard from incurring additional indebtedness and issuing preferred
stock, restrict dividend payments, limit transaction with affiliates and
restrict certain other transactions. Substantially all of APCOA/Standard's net
assets are restricted under these provisions and covenants (See Note 4).
7
<PAGE>
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. 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. 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 statements. The following is summarized combining
financial information for the Company, the guarantor subsidiaries of the
Company and the non-guarantor subsidiaries of the Company:
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
APCOA/Standard Subsidiaries Subsidiaries Eliminations Total
-------------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
September 30, 2000
Cash and cash equivalents................... $ 3,411 $ 1,847 $ 2,106 $ -- $ 7,364
Notes and accounts receivable............... 63,101 (21,952) 2,278 -- 43,427
Current assets.............................. 68,180 (19,982) 4,397 -- 52,595
Leaseholds and equipment, net............... 17,449 7,832 5,720 -- 31,001
Cost in excess of net assets acquired, net.. 19,173 91,306 3,586 -- 114,065
Investment in subsidiaries.................. 97,788 -- -- (97,788) --
Total assets................................ 210,970 84,356 14,632 (97,788) 212,170
Accounts payable............................ 14,369 14,906 2,368 -- 31,643
Current liabilities......................... 35,288 15,203 5,861 -- 56,352
Long-term borrowings, excluding
current portion............................ 172,398 175 4,352 -- 176,925
Redeemable preferred stock.................. 53,493 -- -- -- 53,493
Common stock subject to put/call rights..... 4,589 -- -- -- 4,589
Total stockholders' equity (deficit)........ (61,178) 64,139 3,971 (97,788) (90,856)
Total liabilities and stockholders' equity
(deficit).................................. 210,970 84,356 14,632 (97,788) 212,170
December 31, 1999
Cash and cash equivalents................... $ 2,569 $ 1,963 $ 683 $ -- $ 5,215
Notes and accounts receivable............... 34,973 2,606 5,136 -- 42,715
Current assets.............................. 39,130 4,608 5,837 -- 49,575
Leaseholds and equipment, net............... 17,204 9,263 6,192 -- 32,659
Cost in excess of net assets acquired, net.. 19,536 92,590 2,797 -- 114,923
Investment in subsidiaries.................. 102,639 -- -- (102,639) --
Total assets................................ 187,655 112,225 16,029 (102,639) 213,270
Accounts payable............................ 15,860 5,962 3,467 -- 25,289
Current liabilities......................... 41,423 10,439 9,893 -- 61,755
Long-term borrowings, excluding current
portion.................................... 160,667 371 5,103 -- 166,141
Redeemable preferred stock.................. 49,280 -- -- -- 49,280
Common stock subject to put/call rights..... 4,589 -- -- -- 4,589
Total stockholders' equity (deficit)........ (76,402) 98,889 541 (102,639) (79,611)
Total liabilities and stockholders' equity
(deficit).................................. 187,655 112,225 16,029 (102,639) 213,270
</TABLE>
8
<PAGE>
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
APCOA/Standard Subsidiaries Subsidiaries Eliminations Total
-------------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Three Months Ended September 30, 2000
Parking revenue.......................... $33,045 $ 22,930 $ 7,142 $ -- $ 63,117
Gross profit............................. 8,191 4,870 2,076 -- 15,137
Restructuring and other special charges.. 1,219 -- -- -- 1,219
Depreciation and amortization............ 1,344 1,255 312 -- 2,911
Operating income (loss).................. 3,810 (3,168) 1,631 -- 2,273
Interest expense (income), net........... 4,191 (34) 148 -- 4,305
Equity in earnings of subsidiaries....... (1,928) -- -- 1,928 --
Net income (loss)........................ (2,311) (3,134) 1,206 1,928 (2,311)
Three Months Ended September 30, 1999
Parking revenue.......................... $27,184 $ 24,682 $ 8,410 $ -- $ 60,276
Gross profit............................. 7,011 6,494 1,230 -- 14,735
Restructuring and other special charges.. 955 955
Depreciation and amortization............ 1,061 980 243 -- 2,284
Operating income......................... 1,991 253 672 -- 2,916
Interest expense (income), net........... 3,671 (25) 132 -- 3,778
Equity in earnings of subsidiaries....... 660 -- -- (660) --
Net income (loss)........................ (1,205) 279 381 (660) (1,205)
Nine Months Ended September 30, 2000
Parking revenue.......................... $93,107 $ 69,875 $25,293 $ -- $188,275
Gross profit............................. 25,442 13,856 5,378 -- 44,676
Restructuring and other special charges.. 1,437 -- -- -- 1,437
Depreciation and amortization............ 3,417 3,751 959 -- 8,127
Operating income (loss).................. 16,601 (12,461) 3,976 -- 8,116
Interest expense (income), net........... 12,461 (74) 462 -- 12,849
Equity in earnings of subsidiaries....... (9,551) -- -- 9,551 --
Net income (loss)........................ (5,421) (12,387) 2,836 9,551 (5,421)
Nine Months Ended September 30, 1999
Parking revenue.......................... $78,826 $ 75,098 $30,051 $ -- $183,975
Gross profit............................. 19,349 18,222 3,809 -- 41,380
Restructuring and other special charges.. 1,365 -- -- -- 1,365
Depreciation and amortization............ 3,274 2,398 762 -- 6,434
Operating income......................... 6,621 1,664 2,200 -- 10,485
Interest expense (income), net........... 11,053 (26) 410 -- 11,437
Equity in earnings of subsidiaries....... 2,997 -- -- (2,997) --
Net income (loss)........................ (1,835) 1,690 1,307 (2,997) (1,835)
</TABLE>
9
<PAGE>
AP HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
APCOA/Standard Subsidiaries Subsidiaries Eliminations Total
-------------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Statement of Cash Flow
Data:
Nine Months Ended
September 30, 2000
Net cash provided by
(used in) operating
activities............. $ (5,827) $ 449 $1,592 $-- $ (3,786)
Investing activities:
Purchase of leaseholds
and equipment.......... (3,248) (565) -- -- (3,813)
Purchase of leaseholds
and equipment by joint
venture................ -- -- (169) -- (169)
Net cash used in
investing activities... (3,248) (565) (169) -- (3,982)
Financing activities:
Proceeds from long-term
borrowings............. 11,900 -- -- -- 11,900
Payments on long-term
borrowings............. (455) -- -- -- (455)
Payments on joint
venture borrowings..... (596) -- -- -- (596)
Net cash provided by
financing activities... 10,849 -- -- -- 10,849
Effect of exchange rate
changes................ (932) -- -- -- (932)
Nine Months Ended
September 30, 1999
Net cash used in
operating activities... $(17,645) $(2,528) $ (656) $-- $(20,829)
Investing activities:
Purchase of leaseholds
and equipment.......... (5,945) (1,051) -- -- (6,996)
Purchase of leaseholds
and equipment by joint
ventures............... -- -- (303) -- (303)
Businesses acquired..... (3,104) -- -- -- (3,104)
Net cash used in
investing activities... (9,049) (1,051) (303) -- (10,403)
Financing activities:
Proceeds from long-term
borrowings............. 20,550 -- -- -- 20,550
Payments on long-term
borrowings............. (1,614) -- -- -- (1,614)
Net cash provided by
financing activities... 18,936 -- -- -- 18,936
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
AP Holdings ("Holdings") is a subsidiary of Holberg Industries, Inc.
("Holberg"), which owns 84% of the outstanding voting stock and 100% of the
preferred stock of APCOA/Standard Parking, Inc. ("APCOA/Standard" or the
"Company"). APCOA/Standard accounts for all of Holdings' assets and Holdings
conducts substantially all of its business through APCOA/Standard.
APCOA/Standard operates in a single reportable segment operating parking
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
September 30, 2000, APCOA/Standard operated approximately 80% of its 1,889
parking facilities under management contracts and approximately 20% under
leases.
Parking services revenue--leases contracts. 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 contracts. 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>
Summary of Operating Facilities
The following table reflects the Company's facilities at the end of the
periods indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
------------- ------------ -------------
<S> <C> <C> <C>
Managed facilities.................. 1,509 1,422 1,371
Leased facilities................... 380 403 416
----- ----- -----
Total facilities.................. 1,889 1,825 1,787
===== ===== =====
</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 $45.9 million, or 12.9%, to $402.4 million in
the third quarter of 2000 compared to $356.5 million in the third quarter of
1999. Gross customer collections increased $142.4 million, or 14.1%, to
$1,154.5 million in the first nine months of 2000 compared to $1,012.1 in the
first nine months of 1999. These increases are attributable to the net
addition of 102 locations during the period.
In analyzing gross margins of APCOA/Standard, it should be noted that the
cost of parking services incurred 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, 2000 Compared to Three Months ended September
30, 1999
Parking services revenue--lease contracts. Lease contract revenue decreased
$1.8 million, or 3.8%, to $45.1 million in the third quarter of 2000 as
compared to $46.9 million in the third quarter of 1999. This resulted from the
net reduction of 3 leases through contract expirations, conversions to
management contracts, and a change in reclassification of reimbursable costs.
Parking services revenue--management contracts. Management contract revenue
increased $4.6 million, or 34.3%, to $18.0 million in the third quarter of
2000 as compared to $13.4 million in the third quarter of 1999. This resulted
from the net increase of 67 management contracts through internal growth and
conversions from lease contracts.
Cost of parking services--lease contracts. Cost of parking services for
lease contracts decreased $1.5 million, or 3.8%, to $39.0 million in the third
quarter of 2000 as compared to $40.5 million in the third quarter of 1999.
This resulted from the reduction of 3 lease contracts through contract
expirations and conversions to management contracts. Gross margin for leases
was 13.5% for the third quarter of 2000 which was equivalent to 13.5% for the
third quarter of 1999.
Cost of parking services--management contracts. Cost of parking for
management contracts increased $4.0 million, or 78.9%, to $9.0 million in the
third quarter of 2000 as compared to $5.0 million in the third quarter of
1999. Gross margin for management contracts declined to 50.2% in the third
quarter of 2000 compared to 62.6% for the third quarter of 1999. 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
12
<PAGE>
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 expenses
increased $0.1 million, or 1.8%, to $8.7 million for the third quarter of 2000
as compared to $8.6 million in the third quarter of 1999. This increase
resulted primarily from inflation, as investment in the Company's
infrastructure is now complete.
Restructuring and other special charges. The Company recorded $1.2 million
of other special charges in the third quarter of 2000, as compared to $1.0
million in the third quarter of 1999, relating primarily to pre-merger costs
of $0.7 million, severance costs in connection with reorganization of
administrative and other support functions of $0.4 million and other
integration costs of $0.1 million.
Nine Months ended September 30, 2000 Compared to Nine Months ended September
30, 1999
Parking services revenue--lease contracts. Lease contract revenue decreased
$8.5 million, or 5.8%, to $138.9 million in the first nine months of 2000 as
compared to $147.4 million in the first nine months of 1999. This resulted
from the net reduction of 36 leases through contract expirations, conversions
to management contracts and the loss of one large airport contract in the
second half of 1999.
Parking services revenue--management contracts. Management contract revenue
increased $12.8 million, or 34.9%, to $49.4 million in the first nine months
of 2000 as compared to $36.6 million in the first nine months of 1999. This
resulted from the net increase of 138 management contracts through internal
growth, 1999 acquisitions and conversions from lease contracts.
Cost of parking services--lease contracts. Cost of parking services for
lease contracts decreased $7.6 million, or 5.8%, to $121.8 million in the
first nine months of 2000 as compared to $129.4 million in the first nine
months of 1999. This resulted from the net reduction of 36 leases through
contract expirations and conversions to management contracts. Gross margin for
leases increased to 12.3% for the first nine months of 2000 compared to 12.2%
for the first nine months of 1999. This increase was due to the reduction of
lease contracts with lower operating margins.
Cost of parking services--management contracts. Cost of parking for
management contracts increased $8.6 million, or 65.0%, to $21.8 million in the
first nine months of 2000 as compared to $13.2 million in the first nine
months of 1999. Gross margin for management contracts declined to 56.0% in the
first nine months of 2000 compared to 64.0% for the first nine months of 1999.
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 expenses
increased $3.9 million, or 16.9%, to $27.0 million for the first nine months
of 2000 as compared to $23.1 million in the first nine months of 1999. This
increase resulted from investment in the Company's infrastructure, costs
associated with acquired companies in 1999, and inflation.
Restructuring and other special charges. AP Holdings and the company
recorded $1.6 million of incremental integration costs in the first nine
months of 2000, as compared to $1.4 million in the nine months of 1999,
relating primarily to pre-merger costs of $0.7 million, severance costs in
connection with reorganization of administrative and other support functions
of $0.6 million, other integration costs of $0.1 million and $0.2 million of
costs associated with terminated transactions.
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
13
<PAGE>
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 revenue 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.
The Company had cash and cash equivalents of $7.4 million at September 30,
2000 compared to $5.2 million at December 31, 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999
Net cash used in operating activities totaled $3.8 million for the first
nine months of 2000 compared to $20.8 million for the first nine months of
1999. Cash used during the first nine months of 2000 included $13.0 million in
interest payments on the 9 1/4% Senior Subordinated Notes, $3.0 million in
other interest payments, offset by increases in accounts payable and other
liabilities of $6.4 million and a decrease in other assets of $1.2 million.
Cash used during the first nine months of 1999 included $13.0 million in
interest payments on the 9 1/4% Senior Subordinated Notes and $5.5 million for
the purchase of an insurance tail policy to cover claims for all years prior
to 1999 under APCOA's previous insurance program. In addition, $5.0 million
was used for cash restructuring charges and increases in accounts receivable
relating to acquired contracts and existing locations of $4.3 million offset
by increases in other liabilities of $3.7 and decreases in prepaid and other
assets of $3.3 million.
Net cash used in investing activities totaled $4.0 million for the first
nine months of 2000 compared to $10.4 million for the first nine months of
1999. Cash used in investing activities in the first nine months of 2000
resulted from capital purchases to secure and/or extend leased facilities and
investments in management information system enhancements. Cash used in the
first nine months of 1999 resulted from capital purchases including the
furnishing and improvement of the Company's combined office space in Chicago,
investment in management information system enhancements, and capital
investments to secure and/or extend leased facilities. On April 1,1999, the
Company acquired the assets of Pacific Rim Parking, Inc. ("Pacific Rim") in
Los Angeles for $0.8 million in cash and up to $0.8 million in non-interest
bearing notes payable over five years. On May 1, 1999 the Company acquired
various contracts of System Parking Inc, located in Atlanta for $0.3 million
in cash. Effective July 1, 1999 the Company acquired all of the outstanding
stock of Universal Park Holdings Inc, ("Universal Park") operating under the
names U-park and Select Valet parking in Vancouver B.C. for $1.2 million plus
a multiple of EBITDA on a future earnout as defined in the agreement. These
acquisitions have been accounted for under the purchase method. The historical
operating results of the businesses prior to acquisition were not material
relative to the consolidated results of Holdings.
Net cash provided by financing activities totaled $10.8 million in the
first nine months of 2000 compared to $18.9 million for the first nine months
of 1999. The 2000 activity included $11.9 million in borrowings from the
revolving Senior Credit Facility, partially offset by repayments on long-term
and joint venture borrowings of
14
<PAGE>
$1.1 million. The 1999 activity included $20.5 million in borrowings from the
revolving Senior Credit Facility, partially offset by repayments on long-term
borrowings of $1.6 million.
Other Liquidity and Capital Resources Information
The Company's Senior Credit Facility (the "Facility") provides for cash
borrowings up to $35.0 million and Letters of Credit up to $5.0 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 September 30, 2000, the
Company had $0.3 million of letters of credit outstanding under the Facility
and borrowings against the Facility aggregated $30.0 million. The Facility was
amended on March 30, 2000, with the principal changes to the agreement
providing for revisions to interest rates charged on borrowings and certain
financial covenants. The Facility was amended on May 12, 2000, with the
principal change to the agreement relating to a change in control. The
Facility was amended on November 14, 2000, with the principal 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
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.
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 Facility, or may seek additional sources of capital. From time to time,
the Company utilizes the Facility to provide readily-accessible cash for
working capital purposes.
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.
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.
15
<PAGE>
Cautionary Statements
The Company continues to be subject to certain factors that could cause the
Company's results to differ materially from expected and historical results
(see the "Risk Factors" set forth in the Company's Registration Statement on
Form S-4 (No. 333-50437) filed on April 17, 1998, as amended on June 9, 1998,
July 15, 1998, August 11, 1998 and August 14, 1998 (the "Registration
Statement").
Item 3. 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 $40.0 million revolving variable rate Senior
Credit Facility (see Note 3 of the Notes to the Condensed 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 $40.0 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 is creditors will not in any
event seek to obtain control of Holberg or Holdings, 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 or Holdings. 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 (see Exhibit 4.9, Third Amendment to the Senior
Credit Facility).
16
<PAGE>
PART II OTHER INFORMATION
Item 1. 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.
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) Exhibit
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (No. 333- 50437) filed on April 17, 1998, as
amended on June 9, 1998, July 15, 1998, August 11, 1998 and August 14,
1998 (the "Registration Statement")).
*3.2 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.2 to the Registration Statement).
*4.1 Indenture, dated as of March 30, 1998, amended as of July 6, 1998,
September 21, 1998 and January 12, 1999 by and among the Company, the
Subsidiary Guarantors and State Street Bank and Trust Company
(incorporated by reference to Exhibit 4.1 to the Registration
Statement).
*4.2 Form of New Note (included as Exhibit A to Exhibit 4.1).
*4.3 Form of New Note Guarantee (included as Exhibit D to Exhibit 4.1).
*4.7 First Amendment to Senior Credit Facility dated November 12, 1999 by
and among the Company, the Lenders, and N.A. Bank One as agent for
Lenders (incorporated by reference to Exhibit 4.7 of the Company's
September 10, 1999 Form 10-Q).
*4.8 Second Amendment to the Senior Credit Facility dated March 30, 2000 by
and among the Company, the Lenders and Bank One N.A., as agent for the
Lenders (incorporated by reference to Exhibit 4.8 of the Company's May
12, 2000 Form 10-Q).
*4.9 Third Amendment to the Senior Credit Facility dated May 12, 2000 by and
among the Company, the Lenders and Bank One, N.A., as agent for the
Lenders (incorporated by reference to Exhibit 4.9 of the Company's
August 9, 2000 Form 10-Q).
4.10 Fourth Amendment to the Senior Credit Facility dated November 14, 2000
by and among the Company, the Lenders and Bank One, N.A., as agent for
the Lenders.
27.1 Financial Data Schedule.
</TABLE>
--------
* Previously filed.
(b) Reports on Form 8-K
No current report on Form 8-K was filed by the Company during the quarter
ended September 30, 2000.
17
<PAGE>
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)
November 14, 2000
/s/ John V. Holten
By: _________________________________
John V. Holten
Chairman and Director
November 14, 2000
/s/ G. Marc Baumann
By: _________________________________
G. Marc Baumann
Treasurer (Principal Financial
and Accounting Officer)
18
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4 (No. 333- 50437) filed on April 17,
1998, as amended on June 9, 1998, July 15, 1998, August 11, 1998 and
August 14, 1998 (the "Registration Statement")).
*3.2 Amended and Restated By-Laws of the Company (incorporated by reference
to Exhibit 3.2 to the Registration Statement).
*4.1 Indenture, dated as of March 30, 1998, amended as of July 6, 1998,
September 21, 1998 and January 12, 1999 by and among the Company, the
Subsidiary Guarantors and State Street Bank and Trust Company
(incorporated by reference to Exhibit 4.1 to the Registration
Statement).
*4.2 Form of New Note (included as Exhibit A to Exhibit 4.1).
*4.3 Form of New Note Guarantee (included as Exhibit D to Exhibit 4.1).
*4.7 First Amendment to Senior Credit Facility dated November 12, 1999 by
and among the Company, the Lenders, and N.A. Bank One as agent for
Lenders (incorporated by reference to Exhibit 4.7 of the Company's
September 10, 1999 Form 10-Q).
*4.8 Second Amendment to the Senior Credit Facility dated March 30, 2000 by
and among the Company, the Lenders and Bank One N.A., as agent for the
Lenders (incorporated by reference to Exhibit 4.8 of the Company's May
12, 2000 Form 10-Q).
*4.9 Third Amendment to the Senior Credit Facility dated May 12, 2000 by
and among the Company, the Lenders and Bank One, N.A., as agent for
the Lenders. (incorporated by reference to Exhibit 4.9 of the
Company's August 9, 2000 Form 10-Q).
4.10 Fourth Amendment to the Senior Credit Facility dated November 14, 2000
by and among the Company, the Lenders and Bank One, N.A., as agent for
the Lenders.
*27.1 Financial Data Schedule.
</TABLE>
--------
* Previously filed.
19
