CENTRAL PARKING CORPORATION - FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2005
Commission file number 001-13950
CENTRAL PARKING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Tennessee
|
|
62-1052916 |
|
|
|
(State or Other Jurisdiction of Incorporation
|
|
(I.R.S. Employer Identification No.) |
or Organization) |
|
|
|
|
|
2401 21st Avenue South, |
|
|
Suite 200, Nashville, Tennessee
|
|
37212 |
|
|
|
(Address of Principal Executive Offices)
|
|
(Zip Code) |
|
|
|
Registrants Telephone Number, Including Area Code:
|
|
(615) 297-4255 |
|
|
|
|
|
|
Former name, address and fiscal year, if changed since last report:
|
|
Not Applicable |
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). YES x NO o
Indicate the number of shares outstanding of each of the registrants classes of common stock as of
the latest practicable date.
|
|
|
Class
|
|
Outstanding at August 4, 2005 |
|
|
|
Common Stock, $0.01 par value
|
|
36,704,403 |
INDEX
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
Part 1. Financial Information
Item 1. Financial Statements
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
Amounts in thousands, except share data
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
27,585 |
|
|
$ |
27,628 |
|
Management
accounts receivable, net of allowance for doubtful accounts of $3,281 and $3,206
at June 30, 2005 and September 30, 2004, respectively |
|
|
54,442 |
|
|
|
43,776 |
|
Accounts receivable other |
|
|
14,877 |
|
|
|
14,594 |
|
Current portion of notes receivable (including amounts due from related parties of
$1,079 at June 30, 2005 and $1,617 at September 30, 2004) |
|
|
3,757 |
|
|
|
6,010 |
|
Prepaid expenses |
|
|
13,131 |
|
|
|
13,045 |
|
Assets held for sale |
|
|
39,306 |
|
|
|
23,724 |
|
Refundable income taxes |
|
|
3,120 |
|
|
|
1,461 |
|
Deferred income taxes |
|
|
11,119 |
|
|
|
11,177 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
167,337 |
|
|
|
141,415 |
|
Notes receivable, less current portion |
|
|
39,175 |
|
|
|
41,940 |
|
Property, equipment, and leasehold improvements, net |
|
|
345,229 |
|
|
|
380,256 |
|
Contracts and lease rights, net |
|
|
81,992 |
|
|
|
89,015 |
|
Goodwill, net |
|
|
234,329 |
|
|
|
232,562 |
|
Investment in and advances to partnerships and joint ventures |
|
|
6,786 |
|
|
|
7,824 |
|
Other assets |
|
|
37,037 |
|
|
|
36,616 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
911,885 |
|
|
$ |
929,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt and capital lease obligations |
|
$ |
5,562 |
|
|
$ |
46,867 |
|
Trade accounts payable |
|
|
76,373 |
|
|
|
82,224 |
|
Accrued expenses |
|
|
52,414 |
|
|
|
46,807 |
|
Management accounts payable |
|
|
27,227 |
|
|
|
24,640 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
161,576 |
|
|
|
200,538 |
|
Long-term debt and capital lease obligations, less current portion |
|
|
161,206 |
|
|
|
159,188 |
|
Subordinated convertible debentures |
|
|
78,085 |
|
|
|
78,085 |
|
Deferred rent |
|
|
22,490 |
|
|
|
24,450 |
|
Deferred income taxes |
|
|
14,168 |
|
|
|
17,293 |
|
Other liabilities |
|
|
21,009 |
|
|
|
14,977 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
458,534 |
|
|
|
494,531 |
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
537 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 50,000,000 shares authorized, 36,703,403
and 36,582,808 shares issued and outstanding at June 30, 2005 and
September 30, 2004, respectively |
|
|
367 |
|
|
|
366 |
|
Additional paid-in capital |
|
|
251,184 |
|
|
|
249,452 |
|
Accumulated other comprehensive income, net |
|
|
3,953 |
|
|
|
879 |
|
Retained earnings |
|
|
198,015 |
|
|
|
185,041 |
|
Other |
|
|
(705 |
) |
|
|
(705 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
452,814 |
|
|
|
435,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
911,885 |
|
|
$ |
929,628 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
Page 3 of 24
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Amounts in thousands, except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Nine months ended June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parking |
|
$ |
139,356 |
|
|
$ |
145,661 |
|
|
$ |
416,603 |
|
|
$ |
436,547 |
|
Management contracts |
|
|
31,933 |
|
|
|
31,957 |
|
|
|
91,477 |
|
|
|
94,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,289 |
|
|
|
177,618 |
|
|
|
508,080 |
|
|
|
531,159 |
|
Reimbursement of management contract expenses |
|
|
139,163 |
|
|
|
113,590 |
|
|
|
399,585 |
|
|
|
340,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
310,452 |
|
|
|
291,208 |
|
|
|
907,665 |
|
|
|
871,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of parking |
|
|
124,798 |
|
|
|
131,655 |
|
|
|
378,726 |
|
|
|
393,873 |
|
Cost of management contracts |
|
|
12,524 |
|
|
|
13,208 |
|
|
|
42,815 |
|
|
|
41,334 |
|
General and administrative |
|
|
20,412 |
|
|
|
17,598 |
|
|
|
60,160 |
|
|
|
53,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,734 |
|
|
|
162,461 |
|
|
|
481,701 |
|
|
|
488,900 |
|
Reimbursed management contract expenses |
|
|
139,163 |
|
|
|
113,590 |
|
|
|
399,585 |
|
|
|
340,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
296,897 |
|
|
|
276,051 |
|
|
|
881,286 |
|
|
|
829,049 |
|
Property-related (loss) gain, net |
|
|
(1,171 |
) |
|
|
1,462 |
|
|
|
15,464 |
|
|
|
5,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
12,384 |
|
|
|
16,619 |
|
|
|
41,843 |
|
|
|
48,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1,177 |
|
|
|
1,217 |
|
|
|
3,361 |
|
|
|
3,642 |
|
Interest expense |
|
|
(4,303 |
) |
|
|
(4,834 |
) |
|
|
(14,217 |
) |
|
|
(15,235 |
) |
Equity in partnership and joint venture losses |
|
|
(93 |
) |
|
|
(402 |
) |
|
|
(545 |
) |
|
|
(2,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before minority interest and income taxes |
|
|
9,165 |
|
|
|
12,600 |
|
|
|
30,442 |
|
|
|
34,274 |
|
Minority interest, net of tax |
|
|
(475 |
) |
|
|
(833 |
) |
|
|
(1,183 |
) |
|
|
(2,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes |
|
|
8,690 |
|
|
|
11,767 |
|
|
|
29,259 |
|
|
|
31,679 |
|
Income tax expense |
|
|
(3,411 |
) |
|
|
(5,156 |
) |
|
|
(11,709 |
) |
|
|
(12,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
5,279 |
|
|
|
6,611 |
|
|
|
17,550 |
|
|
|
18,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
|
(399 |
) |
|
|
(643 |
) |
|
|
(2,925 |
) |
|
|
(904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
4,880 |
|
|
$ |
5,968 |
|
|
$ |
14,625 |
|
|
$ |
17,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.14 |
|
|
$ |
0.18 |
|
|
$ |
0.48 |
|
|
$ |
0.52 |
|
Loss from discontinued operations, net of tax |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.08 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
0.13 |
|
|
$ |
0.16 |
|
|
$ |
0.40 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.14 |
|
|
$ |
0.18 |
|
|
$ |
0.48 |
|
|
$ |
0.52 |
|
Loss from discontinued operations, net of tax |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.08 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
0.13 |
|
|
$ |
0.16 |
|
|
$ |
0.40 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used for basic per share data |
|
|
36,663 |
|
|
|
36,435 |
|
|
|
36,603 |
|
|
|
36,277 |
|
Effect of dilutive common stock options |
|
|
220 |
|
|
|
300 |
|
|
|
139 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used for dilutive per share data |
|
|
36,883 |
|
|
|
36,735 |
|
|
|
36,742 |
|
|
|
36,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
Page 4 of 24
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
14,625 |
|
|
$ |
17,898 |
|
Loss from discontinued operations |
|
|
2,925 |
|
|
|
904 |
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
17,550 |
|
|
|
18,802 |
|
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property |
|
|
21,506 |
|
|
|
24,781 |
|
Equity in partnership and joint venture earnings |
|
|
545 |
|
|
|
2,389 |
|
Distributions from partnerships and joint ventures |
|
|
1,393 |
|
|
|
1,237 |
|
Property-related gains, net |
|
|
(15,464 |
) |
|
|
(5,997 |
) |
Deferred income tax (benefit) expense |
|
|
(3,555 |
) |
|
|
4,346 |
|
Minority interest, net of tax |
|
|
1,183 |
|
|
|
2,595 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Management accounts receivable |
|
|
(10,843 |
) |
|
|
(7,882 |
) |
Accounts receivable other |
|
|
(296 |
) |
|
|
6,098 |
|
Prepaid expenses |
|
|
(125 |
) |
|
|
(3,981 |
) |
Other assets |
|
|
(5,447 |
) |
|
|
(7,478 |
) |
Trade accounts payable, accrued expenses and other liabilities |
|
|
5,493 |
|
|
|
(13,319 |
) |
Management accounts payable |
|
|
2,565 |
|
|
|
3,443 |
|
Deferred rent |
|
|
(1,960 |
) |
|
|
(2,296 |
) |
Refundable income taxes |
|
|
(1,607 |
) |
|
|
4,246 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing operations |
|
|
10,938 |
|
|
|
26,984 |
|
Net cash (used) provided by operating activities discontinued operations |
|
|
(2,282 |
) |
|
|
1,689 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
8,656 |
|
|
|
28,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from disposition of property and equipment |
|
|
35,951 |
|
|
|
62,026 |
|
Purchases of property, equipment and leasehold improvements |
|
|
(8,921 |
) |
|
|
(12,167 |
) |
Purchase of contract and lease rights |
|
|
|
|
|
|
(4,530 |
) |
Other investing activities |
|
|
3,921 |
|
|
|
4,248 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
30,951 |
|
|
|
49,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(1,651 |
) |
|
|
(1,647 |
) |
Net borrowings (repayments) under revolving credit agreement |
|
|
71,126 |
|
|
|
(59,000 |
) |
Proceeds from issuance of notes payable, net of issuance costs |
|
|
9,728 |
|
|
|
1,864 |
|
Principal repayments on long-term debt and capital lease obligations |
|
|
(120,195 |
) |
|
|
(21,382 |
) |
Payment to minority interest partners |
|
|
(392 |
) |
|
|
(3,224 |
) |
Proceeds from issuance of common stock and exercise of stock options |
|
|
1,733 |
|
|
|
2,904 |
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(39,651 |
) |
|
|
(80,485 |
) |
|
|
|
|
|
|
|
Foreign currency translation |
|
|
1 |
|
|
|
651 |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(43 |
) |
|
|
(1,584 |
) |
Cash and cash equivalents at beginning of period |
|
|
27,628 |
|
|
|
31,572 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
27,585 |
|
|
$ |
29,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Unrealized gain on fair value of investment securities and derivatives, net of tax |
|
$ |
802 |
|
|
$ |
1,608 |
|
Issuance of shares related to the deferred stock unit plan |
|
$ |
|
|
|
$ |
476 |
|
|
|
|
|
|
|
|
|
|
Cash payments for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
13,286 |
|
|
$ |
14,341 |
|
Income taxes |
|
$ |
13,417 |
|
|
$ |
5,888 |
|
See accompanying notes to consolidated financial statements.
Page 5 of 24
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(1) Basis of Presentation
a. The accompanying unaudited consolidated financial statements of Central Parking Corporation and subsidiaries
(Central Parking or the Company) have been prepared in accordance with U. S. generally accepted accounting
principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U. S. generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited consolidated financial statements
reflect all adjustments considered necessary for a fair presentation, consisting only of normal and recurring
adjustments. All significant inter-company transactions have been eliminated in consolidation. Operating
results for the three and nine months ended June 30, 2005 are not necessarily indicative of the results that may
be expected for the fiscal year ending September 30, 2005. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended September 30, 2004 (included in the Companys
Annual Report on Form 10-K/A). Certain prior period amounts have been reclassified to conform to the current
period presentation.
b. The Company applies the intrinsic-value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations including Financial Accounting Standards Board (FASB) Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion
No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is
recorded for fixed-plan stock options only if the current market price of the underlying stock
exceeded the exercise price on the date of grant. Statement of Financial Accounting Standards
(SFAS) No. 123 Accounting for Stock Based Compensation, established accounting and disclosure
requirements using a fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123 and SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure, and amendment of FASB Statement No. 123, the Company has
elected to continue to apply the intrinsic-value-based method of accounting described above, and
has adopted only the disclosure requirements of these statements. In December 2004, the FASB issued
SFAS No. 123R, Share-Based Payment, which will require the Company to compute and recognize
compensation cost of employee services received in exchange for an award of equity investments on
the grant-date at their fair value. The Company will be required to adopt SFAS 123R effective
October 1, 2005. The following table illustrates the effect on net income if the fair-value-based
method had been applied to all outstanding and unvested awards in each period (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended |
|
|
Nine Months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Net earnings, as reported |
|
$ |
4,880 |
|
|
$ |
5,968 |
|
|
$ |
14,625 |
|
|
$ |
17,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add stock-based employee compensation expense
included in reported net income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct total stock-based employee compensation
expense determined under fair-value-based
method for all awards, net of tax |
|
|
(976 |
) |
|
|
(834 |
) |
|
|
(2,939 |
) |
|
|
(2,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings |
|
$ |
3,904 |
|
|
$ |
5,134 |
|
|
$ |
11,686 |
|
|
$ |
15,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-as reported |
|
$ |
0.13 |
|
|
$ |
0.16 |
|
|
$ |
0.40 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-pro forma |
|
$ |
0.11 |
|
|
$ |
0.14 |
|
|
$ |
0.32 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted-as reported |
|
$ |
0.13 |
|
|
$ |
0.16 |
|
|
$ |
0.40 |
|
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted-pro forma |
|
$ |
0.11 |
|
|
$ |
0.14 |
|
|
$ |
0.32 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions for stock-based employee compensation expense in the table above were calculated
using the Black-Scholes option pricing model. The Company utilizes both the single option and
multiple option valuation
Page 6 of 24
approaches. Calculations of compensation expense were made using inputs of historical option
terms for option grants made to the Companys employees and historical Central Parking Corporation
stock price volatility. The Company applies a 40% tax rate to arrive at the after tax deduction.
(2) Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock, or if restricted
shares of common stock were to become fully vested.
The subordinated convertible debentures have not been included in the diluted earnings per
share calculation since such securities are anti-dilutive. Such securities were convertible into
1,419,588 shares of common stock on both June 30, 2005 and 2004. Also, for the Nine months ended
June 30, 2005 and 2004, options to purchase 2,538,527 and 2,938,869 shares, respectively are
excluded from the calculation of diluted common shares since they are anti-dilutive.
(3) Property-Related Gains, Net
The Company routinely disposes of or recognizes impairment related to owned properties,
leasehold improvements, contract rights, lease rights, other intangible assets and other long-term
deferred expenses due to various factors, including economic considerations, unsolicited offers
from third parties, loss of contracts and condemnation proceedings initiated by local government
authorities. Leased and managed properties are also periodically evaluated and determinations may
be made to sell or exit a lease obligation. For locations that are being discontinued, gains and
losses on the sale or condemnation of property, equipment, leasehold improvements, contract rights
and lease rights are included as a component of discontinued operations as are gains and losses on
the termination, prior to the end of the contractual term, of lease or management obligations.
Impairments associated with parking facilities that meet the criteria to be classified as assets
held-for-sale as defined in SFAS No. 144 are also included as a component of discontinued
operations. Impairment charges for property, equipment, leasehold improvements, contract and lease
rights and other intangible assets for locations that are not being discontinued are included as a
component of property-related gains or losses. A summary of property-related gains and losses for
the three and nine months ended June 30, 2005 and June 30, 2004 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Net gains on partial sale of property held for use |
|
$ |
2,112 |
|
|
$ |
6,053 |
|
|
$ |
19,601 |
|
|
$ |
12,308 |
|
Impairment charges for property, equipment and
leasehold improvements held for use |
|
|
(351 |
) |
|
|
|
|
|
|
(1,075 |
) |
|
|
(1,359 |
) |
Impairment charges for contract rights, lease
rights and other intangible assets |
|
|
(2,932 |
) |
|
|
(4,591 |
) |
|
|
(3,062 |
) |
|
|
(4,952 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-related (losses) gains, net |
|
$ |
(1,171 |
) |
|
$ |
1,462 |
|
|
$ |
15,464 |
|
|
$ |
5,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) Intangible Assets
As of June 30, 2005, the Company had the following amortizable intangible assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
Contract and lease rights |
|
$ |
143,481 |
|
|
$ |
61,489 |
|
|
$ |
81,992 |
|
Noncompete agreements |
|
|
2,575 |
|
|
|
2,385 |
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
146,056 |
|
|
$ |
63,874 |
|
|
$ |
82,182 |
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to the intangible assets was $2.0 and $2.2 million for the three
months ended June 30, 2005 and June 30, 2004, and $5.6 and $6.6 million for the nine months ended
June 30, 2005 and June 30, 2004.
(5) Long-Term Debt
On February 28, 2003, the Company entered into a credit facility (the Credit Facility)
initially providing for an aggregate availability of up to $350 million consisting of a five-year
$175 million revolving loan, including a
Page 7 of 24
sub-limit of $90 million for standby letters of credit, and a $175 million seven-year term
loan. The facility is secured by the stock of certain subsidiaries of the Company, certain real
estate assets, and domestic personal property assets of the Company and certain subsidiaries.
On January 25, 2005, the Company completed an amendment to the Credit Facility. The amended
facility reduced the aggregate availability to $300 million consisting of a $225 million revolving
loan and a $75 million term loan. The maturity dates remained the same, February 28, 2008, for the
revolver and March 31, 2010, for the term loan. Additionally, the interest rate margins were
reduced for both the revolver and term loans. The quarterly amortization schedule was also
amended. The new schedule requires term loan payments in the amount of $187,500 for the quarters
ended March 2005 through March 2008 and $9.1 million for the quarters ended June 2008 through March
2010. The revolving loan is required to be repaid in February 2008. The aggregate availability
under the Credit Facility was $108.7 million at June 30, 2005, which is net of $44.3 million of
stand-by letters of credit.
The Credit Facility bears interest at LIBOR plus a tier-based margin dependent upon certain
financial ratios. There are separate tiers for the revolving loan and term loan. The weighted
average margin as of June 30, 2005 was 192 basis points. The amount outstanding under the Companys
Credit Facility was $146.6 million consisting of a $74.6 million term loan and a $72.0 million
revolving loan, with an overall weighted average interest rate of 5.1% as of June 30, 2005.
The amended credit facility continues to contain customary covenants. The Credit Facility
contains covenants including those that require the Company to maintain certain financial ratios,
restrict further indebtedness and certain acquisition activity and limit the amount of dividends
paid. The primary ratios are a leverage ratio, senior leverage ratio and a fixed charge coverage
ratio. Quarterly compliance is calculated using a four quarter rolling methodology and is measured
against specified targets. The Company was in compliance with the covenants at June 30, 2005.
(6) Derivative Financial Instruments
The Company uses variable rate debt to finance its operations. These debt obligations expose
the Company to variability in interest payments due to changes in interest rates. If interest
rates increase, interest expense would increase. Conversely, if interest rates decrease, interest
expense would decrease. Management believes it is prudent to limit the variability of its interest
payments.
To meet this objective, the Company periodically enters into various types of derivative
instruments to manage fluctuations in cash flows resulting from interest rate risk. These
instruments include interest rate swaps and caps. Under interest rate swaps, the Company receives
variable interest rate payments and makes fixed interest rate payments, thereby effectively
creating fixed-rate debt. Purchased interest rate cap agreements also protect the Company from
increases in interest rates that would result in increased cash interest payments made under its
Credit Facility. Under interest rate cap agreements, the Company has the right to receive cash if
interest rates increase above a specified level.
The Company does not enter into derivative instruments for any purpose other than cash flow
hedging purposes. That is, the Company does not speculate using derivative instruments. The
Company assesses interest rate cash flow risk by continually identifying and monitoring changes in
interest rate exposures that may adversely impact expected future cash flows and by evaluating
hedging opportunities. The Company maintains risk management control systems to monitor interest
rate cash flow risk attributable to both the Companys outstanding or forecasted debt obligations
as well as the Companys offsetting hedge positions. The risk management control systems involve
the use of analytical techniques, including cash flow sensitivity analysis, to estimate the
expected impact of changes in interest rates on the Companys future cash flows.
At June 30, 2005, the Companys derivative financial instruments consisted of two interest
rate swaps with a combined notional amount of $87.5 million. These derivative financial
instruments are reported at their fair values and are included as other assets on the consolidated
balance sheets. The following table lists the fair value of the derivative financial instruments
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Derivative instrument assets: |
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
2,498 |
|
|
$ |
1,268 |
|
|
|
|
|
|
|
|
Page 8 of 24
The underlying terms of the interest rate swaps, including the notional amount, interest rate
index, duration, and reset dates, are identical to those of the associated debt instruments and
therefore the hedging relationship results in no ineffectiveness. Accordingly, such derivative
instruments are classified as cash flow hedges. As such, any changes in the fair market value of
these derivative instruments are included in accumulated other comprehensive income (AOCI) on the
consolidated balance sheets.
(7) Discontinued Operations
As of June 30, 2005, the Company designated as discontinued operations certain held-for-sale
or disposed locations, with revenues of $4.0 million and pretax loss of $4.7 million for the
nine-month period ended June 30, 2005, resulting in a loss from discontinued operations of $2.9
million, including $4.3 million in property related losses. The facts and circumstances leading to
discontinued operations classification and the expected disposals include expected property sales,
condemnations, or early lease and management agreement terminations. Included in the three and
nine months ended June 30, 2005 are the year-to-date results of operations for all locations
discontinued during the respective period as well as the locations designated as held-for-sale
during fiscal year 2004 but not yet sold. The Companys prior period results have been
reclassified to reflect the operations of the locations discontinued
in the first nine months of fiscal
2005 as discontinued operations, net of related income taxes.
(8) Recently Issued Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires
the company to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. SFAS 123R will be effective for the
Company beginning October 1, 2005. See footnote (1) for additional information.
(9) Commitments and Contingencies
In June and July 2003, four stockholders filed separate lawsuits against the Company, its
former CEO, its former CFO and its current Chairman in the U. S. District Court for the Middle District
of Tennessee. The plaintiff in each case sought to represent a plaintiff class of purchasers of
Central Parkings Common Stock. The plaintiff in each case claimed that the defendants made
material misrepresentations and/or omissions in connection with the Companys financial statements
for the quarter and fiscal year ended September 30, 2002 and about the Companys internal controls
in violation of the Securities Exchange Act of 1934, which allegedly caused the plaintiffs to buy
Company stock at inflated prices. By order dated
December 10, 2003, the Court consolidated the cases under the
name, In re: Central Parking
Corporation Securities Litigation, civil action No. 03-CV-0546, appointed two individuals as
co-lead plaintiffs and approved their selection of counsel. The plaintiffs filed an amended
complaint on February 13, 2004, in which plaintiffs added the Companys Independent Registered
Public Accountant as a defendant and in which the plaintiffs added a number of allegations. The
amended complaint also sought to extend the putative class period during which investors purchased
the Companys Common Stock by approximately nine months (February 5, 2002
to February 13, 2003). On April 23, 2004, the defendants filed motions to dismiss the lawsuit. On
August 11, 2004, the court dismissed all claims against the Companys Independent Registered Public
Accountant, but denied the motion to dismiss with respect to the Company and the individual
defendants. On January 27, 2005, the Company announced that an agreement in principle had been
reached to settle the lawsuit. Under the agreement in principle, the Companys primary liability
insurance carrier agreed to fully fund a $4.9 million payment
to be used to provide all
benefits to shareholder class members and their counsel, and to cover related notice and
administrative costs. A definitive settlement agreement was executed
and, on April 8, 2005, the court
entered an order granting preliminary approval of the negotiated settlement. Notice of the
proposed settlement was mailed to all class members. The final hearing
on the proposed settlement was held on June 10, 2005 and the
settlement was approved on that date.
Page 9 of 24
In addition to the matters described above the Company is subject to various legal proceedings
and claims, which arise in the ordinary course of its business. In the opinion of management, the
ultimate liability with respect to those proceedings and claims will not have a material adverse
effect on the financial position, operations, or liquidity of the Company. The Company maintains
property casualty insurance coverage for individual claims in excess of various dollar amounts,
subject to annual aggregate limits. The primary amount of such coverage is $1 million per
occurrence and $2 million in the aggregate per facility. In addition, the Company purchases
umbrella/excess liability coverage. The Companys various property casualty insurance policies have
deductibles of up to $350,000 that must be met before the insurance companies are required to
reimburse the Company for costs and liabilities relating to covered claims. The Company also
provides health insurance for many of its employees and purchases a stop-loss policy with a
deductible of $150,000 per claim. As a result, the Company is, in effect, self-insured for all of
these types of claims up to the deductible levels.
(10) Comprehensive Income
Comprehensive income for the three and nine months ended June 30, 2005 and 2004 was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Net earnings |
|
$ |
4,880 |
|
|
$ |
5,968 |
|
|
$ |
14,625 |
|
|
$ |
17,898 |
|
Change in fair value of derivatives, net of tax |
|
|
(463 |
) |
|
|
1,838 |
|
|
|
739 |
|
|
|
1,686 |
|
Change in fair value of investment securities, net of tax |
|
|
73 |
|
|
|
(136 |
) |
|
|
64 |
|
|
|
(78 |
) |
Foreign currency cumulative translation adjustment |
|
|
(835 |
) |
|
|
774 |
|
|
|
2,272 |
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
3,655 |
|
|
$ |
8,444 |
|
|
$ |
17,700 |
|
|
$ |
20,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11) Business Segments
The Company is managed based on segments administered by senior vice presidents. These
segments are generally organized geographically, with exceptions depending on the needs of specific
regions. The following are summaries of revenues and operating earnings (loss) of each segment for
the three and nine months ended June 30, 2005 and 2004, as well as identifiable assets for each
segment as of June 30,2005 and September 30, 2004 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Revenues:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment One |
|
$ |
18,896 |
|
|
$ |
18,047 |
|
|
$ |
57,526 |
|
|
$ |
56,019 |
|
Segment Two |
|
|
72,853 |
|
|
|
76,738 |
|
|
|
213,444 |
|
|
|
225,685 |
|
Segment Three |
|
|
4,884 |
|
|
|
4,534 |
|
|
|
14,577 |
|
|
|
13,977 |
|
Segment Four |
|
|
7,630 |
|
|
|
8,933 |
|
|
|
25,609 |
|
|
|
27,955 |
|
Segment Five |
|
|
2,582 |
|
|
|
2,456 |
|
|
|
7,201 |
|
|
|
7,542 |
|
Segment Six |
|
|
22,609 |
|
|
|
23,860 |
|
|
|
67,336 |
|
|
|
72,519 |
|
Segment Seven |
|
|
16,548 |
|
|
|
17,643 |
|
|
|
48,303 |
|
|
|
50,109 |
|
Segment Eight |
|
|
22,195 |
|
|
|
22,366 |
|
|
|
65,495 |
|
|
|
66,540 |
|
Other |
|
|
3,092 |
|
|
|
3,041 |
|
|
|
8,589 |
|
|
|
10,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
171,289 |
|
|
$ |
177,618 |
|
|
$ |
508,080 |
|
|
$ |
531,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revenues exclude reimbursement of management contract expenses. Such amounts were
$139.2 million and $113.6 million for the three months ended June 30, 2005 and 2004,
respectively, and $399.6 million and $340.1 million for the nine months ended June 30, 2005
and 2004, respectively. |
Page 10 of 24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Operating earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment One |
|
$ |
(1,275 |
) |
|
$ |
(73 |
) |
|
$ |
(324 |
) |
|
$ |
922 |
|
Segment Two |
|
|
6,179 |
|
|
|
1,835 |
|
|
|
12,615 |
|
|
|
9,361 |
|
Segment Three |
|
|
1,485 |
|
|
|
937 |
|
|
|
3,228 |
|
|
|
2,809 |
|
Segment Four |
|
|
630 |
|
|
|
1,074 |
|
|
|
1,969 |
|
|
|
5,232 |
|
Segment Five |
|
|
613 |
|
|
|
537 |
|
|
|
1,320 |
|
|
|
1,413 |
|
Segment Six |
|
|
1,234 |
|
|
|
1,565 |
|
|
|
4,077 |
|
|
|
5,946 |
|
Segment Seven |
|
|
760 |
|
|
|
1,144 |
|
|
|
891 |
|
|
|
(162 |
) |
Segment Eight |
|
|
4,349 |
|
|
|
2,895 |
|
|
|
10,248 |
|
|
|
9,476 |
|
Other |
|
|
(1,591 |
) |
|
|
6,705 |
|
|
|
7,819 |
|
|
|
13,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating earnings |
|
$ |
12,384 |
|
|
$ |
16,619 |
|
|
$ |
41,843 |
|
|
$ |
48,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
Identifiable assets: |
|
|
|
|
|
|
|
|
Segment One |
|
$ |
11,144 |
|
|
$ |
11,449 |
|
Segment Two |
|
|
323,087 |
|
|
|
328,565 |
|
Segment Three |
|
|
14,505 |
|
|
|
12,257 |
|
Segment Four |
|
|
55,154 |
|
|
|
47,927 |
|
Segment Five |
|
|
1,149 |
|
|
|
1,423 |
|
Segment Six |
|
|
22,811 |
|
|
|
22,542 |
|
Segment Seven |
|
|
35,482 |
|
|
|
35,468 |
|
Segment Eight |
|
|
32,774 |
|
|
|
32,306 |
|
Other |
|
|
415,779 |
|
|
|
437,691 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
911,885 |
|
|
$ |
929,628 |
|
|
|
|
|
|
|
|
Segment One encompasses the western region of the United States and Vancouver, BC.
Segment Two encompasses the northeastern United States, including New York City, New Jersey, Boston
and Philadelphia.
Segment Three encompasses the USA Parking acquisition.
Segment Four encompasses Europe, Puerto Rico, Central and South America.
Segment Five encompasses Nashville, TN.
Segment Six encompasses Nebraska, Oklahoma, Missouri, and the Midwestern region of the United
States. It also includes Canada, excluding Vancouver.
Segment Seven encompasses the Mid-Atlantic region of the United States to include Virginia,
Washington DC and Baltimore. It also includes Pennsylvania and western New York.
Segment Eight encompasses Florida, Alabama, parts of Tennessee and the southeastern region of the
United States to include the Gulf Coast region and Texas.
Other encompasses the home office, eliminations, certain owned real estate, and certain
partnerships.
(12) Subsequent Events
On
July 14, 2005, the Company announced that it has completed the sale of its leasehold
interest in a parking garage at 839 6th Avenue in New York City for $39 million. The
sale will result in a property-related gain included in continuing operations in the Companys
fourth fiscal quarter of approximately $38 million.
The Company sold its rights under the lease, which had a term ending in 2016, to a developer.
The lease produced pre-tax profits in fiscal 2004 of approximately $1.7 million. At the closing
of the transaction, the Company entered into an agreement to operate the parking garage for the
next 18 months on terms expected to produce pre-tax profits of approximately $1.1 million per year.
Page 11 of 24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements May Prove Inaccurate
This report includes various forward-looking statements regarding the Company that are subject
to risks and uncertainties, including, without limitation, the factors set forth below and under
the caption Risk Factors in the Managements Discussion and Analysis of Financial Condition and
Results of Operations section of the Companys annual report on Form 10-K/A for the year ended
September 30, 2004. Forward-looking statements include, but are not limited to, discussions
regarding the Companys operating strategy, growth strategy, acquisition strategy, cost savings
initiatives, industry, economic conditions, financial condition, liquidity and capital resources,
results of operations and impact of new accounting pronouncements. Such statements include, but are
not limited to, statements preceded by, followed by or that otherwise include the words believes,
expects, anticipates, intends, seeks, estimates, projects, objective, strategy,
outlook, assumptions, guidance, forecasts, goal, intends, pursue, will likely
result, will continue or similar expressions. For those statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
The following important factors, in addition to those discussed elsewhere in this document,
and the Companys 10-K/A, could affect the future financial results of the Company and could cause
actual results to differ materially from those expressed in forward-looking statements contained in
news releases and other public statements by the Company:
|
|
|
the Companys ability to achieve the goals described in this report and other reports
filed with the Securities and Exchange Commission, including but not limited to, the
Companys ability to |
|
|
|
increase cash flow by reducing operating costs, accounts receivable and indebtedness; |
|
|
|
|
cover the fixed cost of its leased and owned facilities and
maintain adequate liquidity through its cash resources and credit facility; |
|
|
|
|
integrate future acquisitions, in light of challenges in
retaining key employees, synchronizing business processes and efficiently
integrating facilities, marketing, and operations; |
|
|
|
|
comply with the terms of its credit facility or obtain waivers of noncompliance; |
|
|
|
|
reduce operating losses at unprofitable locations; |
|
|
|
|
form and maintain strategic relationships with certain large real estate owners and
operators; and |
|
|
|
|
renew existing insurance coverage and obtain performance and surety bonds on favorable
terms; |
|
|
|
successful implementation of the Companys operating and growth strategy; |
|
|
|
|
interest rate fluctuations; |
|
|
|
|
the loss, or renewal on less favorable terms, of existing management contracts and
leases and the failure to add new locations on favorable terms; |
|
|
|
|
the timing of property-related gains and losses; |
|
|
|
|
pre-opening, start-up and break-in costs of parking facilities; |
|
|
|
|
player strikes or other events affecting major league sports; |
|
|
|
|
changes in economic and business conditions at the local, regional, national or international levels; |
|
|
|
|
changes in patterns of air travel or automobile usage, including but not limited to
effects of weather on travel and transportation patterns; |
|
|
|
|
the impact of litigation and claims; |
|
|
|
|
higher premium and claims costs relating to medical, liability, workers compensation
and other insurance programs; |
Page 12 of 24
|
|
|
compliance with, or changes in, local, state, national and international laws and
regulations, including, without limitation, local regulations, restrictions and taxation on
real property, parking and automobile usage, security measures, environmental, anti-trust
and consumer protection laws; |
|
|
|
|
changes in current parking rates and pricing of services to clients; |
|
|
|
|
extraordinary events affecting parking facilities that the Company manages, including
labor strikes, emergency safety measures, military or terrorist attacks and natural
disasters; |
|
|
|
|
the loss of key employees; and |
|
|
|
|
the other factors discussed under the heading Risk Factors included in the
Managements Discussion and Analysis of Financial Condition and Results of Operations
included in the Companys Annual Report on Form 10-K/A for the fiscal year ended September
30, 2004. |
Overview
The Company is a leading provider of parking and related services. Central Parking operates
parking facilities in 37 states, the District of Columbia, Canada, Puerto Rico, Mexico, Chile,
Columbia, Peru, Venezuela, the United Kingdom, the Republic of Ireland, Spain, Germany, Poland,
Greece, Italy and Switzerland. The Company also provides ancillary products and services,
including parking consulting, shuttle, valet, on-street and parking meter enforcement, and billing
and collection services. As of June 30, 2005, Central Parking operated 1,717 parking facilities
through management contracts, leased 1,599 parking facilities, and owned 183 parking facilities,
either independently or in joint ventures with third parties.
Central Parking operates parking facilities under three general types of arrangements:
management contracts, leases and fee ownership. Parking revenues consist of revenues from leased
and owned facilities. Cost of parking relates to both leased and owned facilities and includes
rent, payroll and related benefits, depreciation (if applicable), maintenance, insurance, and
general operating expenses. Management contract revenues consist of management fees (both fixed
and performance based) and fees for ancillary services such as insurance, accounting, equipment
leasing, and consulting. The cost of management contracts includes insurance premiums, claims and
other direct overhead.
The Company believes that most commercial real estate developers and property owners view
services such as parking as potential profit centers rather than cost centers. Many of these
parties outsource parking operations to parking management companies in an effort to maximize
profits or leverage the original rental value to a third-party lender. Parking management
companies can increase profits by using managerial skills and experience, operating systems, and
operating controls unique to the parking industry.
The Companys strategy is to increase the number of profitable parking facilities it operates
by focusing its marketing efforts on adding facilities at the local
level and targeting real estate
managers and developers with a national presence.
The Company continues to view privatization of certain governmental operations and facilities
as an opportunity for the parking industry. For example, privatization of on-street parking fee
collection and enforcement in the United Kingdom has provided significant opportunities for private
parking companies. In the United States, several cities have awarded on-street parking fee
collection and enforcement and parking meter service contracts to for-profit parking companies such
as Central Parking.
Critical Accounting Policies
Managements Discussion and Analysis of Financial Condition and Results of Operations
discusses the Companys consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. Accounting estimates are an integral part of
the preparation of the financial statements and the financial reporting process and are based upon
current judgments. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reported period. Certain accounting estimates are particularly sensitive because of their
complexity and the possibility that future events affecting them may differ materially from the
Companys current judgments and estimates.
Page 13 of 24
This listing of critical accounting policies is not intended to be a comprehensive list of all
of the Companys accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by U.S. generally accepted accounting principles, with no need
for managements judgment regarding accounting policy. The Company believes that of its significant
accounting policies, as discussed in Note 1 to the consolidated financial statements included in
the Companys Annual Report on Form 10-K/A for the year ended September 30, 2004, the following
involve a higher degree of judgment and complexity:
Impairment of Long-Lived Assets and Goodwill
As of June 30, 2005, the Companys long-lived assets were comprised primarily of $345.2
million of property, equipment and leasehold improvements, $82.0 million of contract and lease
rights, $234.3 million of goodwill and $11.0 million of deferred expenses. In accounting for the
Companys long-lived assets, other than goodwill and other intangible assets, the Company applies
the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Company accounts for goodwill and other
intangible assets under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets.
The determination and measurement of an impairment loss under these accounting standards
require the continuous use of significant judgment and estimates. The determination of fair value
of these assets includes cash flow projections that assume certain future revenue and cost levels,
assumed discount rates based upon current market conditions and other valuation factors, all of
which involve the use of significant judgment and estimation. The Company recorded impairment
losses of approximately $3.3 million during the three months ($3.3 million in continuing
operations) ended June 30, 2005 as a result of underperforming locations, upon termination or
disposal and premature closures and $7.5 million ($4.1 in continuing operations and $3.4 million in
discontinued operations) during the nine months ended June 30, 2005 as a result of underperforming
locations, upon termination or disposal and premature closures. Future events may indicate
differences from managements judgments and estimates, which could, in turn, result in increased
impairment charges in the future. Future events that may result in increased impairment charges
include increases in interest rates, which would impact discount rates, unfavorable economic
conditions or other factors, which could decrease revenues and profitability of existing locations,
and changes in the cost structure of existing facilities.
Contract and Lease Rights
As of June 30, 2005, the Company had $82.0 million of contract and lease rights. The Company
capitalizes payments made to third parties, which provide the Company the right to manage or lease
facilities. Lease rights and management contract rights, which are purchased individually, are
amortized on a straight-line basis over the original terms of the related agreements, which range
from 5 to 30 years. Management contract rights acquired through acquisition of an entity are
amortized as a group over the estimated term of the contracts, including anticipated renewals and
terminations based on the Companys historical experience (typically 15 years). If the renewal rate
of contracts within an acquired group is less than initially estimated, accelerated amortization or
impairment may be necessary.
Allowance for Doubtful Accounts
As of June 30, 2005, the Company had $72.6 million of gross trade receivables, including
management accounts receivable and accounts receivable other. Additionally, the Company had a
recorded allowance for doubtful accounts of $3.3 million. The Company reports management accounts
receivable, net of an allowance for doubtful accounts, to represent its estimate of the amount that
ultimately will be realized in cash. The Company reviews the adequacy of its allowance for
doubtful accounts on an ongoing basis, using historical collection trends, analyses of receivable
portfolios by region and by source, aging of receivables, as well as review of specific accounts,
and makes adjustments in the allowance as necessary. Changes in economic conditions, specifically
in the Northeast United States, could have an impact on the collection of existing receivable
balances or future allowance considerations.
Insurance
The Company purchases comprehensive liability insurance covering certain claims that occur at
parking facilities it owns, leases or manages. The primary amount of such coverage is $1 million
per occurrence and $2 million in the aggregate per facility. In addition, the Company purchases
umbrella/excess liability coverage. The Companys various liability insurance policies have
deductibles of up to $350,000 that must be met before the insurance companies are required to
reimburse the Company for costs incurred relating to covered claims. In addition, the Companys
Page 14 of 24
workers compensation program has a deductible of $250,000. The Company also provides health
insurance for many of its employees and purchases a stop-loss policy with a deductible of $150,000
per claim. As a result, the Company is, in effect, self-insured for all claims up to the
deductible levels. The Company applies the provisions of SFAS No. 5, Accounting for Contingencies,
in determining the timing and amount of expense recognition associated with claims against the
Company. The expense recognition is based upon managements determination of an unfavorable
outcome of a claim being deemed as probable and reasonably estimated, as defined in SFAS No. 5.
This determination requires the use of judgment in both the estimation of probability and the
amount to be recognized as an expense. Management utilizes historical experience with similar
claims along with input from legal counsel and third party administrators in determining the
likelihood and extent of an unfavorable outcome for certain general litigation. Future events may
indicate differences from these judgments and estimates and result in increased expense recognition
in the future.
Income Taxes
The Company uses the asset and liability method of SFAS No. 109, Accounting for Income Taxes,
to account for income taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The Company
has certain net operating loss carry forwards, which expire between 2005 and 2018. The ability of
the Company to fully utilize these net operating losses to offset taxable income is limited due to
changes in ownership of the companies, which generated these losses. These limitations have been
considered in the determination of the Companys deferred tax asset valuation allowance. The
valuation allowance provides for net operating loss carry forwards for which recoverability is
deemed to be uncertain. The carrying value of the Companys net deferred tax assets assumes that
the Company will be able to generate sufficient future taxable income in certain tax jurisdictions,
based on estimates and assumptions. If these estimates and related assumptions change in the
future, the Company will be required to adjust its deferred tax valuation allowances.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R,
Share-Based Payment. SFAS No. 123R requires the company to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value of the
award. SFAS 123R will be effective for the Company beginning October 1, 2005.
Results of Operations
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
Parking revenues in the third quarter of fiscal year 2005 decreased to $139.4 million from
$145.7 million in the third quarter of fiscal year 2004, a decrease of $6.3 million, or 4.3%. The
decrease of $6.3 million is due to a decrease of $8.4 million related to closed locations and a
decrease of $3.5 million related to contracts converted from
lease to management deals, partially offset by
an increase of $3.0 million from new locations, and an increase in same store sales of $2.6 million.
Management contract revenues for the third quarter of fiscal 2005
were essentially flat compared to the prior year period.
Cost of parking in the third quarter of 2005 decreased to $124.8 million from $131.7 million
in the third quarter of 2004, a decrease of $6.9 million or
5.2%. The decrease was due primarily to a reduction in the number of
operating locations, including elimination of several unprofitable
locations, and was composed of a $3.9 million decline in rent
expense,
a $1.5 million decrease in payroll, a $0.5 million decrease in depreciation and a $0.5 million decrease in property taxes.
Rent expense as a percentage of parking revenues decreased to 50.9% during the quarter ended June
30, 2005, from 51.4% in the quarter ended June 30, 2004. Payroll and benefit expenses were 18.8% of parking revenues during the
third quarter of fiscal 2005 as compared to 19.0% in the comparable prior year period. Cost of
parking as a percentage of parking revenues decreased to 89.6% in the
third quarter of fiscal 2005
from 90.4% in the third quarter of fiscal 2004.
Cost of management contracts in the third quarter of fiscal 2005 decreased to $12.5 million
from $13.2 million in the comparable period in 2004, a decrease of $0.7 million or 5.2%. Cost of
management contracts as a percentage of
management contract revenue decreased to 39.2% for the third fiscal quarter of 2005 from 41.3% for
the same period in 2004.
Page 15 of 24
General and administrative expenses increased to $20.4 million for the third quarter of fiscal
2005 from $17.6 million in the third quarter of fiscal 2004, an increase of $2.8 million or 16.0%.
This increase is due to an increase in professional expenses of $1.1 million related to
Sarbanes-Oxley compliance efforts and $0.8 million related to
the terminated discussions regarding the possible sale of the
Company, an increase of $1.1 million in payroll and severance
costs offset by a reduction of $0.2 million in
other expenses. General and administrative expenses as a percentage of total revenues (excluding
reimbursement of management contract expenses) increased to 11.9% for the third quarter of fiscal
2005 compared to 9.9% for the third quarter of fiscal 2004.
Net property-related losses for the three months
ended June 30, 2005 were $1.2 million. The
$1.2 million loss was comprised of gains on sale of property of $2.1 million, comprised primarily
of a gain of $1.9 million on a property in Seattle, offset by $3.3 million of impairments of
leasehold improvements, contract rights and other intangible assets primarily related to one
location in segment one and one location in segment two. Based on current operating results, the
Companys recent forecast for the next fiscal year, required capital improvements, and certain
lease term uncertainties, management determined that the projected cash flows for these locations
would not be enough to recover the remaining value of the assets. The Companys property-related
gains for the three months ended June 30, 2004 of $1.5 million were comprised primarily of a gain
on sale of property of $6.1 million partially offset by a $4.5 million lease buy out.
For the three months ended June 30, 2005, the Company either disposed of or designated as
held-for-sale certain locations, resulting in a loss from discontinued operations of $0.4 million,
net of tax. The Companys prior period results were reclassified to reflect the operations of the
locations discontinued in the first, second and third quarter of fiscal 2005 as discontinued
operations, net of related income taxes.
Interest expense decreased to $4.3 million for the third quarter of fiscal 2005 from $4.8
million in the third quarter of fiscal 2004, a decrease of $0.5 million or 10.9%. The decrease was
attributed to a decrease in the weighted average debt outstanding under the Credit Facility.
The weighted average balance outstanding for the Companys debt obligations and subordinated
convertible debentures was $252.4 million during the quarter ended June 30, 2005, at a weighted
average interest rate of 6.2% compared to a weighted average balance outstanding of $288.5 million
at a weighted average rate of 6.0% during the quarter ended
June 30, 2004. Amortization of deferred
finance costs was included in the calculation of the weighted average interest rate.
The Company recorded an income tax expense on earnings from continuing operations of $3.4
million for the third quarter of fiscal 2005 as compared to income tax expense of $5.2 million in
the third quarter of fiscal 2004, a change of $1.8 million. The effective tax rate on earnings from
continuing operations before income taxes for the third quarter of fiscal 2005 was 39.3% compared
to 43.8% for the first quarter of fiscal 2004. The decrease in the effective tax rate is due to
the mixture of domestic and foreign earnings.
Nine Months Ended June 30, 2005 Compared to Nine Months Ended June 30, 2004
Parking revenues in the first nine months of fiscal year 2005 decreased to $416.6 million from
$436.5 million in the first nine months of fiscal year 2004, a decrease of $19.9 million, or 4.6%.
The decrease of $19.9 million is due to a decrease of $24.7 million for closed locations and a
decrease of $11.6 million related to contracts converted from lease to management deals, offset by
an increase in same store sales of $6.4 million and an increase from new locations of $10.0
million.
Management contract revenues for the first nine months of fiscal 2005 decreased to $91.5
million from $94.6 million in the first nine months of fiscal year 2004, a decline of $3.1 million
or 3.3%. The decrease was related to changes in contract terms, fewer special events and other revenue
reductions.
Cost of parking in the first nine months of 2005 decreased to $378.7 million from $393.9
million in the first nine months of 2004, a decrease of
$15.2 million or 3.9%. The decrease was due primarily to a
reduction in the number of operating locations, including elimination
of several unprofitable locations, and was composed of a $10.3 million decline in rent
expense, a $4.1 million decrease in payroll and a $1.7 decrease in
property taxes. Items offsetting these expense reductions in cost of parking
Page 16 of 24
were higher insurance
costs due to adjustments in accruals related to higher than estimated claims costs in
liability. Rent expense as a percentage of parking revenues was
essentially flat compared to the prior year period. Payroll and benefit expenses were 18.6% of parking
revenues during the first nine months of fiscal 2005 as compared to 18.7% in the comparable prior
year period. Cost of parking as a percentage of parking revenues increased to 90.9% in the first
nine months of fiscal 2005 from 90.2% in the first nine months of fiscal 2004.
Cost of management contracts in the first nine months of fiscal 2005 increased to $42.8
million from $41.3 million in the comparable period in 2004, an increase of $1.5 million or 3.6%.
The increase was primarily caused by an increase of $1.3 million in liability insurance claims
expense, and an increase of $0.2 million in other expenses. Cost of management contracts as a
percentage of management contract revenue increased to 46.8% for the first nine months of 2005 from
43.7% for the same period in 2004.
General and administrative expenses increased to $60.2 million for the first nine months of
fiscal 2005 from $53.7 million in the first nine months of fiscal 2004, an increase of $6.5 million
or 12.0%. This increase is due to an increase in professional expenses of $2.6 million related to
Sarbanes-Oxley compliance efforts and an increase of $2.8 million in payroll and severance costs,
and $1.1 million in other expenses for the first nine months of fiscal 2005. General and
administrative expenses as a percentage of total revenues (excluding reimbursement of management
contract expenses) increased to 11.8% for the first nine months of fiscal 2005 compared to 10.1% for the
first nine months of fiscal 2004.
Net property-related gains for the nine months ended June 30, 2005 was $15.5 million. The
$15.5 million gain was comprised of a gain on sale of property of $19.6 million, comprised
primarily of a gain of $9.6 million on a property in New York, $8.1 million on a property in Denver
and a $1.9 million on a property in Seattle. The Company incurred $4.1 million of impairments of
leasehold improvements, contract rights and other intangible assets primarily related to one
location in segment one, five locations in segment two and one location in segment nine. Based on
current operating results, the Companys recent forecast for the next fiscal year, required capital
improvements, and certain lease term uncertainties, management determined that the projected cash
flows for these locations would not be enough to recover the remaining value of the assets. Net
property-related gains for the nine months ended June 30, 2004 was $6.0 million. The $6.0 million
gain was comprised of a gain on sale of property of $12.3 million partially offset by a $4.5
million lease buy out and $1.8 million of impairments of contract rights, leasehold improvements
and deferred expenses related to locations which management plans to continue to operate.
For the nine months ended June 30, 2005, the Company either disposed of or designated as
held-for-sale or disposal certain locations, resulting in a loss from discontinued operations of
$2.9 million, net of tax. The Companys prior period results were reclassified to reflect the
operations of the locations discontinued in the first, second and third quarter of fiscal 2005 as
discontinued operations, net of related income taxes.
Interest expense decreased to $14.2 million for the first nine months of fiscal 2005 from
$15.2 million in the first nine months of fiscal 2004, a decrease of $1.0 million or 6.7%. The decrease
was attributed to a decrease in the weighted average debt outstanding under the Credit Facility.
The weighted average balance outstanding for the Companys debt obligations and subordinated
convertible debentures was $279.1 million during the nine months ended June 30, 2005, at a weighted
average interest rate of 6.2% compared to a weighted average balance outstanding of $315.6 million
at a weighted average rate of 5.9% during the nine months ended
June 30, 2004. Amortization of
deferred finance costs was included in the calculation of the weighted average interest rate.
The Company recorded an income tax expense on earnings from continuing operations of $11.7
million for the first nine months of fiscal 2005 as compared to income tax expense of $12.9 million in the
first nine months of fiscal 2004, a change of $1.2 million. The effective tax rate on earnings from
continuing operations before income taxes for the first nine months of fiscal 2005 was 40.0% compared to
40.6% for the first nine months of fiscal 2004. The decrease in the effective tax rate is due to the
mixture of domestic and foreign earnings.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended June 30, 2005 was $8.7
million, a decrease
Page 17 of 24
of $20.0 million from net cash provided by operating activities of $28.7
million for the nine months ended June 30, 2004. The primary factors, which contributed to this
change, were a decrease in net earnings and an increase in operating assets primarily related to
accounts receivable increases in the United Kingdom as a result of new contracts for the nine
months ended June 30, 2005.
Net cash provided by investing activities was $31.0 million for the nine months ended June 30,
2005 compared to $49.6 million for the same period in the prior year. This change was primarily due
to a decrease in proceeds from the disposition of property and equipment. The $36.0 million
proceeds for the nine months ended June 30, 2005, related primarily to property sales in Denver,
New York and Seattle. The $62.0 million of proceeds from disposition consists primarily of $42.8
million received from the sale of eleven properties and $19.2 million received from Connex as part
of the conversion of the United Kingdom rail contract from a leased arrangement to a management
agreement.
Net cash used by financing activities for the nine months ended June 30, 2005 was $39.7
million compared to cash used of $80.5 million in the nine months ended June 30, 2004. This change
was primarily due to higher credit facility repayments, during the nine months ended June 30, 2005
as compared to repayments on the Credit Facility during the nine months ended June 30, 2004.
On February 28, 2003, the Company entered into a credit facility (the Credit Facility)
initially providing for an aggregate availability of up to $350 million consisting of a five-year
$175 million revolving loan, including a sub-limit of $90 million for standby letters of credit,
and a $175 million seven-year term loan. The facility is secured by the stock of certain
subsidiaries of the Company, certain real estate assets, and domestic personal property assets of
the Company and certain subsidiaries.
On January 25, 2005, the Company completed an amendment to the Credit Facility. The amended
facility reduced the aggregate availability to $300 million consisting of a $225 million revolving
loan and a $75 million term loan. The maturity dates remained the same, February 28, 2008, for the
revolver and June 30, 2010, for the term loan. Additionally, the interest rate margins were
reduced for both the revolver and term loans. The quarterly amortization schedule was also
amended. The new schedule requires the term loan payments in the amount of $187,500 for the
quarters ended March 2005 through March 2008 and $9.1 million for the quarters ended June 2008
through March 2010. The revolving loan is required to be repaid in February 2008. The aggregate
availability under the Credit Facility was $108.7 million at June 30, 2005, which is a net of $44.3
million of stand-by letters of credit.
The Credit Facility bears interest at LIBOR plus a tier-based margin dependent upon certain
financial ratios. There are separate tiers for the revolving loan and term loan. The weighted
average margin as of June 30, 2005 was 192 basis points. The amount outstanding under the Companys
Credit Facility was $146.6 million consisting of a $74.6 million term loan and a $72.0 million
revolving loan, with an overall weighted average interest rate of 5.1% as of June 30, 2005.
The amended credit facility continues to contain customary covenants. The Credit Facility
contains covenants including those that require the Company to maintain certain financial ratios,
restrict further indebtedness and certain acquisition activity and limit the amount of dividends
paid. The primary ratios are a leverage ratio, senior leverage ratio and a fixed charge coverage
ratio. Quarterly compliance is calculated using a four quarter rolling methodology and is measured
against specified targets. The Company was in compliance with the covenants at June 30, 2005.
Central Parking believes its cash flows and the Credit Facility are sufficient for its cash
needs over the next twelve months; however if Central Parking identifies investment opportunities
requiring cash in excess of Central Parkings cash flows and the Credit Facility, Central Parking
may seek additional sources of capital, including seeking to further amend the Credit Facility to
obtain additional indebtedness.
Future Cash Commitments
The Company routinely makes capital expenditures to maintain or enhance parking facilities
under its control. The Company expects capital expenditures for fiscal 2005 to be approximately
$17 to $19 million, of which the Company has spent $8.9 million during the first nine months of
fiscal 2005.
The following tables summarize the Companys total contracted obligations and commercial
commitments as of June 30, 2005 (amounts in thousands):
Page 18 of 24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
After 5 |
|
|
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
Long-term debt and capital
Lease obligations |
|
$ |
166,768 |
|
|
$ |
5,562 |
|
|
$ |
96,841 |
|
|
$ |
64,121 |
|
|
$ |
244 |
|
Subordinated convertible debentures |
|
|
78,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,085 |
|
Operating leases |
|
|
1,112,344 |
|
|
|
200,308 |
|
|
|
290,263 |
|
|
|
175,435 |
|
|
|
446,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
1,357,197 |
|
|
$ |
205,870 |
|
|
$ |
387,104 |
|
|
$ |
239,556 |
|
|
$ |
524,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of commitment expiration per period |
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
After 5 |
|
|
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
Unused lines of credit |
|
$ |
108,725 |
|
|
$ |
|
|
|
$ |
81,070 |
|
|
$ |
27,655 |
|
|
$ |
|
|
Unused lines of credit as of June 30, 2005 are reduced by $44.3 million of standby letters of
credit.
Subsequent Event
On
July 14, 2005, the Company announced that it has completed the sale of its leasehold
interest in a parking garage at 839 6th Avenue in New York City for $39 million. The
sale will result in a property-related gain included in continuing operations in the Companys
fourth fiscal quarter of approximately $38 million.
The Company sold its rights under the lease, which had a term ending in 2016, to a developer.
The lease produced pre-tax profits in fiscal 2004 of approximately $1.7 million. At the closing
of the transaction, the Company entered into an agreement to operate the parking garage for the
next 18 months on terms expected to produce pre-tax profits of approximately $1.1 million per year.
On August 3, 2005, Central Parking Corporation announced a new strategic plan designed to
improve profitability. The Company also announced changes in senior management and plans to
conduct a Dutch Auction tender offer.
The Companys new strategic plan is designed to streamline operations and focus on core
competencies and key markets with the greatest potential for growing profits.
The Company also announced that Emanuel Eads, who has served as President and Chief Operating
Officer since May 2003, has been named President and Chief Executive Officer, effective
immediately. Monroe Carell, Jr., Chairman and Chief Executive Officer, will become Executive
Chairman of the Board of Directors. In his new role, Mr. Carell will continue to be involved in
all strategic aspects of the business and will lead the Companys efforts to re-emphasize the
importance of client relationships.
The Company also announced that it intends to commence a modified Dutch Auction tender offer
to purchase up to approximately 12% of its common stock. The final number of shares, timing, the
price range and other details of the offer will be determined on the date the tender offer is
commenced. The Company expects to finance the purchase of the shares from cash proceeds from
property sales and from the Companys credit facility. The credit facility will require certain
changes in order to conduct a tender offer of the size being considered, and the Company is seeking
the requisite approvals from its bank group.
Monroe J. Carell, Jr., has advised the Company that neither he nor other members of the Carell
family intend to tender any of their shares in the event the Company proceeds with the tender offer
that is under consideration.
The Company currently expects to commence the tender offer in the near term, but there can be
no assurance that the Company will commence a tender offer nor any assurances regarding the number
of shares, timing, price range or other details of any such tender offer.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Interest Rates
The Companys primary exposure to market risk consists of changes in interest rates on
variable rate borrowings. As of June 30, 2005, the Company had $146.6 million of variable rate
debt outstanding under the Credit Facility priced at LIBOR plus a weighted average margin of 192
basis points. Of this amount, $74.6 million of the Credit Facility is payable in quarterly
installments of $187,500 through March 2008 and quarterly payments of $9.1 million from June 2008
through March 2010 and $72.0 million in revolving credit loans, which are due in February 2008.
The Company anticipates paying the scheduled quarterly payments from operating cash flows.
The Company is required under the Credit Facility to enter into and maintain interest rate
protection agreements designed to limit the Companys exposure to increases in interest rates. On
May 30, 2003, the Company entered into two interest rate swap transactions for a total of $87.5
million. Both transactions swapped the Companys floating LIBOR interest rates for fixed interest
rate of 2.5% until June 30, 2007. Both of these derivative instruments have terms consistent with
the terms of the Credit Facility and qualify as cash flow hedges.
The weighted average interest rate on the Companys Credit Facility at June 30, 2005 was 5.1%,
including the effect of the related interest rate swaps. An increase (decrease) in LIBOR of 1%
would result in an increase (decrease) of annual interest expense of $1.0 million based on the
Companys un-hedged outstanding Credit Facility balance of $103.4 million at June 30, 2005.
In March 2000, a limited liability company, of which the Company is the sole shareholder,
purchased a parking structure for $19.6 million and financed $13.3 million of the purchase price
with a five-year note bearing interest at one-month floating LIBOR plus 162.5 basis points. In April 2005, the limited liability company
amended the note. The amendment extended the term to a maturity date of February 28, 2008. The
amended $12.7 million loan will continue to
Page 19 of 24
bear interest at a floating basis based on LIBOR plus
162.5 basis points. The Company intends to swap the floating LIBOR rate to a fixed rate with the
terms of the derivative instrument being consistent with the amended loan.
Foreign Currency Risk
The Companys exposure to foreign exchange risk is minimal. As of June 30, 2005, the Company
has approximately GBP 0.8 million (USD $1.5 million) of cash and cash equivalents denominated in
British pounds, EUR 1.9 million (USD $2.3 million) denominated in euros, CAD 0.5 million (USD $0.4
million) denominated in Canadian dollars, and USD $0.9 million denominated in various other foreign
currencies. The Company also has EUR 0.7 million (USD $0.8 million) of notes payable denominated
in euros at June 30, 2005. These notes bear interest at a floating rate of 4.1% as of June 30,
2005, and require monthly principal and interest payments through 2012. The Company does not hold
any hedging instruments related to foreign currency transactions. The Company monitors foreign
currency positions and may enter into certain hedging instruments in the future should it determine
that exposure to foreign exchange risk has increased. Based on the Companys overall currency rate
exposure as of June 30, 2005, management does not believe a near-term change in currency rates,
based on historical currency movements, would materially affect the Companys financial statements.
ITEM 4. Controls and Procedures
(a) |
|
Evaluation of disclosure controls and procedures: Under the supervision and with
participation of the Companys management, including the Companys Chief Executive Officer
and Chief Financial Officer, the Company conducted an evaluation of its disclosure controls
and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under
the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls
and procedures as of June 30, 2005 are effective in timely alerting them to material
information required to be included in the Companys periodic reports and that such
information is (i) accumulated and communicated to the Companys management in a timely
manner, and (ii) recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. |
(b) |
|
Changes in internal control over financial reporting: There has been no change (including
corrective actions with regard to significant deficiencies) in the Companys internal control
over financial reporting that has occurred during the Companys fiscal quarter ended June
30,2005 that has materially affected, or is reasonably likely to materially affect the
Companys internal control over financial reporting. |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June and July 2003, four stockholders filed separate lawsuits against the Company, its
former CEO, its former CFO and its current Chairman in the U. S. District Court for the Middle District
of Tennessee. The plaintiff in each case sought to represent a plaintiff class of purchasers of
Central Parkings Common Stock. The plaintiff in each case claimed that the defendants made
material misrepresentations and/or omissions in connection with the Companys financial statements
for the quarter and fiscal year ended September 30, 2002 and about the Companys internal controls
in violation of the Securities Exchange Act of 1934, which allegedly caused the plaintiffs to buy
Company stock at inflated prices. By order dated
December 10, 2003, the Court consolidated the cases under the
name, In re: Central Parking
Corporation Securities Litigation, civil action No. 03-CV-0546, appointed two individuals as
co-lead plaintiffs and approved their selection of counsel. The plaintiffs filed an amended
complaint on February 13, 2004, in which plaintiffs added the Companys Independent Registered
Public Accountant as a defendant and in which the plaintiffs added a number of allegations. The
amended complaint also sought to extend the putative class period during which investors purchased
the Companys Common Stock by approximately nine months (February 5, 2002
to February 13, 2003). On April 23, 2004, the defendants filed motions to dismiss the lawsuit. On
August 11, 2004, the court dismissed all claims against the Companys Independent Registered Public
Accountant, but denied the motion to dismiss with respect to the Company and the individual
defendants. On January 27, 2005, the Company announced that an agreement in principle had been
reached to settle the lawsuit. Under the agreement in principle, the Companys primary liability
insurance carrier agreed to fully fund a $4.9 million payment to be used to provide all
benefits to shareholder class members and their counsel, and to cover related notice and
administrative costs. A definitive settlement agreement was executed
and, on April 8, 2005, the court entered an order
Page 20 of 24
granting preliminary approval of the negotiated
settlement. Notice of the proposed settlement was mailed to all class members. The final hearing on the proposed settlement was held on
June 10, 2005 and the settlement was approved on that date.
In addition to the matters described above the Company is subject to various legal proceedings
and claims, which arise in the ordinary course of its business. In the opinion of management, the
ultimate liability with respect to those proceedings and claims will not have a material adverse
effect on the financial position, operations, or liquidity of the Company. The Company maintains
property casualty insurance coverage for individual claims in excess of various dollar amounts,
subject to annual aggregate limits. The primary amount of such coverage is $1 million per
occurrence and $2 million in the aggregate per facility. In addition, the Company purchases
umbrella/excess liability coverage. The Companys various property casualty insurance policies have
deductibles of up to $350,000 that must be met before the insurance companies are required to
reimburse the Company for costs and liabilities relating to covered claims. The Company also
provides health insurance for many of its employees and purchases a stop-loss policy with a
deductible of $150,000 per claim. As a result, the Company is, in effect, self-insured for all of
these types of claims up to the deductible levels.
Item 6. Exhibits
|
|
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|
2.1
|
|
|
|
Plan of Recapitalization, effective October 9, 1997 (Incorporated by reference to
Exhibit 2 to the Companys Registration Statement No. 33-95640 on Form S-1). |
|
|
|
|
|
2.2
|
|
|
|
Agreement and Plan of Merger dated September 21, 1998, by and among the Registrant,
Central Merger Sub, Inc., Allright Holdings, Inc., Apollo Real Estate Investment Fund
II, L.P. and AEW Partners, L.P. (Incorporated by reference to Exhibit 2.1 to the
Companys Registration Statement No. 333-66081 on Form S-4 filed on October 21, 1998). |
|
|
|
|
|
2.3
|
|
|
|
Amendment dated as of January 5, 1999, to the Agreement and Plan of Merger dated
September 21, 1998 by and among the Registrant, Central Merger Sub, Inc., Allright
Holdings, Inc., Apollo Real Estate Investment Fund II, L.P. and AEW Partners, L.P.
(Incorporated by reference to Exhibit 2.1 to the Companys Registration Statement No.
333-66081 on Form S-4 filed on October 21, 1998, as amended). |
|
|
|
|
|
2.4
|
|
|
|
Acquisition Agreement and Plan of Merger dated as of November 7, 1997, by and between
the Registrant and Kinney System Holding Corp and a subsidiary of the Registrant
(Incorporated by reference to the Companys Current Report on Form 8-K filed on
February 17, 1998). |
Page 21 of 24
|
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3.1
|
|
(a)
|
|
Amended and Restated Charter of the Registrant (Incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement No. 333-23869 on Form S-3). |
|
|
|
|
|
|
|
(b)
|
|
Articles of Amendment to the Charter of Central Parking
Corporation increasing the authorized number of shares of common stock,
par value $0.01 per share, to one hundred million (Incorporated by
reference to Exhibit 2 to the Companys 10-Q for the quarter ended
March 31, 1999). |
|
|
|
|
|
3.2
|
|
|
|
Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit
4.1 to the Companys Registration Statement No. 333-23869 on Form S-3). |
|
|
|
|
|
4.1
|
|
|
|
Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement No. 33-95640 on Form S-1). |
|
|
|
|
|
4.2
|
|
(a)
|
|
Registration Rights Agreement (the Allright Registration Rights Agreement) dated as of September 21, 1998 by and
between the Registrant, Apollo Real Estate Investment Fund II, L.P., AEW Partners, L.P. and Monroe J. Carell, Jr.,
The Monroe Carell Jr. Foundation, Monroe Carell Jr. 1995 Grantor Retained Annuity Trust, Monroe Carell Jr. 1994
Grantor Retained Annuity Trust, The Carell Childrens Trust, The 1996 Carell Grandchildrens Trust, The Carell
Family Grandchildren 1990 Trust, The Kathryn Carell Brown Foundation, The Edith Carell Johnson Foundation, The
Julie Carell Stadler Foundation, 1997 Carell Elizabeth Brown Trust, 1997 Ann Scott Johnson Trust, 1997 Julia
Claire Stadler Trust, 1997 William Carell Johnson Trust, 1997 David Nicholas Brown Trust and 1997 George Monroe
Stadler Trust (Incorporated by reference to Exhibit 4.4 to the Companys Registration Statement No. 333-66081
filed on October 21, 1998). |
|
|
|
|
|
4.2
|
|
(b)
|
|
Amendment dated January 5, 1999 to the Allright Registration Rights Agreement (Incorporated by reference to
Exhibit 4.4.1 to the Companys Registration Statement No. 333-66081 filed on October 21, 1998, as amended). |
|
|
|
|
|
4.2
|
|
(c)
|
|
Second Amendment dated February 1, 2001 to the Allright Registration Rights Agreement. (Incorporated by reference
to Exhibit 4.6 to the Companys Registration Statement No. 333-54914 on Form S-3 filed on February 2, 2001) |
|
|
|
|
|
4.3
|
|
|
|
Indenture dated March 18, 1998 between the registrant and Chase Bank of Texas, National Association, as
Trustee regarding up to $113,402,050 of 5-1/4 % Convertible
Subordinated Debentures due 2028. (Incorporated by reference to
Exhibit 4.5 to the Registrants Registration Statement No. 333-52497 on Form S-3). |
|
|
|
|
|
4.4
|
|
|
|
Amended and Restated Declaration of Trust of Central Parking Finance Trust dated as
of March 18, 1998. (Incorporated by reference to Exhibit 4.5 to the Registrants
Registration Statement No. 333-52497 on Form S-3). |
|
|
|
|
|
4.5
|
|
|
|
Preferred Securities Guarantee Agreement dated as of March 18, 1998 by and between
the Registrant and Chase Bank of Texas, national Association as Trustee (Incorporated
by reference to Exhibit 4.7 to the Registrants Registration Statement No. 333-52497
on Form S-3). |
|
|
|
|
|
4.6
|
|
|
|
Common Securities Guarantee Agreement dated March 18, 1998 by the Registrant.
(Incorporated by reference to Exhibit 4.9 to 333-52497 on Form S-3). |
|
|
|
|
|
10.1
|
|
|
|
Third Amendment to the Credit Facility dated January 25, 2005 by Bank of America,
N.A. and Central Parking Corporation (Incorporated by reference to Exhibit 10.1on Form
10-Q filed on February 9, 2005 ). |
Page 22 of 24
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31.1
|
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|
|
Certification of Emanuel Eads pursuant to Rule 13a-14(a) |
|
|
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|
|
31.2
|
|
|
|
Certification of Jeff Heavrin pursuant to Rule 13a-14(a) |
|
|
|
|
|
32.1
|
|
|
|
Certification of Emanuel Eads pursuant to Section 1350 |
|
|
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|
|
32.2
|
|
|
|
Certification of Jeff Heavrin pursuant to Section 1350 |
Page 23 of 24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned party duly authorized.
|
|
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|
|
|
CENTRAL PARKING CORPORATION
|
|
Date: August 9, 2005 |
By: |
/s/
EMANUEL EADS
|
|
|
|
Emanuel Eads |
|
|
|
Chief Executive Officer |
|
|
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|
|
|
|
CENTRAL PARKING CORPORATION
|
|
Date: August 9, 2005 |
By: |
/s/ JEFF HEAVRIN
|
|
|
|
Jeff Heavrin |
|
|
|
Senior Vice President and Chief Financial Officer |
|
|
Page 24 of 24