1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
February 12, 1998
CENTRAL PARKING CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee 001-13950 62-1052916
--------- --------- ----------
(State or other (Commission File (Employer
jurisdiction of Number) Identification
incorporation) Number)
2401 21st Avenue South, Suite 200, Nashville, Tennessee 37212
-------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(615) 297 4255
Not applicable
---------------------------------------------------
(Former name or former address,
if changed since last report)
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Central Parking Corporation (the "Registrant") reports the following
acquisition to inform its security holders:
Pursuant to an Acquisition Agreement and Plan of Merger dated November
7, 1997, the Registrant acquired Kinney System Holding Corp.("Kinney"), a
parking services business operating in nine states (Connecticut, Florida,
Kentucky, Maryland, Massachusetts, New Hampshire, New York, Pennsylvania and
Virginia) through arms-length negotiations with Kinney's shareholders, Lewis
Katz and Saul Schwartz.
The Purchase Price was approximately $225.0 million, consisting of
$160.3 million in cash, $37.0 million (882,422 shares) in the Registrant's
common stock, and the refinancing of $27.7 million in existing Kinney debt. In
addition, the Company assumed $9.4 million in capitalized leases and paid
approximately $2.6 million for certain assets purchased by Kinney after the
definitive purchase agreement was signed. The purchase price is subject to
adjustment based on the outcome of an audit of Kinney's February 12, 1998
balance sheet. The cash utilized in this transaction was obtained from
borrowings under the Registrant's credit facility with NationsBank.
Closing of the transaction occurred February 12, 1998. The Registrant
intends to continue the acquired operations through a subsidiary. The Company
has agreed to use its best efforts to cause Lewis Katz, the former chief
executive officer of Kinney, to be elected to the Company's Board of Directors.
2
3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) and (b) The following financial statements and pro forma financial
information are attached:
Item 7(a). Financial Statements
Consolidated Financial Statements for the years ended December 31,
1994, 1995 and 1996, with independent auditors' report thereon
Consolidated Financial Statements for the nine months ended
September 30, 1997, with independent auditors' report thereon
Item 7(b). Pro Forma Financial Statements
Pro forma Condensed Consolidated Balance Sheet at December 31, 1997
Pro forma Condensed Consolidated Statement of Earnings for the three
months ended December 31, 1997 and the year ended
September 30, 1997
(c) Exhibits. The following are exhibits filed as a part of this Report:
2.1 Acquisition Agreement and Plan of Merger dated as of November 7, 1997
by and between Registrant, Kinney System Holding Corp. and a
subsidiary of Registrant.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of David Berdon & Co. LLP
3
4
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996
5
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
INDEX
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS -
DECEMBER 31, 1995 AND 1996 EXHIBIT A
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS FOR THE
YEARS ENDED DECEMBER 31, 1994,
1995 AND 1996 EXHIBIT B
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994,
1995 AND 1996 EXHIBIT C
NOTES TO FINANCIAL STATEMENTS 1 TO 16
6
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Kinney System Holding Corp.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Kinney System
Holding Corp. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income and retained earnings and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kinney System
Holding Corp. and subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ David Berdon & Co. LLP
----------------------------
David Berdon & Co. LLP
June 17, 1997 (except as to
Note 12(c) as to which the date is
February 4, 1998)
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EXHIBIT A
Page 1 of 2
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
ASSETS 1995 1996
------ ------- -------
CURRENT ASSETS:
Cash and cash equivalents $ 3,159 $ 5,464
Accounts and notes receivable - net of
allowance for doubtful accounts of $985
in 1995 and $570 in 1996 4,435 5,815
Prepaid expenses and other current assets:
Real estate taxes 624 861
Rent 550 336
Other 96 318
Deferred tax asset 748 578
------- -------
TOTAL CURRENT ASSETS 9,612 13,372
------- -------
LONG-TERM RECEIVABLES:
Due from New York City 11,643 11,083
Other 370 304
------- -------
TOTAL LONG-TERM RECEIVABLES 12,013 11,387
PROPERTY, EQUIPMENT AND LEASEHOLDS - NET 25,640 25,615
DEFERRED TAX ASSET 4,218 4,850
INVESTMENT IN PARKING FACILITY PARTNERSHIPS
AND LIMITED LIABILITY COMPANY 5,301 5,555
NONCOMPETE AGREEMENTS (Net of accumulated
amortization of $19 in 1995 and $138
in 1996) 1,514 1,595
SECURITY DEPOSITS AND OTHER ASSETS 3,200 4,797
------- -------
TOTAL ASSETS $61,498 $67,171
======= =======
The accompanying notes are an integral part of these statements.
8
EXHIBIT A
Page 2 of 2
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
LIABILITIES AND
STOCKHOLDERS' EQUITY 1995 1996
-------------------- ------- -------
CURRENT LIABILITIES:
Notes payable to bank $ 7,175 $ 3,908
Current portion of long-term debt 993 1,075
Current portion of capital lease obligation 289 457
Accounts payable 908 2,108
Accrued liabilities:
Insurance 1,464 1,108
Rent 2,391 2,306
Compensation 1,372 1,786
Income and other taxes 2,962 2,915
Other (including amounts due to related
parties of $823 in 1995 and $385 in 1996) 1,316 2,355
Customer deposits 577 524
------- -------
TOTAL CURRENT LIABILITIES 19,447 18,542
------- -------
LONG-TERM DEBT:
Mortgages payable - nonrecourse 7,759 11,893
Other long-term debt 1,776 1,699
------- -------
TOTAL LONG-TERM DEBT 9,535 13,592
------- -------
OTHER LONG-TERM LIABILITIES:
Capital lease obligations 8,117 8,081
Deferred rent 5,203 6,097
Accrued insurance 465 362
Accrued repairs 1,400 1,400
Other 1,027 767
------- -------
TOTAL OTHER LONG-TERM LIABILITIES 16,212 16,707
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Exhibit C):
Common stock - $.01 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares
Additional paid-in capital 6,304 6,304
Retained earnings 10,000 12,026
------- -------
TOTAL STOCKHOLDERS' EQUITY 16,304 18,330
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $61,498 $67,171
======= =======
The accompanying notes are an integral part of these statements.
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EXHIBIT B
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
1994 1995 1996
-------- --------- ---------
REVENUE:
Parking $ 70,093 $ 84,133 $ 111,536
Management contracts 3,348 4,009 4,096
-------- --------- ---------
73,441 88,142 115,632
-------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of parking services 59,714 75,220 99,168
General and administrative expenses 7,964 7,463 8,251
-------- --------- ---------
67,678 82,683 107,419
-------- --------- ---------
OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION 5,763 5,459 8,213
Depreciation and amortization 3,819 3,700 3,603
-------- --------- ---------
OPERATING INCOME 1,944 1,759 4,610
Equity in net income (loss) of investments (43) 285 588
Interest income 1,714 1,666 1,530
Interest expense (2,759) (3,085) (3,115)
-------- --------- ---------
INCOME BEFORE INCOME TAXES 856 625 3,613
-------- --------- ---------
PROVISION FOR INCOME TAXES:
Current:
Federal 481 557 1,385
State and local 427 487 664
-------- --------- ---------
908 1,044 2,049
Deferred (506) (733) (462)
-------- --------- ---------
402 311 1,587
-------- --------- ---------
NET INCOME 454 314 2,026
RETAINED EARNINGS - BEGINNING OF YEAR 9,232 9,686 10,000
-------- --------- ---------
RETAINED EARNINGS - END OF YEAR $ 9,686 $ 10,000 $ 12,026
======== ========= =========
The accompanying notes are an integral part of these statements.
10
EXHIBIT C
Page 1 of 2
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
1994 1995 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 454 $ 314 $ 2,026
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,819 3,700 3,603
Deferred income taxes (506) (733) (462)
Equity in net (income) loss of investments 43 (285) (588)
Bad debt expense 1,025 408 338
Deferred rent 399 680 894
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (146) (544) (1,618)
Prepaid expenses and other current assets (175) (293) (245)
Other assets (495) (538) 205
Increase (decrease) in:
Accounts payable 472 (343) 1,200
Accrued liabilities 220 (1,216) 721
Other liabilities (495) 174 (720)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,615 1,324 5,354
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of parking facilities (1,048) (2,618) (1,878)
Other capital expenditures (1,577) (862) (847)
Decrease in long-term receivables 938 186 576
(Increase) in deferred charges (653) (322) (1,484)
Investment in a parking facility Limited
Liability Company and partnerships (1,000) (4,400) (118)
Distributions from investment in a
Limited Liability Company -- 341 452
--------- --------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (3,340) (7,675) (3,299)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,486) (1,653) (1,179)
Repayment of note payable to bank -- -- (3,267)
Net (decrease) in capitalized lease obligations (108) (190) (304)
Issuance of long-term debt -- -- 5,000
Increase in note payable to bank 950 6,225 --
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,644) 4,382 250
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,369) (1,969) 2,305
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 6,497 5,128 3,159
--------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 5,128 $ 3,159 $ 5,464
========= ========= =========
The accompanying notes are an integral part of these statements.
11
EXHIBIT C
Page 2 of 2
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
1994 1995 1996
-------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,725 $ 3,102 $ 3,187
======== ========= =========
Income taxes $ 1,164 $ 1,296 $ 2,204
======== ========= =========
NONCASH FINANCING ACTIVITIES:
The Company issued a note for $264,000 in 1994 in connection with the
acquisition of assets from a parking garage management company.
The Company issued a note for $1,473,000 in 1995 in connection with an
agreement not to compete.
Equipment was acquired in 1996 under capital lease obligations in the amount
of $436,000.
The Company issued a note for $318,000 in 1996 in connection with a lease
acquisition.
The accompanying notes are an integral part of these statements.
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Page 1 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Kinney System Holding Corp. and subsidiaries ("the Company") are
engaged primarily in the business of managing and operating parking
facilities in various states.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of its subsidiaries, all of which are wholly owned. All
intercompany accounts and transactions have been eliminated in
consolidation. Investments in unconsolidated entities are carried on
the equity basis. The excess of investments over the underlying net
book value is being amortized over twenty years.
(b) Revenues
Revenues include the parking revenues from leased and owned locations.
Management contract revenues represent revenues (both fixed fees and
additional payments based upon parking revenues) from facilities
managed for other parties, and miscellaneous management fees for
accounting, insurance and other ancillary services. Parking and
management contract revenues are recognized when earned.
Total managed, leased, and owned parking revenues, representing gross
revenues processed by the Company, including the revenues of
facilities managed by the Company for other parties, was approximately
$143,914,000, $176,611,000 and $200,449,000, for the years ended
December 31, 1994, 1995 and 1996, respectively.
(c) Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers
short-term investments with an original maturity of three months or
less to be cash equivalents.
(d) Property, Equipment and Leaseholds
Property, equipment and leaseholds are recorded at cost. Property and
equipment are being depreciated over their estimated useful lives on
the straight-line method over periods ranging from three to forty
years. Leasehold interests, including related lease acquisition costs,
are amortized over the lives of the leases. Leasehold improvements are
being amortized over the shorter of the useful life of the asset or
the remaining life of the lease.
Leased property meeting certain criteria is capitalized and the
present value of the related lease payments is recorded as a
liability. Amortization of capitalized leased assets is computed on
the straight-line method over the term of the lease.
(continued)
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Page 2 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Deferred Rent
Deferred rent at December 31, 1995 and 1996 reflects the effect of
straight-lining of rent payments over the lives of the leases.
(f) Noncompete Agreements
Noncompete agreements are amortized by the use of the straight-line
method over the estimated lives of the agreements.
(g) Investment in Parking Facility Partnerships and Limited Liability
Company
Investment in general, limited partnerships and a limited liability
company are accounted for using the equity method of accounting. The
financial results of the Company's partnerships and limited liability
company are accounted for under the equity method and are included in
equity in net income (loss) of investments in the accompanying
consolidated statements of income and retained earnings.
(h) Impairment of Long-lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(i) Use of Estimates in Financial Statement Presentation
The preparation of financial statements in conformity with 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
December 31, 1995 and 1996, and the reported amounts of revenues and
expenses during each of the three years in the period ended December
31, 1996. Actual results could differ from those estimates.
(continued)
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Page 3 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Preopening Expense and Computer Software Development Costs
The direct and incremental costs of hiring and training personnel
associated with the opening of new parking facilities and the internal
development costs associated with computer software are expensed as
incurred.
(k) Income Taxes
The Company files a consolidated federal income tax return with its
subsidiaries. The Company uses the asset and liability method to
account for deferred income taxes. Deferred taxes result from the
recognition of the effect of timing differences in reporting
transactions for financial and tax purposes, primarily the
straight-lining of rent, depreciation, allowance for doubtful
accounts, and the treatment of leases.
NOTE 3 - PROPERTY TRANSACTIONS
(a) The Company obtained a judgment of foreclosure on March 24, 1994, as a
result of the default by Bronx Boulevard Associates under its mortgage
with the Company. As a result of the foreclosure, the property was
sold on September 13, 1994 for $1,200,000. The Company recognized a
loss of $752,000, which is reflected in general and administrative
expenses in the accompanying statements of income, in 1994.
(b) In September 1994, the Company purchased an operating parking lot in
Manhattan for $350,000 in cash.
(c) In October 1994, the Company purchased a condominium operating garage
unit in a residential cooperative corporation in Manhattan for
$962,500. The Company paid $12,500 in cash and received financing for
$950,000 in connection with this purchase (see Notes 7 and 8).
(d) In November 1994, the Company purchased assets from a parking garage
management company ("Seller"). These assets include fixed assets, a
leased location and the right to manage approximately 55 locations.
The purchase price was $414,828, of which $150,000 was paid in cash
and the Company issued a promissory note for the remaining balance of
$264,828 (see Note 8). In connection with the purchase, the Company
entered into various employment and/or consulting agreements with
employees of the Seller (see Note 12(b)).
(e) In April 1995, the Company purchased a condominium operating garage
unit in a residential cooperative corporation in Manhattan for
$1,150,000. The Company paid $150,000 in cash and received financing
for $1,000,000 in connection with this purchase (see Notes 7 and 8).
(continued)
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Page 4 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY TRANSACTIONS (Continued)
(f) In August 1995, the Company purchased two parking garages and lot and
a vacant building in Manhattan for $1,400,000. The Company paid
$175,000 in cash and received financing for $1,225,000 in connection
with this purchase (see Notes 7 and 8).
(g) In connection with a lease agreement dated November 1, 1995 for a
Manhattan location, the Company entered into an agreement not to
compete for $1,533,426 with an affiliated company of the lessor for a
period equal to the term of the lease (November 1, 1995 through
November 30, 2008). The Company paid $60,000 in cash and the Company
issued a promissory note in the amount of $1,473,426 for the agreement
not to compete. The promissory note is cancelable if the Company is
not in possession and all rent is paid through date of occupancy (see
Note 8).
(h) In 1996, the Company purchased two condominium operating garage units
in Manhattan for $1,875,000. The Company paid $375,000 in cash and
received financing for $1,500,000 in connection with these purchases
(see Note 8).
NOTE 4 - LONG-TERM RECEIVABLES
Pursuant to agreements between the Company and the City of New York
("City"), the Company built two parking garages on behalf of the City,
substantially funded with proceeds of nonrecourse mortgages. The
Company then entered into a long-term management agreement to operate
the parking facilities. The amount expended on these parking garages
is being repaid by the City in monthly installments of $156,000
through December 2007, including interest computed at 11.5%. The
long-term receivable at December 31, 1995 and 1996 amounts to
$11,643,000 and $11,083,000, respectively, net of a current portion of
$499,000 and $560,000, respectively.
The mortgages, which are secured by a pledge of the Company's interest
in the agreement with the City, may be prepaid, with premium; however,
if the prepayment occurs because of the cancellation of certain other
agreements to which the City is a party, then no prepayment premium
shall be due and payable. The mortgages payable, which are included in
long-term debt (Note 8), bear interest at a rate of approximately 9.2%
and mature in 2004.
Interest income earned during the years ended December 31, 1994, 1995
and 1996 on the aforementioned receivable amounted to $1,473,000,
$1,425,000 and $1,371,000, respectively.
Other long-term receivables principally consists of receivables
primarily related to lease transactions.
16
Page 5 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN PARKING FACILITY PARTNERSHIPS AND LIMITED LIABILITY
COMPANY
(a) During 1994, the Company acquired 40% and 38% limited partnership
interests in two partnerships, Cromwell Louisville Associates, LP
("Louisville") and Cromwell Silver Towers Group, L.P. ("Silver
Towers"), for $250,000 and $750,000, respectively. The stockholders of
the Company also have interests in these partnerships. The Company has
guaranteed certain liabilities of Louisville and Silver Towers,
amounting to $250,000 and $400,000, respectively. The following is
unaudited summary information of the financial position and results of
operations for the partnerships as of December 31, 1995 and 1996 and
for the three years ended December 31, 1996:
Louisville Silver Towers
--------------------------- ------------------------
1995 1996 1995 1996
----------- ----------- ---------- ----------
Assets $ 3,771,000 $ 3,601,000 $1,490,000 $1,666,000
=========== =========== ========== ==========
Liabilities $ 4,312,000 $ 4,300,000 $1,432,000 $1,384,000
Partners' capital
(deficit) (541,000) (699,000) 58,000 282,000
----------- ----------- ---------- ----------
Total liabilities
and partners'
capital
(deficit) $ 3,771,000 $ 3,601,000 $1,490,000 $1,666,000
=========== =========== ========== ==========
1994 1995 1996 1994 1995 1996
--------- --------- --------- -------- -------- --------
Revenues $ 435,000 $ 404,000 $ 414,000 $510,000 $747,000 $577,000
Operating expenses 165,000 181,000 146,000 293,000 419,000 162,000
Interest expense 290,000 240,000 285,000 151,000 133,000 134,000
--------- --------- --------- -------- -------- --------
(20,000) (17,000) (17,000) 66,000 195,000 281,000
Depreciation 141,000 142,000 142,000 47,000 47,000 47,000
--------- --------- --------- -------- -------- --------
Net (loss)
income $(161,000) $(159,000) $(159,000) $ 19,000 $148,000 $234,000
========= ========= ========= ======== ======== ========
17
Page 6 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN PARKING FACILITY PARTNERSHIPS AND LIMITED LIABILITY
COMPANY (Continued)
(b) In April 1995, the Company purchased a 40% interest in a limited
liability company, 12 West 48th Street, LLC, that owns and operates a
garage and two adjacent commercial buildings in Manhattan, for
$4,400,000. The Company paid $400,000 in cash and received financing
of $4,000,000 from a bank (see Note 7). The following is summary
information of the financial position and results of operations of the
Limited Liability Company as of December 31, 1995 and 1996 and for the
years then ended:
1995 1996
----------- -----------
Assets $10,820,000 $10,969,000
=========== ===========
Liabilities $ 81,000 $ 359,000
Members' capital 10,739,000 10,610,000
----------- -----------
Total liabilities and
Members' capital $10,820,000 $10,969,000
=========== ===========
Revenues $ 1,501,000 $ 2,083,000
Operating expenses 696,000 818,000
----------- -----------
805,000 1,265,000
Depreciation 216,000 344,000
----------- -----------
Net income $ 589,000 $ 921,000
=========== ===========
NOTE 6 - PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds as of December 31, 1995 and 1996
consist of the following:
1995 1996
----------- -----------
Land $ 2,903,000 $ 4,097,000
Parking garages
and improvements 1,514,000 2,290,000
Machinery and
equipment 4,937,000 5,399,000
Leasehold interests 39,497,000 39,381,000
Leasehold improvements 6,697,000 6,958,000
Property and equipment under
capital leases 7,635,000 8,071,000
----------- -----------
63,183,000 66,196,000
Less, accumulated
depreciation
and amortization 37,543,000 40,581,000
----------- -----------
$25,640,000 $25,615,000
=========== ===========
18
Page 7 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE TO BANK
During 1994 and 1995, the Company purchased two condominium garages on
East 63rd Street and East 69th Street, a parking garage and lot
complex on West 37th Street, and in addition, acquired a 40%
membership interest in a limited liability company that owns and
operates a garage and commercial building on West 48th Street. All of
the properties are in Manhattan. These investments were funded by cash
and through short-term financing of $7,175,000 received from a bank.
As of December 31, 1995 and 1996, promissory notes in the amounts of
$7,175,000 and $3,908,000, respectively, were payable in connection
with the aforementioned acquisitions. The notes bear interest at prime
and 1% above the bank's prime rate. The average interest rate for the
year ended December 31, 1995 and 1996 was 10% and 9.45%, respectively.
The interest rate at the end of December 31, 1995 and 1996 was 9.5%
and 9.25%, respectively. Interest is paid monthly and principal was
payable at $33,000 per month. The notes are secured by the capital
stock of the Company and all its subsidiaries. In 1997, the Company
used the proceeds from bank borrowings to repay the notes (Note
16(b)).
NOTE 8 - LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the
following:
1995 1996
----------- -----------
Mortgage payable to
bank $ -- $ 5,000,000
Mortgage payable on
parking facilities 8,502,000 7,759,000
Note payable - Agreement
Not To Compete 1,462,000 1,414,000
Note payable to Seller 226,000 --
Other 338,000 494,000
----------- -----------
10,528,000 14,667,000
Less, current portion 993,000 1,075,000
----------- -----------
$ 9,535,000 $13,592,000
=========== ===========
Mortgage payable to bank, for various parking garages, is payable
monthly through December 2003. The interest being charged is the
commercial paper rate, as defined, plus 4%.
The mortgage payable on parking facilities bears interest at a rate of
9.2%, with monthly payments of $124,587 through January 2004.
(continued)
19
Page 8 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT (Continued)
In 1995, in connection with an agreement not to compete as described
in Note 3(g), the Company issued a promissory note for $1,473,426. The
note bears interest at 8.5% per annum. Principal and interest are due
monthly until the maturity date of November 1, 2008. The loan may be
prepaid in whole or in part together with accrued interest, upon no
less than 10 days' prior written notice to the lender.
As per an agreement entered into, in connection with the purchase of a
parking company, the note payable to Seller, was subject to reduction
as an offset to purchase price in the event Base Gross Profit, as
defined, was not achieved. In 1995 and 1996, the Base Gross Profit was
not achieved, and, thus, the loan was reduced to zero, and the
purchase price was reduced by approximately $208,000.
Other long-term debt consists of a note payable to the former owners
of a parking company acquired in 1986 (one of which is a stockholder
of the Company) and notes payable for a lease acquisition. The note
payable to former owners of a parking company acquired bears interest
at 1% per annum above prime and is payable monthly through 1998. The
note payable for a lease acquisition bears interest at 6.2% and is
payable quarterly through October 2011.
Aggregate annual maturities of long-term debt are as follows:
1997 $1,075,000
1998 $1,087,000
1999 $1,139,000
2000 $1,247,000
2001 $1,366,000
Thereafter $8,753,000
NOTE 9 - OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain facilities and equipment, which are
classified as capital leases. Obligations under these capital
leases, which are principally for a garage, amounted to $8,538,000
as of December 31, 1996, are as follows:
1997 $ 1,884,000
1998 1,959,000
1999 2,161,000
2000 2,225,000
2001 2,260,000
2002 and thereafter 4,561,000
----------
Total minimum payments due 15,050,000
Amount representing interest 6,512,000
Present value of net minimum lease payments 8,538,000
Current portion (457,000)
Long-term portion of capital
lease obligation $ 8,081,000
===========
(continued)
20
Page 9 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - OBLIGATIONS UNDER CAPITAL LEASES (Continued)
Interest expense relating to the aforementioned capital leases
amounted to $1,503,000, $1,477,000 and $1,450,000 for the years ended
December 31, 1994, 1995 and 1996.
NOTE 10 - RELATED PARTY TRANSACTIONS
As of December 31, 1995 and 1996, $823,000 and $385,000, respectively,
are due to related entities in which a stockholder of the Company has
an interest. These amounts, which are included in other accrued
liabilities in the accompanying balance sheets, bear interest ranging
from the prime rate (8.5% at year ended December 31, 1995 and 8.25% at
year ended December 31, 1996) to 10%. Interest expense relating to the
aforementioned liabilities for the years ended December 31, 1994, 1995
and 1996, amounted to approximately $89,000, $57,000 and $21,000,
respectively.
NOTE 11 - RETIREMENT PLANS
(a) Certain union employees are covered under multiemployer defined
benefit plans administered by unions. Amounts charged to pension
expense and contributions made to these plans were approximately
$316,000, $289,000 and $375,000 in 1994, 1995 and 1996, respectively.
The Multiemployer Pension Plan Amendments Act of 1980 imposes certain
liabilities upon employers associated with multiemployer plans who
withdraw from such a plan, or upon termination of said plan. The
Company has not received information from the plan's administrators to
determine its share of unfunded vested benefits, if any, nor has it
undertaken to terminate, withdraw or partially withdraw from the plan.
(b) Effective January 1, 1994, the Company adopted a 401(k) plan, which
allows eligible employees (as defined in the plan) to defer a portion
of their salary. Contributions from participants are limited to 15% of
their annual salary. The Company may make matching contributions to
the plan. The actual percentage will be determined by the Company. For
the years ended December 31, 1994, 1995 and 1996, the Company has made
no matching contributions.
21
Page 10 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS
(a) The Company leases land, buildings and equipment, substantially for
parking facilities. These leases expire at various dates through 2101.
Some leases provide for the renewal of the lease arrangement, as
defined, at specified dates. Certain of these leases require payment
of rent contingent upon the achievement of certain levels of gross
receipts from the operations of the facility, and also require
adjustments to rent for the Company's share of certain costs and
expenses of the landlord.
Rent expense, net of sublease rental income under such leases for the
years ended December 31, 1994, 1995 and 1996, is as follows:
1994 1995 1996
---- ---- ----
Minimum rentals $ 21,123,000 $ 26,309,000 $ 40,219,000
Contingent rentals 11,681,000 15,599,000 15,346,000
Less, sublease
rental income (1,645,000) (2,328,000) (2,544,000)
------------ ------------ ------------
$ 31,159,000 $ 39,580,000 $ 53,021,000
============ ============ ============
The aggregate future minimum rental commitments, under noncancelable
operating leases, as of December 31, 1996, are as follows:
1997 $ 38,855,000
1998 36,022,000
1999 25,183,000
2000 23,083,000
2001 22,130,000
Thereafter 181,754,000
Total minimum lease payments 327,027,000
Less, sublease rentals 9,658,000
Net minimum lease payments $317,369,000
(b) In connection with the purchase of certain assets, as described in
Note 3(d), the Company is committed under employment and consulting
agreements with various employees through April 30, 2000. These
agreements can be terminated and certain payments adjusted based upon
certain events (as defined).
(continued)
22
Page 11 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS (Continued)
(b) (continued)
The aggregate future minimum payments under employment and consulting
agreements, as of December 31, 1996, are approximately as follows:
1997 $125,000
1998 100,000
1999 98,000
2000 30,000
--------
Total $353,000
========
Payroll and consulting fees expense, relating to the aforementioned
agreements, for the years ended December 31, 1994, 1995 and 1996,
amounted to $57,000, $363,000 and $305,000, respectively.
(c) Subsequent to the previously issued December 31, 1996, 1995 and 1994
financial statements, which included the balance sheets for each of
the three years, management determined that they were obligated for
repairs to a leased facility, pursuant to a 1991 settlement agreement
with the owner of the facility. Management, which has estimated the
cost at approximately $1,400,000, intends to perform the required
repairs in 1998. The aforementioned financial statements were
previously restated and reissued to reflect the correction of this
error. The result of this correction was a $785,000 reduction in
retained earnings and stockholders' equity as of January 1, 1994.
NOTE 13 - CONTINGENCIES
(a) The Company has been named as a defendant in several lawsuits. In the
opinion of management, after consulting with counsel, the Company does
not believe it is liable under these actions, and any liability
resulting from their ultimate outcome will not have a materially
adverse effect on the financial position of the Company.
(b) Several of the Company's subsidiaries are currently being audited by
the City of New York for New York City Commercial Rent and Occupancy
Taxes. Management believes that adequate provision has been made for
any potential assessments.
(c) Certain of the Company's tax returns are currently under audit by
various state agencies. Management believes that the results of these
audits will not have a materially adverse effect on the financial
position of the Company.
(d) At December 31, 1996, the Company was contingently liable under
letters of credit totaling approximately $3,541,000, of which $100,000
is to a related party.
(continued)
23
Page 12 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CONTINGENCIES (Continued)
(e) During the regular course of business, there have been asserted and
unasserted claims against the Company, a portion of which is not
covered by insurance. In the opinion of management, after consulting
with counsel, an adequate provision has been made to cover settlement
of any claims to the extent not covered by insurance and the ultimate
outcome of such claims will not have a materially adverse effect on
the financial statements.
(f) The Company has guaranteed 50% of a loan of an affiliated entity. As
of December 31, 1996, the amount guaranteed by the Company was
approximately $465,000.
NOTE 14 - CONCENTRATION OF CREDIT RISK
At December 31, 1995 and 1996, the Company had a significant
concentration of cash on deposit with two financial institutions.
NOTE 15 - INCOME TAXES
The effective tax rates for 1994, 1995 and 1996 were 47.0%, 50.2% and
43.9%, respectively, which vary from the statutory federal income tax
rate of 34.0%. The difference is accounted for as follows:
As a Percent of Earnings
Before Taxes
1994 1995 1996
---- ---- ----
Statutory federal income
tax rates 34.0% 34.0% 34.0%
Increase (decrease) in tax rates resulting from:
State and local income
taxes, net of federal
income tax benefit 14.6 16.8 10.2
(Tax-exempt income)/
nondeductible items -
net (1.6) (.6) (.3)
---- ---- ----
Effective tax rate 47.0% 50.2% 43.9%
==== ==== ====
(continued)
24
Page 13 of 13
KINNEY SYSTEM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - INCOME TAXES (Continued)
Significant components of the Company's deferred tax assets and
liabilities are as follows:
1995 1996
----------- -----------
Deferred tax assets:
Deferred rents $ 2,250,000 $ 2,637,000
Capitalized leases 2,084,000 2,165,000
Repairs and maintenance 615,000 615,000
Insurance 485,000 482,000
Bad debt 604,000 247,000
----------- -----------
6,038,000 6,146,000
----------- -----------
Deferred tax liabilities:
Depreciation and
amortization (1,052,000) (684,000)
Other (20,000) (34,000)
----------- -----------
(1,072,000) (718,000)
----------- -----------
Net deferred tax assets 4,966,000 5,428,000
Current net deferred tax
assets 748,000 578,000
----------- -----------
Noncurrent Net Deferred
Tax Assets $ 4,218,000 $ 4,850,000
=========== ===========
NOTE 16 - SUBSEQUENT EVENTS
(a) In February 1997, the Company acquired various leases and management
agreements in the Washington, D.C. area. Each location has a separate
lease or management agreement with various expiration dates. The
Company paid $727,033 in cash and issued a promissory note for
$1,880,565. The note is self-amortizing, bears interest at 7.5%, and
requires quarterly installments through 2005. There are negotiations
in process for the acquisition of additional leases, which would
require a cash payment and an increase in the promissory note.
(b) In May 1997, the Company entered into a loan agreement with Fleet
Bank, N.A. ("Fleet"), whereby Fleet agreed to provide the Company with
loans and credit facilities of up to $24.25 million, primarily for the
acquisition of parking properties. At the Company's option, the
revolving loans may be converted to long-term facilities of up to 7
years. The interest which will be charged is based on the lower of the
prime rate or the Eurodollar Rate ("LIBOR"), plus 2%.
25
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 1997
(With Independent Auditors' Report Thereon)
26
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Kinney System Holding Corp.
and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Kinney System
Holding Corp. and subsidiaries as of September 30, 1997, and the related
consolidated statements of earnings and retained earnings and cash flows for the
nine months then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kinney System
Holding Corp. and subsidiaries at September 30, 1997, and the results of their
operations and their cash flows for the nine months then ended, in conformity
with generally accepted accounting principles.
February 4, 1998
New York, New York
27
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1997
(amounts in thousands except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 4,453
Management accounts receivable, net 3,717
Accounts and current portion of notes receivable,
net of allowance for doubtful accounts of $570 3,212
Prepaid expenses and other current assets 1,483
Deferred tax asset (note 12) 1,185
Due from stockholder (note 10) 2,861
-------
Total current assets 16,911
-------
Long-term notes and other receivables, less current portion (note 3):
Due from New York City 10,619
Other 298
-------
Total long-term receivables 10,917
-------
Property, equipment and leaseholds - net (notes 2, 4, 7 and 8) 27,408
Deferred tax assets (note 12) 5,169
Investment in limited liability companies and partnerships (note 5) 10,254
Security deposits and other assets 6,706
-------
$77,365
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 7) $ 2,309
Current portion of capital lease obligations (note 8) 831
Accounts payable 3,497
Accrued liabilities (note 9) 12,304
Customer deposits 593
-------
Total current liabilities 19,534
-------
Long-term debt, excluding current portion (notes 6 and 7) 21,667
Capital lease obligations, excluding current portion (note 8) 8,569
Deferred rent 6,977
Other 461
-------
Total liabilities 57,208
-------
Stockholders' equity:
Common stock par value $0.01. Authorized 1,000 shares,
issued and outstanding 100 shares --
Additional paid-in capital 6,304
Retained earnings 13,853
-------
Total stockholders' equity 20,157
-------
Commitments and contingencies (notes 2, 5, 6, 8, 11, 13 and 14) $77,365
=======
See accompanying notes to consolidated financial statements.
28
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Statement of Earnings and Retained Earnings
Nine months ended September 30, 1997
(amounts in thousands)
Parking revenue $ 99,980
--------
Costs and expenses (note 8):
Cost of parking 85,088
General and administrative 10,997
--------
Total costs and expenses 96,085
--------
Operating earnings 3,895
--------
Other income (expenses):
Equity in earnings of partnerships and limited liability
companies (note 5) 781
Interest income 1,130
Interest expense (2,598)
--------
(687)
Earnings before income taxes 3,208
--------
Income tax expense (benefit) (note 12):
Current 2,307
Deferred (926)
--------
Net earnings 1,827
Retained earnings at January 1, 1997 12,026
--------
Retained earnings at September 30, 1997 $ 13,853
========
See accompanying notes to the consolidated financial statements.
29
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Nine months ended September 30, 1997
(amounts in thousands)
Cash flows from operating activities:
Net earnings $ 1,827
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 3,046
Deferred income taxes (926)
Equity in earnings of limited liability companies and partnerships (781)
Loss on property closures and condemnations 779
Deferred rent
880
Changes in assets and liabilities:
Increase in management and other accounts receivable (1,114)
Decrease in prepaid expenses and other current assets 32
Increase in security deposits and other assets (566)
Increase in due from stockholder (2,861)
Increase in accounts payable 1,389
Increase in accrued liabilities 1,434
Decrease in other liabilities (1,597)
-------
Total adjustments (285)
-------
Net cash provided by operating activities 1,542
-------
Cash flows from investing activities:
Acquisition of leases and management agreements (971)
Acquisition of property and equipment (838)
Repayment received on notes receivable 470
Investment in limited liability companies and partnerships (4,233)
Distributions from limited liability companies 315
-------
Net cash used in investing activities (5,257)
-------
Cash flows from financing activities:
Repayment of long-term debt (4,861)
Borrowings under long-term debt 8,058
Payment of financing costs (126)
Payments of capitalized lease obligations (367)
-------
Net cash provided by financing activities 2,704
-------
Net decrease in cash and cash equivalents (1,011)
Cash and cash equivalents as of January 1, 1997 5,464
-------
Cash and cash equivalents as of September 30, 1997 $ 4,453
=======
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest $ 2,500
=======
Income taxes $ 2,113
=======
Noncash financing activities:
The Company issued a note for $2,204 in connection with acquisition of
various leases and management agreements (see note 2)
Equipment was acquired pursuant to capital lease agreements in the amount of
$1,229 (see note 8)
See accompanying notes to the consolidated financial statements.
30
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
Kinney System Holding Corp. and subsidiaries ("the Company")
are engaged in the business of managing and operating parking
facilities in various states, primarily in the northeastern
United States.
The consolidated financial statements of the Company include
the financial statements of the Company and its wholly owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) REVENUES
Revenues include parking revenues from leased and owned
locations. Revenues also include management contract revenues
which represent revenues (both fixed fees and additional
payments based upon parking revenues) from facilities managed
for other parties, and management fees primarily for
accounting and insurance services. Parking and management
contract revenues are recognized when earned.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers cash and cash equivalents to include cash on hand,
in banks and short-term, highly liquid investments with
original maturities of three months or less. At September 30,
1997, the Company had cash equivalents of $3,903,682.
(d) PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds are stated at cost.
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of the
assets, generally three to forty years. Leasehold interests,
including related lease acquisition costs, are amortized over
the lives of the related leases. Property and equipment held
under capital leases and leasehold improvements are amortized
on a straight-line basis over the shorter of the lease term or
the estimated useful life of the asset.
(e) INVESTMENTS IN LIMITED LIABILITY COMPANIES AND PARTNERSHIPS
Investments in limited liability companies and partnerships
are accounted for using the equity method of accounting. The
Company has entered into agreements to operate parking garages
through either general partnerships, limited liability
companies or limited partnerships. The financial results of
the Company's investments are included in the equity in
earnings partnerships and limited liability companies in the
accompanying consolidated statement of earnings and retained
earnings. The difference between the Company's investment and
the underlying net equity of such entities is amortized over
the estimated recovery period.
31
2
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(1), CONTINUED
(f) LEASE TRANSACTIONS AND RELATED BALANCES
The Company accounts for operating lease obligations on a
straight-line basis. Contingent or percentage payments are
recognized when operations indicate such amounts will be
payable. Lease obligations paid in advance are included in
prepaid expenses. The difference between actual lease payments
and straight-line lease expense over the lease term is
included in deferred rent in the accompanying balance sheet.
(g) IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for asset impairment under the provisions
of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". This statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(h) INCOME TAXES
The Company files a consolidated Federal income tax return.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
(i) USE OF ESTIMATES IN FINANCIAL STATEMENT PRESENTATION
Management of the Company has made certain estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
32
3
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(2) ACQUISITION
During 1997, the Company acquired various leases and management
agreements from a parking garage company ("Seller") in the Washington,
D.C. area. The acquisition included 18 leased locations and the right
to manage 3 additional locations. The purchase price was $3,175,000, of
which $971,000 was paid in cash, and a note was issued for the
remaining balance of $2,204,000 (see note 7).
The purchase price of the locations is subject to increase by an
additional amount of up to $1,000,000 if certain performance criteria
are met during the next eight years. In the opinion of management,
based on the current performance of the locations, no additional
accrual is currently required, and accordingly, no additional liability
has been reflected in the accompanying consolidated financial
statements.
(3) NOTES RECEIVABLE
In 1973, the Company built two parking garages on behalf of the City of
New York (the "City") which were substantially funded with proceeds of
two notes payable (see note 7). The Company also entered into a
long-term management agreement to operate the parking garages. Amounts
advanced for the construction of the garages were recorded as a note
receivable and are being repaid by the City in monthly installments of
$156,000 including interest at 11.5% through December 2007. The note
receivable at September 30, 1997 was $11,228,760, including the current
portion of $609,764. The notes payable are secured by a pledge of the
Company's interest in the agreement with the City.
Other long-term receivables of $298,000 are primarily related to lease
transactions.
(4) PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment, leaseholds and accumulated depreciation and
amortization consist of the following:
Land $ 4,141,000
Parking garages and improvements 2,345,000
Machinery and equipment 5,332,000
Leasehold interests 41,663,000
Leasehold improvements 7,148,000
Property and equipment under capital leases (note 8) 9,300,000
-----------
69,929,000
Less accumulated depreciation and amortization 42,521,000
-----------
$27,408,000
===========
33
4
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(5) INVESTMENT IN LIMITED LIABILITY COMPANIES AND PARTNERSHIPS
(a) LIMITED LIABILITY COMPANIES
In April 1995, the Company purchased a 40% interest in a
limited liability company, 12 West 48th Street, LLC, that owns
and operates a garage and two adjacent commercial buildings in
Manhattan, for $4,400,000. The Company paid $400,000 in cash
and received financing of $4,000,000 from a bank (see note 6)
for the remainder. The following is summary information
regarding 12 West 48th Street, LLC as of September 30, 1997:
Assets $ 11,596,052
============
Liabilities 377,052
Members' capital 11,219,000
------------
Total liabilities and members' capital $ 11,596,052
============
Revenues 2,172,245
Operating expenses (746,485)
Depreciation (56,631)
------------
Net income $ 1,369,129
============
In August 1997, the Company and an unrelated company formed a
limited liability company, SK Travel, LLC ("SK Travel"), to
own and operate an airplane. Each company initially
contributed $4,175,000 (see note 6) and equally share in the
ownership. In September 1997, the Company advanced an
additional $55,000 to cover 50% of SK Travel's operating
expenses. Subsequent to September 30, 1997, additional capital
contributions of $574,000 were also made by the Company. At
September 30, 1997, the airplane owned by SK Travel was not
yet operational. The following is summary information
regarding SK Travel as of September 30, 1997:
Assets $ 8,350,000
===========
Members' capital $ 8,350,000
===========
Revenues --
Operating expenses (109,367)
Net loss $ (109,367)
===========
34
5
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(5), CONTINUED
(b) LIMITED PARTNERSHIPS
The Company owns 40% and 43% limited partnership interests in
Cromwell Louisville Associates, LP ("Louisville") and Cromwell
Silver Towers Group, LP ("Silver Towers"), respectively. These
entities operate parking garages. The stockholders of the
Company also have interests in these partnerships. The Company
has guaranteed certain liabilities of Louisville and Silver
Towers amounting to $250,000 and $400,000, respectively. The
following is unaudited summary information regarding the
partnerships as of September 30, 1997:
(unaudited)
Silver
Louisville Towers
---------- ------
Assets $ 3,494,914 1,290,970
=========== ===========
Liabilities 4,145,777 1,395,862
Partners' deficit (650,863) (104,892)
----------- -----------
Total liabilities and
partners' deficit $ 3,494,914 1,290,970
=========== ===========
Revenues 359,419 628,137
Operating expenses (153,217) (322,341)
Interest expense (201,264) (93,213)
Depreciation (106,500) (35,250)
----------- -----------
Net (loss) income $ (101,562) 177,333
=========== ===========
35
6
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(5), CONTINUED
(c) PARTNERSHIPS
The Company owns a 50% partnership interest in Spectrum
Parking Associates ("Spectrum") that leases parking facilities
located in Philadelphia, PA. The Company has guaranteed
certain liabilities of Spectrum amounting to approximately
$392,000. The following is summary information regarding the
partnership as of September 30, 1997:
Assets $ 2,445,064
===========
Liabilities 1,996,227
Partners' capital 448,837
-----------
Total liabilities and partners' capital $ 2,445,064
===========
Revenues 4,702,993
Operating expenses (4,424,236)
Interest expense (46,303)
Depreciation (31,323)
-----------
Net income $ 201,131
===========
(6) LOAN AGREEMENT
In June 1997, the Company entered into a loan agreement with Fleet
Bank, N.A. ("Fleet") which provides for a revolving line of credit of
up to $15 million, letters of credit of up to $5 million, and a term
loan of $4.25 million to be used for the Company's investment in SK
Travel (see notes 5(a) and 7). Portions of the revolving line of credit
can be converted to term loans. At September 30, 1997, the Company had
borrowed approximately $3,808,000, payable in June 2000, under the
revolving line of credit. This amount was used to repay an outstanding
loan used to finance the Company's investment in 12 West 48th Street,
LLC. The line of credit pays interest monthly at the lower of prime or
LIBOR plus 2% (8.5% at September 30, 1997). The loan agreement is
secured by the outstanding shares of common stock of the Company and
its subsidiaries.
The loan agreement with Fleet contains certain financial covenants
which require maintenance of specified levels of tangible net worth,
debt service coverage, debt to cash flow and liabilities to tangible
net worth, as defined, in addition to other nonfinancial covenants. At
September 30, 1997, the Company was not in compliance with certain of
these covenants, but the Company obtained a waiver from Fleet effective
through September 30, 1998 for its noncompliance.
At September 30, 1997, the Company was contingently liable under
letters of credit pursuant to agreements with Fleet totaling
approximately $5,575,000.
36
7
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(7) LONG-TERM DEBT
Long-term debt at September 30, 1997 consists of the following:
Note payable, due June 2000, with interest at LIBOR plus 2%
(8.5% at September 30, 1997) payable
monthly (see note 6) $ 3,808,000
Term loan payable in monthly installments of $70,833, plus
interest of 4% above the commercial rate (8.5% at September
30, 1997)
through August 2002 (see note 6) 4,179,000
Note payable, due in monthly
installments of $43,685, including interest at 4% above the
commercial rate (8.5% at September 30, 1997) with final
payment of $4,500,000 due
December, 2003, secured by various parking garages 4,966,000
Notes payable, due in monthly
installments of $124,587, including interest at 9.2%,
through January 2004, secured by the Company's
agreement with the City (see note 3) 7,155,000
Note payable, due in quarterly principal installments of
$91,826, through February 2000, and $55,096 from March 2000
through March 2005, plus
interest of 7.5% (see note 2) 2,020,000
Note payable for an agreement not to compete, due in monthly
installments of $14,393, including interest at 8.5%,
through November 2008. The note is cancelable if the
related lease agreement terminates
and all rent is paid through termination of occupancy 1,367,000
Other notes payable 481,000
-----------
23,976,000
Less current portion 2,309,000
-----------
$21,667,000
===========
37
8
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(7), CONTINUED
Other notes payable consist of various notes including a note payable
to the former owners of a parking company acquired in 1986 (one of whom
is a stockholder of the Company) and note payable for a lease
acquisition. A $87,000 note payable to the former owners of the parking
company acquired bears interest at 1% per annum above prime (9.25% at
September 30, 1997) and is payable monthly through June 1998. A
$302,000 note payable for a lease acquisition bears interest at 6.2%
and is payable quarterly through October 2011.
Aggregate annual maturities of long-term debt at September 30, 1997 are
as follows:
1998 $ 2,309,000
1999 2,426,000
2000 6,170,000
2001 2,405,000
2002 2,468,000
Thereafter 8,198,000
-----------
$23,976,000
===========
(8) LEASES
The Company is obligated under various capital leases for buildings and
equipment that expire at various dates through 2003.
At September 30, 1997, the amount of buildings and equipment and
related accumulated amortization recorded under capital leases was
$9,300,000 and $4,981,000, respectively.
The Company also leases land, buildings and equipment, primarily for
parking facilities, under noncancelable operating leases that expire at
various dates through 2101. Some leases contain renewal options.
Certain leases require payment of contingent rent based upon achieving
certain levels of gross receipts from the related facility's operations
as well as adjustments to rent for the Company's share of certain costs
and expenses of the landlord.
Rent expense, net of sublease rental income for the nine months ended
September 30, 1997, is as follows:
Minimum rentals $32,575,000
Contingent rentals 13,633,000
-----------
46,208,000
Less sublease rental income 720,000
-----------
Rent expense $45,488,000
===========
38
9
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(8), CONTINUED
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and
future minimum capital lease payments as of September 30, 1997 are:
Capital Operating
Year ending September 30 Leases Leases
------------------------ ------ ------
1998 $ 2,273,000 41,559,000
1999 2,419,000 30,564,000
2000 2,479,000 27,565,000
2001 2,528,000 26,528,000
2002 2,524,000 25,144,000
Thereafter 2,866,000 188,811,000
----------- -----------
Total minimum lease payments 15,089,000 340,171,000
===========
Less amounts representing interest (at rates
ranging from 10% to 17%) 5,689,000
-----------
Present value of net minimum capital
lease payments 9,400,000
-----------
Less current portion of capital lease
obligations 831,000
-----------
Obligations under capital leases,
excluding current portion $ 8,569,000
===========
The Company expects to receive an aggregate of approximately
$11,905,000 under sublease agreements through 2013.
(9) ACCRUED LIABILITIES
At September 30, 1997, accrued liabilities included the following:
Rent $ 2,449,000
Income and other taxes 2,802,000
Compensation 1,630,000
Extraordinary repairs and maintenance (note 13d) 1,400,000
Insurance 1,130,000
Other 2,893,000
-----------
$12,304,000
===========
39
10
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(10) RELATED PARTY TRANSACTIONS
At September 30, 1997, $99,000 is due to related entities in which a
stockholder of the Company has an interest. This amount, which is
included in other accrued liabilities and other long-term liabilities
in the accompanying consolidated balance sheet, bears interest at 1%
above the prime rate (9.5% at September 30, 1997).
The $2,861,000 due from stockholder relates to professional fees
incurred in anticipation of the sale of the Company (see note 14) and
bears interest at 6% per annum and is payable on demand.
During the nine months ended September 30, 1997, $112,500 has been paid
to a stockholder under a consulting agreement.
(11) RETIREMENT PLANS
(a) Certain union employees are covered under multiemployer
defined benefit plans administered by unions. The amount
charged to pension expense and contributions made to these
plans was approximately $842,000 for the nine months ended
September 30, 1997.
The Multiemployer Pension Plan Amendments Act of 1980 imposes
certain liabilities upon employers associated with
multiemployer plans who withdraw from such a plan, or upon
termination of said plan. The Company has not received
information from the plan's administrators to determine its
share of unfunded vested benefits, if any, nor has it
undertaken to terminate, withdraw or partially withdraw from
the plan.
(b) Effective January 1, 1994, the Company adopted a 401(k) plan,
which allows eligible employees (as defined in the plan) to
defer a portion of their salary. Contributions from
participants are limited to 15% of their annual salary. The
Company may make matching contributions to the plan. The
actual percentage will be determined by the Company. For the
nine months ended September 30, 1997, the Company made no
matching contributions.
40
11
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(12) INCOME TAXES
Income tax expense (benefit) consists of the following for the nine
months ended September 30, 1997:
Current:
Federal $ 1,560,000
State 747,000
-----------
2,307,000
-----------
Deferred:
Federal (626,000)
State (300,000)
-----------
(926,000)
-----------
$ 1,381,000
===========
A reconciliation between actual income taxes and amounts computed by
applying the Federal statutory tax rate to earnings before income taxes
is summarized as follows:
As a percentage
of earnings
before taxes
------------
Federal statutory tax rate on earnings before
income taxes $1,091,000 34.0%
Increase in tax rates resulting from:
State and local income taxes,
net of Federal income tax benefit 296,000 9.2
Other, net (6,000) (0.2)
---------- ----
Income tax expense $1,381,000 43.0%
========== ====
41
12
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(12), CONTINUED
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at September 30, 1997
are as follows:
Deferred tax assets:
Deferred rent $3,017,000
Capital leases 2,405,000
Accrued insurance 640,000
Other accrued liabilities 615,000
Allowance for bad debts 247,000
----------
6,924,000
Deferred tax liabilities:
Property, equipment and leaseholds (456,000)
Other (114,000)
----------
(570,000)
----------
Net deferred tax assets $6,354,000
==========
Management believes that, more likely than not, the results of
operations will generate sufficient taxable income to realize deferred
tax assets.
(13) COMMITMENTS AND CONTINGENCIES
(a) LEGAL MATTERS
The Company has been named as a defendant in various lawsuits.
In the opinion of management, after consulting with counsel,
the Company does not believe that any liability resulting from
their ultimate outcome will have a materially adverse effect
on the financial position, results of operations, or liquidity
of the Company.
During the regular course of business, there have been
asserted and unasserted claims against the Company, a portion
of which is not covered by insurance. In the opinion of
management, after consulting with counsel, adequate provision
has been made to cover settlement of any claims to the extent
not covered by insurance and the ultimate outcome of such
claims will not have a materially adverse effect on the
financial position, results of operations, or liquidity of the
Company.
42
13
KINNEY SYSTEM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements, Continued
(13), CONTINUED
(b) COMMERCIAL RENT AND OCCUPANCY TAXES
Several of the Company's subsidiaries are currently being
audited by the City of New York for New York City commercial
rent and occupancy taxes. Management believes that adequate
provision has been made for any potential assessments.
(c) STATE TAXES
Certain of the Company's state income tax returns are
currently under audit by various state agencies. Management
believes that the results of these audits will not have a
materially adverse effect on the financial position, results
of operations, or liquidity of the Company.
(d) ACCRUED REPAIRS AND MAINTENANCE
The Company has accrued certain amounts related to
extraordinary repairs and maintenance for a parking facility
which is operated under a capital lease. The Company has
estimated its liability to be $1,400,000; however,
negotiations with the landlord have not been finalized.
Because the repairs and maintenance are expected to be
completed in 1998, the related liabilities are included in
accrued liabilities in the accompanying consolidated balance
sheet.
(e) UNION CONTRACTS
Approximately 46% of the Company's labor force is employed
under union contracts. Accordingly, it is possible that such
contracts could impact the Company's growth and results from
operations in the future.
(14) SUBSEQUENT EVENTS
In November 1997, the stockholders of the Company entered into a
contract to sell all of the common stock of the Company to an unrelated
party. In connection therewith, the Company has entered into agreements
with various employees wherein the employees may be entitled to a
combination of retention, severance, and success payments if certain
conditions are met.
The total estimated cost of these payments is approximately $4,500,000.
At September 30, 1997, twenty-five percent of the retention payments,
approximately $200,000 had been paid and reflected in the accompanying
consolidated financial statements. The remaining $600,000 of retention
payments were accrued at September 30, 1997 and subsequently paid. The
success payments are discretionary and payable upon the closing of a
sale of the Company. Severance payments become payable if and when the
employee is terminated.
43
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of
the Company is based on (a) the historical consolidated financial results of
the Company, (b) the historical financial statements of Civic Parking, LLC
("Civic"), (c) the historical consolidated financial statements of Square
Industries, Inc.,("Square"), (d) the historical financial statements of Car
Park Corporation ("Car Park"), (e) the historical consolidated financial
statements of Diplomat Parking corporation ("Diplomat"), and (f) the historical
consolidated financial statements of Kinney.
The historical consolidated balance sheet of the Company as of December 31,
1997 presents the consolidated financial position of the Company on such date.
The historical consolidated balance sheet of Kinney represents the consolidated
financial position of Kinney as of September 30, 1997. Kinney's fiscal year
ends December 31. The unaudited pro forma consolidated balance sheet as of
December 31, 1997 assumes that the Kinney acquisition had occurred on December
31, 1997.
The historical statement of earnings information for the year ended
September 30, 1997 reflects (a) the historical results of operations of the
Company for its fiscal year then ended, (b) the historical results of operations
of Civic for the three month period ended December 31, 1996, (c) the historical
results of operations of Square for the three month period ended December 31,
1996 and the period January 1 through January 17, 1997, (d) the historical
results of operations of Car Park for the period October 1, 1996 through May 29,
1997, (e) the historical results of Diplomat for the twelve month period ending
September 30, 1997, and (f) the historical results of Kinney for the twelve
month period ending September 30, 1997. The historical statement of earnings for
the quarter ended December 31, 1997 reflects the historical results of
operations of the Company for the first quarter of its fiscal 1998 and the
historical results of Kinney for the quarter ended September 30, 1997. The
unaudited pro forma statement of earnings was prepared assuming that the
acquisitions were consummated on October 1, 1996.
The unaudited pro forma consolidated financial information has been
prepared based on the historical financial statements of the Company and the
acquired entities, reclassified as necessary to conform with the presentation
used in the consolidated financial statements of the Company, and gives effect
to (a) the acquisitions under the purchase method of accounting, based on
preliminary allocations of the respective purchase prices with respect to the
Diplomat and Kinney acquisitions, (b) the financing of the acquisitions, (c)
certain estimated operational and financial combination benefits which are a
direct result of the Square and Kinney acquisitions, and (d) the assumptions and
adjustments which are deemed appropriate by management of the Company and which
are described in the accompanying notes to the pro forma consolidated financial
information.
This pro forma consolidated financial information may not be indicative of
the results that would have occurred if the acquisitions had been in effect on
the dates indicated or which may be obtained in the future. Such pro forma
consolidated financial information should be read in conjunction with the
historical financial statements and notes thereto.
44
CENTRAL PARKING CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN THOUSANDS)
(UNAUDITED)
Effects of
Kinney
Historical Acquisition and Pro Forma
---------- Related Consolidated
Company Kinney Financing Totals
--------- --------- --------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 13,288 $ 4,453 $ -- $ 17,741
Management accounts receivable 11,164 3,717 -- 14,881
Accounts and current portion of notes receivable - other 4,790 3,212 -- 8,002
Prepaid expenses 11,314 1,483 -- 12,797
Deferred income taxes 981 1,185 -- 2,166
Due from stockholder -- 2,861 (2,861)(A) --
--------- --------- --------- ---------
Total current assets 41,537 16,911 (2,861) 55,587
Investments, at amortized cost 4,825 -- -- 4,825
Notes receivable, less current portion: 16,402 -- -- 16,402
Due from New York City -- 10,619 2,100 (B) 12,719
Other -- 298 -- 298
Property, equipment, and leasehold improvements, net 80,177 27,408 7,676 (B) 115,261
Contract rights, net 4,807 -- -- 4,807
Goodwill, net 51,584 -- 207,724 (B) 259,308
Investment in partnerships and joint ventures 50,189 10,254 (5,181)(A) 61,684
6,422 (B)
Deferred income taxes -- 5,169 -- 5,169
Other assets 7,223 6,706 1,309 (D) 15,238
--------- --------- --------- ---------
$ 256,744 $ 77,365 $ 217,189 $ 551,298
========= ========= ========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 1,292 $ 2,309 $ (978)(D) $ 2,623
Current portion of capital lease obligations -- 831 -- 831
Accounts payable 26,586 3,497 -- 30,083
Accrued expenses 12,042 12,304 (140)(D) 27,206
3,000 (B)
Management accounts payable 9,928 -- -- 9,928
Income taxes payable 3,690 -- -- 3,690
Other current liabilities -- 593 -- 593
--------- --------- --------- ---------
Total current liabilities 53,538 19,534 1,882 74,954
Long-term debt, less current portion 86,899 21,667 193,023 (D) 301,589
Capital lease obligations, less current portion -- 8,569 -- 8,569
Other liabilities 5,293 461 -- 5,754
Deferred income taxes 5,693 -- 5,441 (C) 11,134
Deferred compensation 3,118 -- -- 3,118
Deferred rent -- 6,977 -- 6,977
--------- --------- --------- ---------
Total liabilities 154,541 57,208 200,346 412,095
Shareholders' equity:
Common Stock 263 -- 9 (B) 272
Additional paid-in capital 33,050 6,304 30,687 (B) 70,041
Foreign currency translation adjustment 271 -- -- 271
Retained earnings 69,172 13,853 (13,853)(B) 69,172
Deferred compensation on restricted stock, net (553) -- -- (553)
--------- --------- --------- ---------
Total shareholders' equity 102,203 20,157 16,843 139,203
--------- --------- --------- ---------
$ 256,744 $ 77,365 $ 217,189 $ 551,298
========= ========= ========= =========
See accompanying notes to pro forma consolidated financial information.
45
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30, 1997
(All dollar amounts are expressed in thousands, except per share data)
(Unaudited)
(1) (2)
Combined Combined
Company Historical Pro Forma Pro Forma Diplomat
Historical Acquisitions Adjustments Consolidated Historical
---------- ------------ ----------- ------------ ----------
Revenues:
Parking 180,885 26,281 (2,448) 204,718 17,699
Management contracts 42,091 17 -- 42,108 1,217
------- ------ ------ ------- ------
Total revenues 222,976 26,298 (2,448) 246,826 18,916
Costs and expenses:
Cost of parking 159,904 21,379 (1,336) 179,947 15,864
Cost of management contracts 11,793 -- -- 11,793 131
Amortization of goodwill and noncompete agreements 920 -- 439 1,359 --
Acquisition costs -- 2,864 (2,864) -- --
General and administrative 22,506 2,896 (1,434) 23,968 7,095
------- ------ ------ ------- ------
Total costs and expenses 195,123 27,139 (5,195) 217,067 23,090
------- ------ ------ ------- ------
Operating earnings (loss) 27,853 (841) 2,747 29,759 (4,174)
Other income (expenses):
Interest income 1,842 2 (283) 1,561 18
Interest expense (4,582) (805) (881) (6,268) --
Net gains (losses) on sales of property and equipment 3,137 -- -- 3,137 --
Equity in partnership and joint venture earnings 4,163 -- 513 4,676 --
Write-off of assets -- (964) 612 (352) (205)
------- ------ ------ ------- ------
Earnings (loss) before income taxes 32,413 (2,608) 2,708 32,513 (4,361)
Income tax expense 12,207 68 134 12,409 233
------- ------ ------ ------- ------
Net earnings (loss) 20,206 (2,676) 2,574 20,104 (4,594)
======= ====== ====== ======= ======
Basic earnings per common share $ 0.78
=======
Diluted earnings per common share $ 0.77
=======
Weighted average shares-basic 25,991
=======
Weighted average shares-diluted 26,330
=======
Pro Forma Pro Forma Kinney Pro Forma Pro Forma
Adjustments Consolidated Historical Adjustments Consolidated
----------- ------------ ---------- ----------- ------------
Revenues:
Parking -- 222,417 120,909 -- 343,326
Management contracts -- 43,325 5,755 -- 49,080
------ ------- ------- ------- -------
Total revenues -- 265,742 126,664 -- 392,406
Costs and expenses:
Cost of parking -- 195,811 98,334 167 (N) 294,312
Cost of management contracts -- 11,924 3,976 -- 15,900
Amortization of goodwill and noncompete agreements 810 (K) 2,169 -- 6,924 (O) 9,093
Acquisition costs -- -- -- -- --
General and administrative (4,969)(L) 26,094 16,305 (5,588)(E) 37,428
320 (P)
297 (Q)
------ ------- ------- ------- -------
Total costs and expenses (4,159) 235,998 118,615 2,120 356,733
------ ------- ------- ------- -------
Operating earnings (loss) 4,159 29,744 8,049 (2,120) 35,673
Other income (expenses):
Interest income -- 1,579 1,519 (210)(R) 2,888
Interest expense (888)(M) (7,156) (3,373) (10,337)(S) (20,866)
Net gains (losses) on sales of property and equipment -- 3,137 (818) -- 2,319
Equity in partnership and joint venture earnings -- 4,676 1,003 (119)(T) 5,560
Write-off of assets -- (557) -- -- (557)
------ ------- ------- ------- -------
Earnings (loss) before income taxes 3,271 31,423 6,380 (12,786) 25,017
Income tax expense (343)(G) 12,299 2,802 (2,535)(U) 12,566
------ ------- ------- ------- -------
Net earnings (loss) 3,614 19,124 3,578 (10,251) 12,451
====== ======= ======= ======= =======
Basic earnings per common share $ 0.46
=======
Diluted earnings per common share $ 0.46
=======
Weighted average shares-basic 26,874
=======
Weighted average shares-diluted 27,212
=======
See accompanying notes to pro forma consolidated financial information
46
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended December 31, 1997
(All dollar amounts are expressed in thousands, except per share data)
(Unaudited)
Company Kinney Pro Forma Pro Forma
Historical Historical Adjustments Consolidated
---------- ---------- ----------- ------------
Revenues:
Parking 59,005 32,472 -- 91,477
Management contracts 12,184 1,438 -- 13,622
------- ------ ------ --------
Total revenues 71,189 33,910 -- 105,099
Costs and expenses:
Cost of parking 51,895 27,108 42 (A) 79,045
Cost of management contracts 3,252 1,001 -- 4,253
Amortization of goodwill and noncompete agreements 562 -- 1,731 (B) 2,293
General and administrative 6,676 3,489 (2,334)(C) 7,980
80 (D)
69 (E)
------- ------ ------ --------
Total costs and expenses 62,385 31,598 (412) 93,571
------- ------ ------ --------
Operating earnings (loss) 8,804 2,312 412 11,528
Other income (expenses):
Interest income 497 382 (53)(F) 826
Interest expense (1,411) (915) (2,512)(G) (4,838)
Net gains(losses) on sales of property and equipment 2 (50) -- (48)
Equity in partnership and joint venture earnings 1,207 424 (26)(H) 1,605
------- ------ ------ --------
Earnings (loss) before income taxes 9,099 2,153 (2,179) 9,073
Income tax expense 3,457 859 (194)(I) 4,122
------- ------ ------ --------
Net earnings (loss) 5,642 1,294 (1,985) 4,951
======= ====== ====== ========
Basic earnings per common share $ 0.22 $ 0.18
======= ========
Diluted earnings per common share $ 0.21 $ 0.18
======= ========
Weighted average shares
-basic 26,042 26,925
======= ========
-diluted 26,482 27,364
======= ========
See accompanying notes to pro forma consolidated financial information
47
CENTRAL PARKING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information presents the pro
forma consolidated financial condition of Central Parking Corporation as of
December 31, 1997 and the pro forma consolidated results of operations for the
three months ended December 31, 1997 and the fiscal year ended September 30,
1997.
On December 31, 1996, the Company acquired for cash 100% of the ownership
units in Civic Parking, LLC, a Missouri limited liability company ("Civic"). In
April, 1997, the Company sold 50% of its investment in Civic. On January 18,
1997, the Company completed the acquisition of Square Industries, Inc., a New
York corporation ("Square"), through a cash tender offer for all the outstanding
shares of common stock of Square. On May 29, 1997, the Company acquired the
assets and related leases of Car Park Corporation ("Car Park"). On October 1,
1997, the Company purchased the common stock of Diplomat Parking Corporation
("Diplomat"). The Company's historical consolidated balance sheet at December
31, 1997 reflects the acquired net assets and effects of financing of Civic,
Square, Car Park, and Diplomat. On February 12, 1998, the Company completed its
acquisition of Kinney System Holding Corp. ("Kinney"). The Company's
accompanying pro forma consolidated balance sheet includes the acquired net
assets and effects of the related financing, as if Kinney had been acquired on
December 31, 1997. The accompanying pro forma consolidated statements of
earnings reflect the pro forma results of operations of the Company, as
adjusted, as if each of the acquisitions had occurred on October 1, 1996.
PRO FORMA CONSOLIDATED BALANCE SHEET
The acquisition of Kinney has been accounted for as a purchase. The aggregate
purchase price and the allocation of such purchase price to the acquired net
assets, based upon preliminary purchase price allocations, are as follows (in
$000s):
Purchase price for common stock of Kinney........... $ 225,000
Purchase price for acquisitions by Kinney of
partnership interest ............................ 2,596
Transaction costs .................................. 2,000
---------
Total acquisition cost ............................. $ 229,596
Assets not acquired ................................ 8,042
Elimination of stockholders' equity acquired ....... (20,157)
Property, plant and equipment write-up
to estimated fair values ........................ (3,971)
Investment in limited liability corporation
write-up to estimated fair value ............... (3,826)
Recognize favorable lease rights ................... (3,705)
Note receivable write-up to fair value ............. (2,100)
Fair value of partnership interest acquired by
Kinney between September 30, 1997 and
acquisition date ................................ (2,596)
Recognize estimated severance costs ................ 1,000
Recognize net deferred tax liabilities related to
write-up of assets to fair value ................ 5,441
---------
Excess of cost over net assets
acquired (goodwill) .................. $ 207,724
=========
The goodwill will be amortized on a straight-line basis over 30 years. The
estimated life of 30 years was selected by management after consideration of
various factors, including the nature of the assets acquired, the terms of the
acquired management contracts and garage leases, the expected renewal rate of
such contracts and the historical renewal rate (93%) of the Company's contracts,
the relatively stable operating history of the acquired owned parking
facilities, the competitive environment and the relative stable nature of the
industry in which the acquired business operates.
48
The adjustments reflected in the pro forma consolidated balance sheet are as
follows:
(A) To eliminate assets not acquired in connection with the
purchase. The assets not acquired include the due from
stockholder of $2,861,000 and certain limited partnership
interests of $5,181,000.
(B) To record the purchase of Kinney based on the preliminary
allocation of the purchase price based upon estimates of fair
value of the assets and liabilities acquired as set forth
above, including (i) the write-up of property, plant and
equipment of $3,971,000, (ii) the write-up of certain limited
partnership interests to recognize the fair value of the
underlying property, plant and equipment of $3,826,000, (iii)
the recognition of favorable lease rights of $3,705,000, (iv)
the write-up of notes receivable of $2,100,000, (v) the
recognition of partnership interests acquired of $2,596,000
during the period after the historical balance sheet and
before the acquisition date, (vi) the recording of transaction
costs of $2,000,000, (vii) the recording of severance costs of
$1,000,000, (viii) the elimination of Kinney's equity, (ix)
the issuance of $37,000,000 of the Company's common stock as
part of the purchase price consideration, and (x) the
recording of the resultant $207,724,000 in goodwill.
(C) To record deferred tax liabilities resulting from the write-up
of assets for financial reporting purposes.
(D) To record the net increase in debt incurred to finance the
acquisition and the related impact to deferred financing
costs. Accrued interest of $140,000 was also written off in
connection with the retirement of the Kinney debt.
PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30, 1997
(1) The historical financial results of the Combined Acquisitions
presented in the unaudited pro forma consolidated statement of earnings for the
year ended September 30, 1997 are as follows (in $000s):
Square Civic CarPark Combined
Historical Historical Historical Acquisitions
10/1/96-1/17/97 10/1-12/31/96 10/1-5/29/97 Historical
--------------- ------------- ------------ ----------
Revenues:
Parking ................................ 22,298 2,448 1,535 26,281
Management contracts ................... -- -- 17 17
------- ------- ------- -------
Total revenues .................... 22,298 2,448 1,552 26,298
Costs and expenses:
Cost of parking ........................ 18,763 1,313 1,303 21,379
Cost of management contracts ........... -- -- -- --
Amortization of goodwill and
noncompete agreements ............ -- -- -- --
Acquisition costs ...................... 2,864 -- -- 2,864
General and administrative ............. 2,654 173 69 2,896
------- ------- ------- -------
Total costs and expenses .......... 24,281 1,486 1,372 27,139
------- ------- ------- -------
Operating earnings (loss) ......... (1,983) 962 180 (841)
Other income (expenses):
Interest income ........................ -- 2 -- 2
Interest expense ....................... 203 (1,008) -- (805)
Write-off of assets .................... (964) -- -- (964)
------- ------- ------- -------
Earnings (loss) before income taxes (2,744) (44) 180 (2,608)
Income tax expense ......................... 68 -- -- 68
------- ------- ------- -------
Net earnings (loss) .............. (2,812) (44) 180 (2,676)
======= ======= ======= =======
49
(2) The Combined Pro Forma Adjustments for the year ended September 30,
1997 are as follows (in $000s):
Square Civic Car Park Combined
Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments
----------- ----------- ----------- -----------
Revenues:
(2,393)(H)
Parking ........................................ -- (55)(I) -- (2,448)
Management contracts ........................... -- -- -- --
------ ------ ------ ------
Total revenues ............................ -- (2,448) -- (2,448)
Costs and expenses:
(1,195)(H)
Cost of parking ............................... (23)(A) (85)(A) -- (1,336)
(33)(I)
Amortization of goodwill and
noncompete agreements ..................... 302 (B) -- 137 (B) 439
Acquisition costs .............................. (2,864)(C) -- -- (2,864)
General and administrative ..................... (97)(D) -- (1,434)
(173)(H)
(1,164)(E)
------ ------ ------ ------
Total costs and expenses .................. (3,846) (1,486) 137 (5,195)
------ ------ ------ ------
Operating earnings (loss) ...................... 3,846 (962) (137) 2,747
Other income (expenses):
Interest income ................................ -- (283)(J) -- (283)
Interest expense ............................... (1,357)(F) 586 (F) (110)(F) (881)
Equity in partnership and joint venture earnings -- 513 (H) -- 513
Write-off of assets ............................ 612(D) -- -- 612
------ ------ ------ ------
Earnings (loss) before income taxes ....... 3,101 (146) (247) 2,708
Income tax expense ................................. 180(G) (72)(G) 26 (G) 134
====== ====== ====== ======
Net earnings (loss) ....................... 2,921 (74) (273) 2,574
====== ====== ====== ======
The adjustments reflected in the pro forma consolidated statements of earnings
are as follows in:
Year ended September 30, 1997:
(A) To reflect the net change in depreciation resulting from the
fair value adjustments and changes in estimated asset lives.
(B) To record amortization of goodwill and noncompete agreements
using 25 and 5 year lives, respectively.
(C) To eliminate the effect of acquisition costs reflected in
Square's historical results of operations which were directly related to
Square's sale to the Company.
(D) To eliminate the effect of Square's (i) scheduled amortization
of deferred expenses and financing costs, and (ii) write-off of
$612,000 of deferred financing costs directly related to the acquisition.
(E) To record the effect of estimated cost savings relating to
general and administrative expenses, including excess personnel, to be
eliminated in connection with the Square and Kinney acquisitions.
(F) To reflect interest on acquisition-related borrowings. Interest
is calculated at an average rate of 6.75%.
(G) To record estimated federal and state income taxes at a combined
rate of 37.7%.
(H) To reflect the elimination of 100% ownership of Civic as a
result of the sale of a 50% interest to Equity Office Holdings-St. Louis
Parking, LLC and to record a 50% joint venture interest as equity in
partnership and joint venture earnings.
(I) To eliminate the revenues and expenses related to a bus lot not
acquired, but included in the historical financial statements of Civic for
the period October 1 through December 31, 1996.
50
(J) To reflect a decrease in income earned on cash investments used
for purposes of the acquisition of Civic.
(K) To record amortization of goodwill and noncompete agreements
using 25 and 5 year lives, respectively.
(L) To eliminate the effect of expense related to compensatory stock
options granted to a Diplomat stockholder directly related to the
acquisition of Diplomat by the Company.
(M) To reflect interest on Diplomat acquisition-related borrowings.
Interest is calculated at an average rate of 7%.
(N) To reflect the net change in depreciation resulting from the
fair value adjustments.
(O) To reflect amortization of goodwill using a 30 year life.
(P) To reflect expense associated with the five-year consulting
contracts with the former shareholders of Kinney.
(Q) To reflect amortization of the deferred financing fees over the
five year term of the related acquisition debt. Amortization of deferred
financing fees related to debt that was repaid at closing is removed.
(R) To reflect amortization of the adjustment to fair value on note
receivable due from New York City over remaining ten year term of the
note.
(S) To reflect interest expense on acquisition-related borrowings.
Interest is calculated at a rate of 6.875%. Interest expense on debt
repaid at closing is removed.
(T) To eliminate the effect of losses from equity in partnership
earnings for partnerships that were not transferred in the acquisition of
Kinney and to record amortization over a 30 year period relating to the
$3,826,000 purchase accounting write-up on the investment in
unconsolidated subsidiary acquired.
(U) To record estimated federal and state income taxes at Kinney's
statutory rate of 43.25%.
Quarter ended December 31, 1997
(A) To reflect the net change in depreciation resulting from the
fair value adjustments.
(B) To record amortization of goodwill using a 30 year life.
(C) To record the effect of estimated cost savings relating to
general and administrative expenses, including excess personnel, to be
eliminated in connection with the Kinney acquisition.
(D) To reflect expense associated with the five-year consulting
contracts with the former shareholders of Kinney.
(E) To reflect amortization of the deferred financing fees over the
five year term of the related acquisition debt. Amortization of deferred
financing fees related to debt that was repaid at closing is removed.
(F) To reflect amortization of the adjustment to fair value on note
receivable due from New York City over remaining 10 year term of the
note.
(G) To reflect interest on acquisition-related borrowings. Interest
is calculated at an average rate of 6.875%.
(H) To eliminate the effect of losses from equity in partnership
earnings for partnerships that were not transferred in the acquisition of
Kinney and to record goodwill amortization over a 30 year period relating
to the $3,826,000 purchase accounting write-up on the investment in
unconsolidated subsidiary acquired.
(I) To record estimated federal and state income taxes at a combined
statutory rate of 43.25%.
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL PARKING CORPORATION
By: /s/ Stephen A. Tisdell
----------------------------------
Stephen A. Tisdell
Chief Financial Officer
Date: February 17, 1998
52
Exhibit Index
Exhibit No.
- ----------
2.1 Acquisition Agreement and Plan of Merger dated as of
November 7, 1997 by and between Registrant, Kinney System Holding
Corp. and a subsidiary of Registrant.*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of David Berdon & Co. LLP
*A copy of the exhibit index to the Acquisition Agreement and Plan of Merger
has been included. The exhibits have been omitted but Registrant shall furnish
supplementally a copy of any omitted exhibit to the Commission upon request.