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, 2006
Commission file number 001-13950
CENTRAL PARKING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Tennessee
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62-1052916 |
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(State or Other Jurisdiction of Incorporation
or Organization)
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(I.R.S. Employer Identification No.) |
|
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2401 21st Avenue South,
Suite 200, Nashville, Tennessee
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37212 |
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(Address of Principal Executive Offices)
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(Zip Code) |
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Registrants Telephone
Number, Including Area Code: (615) 297-4255
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Former name, address and fiscal year, if changed since last report: Not Applicable
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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 þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES o NO þ |
Indicate the number of shares outstanding of each of the registrants classes of common stock
as of the latest practicable date.
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Class
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Outstanding at August 7, 2006 |
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Common Stock, $0.01 par value
|
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32,112,628 |
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
|
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June 30, |
|
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September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
28,622 |
|
|
$ |
26,055 |
|
Management accounts receivable, net of allowance for doubtful accounts of $3,015 and $7,091
at
June 30, 2006 and September 30, 2005, respectively |
|
|
49,823 |
|
|
|
51,931 |
|
Accounts receivable other, net of allowance for doubtful accounts of $2,217 and $2,685 at
June 30, 2006 and
September 30, 2005 |
|
|
16,262 |
|
|
|
15,537 |
|
Current portion of notes receivable (including amounts due from related parties of
$937 at June 30, 2006 and $937 at September 30, 2005) and net of allowance for doubtful
accounts of $182 and
$493 at June 30, 2006 and September 30, 2005 |
|
|
4,806 |
|
|
|
5,818 |
|
Prepaid expenses |
|
|
14,394 |
|
|
|
8,630 |
|
Assets held for sale |
|
|
31,558 |
|
|
|
49,048 |
|
Available for sale securities |
|
|
4,824 |
|
|
|
4,606 |
|
Refundable income taxes |
|
|
4,931 |
|
|
|
|
|
Deferred income taxes |
|
|
23,256 |
|
|
|
19,949 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
178,476 |
|
|
|
181,574 |
|
Notes receivable, less current portion |
|
|
10,365 |
|
|
|
10,480 |
|
Property, equipment, and leasehold improvements, net |
|
|
309,066 |
|
|
|
327,391 |
|
Contracts and lease rights, net |
|
|
73,966 |
|
|
|
80,064 |
|
Goodwill, net |
|
|
232,443 |
|
|
|
232,443 |
|
Investment in and advances to partnerships and joint ventures |
|
|
3,779 |
|
|
|
4,443 |
|
Other assets |
|
|
28,833 |
|
|
|
31,419 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
836,928 |
|
|
$ |
867,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
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|
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Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt and capital lease obligations |
|
$ |
2,648 |
|
|
$ |
1,764 |
|
Trade accounts payable |
|
|
90,924 |
|
|
|
83,604 |
|
Accrued expenses |
|
|
50,990 |
|
|
|
52,809 |
|
Management accounts payable |
|
|
26,810 |
|
|
|
25,532 |
|
Income taxes payable |
|
|
|
|
|
|
12,389 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
171,372 |
|
|
|
176,098 |
|
Long-term debt and capital lease obligations, less current portion |
|
|
128,627 |
|
|
|
98,212 |
|
Subordinated convertible debentures |
|
|
78,085 |
|
|
|
78,085 |
|
Deferred rent |
|
|
20,834 |
|
|
|
22,113 |
|
Deferred income taxes |
|
|
20,453 |
|
|
|
19,565 |
|
Other liabilities |
|
|
20,087 |
|
|
|
21,152 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
439,458 |
|
|
|
415,225 |
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
421 |
|
|
|
528 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 50,000,000 shares authorized, 32,100,503
and 36,680,694 shares issued and outstanding at June 30, 2006 and
September 30, 2005, respectively |
|
|
321 |
|
|
|
368 |
|
Additional paid-in capital |
|
|
179,657 |
|
|
|
251,784 |
|
Accumulated other comprehensive income, net |
|
|
3,199 |
|
|
|
3,432 |
|
Retained earnings |
|
|
214,577 |
|
|
|
197,182 |
|
Other |
|
|
(705 |
) |
|
|
(705 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
397,049 |
|
|
|
452,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
836,928 |
|
|
$ |
867,814 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Amounts in thousands, except per share data
|
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|
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|
Three months ended June 30, |
|
|
Nine months ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parking |
|
$ |
132,961 |
|
|
$ |
136,103 |
|
|
$ |
395,428 |
|
|
$ |
406,998 |
|
Management contracts |
|
|
30,382 |
|
|
|
27,248 |
|
|
|
86,980 |
|
|
|
85,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,343 |
|
|
|
163,351 |
|
|
|
482,408 |
|
|
|
492,676 |
|
Reimbursement of management contract expenses |
|
|
117,419 |
|
|
|
113,759 |
|
|
|
344,550 |
|
|
|
330,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
280,762 |
|
|
|
277,110 |
|
|
|
826,958 |
|
|
|
823,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of parking |
|
|
120,215 |
|
|
|
121,907 |
|
|
|
360,404 |
|
|
|
369,244 |
|
Cost of management contracts |
|
|
12,546 |
|
|
|
14,254 |
|
|
|
36,554 |
|
|
|
44,683 |
|
General and administrative |
|
|
18,837 |
|
|
|
21,572 |
|
|
|
60,848 |
|
|
|
61,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,598 |
|
|
|
157,733 |
|
|
|
457,806 |
|
|
|
475,756 |
|
Reimbursed management contract expenses |
|
|
117,419 |
|
|
|
113,759 |
|
|
|
344,550 |
|
|
|
330,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
269,017 |
|
|
|
271,492 |
|
|
|
802,356 |
|
|
|
806,641 |
|
Property-related gains (losses), net |
|
|
4,542 |
|
|
|
(1,149 |
) |
|
|
26,297 |
|
|
|
15,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
16,287 |
|
|
|
4,469 |
|
|
|
50,899 |
|
|
|
32,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
417 |
|
|
|
1,177 |
|
|
|
1,004 |
|
|
|
3,359 |
|
Interest expense |
|
|
(4,065 |
) |
|
|
(4,030 |
) |
|
|
(12,143 |
) |
|
|
(13,917 |
) |
(Loss) gain on derivative instruments |
|
|
(249 |
) |
|
|
(773 |
) |
|
|
(349 |
) |
|
|
872 |
|
Equity in partnership and joint venture income (loss) |
|
|
336 |
|
|
|
(21 |
) |
|
|
800 |
|
|
|
(371 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before minority interest and income taxes |
|
|
12,726 |
|
|
|
822 |
|
|
|
40,211 |
|
|
|
22,350 |
|
Minority interest, net of tax |
|
|
(251 |
) |
|
|
(470 |
) |
|
|
(802 |
) |
|
|
(1,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes |
|
|
12,475 |
|
|
|
352 |
|
|
|
39,409 |
|
|
|
21,161 |
|
Income tax expense |
|
|
(3,868 |
) |
|
|
(160 |
) |
|
|
(14,297 |
) |
|
|
(9,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
8,607 |
|
|
|
192 |
|
|
|
25,112 |
|
|
|
11,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of tax |
|
|
(9,711 |
) |
|
|
(5,528 |
) |
|
|
(6,276 |
) |
|
|
(6,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(1,104 |
) |
|
$ |
(5,336 |
) |
|
$ |
18,836 |
|
|
$ |
5,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.27 |
|
|
$ |
0.01 |
|
|
$ |
0.78 |
|
|
$ |
0.32 |
|
(Loss) from discontinued operations, net of tax |
|
|
(0.30 |
) |
|
|
(0.15 |
) |
|
|
(0.19 |
) |
|
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(0.03 |
) |
|
$ |
(0.15 |
) |
|
$ |
0.58 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.27 |
|
|
$ |
0.01 |
|
|
$ |
0.77 |
|
|
$ |
0.32 |
|
(Loss) from discontinued operations, net of tax |
|
|
(0.30 |
) |
|
|
(0.15 |
) |
|
|
(0.19 |
) |
|
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(0.03 |
) |
|
$ |
(0.14 |
) |
|
$ |
0.58 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used for basic per share data |
|
|
32,060 |
|
|
|
36,663 |
|
|
|
32,310 |
|
|
|
36,603 |
|
Effect of dilutive common stock options |
|
|
252 |
|
|
|
220 |
|
|
|
211 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used for dilutive per share data |
|
|
32,312 |
|
|
|
36,883 |
|
|
|
32,521 |
|
|
|
36,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
Nine months ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(Revised See |
|
|
|
|
|
|
|
Note 3) |
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
18,836 |
|
|
$ |
5,085 |
|
Loss from discontinued operations |
|
|
6,276 |
|
|
|
6,490 |
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
25,112 |
|
|
|
11,575 |
|
Adjustments to reconcile earnings from continuing operations to net cash (used) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
22,968 |
|
|
|
21,504 |
|
Equity in partnership and joint venture (earnings) losses |
|
|
(800 |
) |
|
|
371 |
|
Distributions from partnerships and joint ventures |
|
|
1,895 |
|
|
|
1,393 |
|
Property-related gains, net |
|
|
(26,297 |
) |
|
|
(15,487 |
) |
Loss (gain) on derivative instruments |
|
|
349 |
|
|
|
(872 |
) |
Stock-based compensation |
|
|
337 |
|
|
|
|
|
Tax benefit
related to stock option exercises |
|
|
(197 |
) |
|
|
|
|
Deferred
income tax benefit |
|
|
(2,368 |
) |
|
|
(3,555 |
) |
Minority interest, net of tax |
|
|
802 |
|
|
|
1,189 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Management accounts receivable |
|
|
2,718 |
|
|
|
(5,037 |
) |
Accounts receivable other |
|
|
(596 |
) |
|
|
(110 |
) |
Prepaid expenses |
|
|
(5,605 |
) |
|
|
87 |
|
Other assets |
|
|
3,102 |
|
|
|
(4,852 |
) |
Trade accounts payable, accrued expenses and other liabilities |
|
|
2,968 |
|
|
|
5,571 |
|
Management accounts payable |
|
|
1,018 |
|
|
|
8,599 |
|
Deferred rent |
|
|
(1,279 |
) |
|
|
(1,960 |
) |
Refundable income taxes |
|
|
(4,929 |
) |
|
|
(5,971 |
) |
Income taxes payable |
|
|
(12,323 |
) |
|
|
51 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities continuing operations |
|
|
6,875 |
|
|
|
12,496 |
|
Net cash used by operating activities discontinued operations |
|
|
(14,393 |
) |
|
|
(5,096 |
) |
|
|
|
|
|
|
|
Net cash (used) provided by operating activities |
|
|
(7,518 |
) |
|
|
7,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from disposition of property and equipment |
|
|
42,785 |
|
|
|
35,209 |
|
Purchases of property, equipment and leasehold improvements |
|
|
(12,189 |
) |
|
|
(8,198 |
) |
Other investing activities |
|
|
723 |
|
|
|
3,920 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities continuing operations |
|
|
31,319 |
|
|
|
30,931 |
|
Net cash provided by investing activities discontinued operations |
|
|
22,489 |
|
|
|
742 |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
53,808 |
|
|
|
31,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(1,441 |
) |
|
|
(1,651 |
) |
Net borrowings under revolving credit agreement |
|
|
32,938 |
|
|
|
71,126 |
|
Proceeds from issuance of notes payable, net of issuance costs |
|
|
539 |
|
|
|
9,728 |
|
Principal repayments on long-term debt and capital lease obligations |
|
|
(3,350 |
) |
|
|
(120,195 |
) |
Payment to minority interest partners |
|
|
(531 |
) |
|
|
(392 |
) |
Repurchase of common stock |
|
|
(75,325 |
) |
|
|
|
|
Tax benefit
related to stock option exercises |
|
|
197 |
|
|
|
|
|
Proceeds from issuance of common stock and exercise of stock options |
|
|
2,814 |
|
|
|
1,733 |
|
|
|
|
|
|
|
|
Net cash used by financing activities continuing operations |
|
|
(44,159 |
) |
|
|
(39,651 |
) |
Net cash used by financing activities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(44,159 |
) |
|
|
(39,651 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
436 |
|
|
|
(258 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
2,567 |
|
|
|
(836 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
26,055 |
|
|
|
27,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
28,622 |
|
|
$ |
26,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Unrealized gain on fair value of investment securities, net of tax |
|
$ |
21 |
|
|
$ |
64 |
|
Cash payments for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
8,632 |
|
|
$ |
13,291 |
|
Income taxes |
|
$ |
37,503 |
|
|
$ |
13,417 |
|
See accompanying notes to consolidated financial statements.
5
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(1) Basis of Presentation
The
accompanying unaudited consolidated financial statements of Central Parking Corporation (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, 2006 are not
necessarily indicative of the results that may be expected for the fiscal year ending September 30,
2006. For further information, refer to the consolidated financial statements and footnotes
thereto for the year ended September 30, 2005 (included in the Companys Annual Report on Form
10-K). Certain prior period amounts have been reclassified to conform to the current period
presentation.
(2) Stock Based Compensation
Prior to October 1, 2005, the Company applied 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 was 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 had elected to continue to apply the intrinsic-value-based method of accounting
described above, and had adopted only the disclosure requirements of these statements. The
following table illustrates the effect on net earnings if the fair-value-based method had been
applied to all outstanding and unvested awards for the third quarter ended June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
2005 |
|
|
2005 |
|
|
|
|
Net earnings (loss), as reported |
|
$ |
(5,336 |
) |
|
$ |
5,085 |
|
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 |
) |
|
|
(2,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings (loss) |
|
$ |
(6,312 |
) |
|
$ |
2,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-as reported |
|
$ |
(0.15 |
) |
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-pro forma |
|
$ |
(0.17 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted-as reported |
|
$ |
(0.14 |
) |
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted-pro forma |
|
$ |
(0.17 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
Stock-based employee compensation expense in the table above was calculated using the
Black-Scholes option pricing model. The Company utilizes both the single option and multiple
option valuation approaches. Allocation of compensation expense were made using 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.
Effective October 1, 2005, the Company adopted the fair value recognition provisions of SFAS
No.123R using the modified prospective method. Under this method, compensation costs in the
periods are based on the estimated fair value of the respective options and the proportion vesting
in the period. Stock-based employee
6
compensation
expense for the three and nine months ended June 30, 2006 was calculated using the
Black-Scholes option-pricing model. The Company utilizes both the single option and multiple
option valuation approaches. Allocation of compensation expense was made using historical option
terms for option grants made to the Companys employees and historical Central Parking Corporation
stock price volatility.
The estimated weighted average fair value of options granted during 2005 was $5.85 using the
Black-Scholes option pricing model with the following assumptions: weighted average dividend yield
based on historic dividend rates at the date of the grant, weighted average volatility of 33% for
fiscal year 2005, weighted average risk free interest based on the treasury bill rate of 10-year
instruments at the date of grant (4.5%), and a weighted average expected term of 7.0 years for
2005.
There was one option grant during the nine months ended June 30, 2006 for 300,000 options.
The estimated weighted average fair value of options granted during 2006 was $4.35 using the
Black-Scholes option pricing model with the following assumptions: weighted average dividend yield
based on historic dividend rates at the date of the grant, weighted average volatility of 29% for
fiscal year 2006, weighted average risk free interest based on the treasury bill rate of 10-year
instruments at the date of grant (5.0%), and a weighted average expected term of 4.5 years for
2006.
The adoption of SFAS No.123(R) using the modified prospective method resulted in the Company
recognizing $128 thousand of stock based compensation expense in the quarter ended June 30, 2006
and $337 thousand for the first nine months of fiscal 2006. As of June 30, 2006, there were
approximately $1.3 million of total unrecognized compensation expense related to unvested options
granted under the option plans. The Company used a 7.5% forfeiture to arrive at this expense. This
cost is expected to be fully recognized by the end of Fiscal Year 2010. During the first nine
months ended June 30, 2006, the aggregate intrinsic value of options exercised under our stock plan
was $513,081 determined as of the date of option exercise.
Stock Plans
In August 1995, the Board of Directors and shareholders approved a stock plan for key
personnel, which included a stock option plan and a restricted stock plan. Under the plans,
incentive stock options, as well as nonqualified options and other stock-based awards, may be
granted to officers, employees and directors. A total of 7,317,500 common shares had been reserved
for issuance under these two plans combined. Options representing 3,701,145 shares are outstanding
under the stock option plan at June 30, 2006. Under this plan, options generally vest over a one-
to four-year period and generally expire ten years after the date of grant. This plan expired in
August 2005 and no new shares will be granted under the plan.
In February 2006, shareholders approved a new 2006 plan and reserved 1,500,000 shares to be
issued. The Company has issued 300,000 options under the new plan as of June 30, 2006. Options
are expected to be granted with an exercise price equal to the fair market value at the date of
grant, generally vest over a one- to four-year period and generally expire ten years after the date
of grant, similar to the 1995 plans.
In August 1995, both the Board of Directors and shareholders approved a stock plan for
directors. A total of 475,000 shares have been reserved for issuance under the plan. This plan
expired in August 2005 and no new options will be granted under this plan. Options to purchase
86,500 shares are outstanding under this plan at June 30, 2006.
A summary for the Companys stock option activity as of June 30, 2006, and changes during the
first nine months of fiscal 2006 is presented in the following table:
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Aggregate |
|
|
Number |
|
Weighted Average |
|
Average Remaining |
|
Intrinsic Value |
|
|
of Shares |
|
Exercise Price |
|
Contractual Term |
|
as of 6/30/06 |
Outstanding at September 30, 2005 |
|
|
4,153,206 |
|
|
$ |
17.98 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(40,675 |
) |
|
$ |
11.56 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(3,000 |
) |
|
$ |
12.73 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(36,926 |
) |
|
$ |
16.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005 |
|
|
4,072,605 |
|
|
$ |
18.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(124,919 |
) |
|
$ |
13.23 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(3,000 |
) |
|
$ |
12.73 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(22,500 |
) |
|
$ |
16.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006 |
|
|
3,922,186 |
|
|
$ |
18.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
300,000 |
|
|
$ |
14.41 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(15,250 |
) |
|
$ |
13.14 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(2,250 |
) |
|
$ |
12.73 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(417,041 |
) |
|
$ |
19.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006 |
|
|
3,787,645 |
|
|
$ |
17.78 |
|
|
|
5.83 |
|
|
$ |
4,190,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at June 30, 2006 |
|
|
3,722,603 |
|
|
$ |
17.84 |
|
|
|
0.20 |
|
|
$ |
4,063,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2006 |
|
|
3,239,895 |
|
|
$ |
18.47 |
|
|
|
5.62 |
|
|
$ |
2,904,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized compensation expense of $336,677 during the nine months ended June 30,
2006, related to the options outstanding. The Company recognized an
income tax benefit of $197,000
during the nine months ended June 30, 2006 related to the exercise of non-qualified stock options.
Restricted Stock
As of September 30, 2005, the Restricted Stock Plan had issued 330,463 shares. Expense
related to vesting of restricted stock is recognized by the Company over the vesting period of one
year. Under the restricted stock plan, the Company granted 14,000 shares and 16,000 shares with
weighted average fair values on grant date of $14.08 per share and $20.20 per share during fiscal
year 2005 and 2004, respectively.
The Company measures compensation cost related to restricted shares using the quoted market
price on the grant date. During the nine months of 2006, the Company recognized compensation
expense of $134,670 related to restricted shares and expects to recognize $54,460 during the
remainder of Fiscal Year 2006 and $90,767 during Fiscal Year 2007.
A summary for the Companys restricted stock activity as of June 30, 2006, and changes during
the first nine months of fiscal 2006 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Weighted Average |
|
|
of Shares |
|
Grant Date Fair Value |
Outstanding at September 30, 2005 |
|
|
28,660 |
|
|
$ |
16.76 |
|
Granted |
|
|
|
|
|
|
n/a |
|
Vested |
|
|
|
|
|
|
n/a |
|
Forfeited |
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005 |
|
|
28,660 |
|
|
$ |
16.76 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
14,000 |
|
|
$ |
15.56 |
|
Vested |
|
|
(14,001 |
) |
|
$ |
17.24 |
|
Forfeited |
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006 |
|
|
28,659 |
|
|
$ |
15.94 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
n/a |
|
Vested |
|
|
|
|
|
|
n/a |
|
Forfeited |
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006 |
|
|
28,659 |
|
|
$ |
15.94 |
|
|
|
|
|
|
|
|
|
|
(3) Cash Flow Statement Revisions
The Company has separately disclosed in the accompanying consolidated statements of cash flows
the operating, investing and financing portions of the cash flows attributable to its discontinued
operations, which prior periods
8
were reported on a combined basis in a single amount. As a result, the 2005 consolidated cash flow
statement has been labeled as revised.
The Company intends to revise the previously issued fiscal year consolidated statements of
cash flows in the Annual Report on Form 10-K for the fiscal year ended September 30, 2006 in order
for such annual periods to be presented consistently with the accompanying consolidated cash flow
statements. The condensed consolidated cash flow statements for each of the years in the
three-year period ended September 30, 2005 as revised to present cash flows related to discontinued
operations through June 30, 2006 by operating, investing and financing activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net cash provided by operating activities-continuing operations |
|
$ |
16,527 |
|
|
$ |
35,567 |
|
|
$ |
19,018 |
|
Net cash (used) provided by operating activities-discontinued
operations |
|
|
(13,293 |
) |
|
|
6,072 |
|
|
|
1,495 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,234 |
|
|
|
41,639 |
|
|
|
20,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities-continuing operations |
|
$ |
101,004 |
|
|
$ |
45,338 |
|
|
$ |
(46,804 |
) |
Net cash provided by investing activities-discontinued operations |
|
|
742 |
|
|
|
7,018 |
|
|
|
15,667 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities |
|
|
101,746 |
|
|
|
52,356 |
|
|
|
(31,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities-continuing operations |
|
$ |
(106,620 |
) |
|
$ |
(97,663 |
) |
|
$ |
8,069 |
|
Net cash provided (used) by financing activities-discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities |
|
|
(106,620 |
) |
|
|
(97,663 |
) |
|
|
8,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
$ |
67 |
|
|
$ |
(276 |
) |
|
$ |
629 |
|
Cash and cash equivalents-beginning of the year |
|
$ |
27,628 |
|
|
$ |
31,572 |
|
|
$ |
33,498 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents-end of the year |
|
$ |
26,055 |
|
|
$ |
27,628 |
|
|
$ |
31,572 |
|
|
|
|
|
|
|
|
|
|
|
(4) 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, 2006 and 2005. For the nine months ended June
30, 2006 and June 30, 2005, options to purchase 2,435,376 and 2,578,669 shares, respectively are excluded from the calculation of diluted
common shares since they are anti-dilutive.
(5) Assets Held For Sale, Property-Related Gains, Net and Discontinued Operations
(a) |
|
Assets Held For Sale |
|
|
|
In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
long-lived assets are classified as held for sale are presented separately in the asset section
of the balance sheet. Assets classified as held for sale are comprised almost exclusively of
real property and are included in the Segment-Other in the identifiable asset segment table
included in note 11. |
|
(b) |
|
Property-Related Gains (losses), Net |
|
|
|
The Company routinely disposes of or recognizes impairment related to owned properties,
leasehold improvements, contract rights, lease rights 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. A summary of property-related gains and losses for the three
and nine months ended June 30, 2006 and June 30, 2005 is as follows (in thousands): |
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net gains on sales of property |
|
$ |
4,858 |
|
|
$ |
2,112 |
|
|
$ |
27,504 |
|
|
$ |
19,601 |
|
Impairment charges for property, equipment and
leasehold improvements |
|
|
1 |
|
|
|
(406 |
) |
|
|
(883 |
) |
|
|
(1,167 |
) |
Impairment charges for contract rights, lease
rights and other intangible assets |
|
|
(317 |
) |
|
|
(2,855 |
) |
|
|
(324 |
) |
|
|
(2,947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-related gains (losses), net |
|
$ |
4,542 |
|
|
$ |
(1,149 |
) |
|
$ |
26,297 |
|
|
$ |
15,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property-related gains for the three months ended June 30, 2006 of $4.5 million was
comprised of gains on sale of property of $4.8 million ($2.4 million from the sale of our
equity-method investment in our Germany subsidiary, $1.3 million
in Knoxville, $0.8 million in
Baltimore, $0.1 million in Chicago and $0.2 million in miscellaneous property sales); partially
offset by $0.3 million of impairments of leasehold improvements, contract rights and other
intangible assets primarily in Segment-Other. Net property-related gains for the nine months
ended June 30, 2006 of $26.3 million was comprised of gains on sale of property of $27.5 million
($12.0 million in Houston, $6.0 million in Chicago, $2.4 million from the sale of our
equity-method investment in our Germany subsidiary, $1.8 million in Atlanta, $1.4 million in
Denver, $1.4 million in West Palm Beach, $0.8 million in Baltimore, $0.5 million in Dallas, $0.3
million in Montreal and $0.9 million in miscellaneous properties sales); partially offset by
$1.2 million of impairments of leasehold improvements, contract rights and other intangible
assets primarily in Segment-Four and Segment-Other. In assessing impairment, management
considered current operating results, the Companys recent forecast for the next fiscal year and
required capital improvements, management determined that the projected cash flows for these
locations would not be enough to recover the book value of the assets. The Companys
property-related loss for the three months ended June 30, 2005 was $1.1 million. The Companys
property related gains for the nine months ended June 30, 2005 was $15.5 million. |
|
|
|
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
the results of operations (including the gain or loss on sale and any recognized asset
impairment) of long-lived assets which qualify as a component of an entity that either have been
disposed of or are classified as held for sale shall be reported in discontinued operations if
(i) the operations and cash flows of the component have been, or will be, eliminated from
operations of the Company as a result of the disposal transaction and (ii) the entity will not
have any significant continuing involvement in the operations of the component after the
disposal transaction. The net property-related gains noted above have been classified in
continuing operations as the individual disposal transactions did not meet the SFAS No. 144 and
EITF 03-13 criteria for classification as discontinued operations primarily due to the expected
retention of certain cash flows from assets disposed. If managements assumptions regarding the
timing and amount of such retained cash flows change in the future, the net property gain (loss)
recognized in continuing operations, along with the results of operations related to such
assets, may need to be reclassified to discontinued operations. |
|
(c) |
|
Discontinued Operations |
|
|
|
The Company has either disposed of, or designated as held-for-sale, certain locations which meet
the aforementioned criteria for classification as discontinued
operations. The components of discontinued operations reflected on
the accompanying consolidated statements of income are as follows: |
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
15,418 |
|
|
$ |
11,592 |
|
|
$ |
36,133 |
|
|
$ |
50,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings (loss) before property-related gains (losses), net |
|
|
1,259 |
|
|
|
(5,667 |
) |
|
|
1,773 |
|
|
|
(5,109 |
) |
Property-related gains (losses), net |
|
|
(9,868 |
) |
|
|
(214 |
) |
|
|
(4,188 |
) |
|
|
(5,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
discontinued operations, before taxes |
|
|
(8,609 |
) |
|
|
(5,881 |
) |
|
|
(2,415 |
) |
|
|
(10,127 |
) |
Income tax benefit (expense) |
|
|
(1,102 |
) |
|
|
353 |
|
|
|
(3,861 |
) |
|
|
3,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of tax |
|
$ |
(9,711 |
) |
|
$ |
(5,528 |
) |
|
$ |
(6,276 |
) |
|
$ |
(6,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in operating earnings from discontinued operations for the first nine months of Fiscal
2006 is income of $2.3 million from the settlement agreement with Rotala (see note 12). Net
property-related gains (losses) related to discontinued operations for the three and nine months
ended June 30, 2006, includes a charge of $12.0 million related to the disposal of the United
Kingdom transport division, which consists of $9.9 million in contract and lease buyouts associated
with buses, routes and the depot, and $2.1 million for severance related costs. All obligations
related to the charge were paid in the third quarter of Fiscal 2006, except for $4.1 million
relating to contract and lease buyouts which will be paid over the next four quarters. Also
included in net property-related gains (losses) related to discontinued operations for the first
nine months of 2006 are gains of $8.0 million from the sale of properties which had been classified
as Assets Held for Sale. The Companys 2005 statements of income and cash flows have been
reclassified to reflect the operations and cash flows related to these discontinued operations.
(6) Intangible Assets
As of June 30, 2006, the Company had the following amortizable intangible assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
Contract and lease rights |
|
$ |
129,201 |
|
|
$ |
55,235 |
|
|
$ |
73,966 |
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to the contract and lease rights was $2.0 million for the three
months ended June 30, 2006, and June 30, 2005 and $6.0 million and $5.6 million for the nine
months ended June 30, 2006 and June 30, 2005, respectively.
(7) Long-Term Debt
The Companys credit facility (the Credit Facility) provides for an aggregate availability
of up to $300 million consisting of a $225 million revolving loan, including a sub-limit of $90
million for standby letters of credit, and a $75 million 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.
The Credit Facility bears interest at LIBOR plus a tier-based margin dependent upon certain
financial ratios. There are separate pricing tiers for the revolving loan and term loan. The
weighted average margin as of June 30, 2006 was 200 basis points. The amount outstanding under the
Companys Credit Facility was $113.9 million consisting of a $73.9 million term loan and a $40.0
million revolving loan, with an overall weighted average interest rate of 5.9% as of June 30, 2006.
The term loan is required to be repaid in quarterly payments of $187,500 through March 2008 and
quarterly payments of $9.1 million from June 2008 through March 2010. The revolving loan is
required to be repaid February 2008. The aggregate availability under the Credit Facility was
$132.9 million at June 30, 2006, which is net of $52.1 million of stand-by letters of credit.
During the first quarter of 2006, the Company repurchased a total of 4,859,674 shares for $75.3
million using the availability under the Credit Facility.
The Company completed an amendment to the Credit Facility as of March 31, 2006. The main
purpose of the amendment was to modify the financial covenant target requirements. The
modifications affected the leverage ratio, senior leverage ratio and fixed charge coverage ratio.
The new leverage targets step down over the next several quarters and will remain at 3.50 for the
leverage ratio and 2.50 for the senior leverage ratio until loan maturity.
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, 2006.
(8) Derivative Financial Instruments
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 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.
11
At June 30, 2006, the Company had three derivative financial instruments including 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, |
|
|
|
2006 |
|
|
2005 |
|
Derivative instrument assets: |
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
2,657 |
|
|
$ |
3,006 |
|
|
|
|
|
|
|
|
Because not all of the terms are consistent with those of the Credit Facility, the derivatives
do not qualify as a cash flow hedge for accounting purposes. As such, any changes in the fair
market value of these derivative instruments are included in the consolidated statement of
operations.
The Company entered into an interest rate cap agreement on an underlying $12.7 million loan in
October 2005. This agreement limits the Companys exposure to the floating interest rate by paying
the Company for interest paid in excess of 5.50%.
(9) Stock Repurchase
In August of 2005, the Company made an offer to its shareholders to purchase up to 4,400,000
shares of common stock at a price no greater than $16.75 or lower than $14.50 per share. The
transaction was structured as a modified Dutch Auction tender offer.
The offer was amended to reduce the range from a price no higher than $16.00 and no lower than
$14.00 per share. The transaction was concluded on October 14, 2005 at which time the Company
accepted and purchased 4,400,000 shares at a price of $15.50 per share. The Company exercised its
right to purchase an additional 459,674 shares without extending or modifying the offer. The
Company repurchased a total of 4,859,674 shares for $75.3 million using the availability under the
Credit Facility.
(10) Comprehensive Income
Comprehensive income (loss) for the three and nine months ended June 30, 2006 and 2005, was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net earnings (loss) |
|
$ |
(1,104 |
) |
|
$ |
(5,336 |
) |
|
$ |
18,836 |
|
|
$ |
5,085 |
|
Change in fair value of investment securities, net of tax |
|
|
11 |
|
|
|
73 |
|
|
|
21 |
|
|
|
64 |
|
Foreign currency cumulative translation adjustment |
|
|
885 |
|
|
|
(835 |
) |
|
|
(253 |
) |
|
|
2,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(208 |
) |
|
$ |
(6,098 |
) |
|
$ |
18,604 |
|
|
$ |
7,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2006 and 2005, as well as identifiable assets for each
segment as of June 30, 2006 and September 30, 2005. The segment information has been updated for
2006 and 2005 to incorporate changes in the Companys segment structure.
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenues:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment One |
|
$ |
15,716 |
|
|
$ |
16,453 |
|
|
$ |
46,980 |
|
|
$ |
49,774 |
|
Segment Two |
|
|
24,550 |
|
|
|
25,166 |
|
|
|
73,392 |
|
|
|
74,453 |
|
Segment Three |
|
|
28,344 |
|
|
|
26,898 |
|
|
|
80,278 |
|
|
|
79,836 |
|
Segment Four |
|
|
60,413 |
|
|
|
62,095 |
|
|
|
177,954 |
|
|
|
181,452 |
|
Segment Five |
|
|
18,098 |
|
|
|
19,159 |
|
|
|
52,827 |
|
|
|
56,852 |
|
Segment Six |
|
|
4,541 |
|
|
|
4,828 |
|
|
|
13,844 |
|
|
|
14,428 |
|
Segment Seven |
|
|
9,030 |
|
|
|
6,144 |
|
|
|
29,999 |
|
|
|
28,699 |
|
Other |
|
|
2,651 |
|
|
|
2,608 |
|
|
|
7,134 |
|
|
|
7,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
163,343 |
|
|
$ |
163,351 |
|
|
$ |
482,408 |
|
|
$ |
492,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revenues exclude reimbursement of management contract expenses. Such amounts were
$117.4 million and $113.8 million for the three months ended June 30, 2006 and 2005,
respectively, and $344.6 million and $330.9 million for the nine months ended June 30, 2006
and 2005, respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Operating earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment One |
|
$ |
1,468 |
|
|
$ |
(555 |
) |
|
$ |
3,850 |
|
|
$ |
1,263 |
|
Segment Two |
|
|
2,217 |
|
|
|
1,113 |
|
|
|
5,360 |
|
|
|
3,018 |
|
Segment Three |
|
|
4,507 |
|
|
|
144 |
|
|
|
10,745 |
|
|
|
2,692 |
|
Segment Four |
|
|
5,891 |
|
|
|
5,489 |
|
|
|
10,999 |
|
|
|
9,885 |
|
Segment Five |
|
|
2,914 |
|
|
|
3,431 |
|
|
|
7,746 |
|
|
|
8,710 |
|
Segment Six |
|
|
865 |
|
|
|
1,448 |
|
|
|
2,991 |
|
|
|
3,129 |
|
Segment Seven |
|
|
1,814 |
|
|
|
(4,577 |
) |
|
|
(302 |
) |
|
|
(2,721 |
) |
Other (including net
realized gain (loss) on the
sale of real estate) |
|
|
(3,389 |
) |
|
|
(2,024 |
) |
|
|
9,510 |
|
|
|
6,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating earnings |
|
$ |
16,287 |
|
|
$ |
4,469 |
|
|
$ |
50,899 |
|
|
$ |
32,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Identifiable assets: |
|
|
|
|
|
|
|
|
Segment One |
|
$ |
18,030 |
|
|
$ |
18,666 |
|
Segment Two |
|
|
44,633 |
|
|
|
45,626 |
|
Segment Three |
|
|
17,083 |
|
|
|
16,366 |
|
Segment Four |
|
|
310,389 |
|
|
|
312,329 |
|
Segment Five |
|
|
27,883 |
|
|
|
29,961 |
|
Segment Six |
|
|
14,016 |
|
|
|
11,457 |
|
Segment Seven |
|
|
48,112 |
|
|
|
49,267 |
|
Other |
|
|
356,782 |
|
|
|
384,142 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
836,928 |
|
|
$ |
867,814 |
|
|
|
|
|
|
|
|
Segment One encompasses the Midwestern region of the United States. It also includes Canada, excluding Vancouver.
Segment Two encompasses the southeastern region of the United States to include Washington DC and Baltimore. It also includes Pennsylvania and
Western New York.
Segment Three encompasses Nashville, TN, Memphis, TN, Nebraska, Colorado, Missouri, the western region of the United States and Vancouver, BC.
Segment Four encompasses the northeastern region of the United States to include New York City, New Jersey and Boston.
Segment Five encompasses Florida, Alabama, parts of Tennessee and the southeastern region of the United States to include the Gulf Coast region and Texas.
Segment Six encompasses the USA Parking acquisition.
Segment Seven encompasses Miami, FL, Europe, Puerto Rico, Central and South America.
Other encompasses the home office, eliminations, owned real estate and certain partnerships.
(12) Commitments and Contingencies
On December 23, 2005, the Company entered into a settlement agreement with Rotala PLC, the
Flights Group companies, Stuart Lawrenson, Paul Churchman and Michael Tackley resolving the
Companys claims arising from certain actions taken by former employees of the Company in the
United Kingdom. The key terms of the settlement include: (1) The payment to the Company of the
proceeds from the sale of 46,666,667 shares of Rotala stock, indirectly owned by Lawrenson, which
were sold through a private placement with net proceeds of pound sterling
(GBP)
13
602,296 (USD $1,073,741 based on January 26, 2006 exchange rate) was received by the Company
on January 26, 2006; (2) Rotala issued promissory notes to the Company with a value of GBP 800,000
(USD $1,374,738 based on December 31, 2005 exchange rate), payable in annual installments between
December 31, 2006, and December 31, 2010; (3) in addition to amounts already received from Rotala
for goods and services benefiting the Flights Group, Rotala agreed to pay an additional GBP 270,000
(USD $472,377 based on April 5, 2006 exchange rate) to the Company upon completion of a previously
announced fundraising which was completed and paid to the Company on April 5, 2006; (4) Rotala
granted to the Company a warrant to purchase 15,000,000 ordinary shares of Rotala stock at an
exercise price of 1.5 pence per share, exercisable for a five year period; (5) Stuart Lawrenson
agreed to pay to the Company GPB 70,000 (USD $120,290 based on December 31, 2005 exchange rate) in
April 2006 and to pay an additional GBP 60,000 (USD $103,105 based on December 31, 2005 exchange
rate) within a year; and (6) Paul Churchman and Michael Tackley each agreed to pay GBP 10,000 (USD
$17,184 based on December 31, 2005 exchange rate) to the Company within ninety days. The Company
received the payment of GBP 95,000 (USD $166,276 based on April 6, 2006 exchange rate) from
Lawrenson on April 6, 2006, and another payment of GBP 35,000
(USD $65,204 based on May 9, 2006
exchange rate) on May 9, 2006 and the payments from Churchman and Tackley of GBP 20,053 (USD
$35,097 based on April 6, 2006 exchange rate) on April 6, 2006. Lawrenson, Churchman and Tackley
have met all of their obligations under the settlement agreement and all claims relating to the
settlement agreement have been released. Rotala and the Flight Group companies have met all of
their obligations under the settlement agreement to date. The only remaining obligations of Rotala/Flight
Group are the repayment of the promissory note of GBP 800,000 discussed above and acceptance of the
Companys future exercise of the warrant described above.
In addition to the matter 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, but could have a
material effect on the results of operations in a given quarter.
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 in Item
1A Risk Factors and Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations section of the Companys annual report on Form 10-K for the year ended
September 30, 2005. 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, 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:
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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: |
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increase cash flow by reducing operating costs, accounts receivable and indebtedness; |
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cover the fixed cost of its leased and owned facilities and
maintain adequate liquidity through its cash resources and credit facility; |
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integrate future acquisitions, in light of challenges in
retaining key employees, synchronizing business processes and efficiently
integrating facilities, marketing, and operations; |
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comply with the terms of its credit facility or obtain waivers of noncompliance; |
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reduce operating losses at unprofitable locations; |
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form and maintain strategic relationships with certain large real estate owners and
operators; and |
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renew existing insurance coverage and obtain performance and surety bonds on favorable
terms. |
14
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successful implementation of the Companys strategic plan; |
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interest rate fluctuations; |
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the loss, or renewal on less favorable terms, of existing management contracts and
leases and the failure to add new locations on favorable terms; |
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the timing of property-related gains and losses; |
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pre-opening, start-up and break-in costs of parking facilities; |
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player strikes or other events affecting major league sports; |
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changes in economic and business conditions at the local, regional, national or international levels; |
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changes in patterns of air travel or automobile usage, including but not limited to
effects of weather on travel and transportation patterns; |
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the impact of litigation and claims; |
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higher premium and claims costs relating to medical, liability, workers compensation
and other insurance programs; |
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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; |
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changes in current parking rates and pricing of services to clients; |
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extraordinary events affecting parking facilities that the Company manages, including
labor strikes, emergency safety measures, military or terrorist attacks and natural
disasters; |
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the loss of key employees; and |
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the other factors discussed under Item 1A Risk Factors and in Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations
included in the Companys Annual Report on Form 10-K for the fiscal year ended September
30, 2005. |
Overview
The Company is a leading provider of parking and related services. Central Parking operates
parking facilities in 36 states, the District of Columbia, Canada,
Puerto Rico, Chile, Colombia,
Peru, the United Kingdom, the Republic of Ireland, Spain, 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, 2006, Central Parking operated 1,617 parking facilities through management contracts, leased
1,331 parking facilities, and owned 152 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.
15
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.
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 for the year ended September 30, 2005, the following
involve a higher degree of judgment and complexity:
Impairment of Long-Lived Assets and Goodwill
As of June 30, 2006, the Companys long-lived assets were comprised primarily of $309.1
million of property, equipment and leasehold improvements, $74.0 million of contract and lease
rights, $232.4 million of goodwill and $10.4 million of deferred expenses. In accounting for the
Companys long-lived assets, other than goodwill and intangible assets with indefinite useful
lives, 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 intangible assets with indefinite useful lives 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 loss
of approximately $0.5 million ($0.3 million in continuing operations and $0.2 million in
discontinued operations) during the three months ended June 30, 2006 as a result of underperforming
locations, upon termination or disposal and premature closures and a loss of approximately $1.5
million ($1.2 million in continuing operations and $0.3 million in discontinued operations) during
the nine months ended June 30, 2006 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 additional 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, 2006, the Company had $74.0 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 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 actual renewal rate of
contracts within an acquired group is less than initially estimated, accelerated amortization or
impairment may be necessary.
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Allowance for Doubtful Accounts
As
of June 30, 2006, the Company had $71.3 million of gross trade receivables, including
management accounts receivable and accounts receivable other. Additionally, the Company had a
recorded allowance for doubtful accounts of $5.2 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, especially 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
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. 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 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
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 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 2006 and
2018. The valuation allowance provides for net operating loss carry forwards for which
recoverability is deemed to be uncertain. The carrying value of the Companys 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 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 was effective for the
Company beginning October 1, 2005. See footnote (2) for additional information.
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN No. 47). FIN No. 47
clarifies that the term, conditional asset retirement obligation as used in SFAS No. 143,
Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are conditional upon a future
event that may or may not be within the control of the entity. Even though uncertainty about the
timing and/or method of settlement exists and may be conditional upon a future event, the
obligation to perform the asset retirement activity is unconditional. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset retirement obligation
if the fair value of the liability can be reasonably estimated. Uncertainty about the timing
and/or method of settlement of a conditional asset retirement obligation should be factored into
the measurement of the liability when sufficient information exists. The fair value of a liability
for the conditional asset retirement obligation should be recognized when incurred generally upon
acquisition, construction, or development or through the normal operation of the asset. SFAS No.
143 acknowledges that in some cases, sufficient information may not be available to reasonably
estimate the fair value of an asset retirement obligation. FIN No. 47 also clarifies when an
entity would have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN No. 47 is effective no later than the end of fiscal years ending after
December 15, 2005, and early adoption of FIN No. 47 is encouraged. The Company has not determined
the impact, if any, that the adoption of this pronouncement will have to its consolidated financial
statements.
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In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109
(FIN No. 48). FIN No. 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. This Interpretation is effective for
fiscal years beginning after December 15, 2006. The Company has not determined the impact, if any,
that the adoption of this pronouncement will have to its consolidated financial statements.
In June 2005, the EITF reached consensus in EITF 04-5, Determining Whether a General Partner,
or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the
Limited Partners Have Certain Rights, to provide guidance on how general partners in a limited
partnership should determine whether they control a limited partnership and therefore should
consolidate it. The EITF agreed that the presumption of general partner control would be overcome
only when the limited partners have either of two types of rights. The first type, referred to as
kick-out rights, is the right to dissolve or liquidate the partnership or otherwise remove the
general partner without cause. The second type, referred to as participating rights, is the right
to effectively participate in significant decisions made in the ordinary course of the
partnerships business. The kick-out rights and the participating rights must be substantive in
order to overcome the presumption of general partner control. The consensus is effective for
general partners of all new limited partnerships formed and for existing limited partnerships for
which the partnership agreements are modified subsequent to the date of FASB ratification (June 29,
2005). For existing limited partnerships that have not been modified, the guidance in EITF 04-5 is
effective no later than the beginning of the first reporting period in fiscal years beginning after
December 15, 2005. The Company has not determined the impact, if any, that the adoption of this
pronouncement will have to its consolidated financial statements with respect to existing limited
partnerships that have not been modified.
In June 2005, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 05-06,
Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or
Acquired in a Business Combination (EITF 05-06). EITF 05-06 concludes that the amortization
period for leasehold improvements acquired in a business combination and leasehold improvements
that are in service significantly after and not contemplated at the beginning of the lease term
should be amortized over the shorter of the useful life of the assets or a term that includes
required lease periods and renewals that are deemed to be reasonably assured at the date of
inception. The consensus was effective for periods beginning after June 29, 2005. The adoption of
this pronouncement did not have a material impact on the Companys consolidated financial
statements.
In June 2006, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 06-03,
How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (That Is, Gross versus Net Presentation) (EITF 06-03). EITF 06-03 concludes
that (a) the scope of this Issue includes any tax assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a seller and a customer and (b) that
the presentation of taxes within the scope on either a gross or a net basis is an accounting policy
decision that should be disclosed under Opinion 22. Furthermore, for taxes reported on a gross
basis, a company should disclose the amounts of those taxes in interim and annual financial
statements for each period for which an income statement is presented. The consensus is effective,
through retrospective application, for periods beginning after December 15, 2006. The Company has
not determined the impact, if any, that the adoption of this pronouncement will have to its
consolidated financial statements.
Results of Operations
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Parking revenues for the third quarter of fiscal year 2006 decreased to $133.0 million from
$136.1 million for the third quarter of fiscal year 2005, a decrease of $3.1 million, or 2.3%. The
decrease of $3.1 million is due to a decrease of $10.0 million due to closed locations and a
decrease of $5.5 million related to contracts converted from leased to management deals; partially
offset by an increase of $6.0 million in new locations and an increase of same store sales of $6.4
million.
Management contract revenues for the third quarter of fiscal 2006 increased to $30.4 million
from $27.2 million for the third quarter of fiscal year 2005, an increase of $3.1 million or 11.5%.
The increase was primarily due to an
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increase in management locations.
Cost of parking for the third quarter of fiscal 2006 decreased to $120.2 million from $121.9
million for the third quarter of fiscal 2005, a decrease of $1.7 million or 1.4%. 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 $0.5 million
decline in snow removal and $0.8 million in
repairs and maintenance and other expenses, $0.2 million decline in payroll expense and $0.2
million decline in utilities. Rent expense as a percentage of parking
revenues increased to 52.3%
during the quarter ended June 30, 2006, from 51.4% in the quarter ended June 30, 2005. Payroll and
benefit expenses as a percent of parking revenues were 18.9% of parking revenues for the third
quarter of fiscal 2006 as compared to 18.5% in the comparable prior year period. Cost of parking
as a percentage of parking revenues increased to 90.4% for the third quarter of fiscal 2006
compared to 89.6% for the third quarter of fiscal 2005.
Cost of management contracts for the third quarter of fiscal 2006 decreased to $12.5 million
from $14.3 million in the comparable period in 2005, a decrease of $1.7 million or 12.0%. The
decrease was primarily caused by a decrease of $1.2 million in
bad debt expense, $0.2 million in
group insurance claims, $0.4 million in other insurance related costs; offset by $0.1 million
increase in other expenses. Cost of management contracts as a percentage of management contract
revenue decreased to 41.3% for the third fiscal quarter of 2006 from 52.3% for the same period in
2005.
General and administrative expenses decreased to $18.8 million for the third quarter of fiscal
2006 from $21.6 million for the third quarter of fiscal 2005, a decrease of $2.7 million or 12.7%.
This decrease is due to a decrease of $2.0 million in professional fees and $1.6 million in other
expenses; partially offset by a $0.9 million increase in payroll expenses. General and
administrative expenses as a percentage of total revenues (excluding reimbursement of management
contract expenses) decreased to 11.5% for the third quarter of fiscal 2006 from 13.2% for the third
quarter of fiscal 2005.
Net property-related gains for the three months ended June 30, 2006 were $4.5 million, which
was comprised of gains on sale of property of $4.8 million
($2.4 million from the sale of our equity method investment in
our Germany subsidiary, $1.3 million
in Knoxville, $0.8 million in Baltimore, $0.1 million in Chicago
and $0.2 million in miscellaneous
property sales); partially offset by $0.3 million of impairments of leasehold improvements,
contract rights and other intangible assets. Based on current operating results, the Companys
recent forecast for the next fiscal year and required capital improvements, management determined
that the projected cash flows for these locations would not be enough to recover the book value of
the assets. The Companys property-related loss for the three months ended June 30, 2005 was $1.1
million.
Interest expense increased to $4.1 million for the third quarter of fiscal 2006 compared to
$4.0 million for third quarter of fiscal 2005, an increase of $0.1 million or 0.1%. The increase
was primarily attributed to an increase in the weighted average interest rate on debt outstanding
under the Credit Facility.
The weighted average balance outstanding for the Companys debt obligations and subordinated
convertible debentures was $217.6 million during the quarter ended June 30, 2006, at a weighted
average interest rate of 6.4% compared to a weighted average balance outstanding of $252.4 million
at a weighted average rate of 6.2% during the quarter ended June 30, 2005. Amortization of deferred
finance costs was included in the calculation of the weighted average interest rate.
The Company recorded income tax expense on earnings from continuing operations of $3.9 million
for the third quarter of fiscal 2006 as compared to $0.2 million for the third quarter of fiscal
2005, a change of $3.7 million. The effective tax rate on earnings from continuing operations
before income taxes for the third quarter of fiscal 2006 was 31.0% compared to 45.5% for the third
quarter of fiscal 2005. The lower effective tax rate in fiscal 2006
is due primarily to a decrease in 2006 of valuation allowances
related to certain state tax loss carryforwards and the establishment
of valuation allowances in fiscal 2005 related to certain foreign
losses.
For the three months ended June 30, 2006, the Company had either disposed of or designated as
held-for-sale or disposal certain locations, resulting in a loss from discontinued operations of
$9.7 million, net of tax. The loss was primarily related to the disposal of the United Kingdom
transportation division. The Companys prior period results were reclassified to reflect those
locations classified as discontinued operations through September 30, 2006.
Nine Months Ended June 30, 2006 Compared to Nine Months Ended June 30, 2005
Parking revenues for the first nine months of fiscal year 2006 decreased to $395.4 million
from $407.0 million for the first nine months of fiscal year 2005, a decrease of $11.6 million, or
2.8%. The decrease of $11.6 million is due to a
19
decrease of $30.7 million due to closed locations
and a decrease of $11.9 million related to contracts converted from
leased to management deals; partially offset by an increase of $14.0 million in new locations
and an increase of same store sales of $17.0 million.
Management contract revenues for the first nine months of fiscal 2006 increased to $87.0
million from $85.7 million for the first nine months of fiscal year 2005, an increase of $1.3
million or 1.5%. The increase was primarily due to higher management fees.
Cost of parking for the first nine months of fiscal 2006 decreased to $360.4 million from
$369.2 million for the first nine months of fiscal 2005, a decrease of $8.8 million or 2.4%. 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 $6.4 million decline in rent
expense, a $1.8 million decline in repairs and maintenance, $1.3 million decline in snow removal,
$0.6 million decline in property taxes; offset by a
$0.6 million increase in supplies and $0.7
million increase in other expenses. Rent expense as a percentage of
parking revenues decreased to
51.6% during the nine months ended June 30, 2006, from 51.7% for the nine months ended June 30,
2005. Payroll and benefit expenses as a percent of parking revenues were 18.9% of parking revenues
for the nine months ended of fiscal 2006 as compared to 18.4% in the comparable prior year period.
Cost of parking as a percentage of parking revenues increased to 91.1% for the first nine months of
fiscal 2006 from 90.1% for the first nine months of fiscal 2005.
Cost of management contracts for the first nine months of fiscal 2006 decreased to $36.6
million from $44.7 million in the comparable period in 2005, a decrease of $8.1 million or 18.2%.
The decrease was primarily caused by a decrease of $2.7 million in group insurance claims expense,
a decrease of $3.3 million in other insurance related costs and a decrease of $2.0 million in bad
debt expense and a decrease of $0.1 in other expenses. Cost of management contracts as a
percentage of management contract revenue decreased to 42.0% for the first nine months of fiscal
2006 from 52.2% for the same period in 2005.
General and administrative expenses decreased to $60.8 million for the first nine months of
fiscal 2006 from $61.8 million for the first nine months of fiscal 2005, a decrease of $1.0 million
or 1.6%. This decrease is due to a decrease of $1.6 million in payroll related expenses and a
decrease of $2.7 million in other expenses; offset by an increase of $1.9 million in professional
expenses related to the United Kingdom investigation and an increase
of $1.4 million in supplies.
General and administrative expenses as a percentage of total revenues (excluding reimbursement of
management contract expenses) increased to 12.6% for the first nine months of fiscal 2006 compared
to 12.5% for the first nine months of fiscal 2005.
Net
property-related gains for the nine months ended June 30, 2006
were $26.3 million, which
was comprised of gains on sale of property of $27.5 million ($12.0 million in Houston, $6.0 million
in Chicago, $2.4 million, from the sale of our equity-method
investment in our Germany subsidiary, $1.8 million in Atlanta, $1.4 million in Denver, $1.4 million
in West Palm Beach, $0.8 million in Baltimore, $0.5 million in Dallas, $0.3 million in Montreal and
$0.9 million in miscellaneous properties sales); partially offset by $1.2 million of impairments of
leasehold improvements, contract rights and other intangible assets. Based on current operating
results, the Companys recent forecast for the next fiscal year and required capital improvements,
management determined that the projected cash flows for these locations would not be enough to
recover the book value of the assets. The Companys property-related gains for the nine months
ended June 30, 2005 was $15.5 million.
Interest expense decreased to $12.1 million for the first nine months of fiscal 2006 from
$13.9 million for the first nine months of fiscal 2005, a decrease of $1.8 million or 12.8%. The
decrease was primarily 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 $228.5 million during the nine months ended June 30, 2006, at a weighted
average interest rate of 6.3% compared to a weighted average balance outstanding of $279.1 million
at a weighted average rate of 6.2% during the nine months ended June 30, 2005. Amortization of
deferred finance costs was included in the calculation of the weighted average interest rate.
The Company recorded income tax expense on earnings from continuing operations of $14.3
million for the first nine months of fiscal 2006 as compared to income tax expense of $9.6 million
for the first nine months of fiscal 2005, a change of $4.7 million. The effective tax rate on
earnings from continuing operations before income taxes for the first nine months of fiscal 2006
was 36.3% compared to 45.3% for the first nine months of fiscal 2005. The lower effective tax rate
in fiscal 2006 is due primarily to a decrease in 2006 of valuation allowances related to certain
state
20
tax loss carryforwards and the establishment of valuation allowances in fiscal 2005 related
to certain foreign losses.
For the nine months ended June 30, 2006, the Company had either disposed of or designated as
held-for-sale or disposal certain locations, resulting in a loss from discontinued operations of
$6.3 million, net of tax. The loss was primarily related to the United Kingdom transportation
division. The Companys prior period results were reclassified to reflect those locations
classified as discontinued operations through June 30, 2006.
Liquidity and Capital Resources
Net
cash used by operating activities for the nine months ended
June 30, 2006 was $7.5
million compared to $7.4 million provided for the nine months ended June 30, 2005. The change was
primarily due to an increase in operating assets and a reduction in income taxes payable.
Net
cash provided by investing activities was $53.8 million for the nine months ended June 30,
2006 compared to $31.7 million of net cash provided in investing activities for the nine months
ended June 30, 2005. This change was primarily due to an increase in proceeds from dispositions of
property and equipment. The proceeds for the six months ended June 30, 2006, related primarily to
property sales in Houston, Chicago, Atlanta, Denver, West Palm Beach and the sale of Companys
partnership in Germany.
Net
cash used by financing activities was $44.2 million for the nine months ended June 30,
2006 compared to $39.7 million net cash used for the nine months ended June 30, 2005.
The Companys credit facility (the Credit Facility) provides for an aggregate availability
of up to $300 million consisting of a $225 million revolving loan, including a sub-limit of $90
million for standby letters of credit, and a $75 million 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.
The Credit Facility bears interest at LIBOR plus a tier-based margin dependent upon certain
financial ratios. There are separate pricing tiers for the revolving loan and term loan. The
weighted average margin as of June 30, 2006 was 200 basis points. The amount outstanding under the
Companys Credit Facility was $113.9 million consisting of a $73.9 million term loan and a $40.0
million revolving loan, with an overall weighted average interest rate of 5.9% as of June 30, 2006.
The term loan is required to be repaid in quarterly payments of $187,500 through March 2008 and
quarterly payments of $9.1 million from June 2008 through March 2010. The revolving loan is
required to be repaid by February 2008. The aggregate availability under the Credit Facility was
$132.9 million at June 30, 2006, which is net of $52.1 million of stand-by letters of credit.
The
Company completed an amendment to the Credit Facility as of
March 31, 2006. The main
purpose of the amendment was to modify the financial covenant target requirements. The
modifications affected the leverage ratio, senior leverage ratio and fixed charge coverage ratio.
The new leverage targets step down over the next several quarters and will remain at 3.50 for the
leverage ratio and 2.50 for the senior leverage ratio until loan maturity.
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, 2006.
In August of 2005, the Company made an offer to its shareholders to purchase up to 4,400,000
shares of common stock at a price no greater than $16.75 or lower than $14.50 per share. The
transaction was structured as a modified Dutch Auction tender offer.
The offer was amended to reduce the range from a price no higher than $16.00 and no lower than
$14.00 per share. The transaction was concluded on October 14, 2005 at which time the Company
accepted and purchased 4,400,000 shares at a price of $15.50 per share. The Company exercised its
right to purchase an additional 459,674 shares without extending or modifying the offer. The
Company repurchased a total of 4,859,674 shares for $75.3 million using the availability under the
Credit Facility.
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
21
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 2006 to be approximately
$19 to $22 million, of which the Company has spent $12.2 million during the first nine months of
fiscal 2006.
The following tables summarize the Companys total contracted obligations and commercial
commitments as of June 30, 2006 (amounts in thousands):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
131,275 |
|
|
$ |
2,648 |
|
|
|
100,966 |
|
|
$ |
27,534 |
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated convertible debentures |
|
|
78,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,085 |
|
Operating leases |
|
|
967,571 |
|
|
|
197,290 |
|
|
|
274,320 |
|
|
|
167,318 |
|
|
|
328,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
1,176,931 |
|
|
$ |
199,938 |
|
|
$ |
375,286 |
|
|
$ |
194,852 |
|
|
$ |
406,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of commitment expiration per period |
|
|
|
|
|
|
Less than |
|
1-3 |
|
3-5 |
|
After 5 |
|
|
Total |
|
1 Year |
|
Years |
|
Years |
|
Years |
Unused lines of credit |
|
$ |
132,858 |
|
|
$ |
|
|
|
$ |
132,858 |
|
|
$ |
|
|
|
$ |
|
|
Unused lines of credit as of June 30, 2006 are reduced by $52.1 million of standby letters of
credit.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Interest Rate
The Companys primary exposure to market risk consists of changes in interest rates on
variable rate borrowings. As of June 30, 2006, the Company had $113.9 million of variable rate
debt outstanding under the Credit Facility priced at LIBOR plus a weighted average margin of 200
basis points. Of this amount, $73.9 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 $40.0 million in revolving credit loans 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 combined notional
amount of $87.5 million. Both transactions swapped the Companys floating LIBOR interest rates for
fixed interest of 2.45% until June 30, 2007. Because not all of the terms are consistent with the
credit facility, the derivatives do not qualify as a cash flow hedge.
The weighted average interest rate on the Companys Credit Facility at June 30, 2006 was 5.9%.
The 5.9% rate includes all outstanding LIBOR contracts and swap agreements at June 30, 2006. An
increase (decrease) in LIBOR of 1% would result in an increase (decrease) of annual interest
expense of $0.9 million based on the Companys un-hedged outstanding Credit Facility balance of
$88.7 million at June 30, 2006.
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 bear interest
at a floating basis based on LIBOR plus 162.5 basis points. The Company entered into an interest
rate cap agreement on the underlying $12.7 million loan in October 2005. This agreement limits the
Companys exposure to the floating interest rate by paying the Company for interest paid in excess
of 5.50%.
22
Foreign Currency Risk
The Companys exposure to foreign exchange risk is minimal. As of June 30, 2006, the Company
has approximately GBP 2.2 million (USD $4.1 million) of cash and cash equivalents denominated in
British pounds, EUR 2.0 million (USD $1.5 million) denominated in euros, CAD 1.3 million (USD $1.1
million) denominated in Canadian dollars, and USD $1.3 million denominated in various other foreign
currencies. The Company also has EUR 0.5 million (USD $0.7 million) of notes payable denominated
in euros and GBP 12.5 million (USD $23.1 million) of notes payable denominated in pounds at June
30, 2006. These notes bear interest at a floating rate of 4.9% as of June 30, 2006, 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, 2006, 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 the participation of management, including our Chief Executive
Officer and Chief Financial Officer, we evaluated the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, or the Exchange Act) for the quarter ended June 30, 2006.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were not effective as of June 30, 2006
because of material weaknesses discussed below.
To address the material weaknesses described below, we performed additional analysis and other
post-closing procedures to ensure our consolidated financial statements were prepared in accordance
with generally accepted accounting principles. Accordingly, management, including the Chief
Executive Officer and Chief Financial Officer, believe the consolidated financial statements
included in this report present, in all material respects, the Companys financial condition,
results of operations and cash flows for the quarter ended June 30, 2006.
(b) Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an assessment of the effectiveness of our internal
control over financial reporting based on the framework in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
As a result of this assessment, management identified material weaknesses in internal control
over financial reporting as follows:
1. Inadequate company-level controls. We did not maintain effective company-level controls as
defined in the Internal ControlIntegrated Framework published by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). These deficiencies related to three of the five
components of internal control as defined by COSO (control environment, monitoring, and information
and communication). Specifically,
|
|
|
Our control environment did not sufficiently promote integrity and
ethical values over financial reporting throughout our management
structure, and this material weakness was a contributing factor in
the development of other material weaknesses described below; |
|
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|
|
We had inadequate monitoring controls, including inadequate staffing
and procedures to ensure periodic evaluations of internal controls to
ensure that appropriate personnel regularly obtain evidence that
controls are functioning effectively and that identified control
deficiencies are remediated timely; and |
|
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|
|
There was inadequate communication from management to employees
regarding the importance of controls and employees duties and control
responsibilities. |
23
These deficiencies resulted in more than a remote likelihood that a material misstatement of
our interim or annual financial statements would not be prevented or detected.
2. Inadequate Expertise in U.S. Generally Accepted Accounting Principles. Our finance and
accounting personnel were inadequately trained and lacked appropriate expertise in U.S. generally
accepted accounting principles to prepare financial information for inclusion in the Companys
consolidated financial statements. This deficiency resulted in the improper capitalization of
certain property and equipment, the improper recognition of revenue on certain management
agreements, improper deferral of gains and losses on interest rate swap agreements, the failure to
recognize impairment on property and equipment and other long-term assets, which required
adjustments to the interim and annual financial statements.
3. Inadequate segregation of duties. We had inadequate procedures and controls to ensure
proper segregation of duties within our purchasing, disbursements and accounting processes. As a
result, misappropriations of assets occurred and were not detected in a timely manner. This
deficiency resulted in the misappropriation of assets due to the unauthorized transfer of certain
management contracts to a former officer of the United Kingdom subsidiary and the Companys
continued payment and recognition of management costs after the contracts were transferred, which
required adjustments to the interim and annual financial statements to write-off certain current
assets, property and equipment and goodwill.
4. Inadequate financial statement preparation and review procedures. We had inadequate
policies, procedures and personnel to ensure that accurate, reliable interim and annual financial
statements were prepared and reviewed on a timely basis. Specifically, we had insufficient levels
of supporting documentation and review and supervision of the Companys accounting and finance
departments. These deficiencies resulted in errors in the recognition of revenue, improper
capitalization of certain property and equipment, improperly recorded assets, the failure to record
certain accrued liabilities in the United Kingdom subsidiary which required adjustments to the
interim and annual financial statements.
5. Inadequate reviews of account reconciliations, analyses and journal entries. We had
inadequate review procedures over account reconciliations, account and transaction analyses, and
journal entries. Specifically, deficiencies were noted in the following areas: a) management review
of supporting documentation, calculations and assumptions used to prepare the financial statements,
including spreadsheets and account analyses; and b) management review of journal entries recorded
during the financial statement preparation process. These deficiencies resulted in inappropriate
recognition of revenue, inappropriate classification of assets, improperly recorded assets, the
failure to record certain accrued liabilities, which required adjustments to the interim and annual
financial statements.
6. Inadequate controls over authorization of purchase and disbursement transactions. We had
inadequate controls over purchases and the disbursement of funds as well as the recording of
accruals for purchases and expenses. Specifically,
|
|
|
Inadequate and ineffective policies over the authorization of purchases; |
|
|
|
|
Ineffective invoice approval policies; |
|
|
|
|
Ineffective supervisory oversight and/or review of the addition or removal of management contracts; and |
|
|
|
|
Inadequate period-end cut-off procedures in the procurement cycle. |
These deficiencies increase the likelihood that unauthorized purchases and disbursements could
occur and not be detected in a timely manner. These deficiencies resulted in the misappropriation
of assets because of the unauthorized transfer of certain management contracts to a former officer
of the United Kingdom subsidiary, the Companys continued payment and recognition of management
costs after the contracts were transferred, and the failure to record certain accrued liabilities,
which required adjustments to the interim and annual financial statements.
7. Inadequate controls over revenue recognition. Our review procedures over accounting for
revenue recognition were not functioning effectively. Specifically, the review procedures over the
application of our revenue recognition policies for management agreements were inadequate. These
deficiencies resulted in the improper recognition of revenue on certain management contracts, which
required adjustments to the interim and annual financial statements.
24
As a result of these material weaknesses as of June 30, 2006 in the Companys internal control
over financial reporting, management has concluded that, as of June 30, 2006, the Companys
internal control over financial reporting was not effective based on the criteria set forth by the
COSO of the Treadway Commission in Internal ControlIntegrated Framework.
(c) Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2005, the Company removed the persons directly responsible for
the unauthorized related party transactions and improper and inaccurate accounting entries in the
United Kingdom subsidiary. There were no other changes in our internal control over financial
reporting that occurred in the fourth quarter of 2005 that materially affected, or were reasonably
likely to materially affect, our internal control over financial reporting.
Subsequent to September 30, 2005, we implemented the remedial measures outlined below to
address the identified material weaknesses in connection with the preparation of our September 30,
2005 consolidated financial statements. We have dedicated additional resources to the review of
our control processes and procedures surrounding the internal control environment. Furthermore, we
have been conducting a thorough review and evaluation of our internal controls as part of our
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
In order to remediate the weaknesses in our internal control over financial reporting,
management has implemented the following measures as of the date of filing of this Form 10-Q:
|
|
|
Hired senior management including financial reporting personnel. |
|
|
|
|
Changed the lines of reporting so that the accounting, internal audit, information
technology and human resources functions in the United Kingdom subsidiary report directly
to the corresponding department heads in the United States. |
|
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|
|
Established new approval authorization control limits. |
|
|
|
|
Established new reconciliation procedures. |
|
|
|
|
Replaced accounting software used in the United Kingdom subsidiary with programs used in
the United States and U.S. management employees have direct access to this system. |
Management is considering additional remedial actions to be implemented in fiscal 2006.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 23, 2005, the Company entered into a settlement agreement with Rotala PLC, the
Flights Group companies, Stuart Lawrenson, Paul Churchman and Michael Tackley resolving the
Companys claims arising from certain actions taken by former employees of the Company in the
United Kingdom. The key terms of the settlement include: (1) The payment to the Company of the
proceeds from the sale of 46,666,667 shares of Rotala stock, indirectly owned by Lawrenson, which
were sold through a private placement with net proceeds of pound sterling (GBP) 602,296 (USD
$1,073,741 based on January 26, 2006 exchange rate) was received by the Company on January 26,
2006; (2) Rotala issued promissory notes to the Company with a value of GBP 800,000 (USD $1,374,738
based on December 31, 2005 exchange rate), payable in annual installments between December 31,
2006, and December 31, 2010; (3) in addition to amounts already received from Rotala for goods
and services benefiting the Flights Group, Rotala agreed to pay an additional GBP 270,000 (USD
$472,377 based on April 5, 2006 exchange rate) to the Company upon completion of a previously
announced fundraising which was completed and paid to the Company on April 5, 2006; (4) Rotala
granted to the Company a warrant to purchase 15,000,000 ordinary shares of Rotala stock at an
exercise price of 1.5 pence per share, exercisable for a five year period; (5) Stuart Lawrenson
agreed to pay to the Company GPB 70,000 (USD $120,290 based on December 31, 2005 exchange rate) in
April 2006 and to pay an additional GBP 60,000 (USD $103,105 based on December 31, 2005 exchange
rate) within a year; and (6) Paul Churchman and Michael Tackley each agreed to pay GBP 10,000 (USD
$17,184 based on December 31, 2005 exchange rate) to the Company within ninety days. The Company
received the payment of GBP 95,000 (USD $166,276 based on April 6, 2006 exchange rate) from
Lawrenson on April 6, 2006, and another payment of GBP 35,000
(USD $65,204 based on May 9, 2006
exchange rate) on May 9, 2006 and the payments from Churchman and Tackley of GBP 20,053 (USD
$35,097 based on April 6, 2006 exchange rate) on April 6, 2006. Lawrenson, Churchman and Tackley
have met all of their obligations under the settlement agreement and all claims relating to the
settlement agreement have been released.
25
Rotala and the Flight Group companies have met all of their obligations settlement agreement to
date. The only remaining obligations of Rotala/Flight Group are the repayment of the promissory
note of GBP 800,000 discussed above and acceptance of the Companys future exercise of the warrant
described above.
In addition to the matter 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, but could have a
material effect on the results of operations in a given quarter.
Item 6. Exhibits
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2.1
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|
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). |
|
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|
|
|
2.2
|
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|
|
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). |
|
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|
2.3
|
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|
|
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). |
|
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2.4
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|
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). |
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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). |
|
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|
(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). |
|
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|
|
3.2
|
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|
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). |
|
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|
4.1
|
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|
Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement No. 33-95640 on Form S-1). |
|
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|
4.2
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|
(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). |
26
|
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|
|
|
4.2
|
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(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). |
|
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4.2
|
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(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) |
|
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4.3
|
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|
|
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). |
|
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|
|
4.4
|
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|
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). |
|
|
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|
|
4.5
|
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|
|
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). |
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|
|
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). |
|
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|
|
10.1
|
|
|
|
Fifth Amendment to Credit Agreement dated April 7, 2006 by and among Central Parking
Corporation et al and Bank of America, N. A. et al (Incorporated by reference to
Exhibit 10.1 on Form 10-Q filed on May 10, 2006). |
|
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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). |
|
|
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|
|
32.1
|
|
|
|
Certification of Emanuel Eads pursuant to Section 1350. |
|
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|
32.2
|
|
|
|
Certification of Jeff Heavrin pursuant to Section 1350 |
27
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, 2006 |
By: |
/s/ EMANUEL EADS
|
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|
|
Emanuel Eads |
|
|
|
Chief Executive Officer |
|
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|
|
CENTRAL PARKING CORPORATION
|
|
Date: August 9, 2006 |
By: |
/s/ JEFF HEAVRIN
|
|
|
|
Jeff Heavrin |
|
|
|
Senior Vice President and Chief
Financial Officer |
|
28