1
EXHIBIT 13
CENTRAL PARKING CORPORATION 1998
ANNUAL REPORT TO SHAREHOLDERS
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are selected consolidated financial data of the Company for each
of the periods indicated. The statement of earnings, per share, and balance
sheet data were derived from the audited consolidated financial statements of
the Company. All of the information set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Amounts in thousands, except per share data
Year Ended September 30,
------------------------ 1998 vs 1997 Five Year
1994 1995 1996 1997 1998 Increase (Decrease) Growth Rate
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STATEMENT OF EARNINGS DATA: $ % %
Revenues:
Parking $ 82,890 $ 94,383 $ 109,272 $ 180,886 $ 328,285 $ 147,399 81.5% 41.1%
Management contract 28,438 30,630 32,534 39,568 54,890 15,322 38.7 17.9
Total revenues 111,328 125,013 141,806 220,454 383,175 162,721 73.8 36.2
Total costs and expenses 100,120 111,411 124,874 192,602 336,294 143,692 74.6 35.4
Operating earnings 11,208 13,602 16,932 27,852 46,881 19,029 68.3 43.0
Percentage of total revenues 10.1% 10.9% 11.9% 12.6% 12.2% -- -- --
Interest income (expense), net 691 1,462 2,303 (2,740) (4,654) (1,914) (69.9) --
Dividends on company-obligated mandatorily
redeemable convertible securities of a
subsidiary trust -- -- -- -- 3,160 3,160 N/A --
Net gains on sales of
property and equipment 2,214 81 1,192 3,137 71 (3,066) (97.7) --
Equity in partnership and
joint venture earnings 30 362 641 4,163 5,086 923 22.2 --
Earnings before income tax 14,143 15,507 21,068 32,412 44,224 11,812 36.4 33.0
Income taxes 5,179 5,563 7,232 12,207 17,614 5,407 44.3 35.7
Income tax percentage of
earnings before income tax 36.6% 35.9% 34.3% 37.7% 39.8% -- -- --
Net earnings 8,964 9,944 13,836 20,205 26,610 6,405 31.7 31.3
Percentage of total revenues 8.1% 8.0% 9.8% 9.2% 6.9% -- -- --
PER SHARE DATA:
Net earnings - basic $ 0.39 $ 0.43 $ 0.54 $ 0.78 $ 0.96 $ 0.18 23.1
Net earnings - diluted $ 0.39 $ 0.43 $ 0.53 $ 0.77 $ 0.94 $ 0.17 22.1
Basic weighted average common shares 23,058 23,058 25,762 25,991 27,857 1,866 7.2
Diluted weighted average common shares 23,058 23,058 26,042 26,330 28,326 1,996 7.6
Net book value per common share
outstanding at September 30 $ 1.38 $ 1.79 $ 2.93 $ 3.68 $ 8.65 $ 4.97 135.1
September 30,
------------- 1998 vs 1997
1994 1995 1996 1997 1998 Increase (Decrease)
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BALANCE SHEET DATA:
Cash and cash equivalents $ 12,026 $ 10,218 $ 28,605 $ 9,979 $ 19,840 $ 9,861 98.8%
Working capital 1,987 2,676 19,707 (9,231) (24,124) (14,893) (161.3)
Goodwill -- -- -- 31,863 254,997 $ 223,134 700.3
Total assets 60,029 70,440 107,212 234,014 544,873 310,859 132.8
Long-term debt and capital lease
obligations, less current portion -- -- -- 73,252 60,704 (12,548) (17.1)
Company-obligated mandatorily redeemable
convertible securities of subsidiary
holding solely parent debentures -- -- -- -- 110,000 110,000 N/A
Shareholders' equity 31,861 41,360 76,793 96,851 255,704 158,853 164.0
Year Ended September 30,
------------------------ 1998 vs 1997
1994 1995 1996 1997 1998 Increase (Decrease)
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OTHER DATA:
Depreciation and amortization $ 2,594 $ 2,882 $ 3,420 $ 6,499 $ 15,283 $ 8,784 135.2%
Employees (2) (3) 5,400 6,000 6,600 9,300 12,000 2,700 29.0%
Number of shareholders (2) (3) N/A 3,000 5,500 7,000 8,100 1,100 15.7%
Market capitalization in millions (1) (2) (3) N/A N/A $ 568 $ 802 $ 1,490 $ 644 80.3%
Price earnings ratio (1) (2) (3) N/A N/A 40.9 39.6 53.6 N/A N/A
Return on equity (3) (4) 32.5% 27.2% 23.4% 23.3% 15.1% N/A N/A
(1) Reflects the recapitalization, initial and subsequent public offering of
shares, and subsequent stock splits of the Company described in Note 10 to
the Company's 1998 Consolidated Financial Statements.
(2) Reflects information as of September 30 of the respective fiscal year,
rounded to the nearest thousand, except ratio data.
(3) Unaudited information.
(4) Reflects return on equity calculated using net earnings divided by average
shareholders' equity.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the results of operations should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.
OVERVIEW
The Company operates parking facilities under three types of arrangements:
leases, fee ownership, and management contracts.
Parking revenues consist of Central Parking Corporation and Subsidiaries
("Central Parking" or the "Company") revenues from leased and owned facilities.
Cost of parking relates to both leased and owned facilities and includes rent,
payroll and related benefits, depreciation (if applicable), maintenance,
insurance, and general operating expenses. Parking revenues in fiscal 1998
increased to $328.3 million from $180.9 million in fiscal 1997, an increase of
$147.4 million, or 81.5%. Of the $147.4 million increase, $102.6 million, or
69.6% of the increase, resulted from the acquisition of Diplomat Parking
Corporation ("Diplomat"), Kinney System Holding Corp ("Kinney"), Turner Parking
("Turner"), and Sterling Parking ("Sterling") leased and owned locations. The
remaining increase of $44.8 million, or 30.4%, is from a combination of the
addition of 46 net locations, increased rates and higher utilization of parking
spaces at existing facilities.
Parking revenues from owned properties amounted to $6.2 million, $13.6
million, and $17.7 million for the years ended September 30, 1996, 1997 and
1998, respectively. Owned properties parking revenues, as a percentage of
parking revenues, accounted for 5.7% in 1996, 7.5% in 1997, and 5.4% in 1998.
Ownership of parking facilities, either independently or through joint ventures,
typically requires a larger capital investment than managed or leased facilities
but provides maximum control over the operation of the parking facility and the
greatest profit potential of the three types of operating arrangements. As the
owner, all changes in owned facility revenue and expense flow directly to the
Company. Additionally, the Company has the potential to realize benefits of
appreciation in the value of the underlying real estate if the property is sold.
Central Parking assumes complete responsibility for all aspects of the property,
including all structural, mechanical, or electrical maintenance or repairs and
property taxes.
Parking revenues from leased facilities amounted to $103.1 million, $167.3
million, and $310.6 million for the years ended September 30, 1996, 1997, and
1998, respectively. Leased properties parking revenues, as a percentage of
parking revenues, accounted for 94.3% in 1996, 92.5% in 1997, and 94.6% in 1998.
Leases generally provide for a contractually established payment to the facility
owner which is either a fixed annual amount, a percentage of gross revenues, or
a combination thereof. As a result, Central Parking's revenues and profits in
its lease arrangements are dependent upon the performance of the facility.
Leased facilities require a longer commitment and a larger capital investment by
Central Parking than managed facilities but generally provide a more stable
source of revenue and a greater opportunity for long-term revenue growth. Under
its leases, the Company is typically responsible for all facets of the parking
operations, except for structural, mechanical, or electrical maintenance or
repairs, or property taxes. Lease arrangements are typically for terms of three
to ten years, with renewal options.
Management contract revenues include revenues from managed facilities. In
fiscal year 1998, management contract revenues increased 38.7% to $54.9 million,
primarily as a result of the addition of 330 managed facilities acquired in the
transactions with Diplomat, Kinney, Turner, and Sterling, and from the net
addition of 95 additional management locations. Management contract revenues
amounted to $32.5 million, $39.6 million, and $54.9 million for the years ended
September 30, 1996, 1997, and 1998, respectively. Management contract revenues
consist of management fees (both fixed and percentage of revenues) and fees for
ancillary services such as insurance, accounting, equipment leasing, and
consulting. The cost of management contracts includes insurance premiums and
claims and other indirect overhead. The Company's responsibilities under a
management contract as a facility manager include hiring, training, and staffing
parking personnel, and providing collections, accounting, record keeping,
insurance, and facility marketing services. In general, Central Parking is not
responsible under its management contracts for structural, mechanical, or
electrical maintenance or repairs, or for providing security or guard services
or for paying property taxes. The typical management contract is for a term of
one to three years and generally is renewable for successive one-year terms, but
is cancelable by the property owner on short notice. The Company's renewal rates
for each of the past five fiscal years were in excess of 91%.
The Company's clients have the option of obtaining insurance on their own
or having Central Parking provide insurance as part of the services provided
under the management contract. Because of its size and claims experience, the
Company can purchase such insurance at significant discounts to comparable
market rates and, management believes, at lower rates than the Company's clients
can generally obtain on their own. Accordingly, Central Parking generates
profits on the insurance provided under its management contracts.
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As of September 30, 1998, Central Parking operated 1,302 parking facilities
through management contracts, leased 1,071 parking facilities, and owned 67
parking facilities, either independently or in joint venture with third parties.
The following table sets forth certain information regarding the number of
managed, leased, or owned facilities as of the specified dates:
SEPTEMBER 30,
-------------
1996 1997 1998
---- ---- ----
Managed................................................................ 770 877 1,302
Leased................................................................. 552 709 1,071
Owned.................................................................. 37 58 67
----- ----- -----
Total.......................................................... 1,359 1,644 2,440
===== ===== =====
A summary of the facilities operated by Central Parking as of September 30, 1998
is as follows:
Percent
Managed Leased Owned Total of Total Spaces
------- ------ ----- ----- -------- ------
Total U.S. and Puerto
Rico........................... 1,185 958 67 2,210 90.6% 919,111
---------------------------------------------------------------------------
United Kingdom................... 79 80 -- 159 6.5% 55,527
Mexico (1)....................... 34 27 -- 61 2.5% 31,796
Germany (1)...................... -- 4 -- 4 0.1% 1,336
Canada........................... 3 1 -- 4 0.1% 8,850
Spain (1)........................ -- 1 -- 1 0.1% 542
Malaysia......................... 1 -- -- 1 0.1% 5,400
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Total foreign 117 113 -- 230 9.4% 103,451
---------------------------------------------------------------------------
Total facilities 1,302 1,071 67 2,440 100.0% 1,022,562
===========================================================================
(1) Operated through 50% owned joint ventures
Fiscal Years Ended September 30,
Historical Financial Summary ($ Millions) 1995 1996 1997 1998
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Parking revenues 94.4 109.3 180.9 328.3
% Growth over prior year 13.9% 15.8% 65.5% 81.5%
Management contract revenues 30.6 32.5 39.6 54.9
% Growth over prior year 7.7% 6.2% 21.6% 38.7%
Total revenues 125.0 141.8 220.5 383.2
% Growth over prior year 12.3% 13.4% 55.5% 73.8%
Cost of parking and management contracts 95.7 107.5 169.2 295.3
% of total revenues 76.6% 75.8% 76.7% 77.1%
General and administrative expenses 15.7 17.4 22.5 33.9
% of total revenues 12.6% 12.3% 10.2% 8.8%
Goodwill and non-compete amortization -- -- 0.9 7.1
% of total revenues -- -- 0.4% 1.9%
Operating earnings 13.6 16.9 27.9 46.9
% of total revenues 10.9% 11.9% 12.6% 12.2%
Depreciation & amortization 2.9 3.4 6.5 15.3
Interest income (expense), net 1.5 2.3 (2.7) (4.7)
Dividends on company-obligated mandatorily redeemable securities
of subsidiary trust holding solely parent debentures -- -- -- (3.2)
Equity in partnerships &
joint venture earnings 0.4 0.6 4.2 5.1
Net gains on sales of
property & equipment -- 1.2 3.1 0.1
Net earnings 9.9 13.8 20.2 26.6
% of total revenues 8.0% 9.8% 9.2% 6.9%
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The table below sets forth certain information regarding the Company's managed,
leased and owned facilities in the periods indicated.
Year Ended September 30,
1996 1997 1998
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Managed Facilities (1):
Beginning of year 715 770 877
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Acquired during year -- 36 330
Added during year 114 164 196
Deleted during year (2)(3)(4) (59) (93) (101)
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End of year 770 877 1,302
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Renewal Rate 92.4% 91.1% 91.8%
Leased Facilities (1):
Beginning of year 485 552 709
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Acquired during year -- 82 317
Added during year (3) 94 99 99
Deleted during year (4) (27) (24) (54)
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End of year 552 709 1,071
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Owned Facilities (1)(5):
Beginning of year 31 37 58
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Acquired during year (2) -- 20 8
Purchased during year 6 5 1
Sold during year -- (4) --
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End of year 37 58 67
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Total facilities (end of year) 1,359 1,644 2,440
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Percentage net growth including acquisitions in number of facilities:
Managed 7.7% 13.9% 48.5%
Leased 13.8% 28.4% 51.1%
Owned 19.4% 56.8% 15.5%
----- ----- -----
Total facilities 10.4% 21.0% 48.4%
----- ----- -----
(1) Includes 38 managed, 39 leased and 15 owned properties operated under joint
venture agreements at September 30, 1998.
(2) Fiscal 1996 and 1997 include four facilities that were previously managed
and subsequently purchased.
(3) Includes Central Parking's lease in fiscal 1996, 1997 and 1998 of one
facility, 11 facilities, and two facilities, respectively, that were
previously managed.
(4) Excluded from the renewal rate calculation in the above table at September
30, 1997 are six managed on-street locations and two leased on-street
locations which are reflected as current year deletions.
(5) Includes the Company's corporate headquarters in Nashville, Tennessee.
Net gains derived from sales of property and equipment were $1.2 million, $3.1
million, and $71 thousand for fiscal 1996, 1997, and 1998, respectively.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated financial statements expressed as a percentage
of total revenues.
Year Ended September 30,
1996 1997 1998
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Parking revenues 77.1% 82.1% 85.7%
Management contract revenues 22.9 17.9 14.3
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Total revenues 100.0 100.0 100.0
Cost of parking and management contracts 75.8 76.7 77.1
General and administrative expenses 12.3 10.6 10.7
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Operating earnings 11.9 12.6 12.2
Interest income (expense), net 1.6 (1.2) (1.2)
Dividends on company-obligated mandatorily redeemable securities
of subsidiary trust holding solely parent debentures -- -- (0.8)
Net gains on sales of property
and equipment 0.8 1.4 0.0
Equity in partnership and joint venture earnings 0.5 1.9 1.3
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Earnings before income taxes 14.8 14.7 11.5
Income taxes 5.0 5.5 4.6
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Net earnings 9.8% 9.2% 6.9%
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YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Parking revenues include revenue from leased and owned facilities. Parking
revenues in fiscal 1998 increased to $328.3 million from $180.9 million in
fiscal 1997, an increase of $147.4 million, or 81.5%. Of the $147.4 million
increase, $102.6 million, or 69.6% of the increase, resulted from the following
acquisition of leased and owned locations: Diplomat, $19.6 million; Kinney,
$81.7 million; Turner, $1.1 million; and Sterling, $0.2 million. With respect to
the Kinney acquisition, Central Parking achieved lower than expected increases
in revenues, particularly in the fourth quarter of fiscal 1998. Kinney was
acquired on February 12, 1998 and its partial year parking revenues of $81.7
million represent 24.9% of total fiscal year parking revenues. The Company's
operating results may be significantly impacted by the results derived from the
Kinney acquired locations. The remaining increase of $44.8 million, or 30.4%, is
from a combination of the addition of 46 net locations, increased rates and
higher utilization of parking spaces at existing facilities.
Management contract revenues in fiscal 1998 increased to $54.9 million from
$39.6 million in fiscal 1997, an increase of $15.3 million, or 38.7%. Of the
$15.3 million increase, $7.6 million, or 49.9%, resulted from the acquisitions
of Diplomat, $2.1 million; Kinney, $4.9 million; Turner, $0.5 million; and
Sterling, $0.1 million. The remaining 50.1% increase resulted primarily from the
addition of 95 net new locations.
Revenues from foreign operations increased to $23.0 million in 1998 from $18.1
million in 1997. The increase of 26.8% in revenues from foreign operations
resulted primarily from the net addition of 51 locations in the United Kingdom
and increased revenues on existing locations.
Cost of parking in fiscal 1998 increased to $280.3 million from $157.4 million
in fiscal 1997, an increase of $122.9 million, or 78.1%. Rent expense increased
$74.7 million, principally as a result of new locations from acquisitions and
additional percentage rent on existing locations. Of the remaining $48.2 million
increase in cost of parking, payroll expense accounted for $26.6 million. The
payroll expense increase was attributable to a combination of acquisitions, new
locations and increases in existing payroll. Cost of parking, as a percentage of
parking revenues, decreased to 85.4% in fiscal 1998 from 87.0% in fiscal 1997.
This decrease was attributable predominantly to the spreading of a number of
fixed costs, primarily rent and property costs, over a larger revenue base.
Cost of management contracts in fiscal 1998 increased to $15.0 million from
$11.8 million in the comparable period in 1997, an increase of $3.2 million, or
27.2%. This increase was attributable to an increase in the number of managed
locations and higher costs incurred at existing locations associated with
increased revenues. Cost of management contracts, as a percentage of management
contract revenues, decreased to 27.3% in fiscal 1998 from 29.8% in fiscal 1997.
The decrease in the percentage of management contract cost as a percentage of
management contract revenue is a result of increased management fees from a
combination of new and existing locations. The renewal rates for management
contracts of 91.8% in 1998, and 91.1% in 1997, are consistent with the Company's
5 year average renewal rates.
General and administrative expenses, excluding goodwill and non-compete
amortization, increased to $33.9 million from $22.5 million in fiscal 1997, an
increase of $11.4 million, or 50.5%. This increase was primarily a result of an
increase in payroll expense of $7.7 million associated with the additional
general and administrative expenses of acquired operations, as well as opening
of additional managed, leased, and owned locations and additional incentive
compensation payments as a result of increased profits. General and
administrative expenses decreased as a percentage of total revenue from 10.2% in
1997 to 8.8% in 1998. This is a result of spreading of general and
administrative expenses over a broader revenue base.
Amortization expense of goodwill and non-compete agreements increased
significantly from $920,000 in fiscal 1997 to $7.1 million in fiscal 1998, an
increase of $6.2 million. This increase was a result of $232.8 million in
goodwill and non-compete assets recorded in connection with the acquisitions of
Diplomat, Kinney, the remaining 50% of CPS-Louisiana, Turner, and Sterling.
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Goodwill and non-compete agreements are amortized over periods ranging from 5
to 30 years.
Interest income in fiscal 1998 increased to $2.7 million from $1.8 million in
fiscal 1997. This increase of $877 thousand was primarily attributable to
increased investment in notes receivable. Interest expense totaled $7.4 million
in 1998 compared to $4.6 in 1997. The increased interest expense was a result of
borrowing to fund additional asset purchases and acquisitions during the year.
With respect to the Company's two credit facilities which represent
substantially all of the Company's indebtedness, the weighted average balance
outstanding for fiscal 1998 was approximately $83.0 million at a weighted
average interest rate of 6.75%.
Dividends on company-obligated mandatorily redeemable convertible securities of
a subsidiary holding solely parent debentures ("Preferred Securities") amounted
to $3.2 million for fiscal year 1998. Such Preferred Securities in the amount of
$110 million were issued on March 18, 1998 and bear a dividend rate of 5.25%
(See Note 9 to the Company's 1998 consolidated financial statements).
Equity in partnership and joint venture earnings for fiscal 1998 increased to
$5.1 million from $4.2 million in fiscal 1997. The increase of $923,000 resulted
primarily from increases in domestic partnerships and joint ventures of
$692,000, due largely to partnership interests acquired in connection with
Kinney, and an increase in equity in joint venture earnings of the German joint
venture of $296,000 over balances in the prior year.
The Company's effective income tax rate was 39.8% for fiscal 1998 compared to
37.7% for fiscal 1997. The rate increase was attributable to the increase in the
Company's federal income tax rate, the comparative decrease in the amount of tax
exempt income, and the addition of nondeductible goodwill amortization (see Note
12 to the Company's Consolidated Financial Statements).
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Parking revenues in fiscal 1997 increased to $180.9 million from $109.3 million
in fiscal 1996, an increase of $71.6 million, or 65.5%. Of the $71.6 million
increase, $41.0 million, or 57.3% of the increase, resulted from the acquisition
of Square and Car Park leased and owned locations. The remaining increase of
$30.6 million, or 42.7%, is from a combination of the net addition of 76
locations, increased rates and higher utilization of parking spaces at existing
facilities.
Management contract revenues in fiscal 1997 increased to $39.6 million from
$32.5 million in fiscal 1996, an increase of $7.1 million, or 21.6%. Of the $7.1
million increase, $2.8 million or 34.6% of the increase resulted from the Square
and Car Park acquisitions. The remaining increase of $4.3 million, or 60.6%, is
attributable to the net addition of 71 locations and increased management fees
on existing locations.
Revenues from foreign operations increased to $18.1 million in 1997 from $13.2
million in 1996. The increase of 37.4% in revenues from foreign operations
resulted primarily from the net addition of 20 locations in the United Kingdom
and increased revenues on existing locations.
Cost of parking in fiscal 1997 increased to $157.4 million from $97.7 million in
fiscal 1996, an increase of $59.7 million, or 61.1%. Rent expense increased
$30.9 million, principally as a result of new locations from acquisitions and
additional percentage rent on existing locations. Of the remaining $28.8 million
increase in cost of parking, payroll expense accounted for $12.5 million. The
payroll expense increase was attributable to a combination of acquisitions, new
locations and increases on existing payroll. Cost of parking, as a percentage of
parking revenues, decreased to 87.0% in fiscal 1997 from 89.4% in fiscal 1996.
This decrease was attributable predominantly to the spreading of a number of
fixed costs, primarily rent and property costs, over a larger revenue base.
Cost of management contracts in fiscal 1997 increased to $11.8 million from $9.8
million in the comparable period in 1996, an increase of $2.0 million, or 20.7%.
This increase was attributable to an increase in the number of managed locations
and higher costs incurred at existing locations associated with increased
revenues. Cost of management contracts, as a percentage of management contract
revenues, decreased to 29.8% in fiscal 1997 from 30.0% in fiscal 1996. The
decrease in the percentage of management contract cost as a percentage of
management contract revenue is a result of increased management fees from a
combination of new and existing locations. The decrease in renewal rates for
management contracts to 91.1% in 1997, from 92.4% in 1996, is primarily
attributable to the loss of one large contract which included 9 management
locations. This trend is not expected to continue.
General and administrative expenses excluding goodwill amortization in fiscal
1997 increased to $22.5 million from $17.4 million in fiscal 1996, an increase
of $5.1 million, or 21.2%. This increase was primarily a result of an increase
in payroll expense of $4.2 million, associated with the additional general and
administrative expenses of acquired operations, as well as the opening of
additional managed, leased, and owned locations and additional incentive
compensation payments as a result of increased profits. General and
administrative expenses excluding goodwill decreased as a percentage of total
revenues from 12.3% in 1996 to 10.2% in 1997. This is a result of spreading
general and administrative expenses over a broader revenue base.
Amortization of goodwill and non-compete agreements in fiscal 1997 amounted to
$920,000. The Company had no expenses from amortization of goodwill in fiscal
1996. Amortization expense of goodwill was a result of $32.7 million in goodwill
and non-compete assets, recorded in connection with the acquisitions of Square
and Car Park.
Interest income in fiscal 1997 decreased to $1.8 million from $2.3 million in
fiscal 1996. This decrease of $461,000 was primarily attributable to decreased
cash and cash equivalents during the year. Interest expense totaled $4.6 million
in 1997 compared to zero in 1996. The increased interest expense was a result of
borrowing to fund additional asset purchases and acquisitions during the
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7
year. The weighted average balance outstanding for the period during which the
Company had debt outstanding, beginning December 31, 1996, was approximately
$88.7 million at a weighted average interest rate of 7.1%.
Equity in partnership and joint venture earnings for fiscal 1997 increased to
$4.2 million from $641,000 in fiscal 1996. The increase of $3.5 million resulted
primarily from Civic Parking, LLC ($2.9 million) and increases in joint venture
earnings of the Mexican joint venture ($514,000 in 1997 versus $152,000 in
1996).
The Company's effective income tax rate was 37.7% for fiscal 1997 compared to
34.3% for fiscal 1996. The rate increase was attributable to the increase in the
Company's federal income tax rate, the comparative decrease in the amount of tax
exempt income, the addition of nondeductible goodwill amortization and the
increase in the effective state income tax (see Note 12 to the Company's
Consolidated Financial Statements).
QUARTERLY RESULTS
The Company experiences fluctuations in its quarterly net earnings as a result,
in part, of recognition of intermittent gains on sales of properties.
Additionally, the Company has and may continue to experience fluctuations in
revenues and related expenses due to acquisitions, pre-opening costs, travel and
transportation patterns affected by weather and calendar related events, and
local and national economic conditions. The Company's increased concentration of
parking facilities in the northeastern and mid-atlantic part of the United
States, primarily a result of the Kinney, Square and Diplomat acquisitions, has
increased the risk of weather related fluctuations such as severe winter snow
storms. Additionally, the Company services the parking for a number of sports
stadiums and arenas and can be impacted by strikes and the success of various
sports teams in playoff and championship series. The following table sets forth
certain quarterly statement of earnings data for each of the Company's last
eight fiscal quarters and the percentage of net revenues represented by the line
items presented (except in the case of per share amounts). The quarterly
statements were impacted by the acquisition of Square (January 1997), Car Park
(May 1997), Diplomat (October 1997), Kinney (February 1998), CPS - Louisiana
(March 1998), Turner (April 1998), Sterling (July 1998) and net gains on sales
of property and equipment of $3.1 million in the quarter ended September 30,
1997. The quarterly statement of earnings data set forth below was derived from
unaudited financial statements of the Company and includes all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation thereof. The per share numbers have been
restated to reflect the three for two stock splits (see Note 10(d) to the
Company's Consolidated Financial Statements).
Amounts in thousands, except per share data
1997 Fiscal Year
December 31 March 31 June 30 September 30
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Total revenues $ 40,997 100.0% $ 55,297 100.0% $ 59,399 100.0% $ 64,761 100.0%
Operating earnings 5,129 12.5 7,109 12.9 7,706 13.0 7,908 12.2
Net gains on sales of
property & equipment 3 0.0 2 0.0 3 0.0 3,129 4.8
Earnings before
income taxes 6,000 14.6 6,993 12.6 8,242 13.9 11,177 17.3
Net earnings $ 3,899 9.5% $ 4,416 8.0% $ 5,275 8.9% $ 6,615 10.2%
Earnings per common share - basic $ 0.15 $ 0.17 $ 0.21 $ 0.25
Earnings per common share - diluted $ 0.15 $ 0.17 $ 0.20 $ 0.25
- ----------------------------------------------------------------------------------------------------------------------------------
1998 Fiscal Year
December 31 March 31 June 30 September 30
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 70,269 100.0% $ 90,088 100.0% $ 110,770 100.0% $ 112,048 100.0%
Operating earnings 8,804 12.5 12,034 13.4 13,855 12.5 12,188 10.9
Net gains on sales of
property & equipment 3 0.0 15 0.0 (17) 0.0 70 0.1
Earnings before
income taxes 9,099 12.9 10,316 11.5 12,923 11.7 11,886 10.6
Net earnings $ 5,642 8.0% $ 6,328 7.0% $ 7,948 7.2% $ 6,692 6.0%
Earnings per common share - basic $ 0.22 $ 0.24 $ 0.27 $ 0.23
Earnings per common share - diluted $ 0.21 $ 0.23 $ 0.27 $ 0.23
- ----------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for fiscal 1998 was $50.1
million, an increase of $27.7 million from net cash of $22.4 million provided by
operating activities during the same period in fiscal 1997. The primary factors
which contributed to this change were increased net earnings, increased
depreciation and amortization, and increases in accounts payable and accrued
expenses during fiscal 1998.
Net cash used in investing activities was $239.2 million for fiscal 1998,
an increase of $147.1 from net cash of $92.1 million used in investing
activities during fiscal 1997. The acquisitions of Diplomat, Kinney, Turner, and
Sterling utilized cash of $213.6 million, net of cash acquired and property and
equipment purchases represented $25.6 million.
Net cash provided by financing activities for fiscal 1998 was $198.7
million, and increase of $147.7 million over the $51.0 million provided during
fiscal 1997. Primary factors which contributed to this increase are net proceeds
from issuance of the Preferred Securities of $106.5 million, net proceeds from
issuance of notes payable of $99.7
E-16
8
million, proceeds from issuance of common stock and exercise of options of $91.4
million, less repayment of notes payable of $102.9 million.
Depending on the timing and magnitude of the Company's future investments
(either in the form of leased or purchased properties, joint ventures, or
acquisitions), the working capital necessary to satisfy current obligations is
anticipated to be generated from operations and Central Parking's credit
facility over the next twelve months. In the ordinary course of business,
Central Parking is required to maintain and, in some cases, make capital
improvements to the parking facilities it operates; however, as of September 30,
1998, Central Parking had no material outstanding commitments for capital
expenditures. If Central Parking identifies investment opportunities requiring
cash in excess of Central Parking's cash flows and the existing credit facility,
Central Parking may seek additional sources of capital, including the sale or
issuance of Central Parking common stock or convertible securities, or amending
the credit facility to obtain additional indebtedness. Central Parking's ability
to raise additional capital by issuing additional shares of common stock is
expected to be limited over the next several years as a result of the
registration rights agreement pursuant to the pending merger with Allright
Holdings, Inc. ("Allright"), when consummated. While Central Parking does not
expect this limitation to affect its working capital needs, it could have an
impact on Central Parking's ability to complete significant acquisitions. The
recent decrease in the market value of Central Parking common stock also could
have an impact on Central Parking's ability to complete significant acquisitions
or raise additional capital. Central Parking believes that it has the ability to
increase its credit facility if needed for significant acquisitions, although no
assurances can be given that such increases would be available at the time
needed to complete any such acquisition.
On February 11, 1998, Central Parking established a credit facility
providing for an aggregate availability of up to $300 million consisting of a
five-year $200 million revolving credit facility, including a sublimit of $25
million for standby letters of credit, and a $100 million five-year term loan
with scheduled repayments of $25 million per year, beginning in year two (the
"Credit Facility"). On March 18, 1998, the Company completed offerings of equity
and convertible trust issued preferred securities, from which the Company
obtained $195.6 million in net proceeds. The Company repaid and terminated the
$100 million term loan with proceeds from these offerings. The remaining $95.6
million in proceeds was applied to reduce the outstanding balance under the $200
million revolving credit facility. The Credit Facility bore interest until June
30, 1998 at a rate of LIBOR plus 1.25% On June 30, 1998, the interest rate on
the Credit Facility and the commitment fee on the unused portion reverted to a
grid pricing based on the achievement of various financial ratios. The Credit
Facility contains certain covenants including those that require Central Parking
to maintain certain financial ratios, restrict further indebtedness and limit
the amount of dividends payable. Central Parking used the Credit Facility to
replace the Company's prior revolving credit facility and to finance the Kinney
acquisition. At September 30, 1998, the amount outstanding under this Credit
Facility was $48.2 million and the interest rate was 6.5.% (LIBOR plus 75 basis
points). At September 30, 1998, Central Parking had available $147.1 million
under the Credit Facility.
In March 1998, Civic Parking, LLC ("Civic") obtained financing with
a financial institution for $60 million. Civic distributed the loan proceeds to
its shareholders. Central Parking owns a 50% interest in Civic, a limited
liability company, and as a result, received net proceeds of $30.3 million from
this transaction which reduced Central Parking's carrying value of its
investment in partnerships and joint ventures. The proceeds from the refinancing
were used by Central Parking to pay down the Credit Facility.
On September 21, 1998, the Company entered into a definitive agreement
pursuant to which the Company has agreed to merge with Allright. Allright (dba
Allright Parking) is headquartered in Houston and is one of the largest parking
services companies in the United States with 2,323 locations at June 30, 1998
and revenues of $217.4 million for the fiscal year ended June 30, 1998. The
transaction, which is expected to be accounted for as a pooling-of-interests
(See Note 18 to the Company's 1998 Consolidated Financial Statements). The
merger remains subject to certain closing conditions, including the expiration
of the waiting period under the Hart-Scott-Rodino Act. The transaction is
subject to approval by the shareholders of both Central Parking and Allright at
separate meetings to be scheduled. Under terms of the agreement, Central Parking
expects to issue approximately 7.6 million shares of its common stock to the
shareholders of Allright.
On September 2, 1998, Central Parking received a "best efforts" commitment,
which expires March 31, 1999, to establish a new credit facility providing for
an aggregate of up to $400 million (the "New Credit Commitment") consisting of a
five-year $200 million revolving credit facility including a sublimit of $25
million for standby letters of credit, and a $200 million five-year term loan
with scheduled repayment consisting of $50 million per year, beginning in year
two. The New Credit Commitment will bear interest at either prime rate plus 0.5%
or LIBOR plus a margin of 1.12% and after three months revert to a grid pricing
at a margin of 0.25% to 1.25% based upon Central Parking achieving a number of
financial ratios. The New Credit Commitment will contain certain covenants
including those that require Central Parking to maintain certain financial
ratios, restrict further indebtedness and limit the amount of dividends paid.
Central Parking intends to use the New Credit Commitment to replace Central
Parking's Credit Facility and to refinance the existing debt of Allright.
ACQUISITIONS
The Company's acquisition strategy focuses primarily on acquisitions that
will enable Central Parking to become a more efficient and cost-effective
provider in selected markets. Central Parking believes it can recognize
economies of scale by making acquisitions in markets where the Company already
has a presence, which allows Central Parking to reduce the overhead cost of
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9
the acquired company by consolidating its management with that of Central
Parking. In addition, Central Parking seeks acquisitions in attractive new
markets. Management believes acquisitions are an effective means of entering new
markets, thereby quickly obtaining both operating presence and management
personnel. Central Parking also believes it generally can improve acquired
operations by applying its operating strategies and professional management
techniques. The Company's acquisitions over the last two years, all of which
were accounted for under the purchase method of accounting, are as follows:
Civic Parking, LLC. On December 31, 1996, Central Parking purchased for
cash, Civic, which owns four parking garages in St. Louis: Kiener East, Kiener
West, Stadium East and Stadium West. The four garages, which had previously been
operated by Central Parking under management agreements, have a total of 7,464
parking spaces. The purchase price was approximately $91.0 million, which was
financed through working capital and $67.2 million of borrowings under the
credit facility. Of the $91.0 million, $46.0 million was held for resale to a
joint venture partner and $45.0 million was recorded as an investment in joint
ventures. On April 16, 1997, Central Parking consummated the sale of 50% of
Civic to its joint venture partner, an affiliate of Equity Capital Holdings,
LLC, for $46.0 million in cash. Central Parking continues to operate these
garages pursuant to a lease and operating agreement with Civic.
Square Industries, Inc. On January 18, 1997, Central Parking completed a
cash tender to acquire all of the outstanding shares of Square for $54.8
million, including transaction fees and other related expenses. In addition,
Central Parking assumed $23.2 million of existing Square debt. The purchase
price was financed through borrowings under the credit facility. Through
September 30, 1997, the Company refinanced $18.9 million of the debt assumed
from Square through a draw on the credit facility. At the time of the
acquisition, Square operated 116 parking facilities containing over 61,000
parking spaces, located primarily in the Northeastern United States.
Car Park Corporation. On May 29, 1997, Central Parking acquired the assets
and related leases of Car Park for $3.5 million; consisting of 18 parking
facilities with approximately 2,600 parking spaces located in the San Francisco
metropolitan region. The purchase price was financed through $1.7 million of
borrowings under the Company's then-existing credit facility, and $1.8 million
payable to the seller, which has been repaid in full.
Diplomat Parking Corporation. On October 1, 1997, Central Parking acquired
the stock and certain assets of Diplomat for approximately $22.2 million in cash
and notes payable. The acquisition was financed through borrowings under the
credit facility. At the time of the acquisition, Diplomat operated 164 parking
facilities containing over 37,000 parking spaces, located primarily in
Washington, D.C. and Baltimore, Maryland.
Kinney System Holding Corp. On February 12, 1998, Central Parking acquired
Kinney, a privately held company headquartered in New York City. Kinney has been
in the parking business for over 60 years. In addition to enhancing the
Company's presence in New York City, Kinney increased Central Parking's presence
in a number of other major metropolitan areas such as Boston, Philadelphia and
Washington, D.C. and broadened its geographic coverage in the following nine
states: Connecticut, Florida, Kentucky, Maryland, Massachusetts, New Hampshire,
New York, Pennsylvania, and Virginia. Kinney provides both self-parking and
valet parking services, and provides parking related services such as facility
design and development and consulting services.
Kinney operated 403 parking facilities containing approximately 168,800
spaces, including approximately 76,700 in the New York City metropolitan area,
42,800 in Boston, 31,100 in Philadelphia and 10,300 in Washington, D.C. At the
time of the acquisition, Kinney's facility mix was comprised of 225 leased
sites, 170 managed sites and 8 owned sites. The parking facilities operated by
Kinney include Yankee Stadium, the Waldorf-Astoria, Port Authority Bus Terminal,
World Financial Center, and the General Motors Building in New York City, The
Ritz-Carlton-Boston, Government Center in Boston, Spectrum-Philadelphia, and the
Four Seasons Hotel of Washington, D.C.
Consideration for the Kinney acquisition was approximately $208.8 million,
including $171.8 million in cash, including transaction fees and other related
expenses, and $37.0 million (882,422 shares) in Central Parking common stock. In
connection with this transaction, Central Parking assumed $10.3 million in
capital leases, refinanced $24.2 million in existing Kinney debt and assumed
$4.6 million of Kinney debt. Central Parking financed the Kinney acquisition
through borrowings under the Credit Facility, and ultimately from the issuance
of Central Parking common stock and Central Parking obligations pursuant to the
Preferred Securities. In connection with the Kinney acquisition, the remaining
50% interest in Spectrum Parking Associates ("Spectrum") was acquired for $3.6
million.
Central Parking System of Louisiana, Inc. Central Parking has historically
owned 50% of CPS-Louisiana and on March 30, 1998, purchased the remaining 50%
from Property Service Corporation for $2.5 million in Central Parking common
stock (52,631 shares). CPS-Louisiana manages and operates leased parking
facilities, manages and operates parking facilities owned or leased by other
parties, and provides financial and other advisory services.
E-18
10
Turner Parking System, Inc. On April 1, 1998, Central Parking purchased
substantially all of the assets of Turner, a privately-held parking company
headquartered in Dallas, Texas, for $3.8 million, including $3.0 million in cash
and $800,000 (16,842 shares) in Central Parking common stock. Central Parking
financed the cash portion of the Turner purchase with borrowings under the
Credit Facility.
Sterling Parking, Inc. On July 1, 1998, Central Parking purchased
substantially all of the assets of Sterling, a privately-held parking company
headquartered in Atlanta, Georgia for $4.3 million, including $2.1 million in
cash, including transaction fees and other related costs, and $2.2 million in
Central Parking common stock (54,358 shares). Central Parking financed the cash
portion of the Sterling purchase with borrowings under the Credit Facility. At
the time of the acquisition, Sterling operated 31 parking facilities in Georgia,
Florida, Virginia, California, and Kentucky.
INTERNATIONAL FOREIGN CURRENCY EXPOSURE
The Company operates wholly owned subsidiaries in the United Kingdom,
Malaysia, Canada and the Netherlands. Total revenues from wholly owned foreign
operations amounted to 9.3%, 8.2%, and 6.0% for the years ended September 30,
1996, 1997, and 1998, respectively. Additionally, the Company operates through
joint ventures in Germany, Spain, and Mexico. The Company intends to invest in
foreign leased or owned facilities, usually through joint ventures, and may
become increasingly exposed to foreign currency fluctuations. The Company, in
limited circumstances, has denominated contracts in U.S. dollars to limit
currency exposure. Presently, the Company has limited exposure to foreign
currency risk and has no hedge programs. The Company anticipates implementing a
hedge program if such risk materially increases. For the year ended September
30, 1998, revenues from the United Kingdom operations represented 96.3% of total
revenues generated by foreign operations, excluding earnings from joint
ventures.
ECONOMIC AND MONETARY UNION
On January 1,1999, eleven of the fifteen members countries of the European
Union are scheduled to establish fixed conversion rates between their existing
sovereign currencies and a new currency called the "euro." These countries have
agreed to adopt the euro as their common legal currency on that date. The euro
will then trade on currency exchanges and be available for non-cash
transactions. Thereafter and until January 1, 2002, the euro is scheduled to
replace the sovereign legal currencies of these countries. While the vast
majority of Central Parking's operations within the European Union are currently
in the United Kingdom, a European Member which is not scheduled to participate
in the euro conversion, the Company has operations in countries which are
scheduled to adopt the euro. The Company is in the process of assessing the
impact of the euro conversion to its operations in the participating countries,
including the need to adopt new information technology, parking related
equipment and other systems to accommodate euro-denominated transactions, as
well as the impact to currency risk and contractual relationships. Based on
management's assessment of the impact of the euro conversion, Central Parking
does not believe that the euro conversion will have a material impact on its
operations or financial condition.
IMPACT OF INFLATION AND CHANGING PRICES
The primary sources of revenues to the Company are parking revenues from
owned and leased locations and management contract revenue (net of expense
reimbursements) on managed parking facilities. The Company believes that
inflation has had a limited impact on its overall operations for fiscal years
ended September 30, 1996, 1997 and 1998.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This pronouncement is effective for fiscal
years beginning after December 15, 1997 and requires the reporting of
comprehensive income within the financial statements. The Company will adopt
SFAS 130 in fiscal year 1999. Management does not anticipate that the
pronouncement will significantly impact the presentation of the Company's
consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14. This pronouncement is effective for fiscal years
beginning after December 15, 1997. The Company will adopt SFAS 131 in fiscal
year 1999. Management does not anticipate that the pronouncement will
significantly impact the presentation of the Company's consolidated financial
statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which amends SFAS Nos. 87, 88, and 106. This pronouncement is effective for
fiscal years beginning after December 15, 1997. The Company will adopt SFAS 132
in fiscal year 1999. Management does not anticipate that the pronouncement will
significantly impact the presentation of Central Parking's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which supercedes
SFAS Nos. 80, 105, and 119. This Statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management is evaluating the
impact of SFAS 133 to Central Parking's consolidated financial statements.
E-19
11
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
October 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 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.
The Company periodically reviews the carrying value of long-lived intangible
assets such as goodwill, contract rights, and non-compete agreements to
determine if the net book values of such assets continue to be recoverable over
the remainder of the original estimated useful life. In performing this review
for recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized. Since
the assets involved are held and used in the operations of the Company,
consideration is also given to actions or remediations the Company might take in
order to achieve the original estimates of cash flows. Adoption of this
Statement did not have a material impact on the Company's financial position,
results of operations, or liquidity.
YEAR 2000
Central Parking has considered the impact of Year 2000 issues on its
computer systems and applications and has developed remediation plans. These
plans are part of Central Parking's ongoing business strategies to incorporate
advanced technologies in its information systems, and were contemplated in
advance of Year 2000 issues. The expenditures for system upgrades will be
accounted for as regular capital expenditures and will be depreciated over their
estimated useful lives of 3 - 5 years. The ongoing expenses of training and
testing will be expensed as they are incurred. It is estimated that Central
Parking will spend in excess of $2 million upgrading its computer information
systems in accordance with its plans for technological enhancement, and that
such expenditures will not be material to Central Parking's operations or
liquidity. Central Parking believes that the upgraded information systems will
be Year 2000 compliant. System hardware and software that in management's
estimation are not Year 2000 compliant have been fully depreciated. Central
Parking estimates that its information systems will be Year 2000 compliant by
April 1999. This should allow Central Parking adequate time to continue to test
and determine the compliance of such systems. Management believes that this is
enough time to fully test and foresee all significant remaining Year 2000 issues
on its information systems and, therefore, does not have any other contingency
plan in place for its information systems.
Central Parking uses some fee calculation devices that compute parking fees
and statistical data, and also automate the ingress and egress control
mechanisms at certain parking facilities. Based on contacts with the vendors of
such equipment, Central Parking expects them to make available reasonably priced
upgrades to address Year 2000 issues. Central Parking believes that less than
20% of its operations have equipment with any Year 2000 issues with regard to
carrying out its parking business. In the event remediation is not complete at
any of these sites prior to the Year 2000, and a failure of such equipment were
to occur due to processing incompatibilities in the Year 2000, manual override
systems are in place at all locations. Given the limited technology required to
operate such facilities, management believes all material operations could
adequately be performed manually. Such contingency plans are currently deployed
in the events of power failures or other business interruptions at locations
where these devices are located.
Central Parking is communicating, by means of Year 2000 questionnaires,
with each of its major vendors to determine third party compliance with Year
2000 issues. Although Central Parking cannot require its vendors to respond,
follow-up with each party will be conducted to try and determine and resolve any
Year 2000 issues. Central Parking is also requiring all vendors to warrant that
all software and hardware purchased by Central Parking is fully Year 2000
compliant. While Central Parking does not expect to be materially affected by
any third party's Year 2000 issues, no assurance can be given that a third
party's failure to adequately address their Year 2000 issues could not
materially effect Central Parking's business or financial results.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Annual Report includes various forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include discussions
concerning future results of operations of the Company including, without
limitation, statements preceded by, followed by or that otherwise include the
words "believes," "expects," "anticipates," "intends," "estimates" or similar
expressions. For those statements, Central Parking claims the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
The following important factors, in addition to those discussed elsewhere in
this Annual Report, could affect the future financial results of the Company
and could cause actual results to differ materially from those expressed in
forward-looking statements contained in this document:
- successfully integrating Allright and Kinney Systems, as well as past
and future acquisitions in light of challenges in retaining key
employees, synchronizing business processes and efficiently
integrating facilities, marketing, and operations;
- successful implementation of the Company's operating and growth
strategy, including possible strategic acquisitions;
- the National Basketball Association strike;
- fluctuations in quarterly operating results caused by a variety of
factors including the timing of gains on sales of owned facilities,
preopening costs, the effect of weather on travel and transportation
patterns, and local, national and international economic conditions;
- the ability of the Company to form and maintain its strategic
relationships with certain large real estate owners and operators;
- global and/or regional economic factors and potential changes in laws
and regulations, including, without limitation, changes in federal,
state and international laws regulating the environment; and
- a significant delay in the expected closing of the proposed merger
with Allright.
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INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
CENTRAL PARKING CORPORATION AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Central Parking
Corporation and Subsidiaries as of September 30, 1997 and 1998, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the years in the three-year period ended September 30, 1998. 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 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 Central Parking
Corporation and Subsidiaries as of September 30, 1997 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Nashville, Tennessee
December 3, 1998
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13
Consolidated Balance Sheets
Amounts in thousands, except share data
September 30,
1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,979 $ 19,840
Management accounts receivable 11,004 17,387
Accounts and current portion of notes
receivable - other (including amounts due
from related parties of $544 in 1997 and
$238 in 1998) (Note 3) 6,158 11,347
Prepaid rent and other expenses 9,394 18,167
Deferred income taxes (Note 12) 911 545
Prepaid and refundable income taxes 2,154 1,266
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 39,600 68,552
Investments, at amortized cost (fair value
$4,962 in 1997 and $5,355 in 1998) (Note 4) 4,754 5,087
Notes receivable, less current portion (Note 3) 10,961 25,110
Property, equipment, and leasehold improvements, net (Note 5) 79,057 118,176
Contracts and lease rights, net (Note 6) 5,021 17,773
Goodwill, net (Note 2 and 6) 31,863 254,997
Investment in and advances to partnerships and joint ventures (Note 7) 56,306 37,344
Other assets (Note 6) 6,452 17,834
- ----------------------------------------------------------------------------------------------------------------------------------
$ 234,014 $ 544,873
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations (Note 8) $ 206 $ 2,225
Accounts payable 25,097 51,638
Accrued payroll and related costs 8,256 10,351
Accrued expenses 4,020 10,102
Management accounts payable 10,381 17,415
Income taxes payable 871 945
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 48,831 92,676
Long-term debt and capital lease obligations, less current portion (Note 8) 73,252 60,704
Deferred rent 186 12,938
Deferred compensation (Note 13) 3,048 3,797
Deferred income taxes (Note 12) 6,871 2,162
Other liabilities 4,975 6,892
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 137,163 179,169
Company-obligated mandatorily redeemable convertible securities of
subsidiary holding solely parent debentures (Note 9) -- 110,000
Shareholders' equity (Notes 10, 13 and 18):
Common stock, $0.01 par value; 50,000,000
shares authorized, 26,303,592 and 29,569,767
shares issued and outstanding
in 1997 and 1998, respectively 263 296
Additional paid-in capital 32,843 166,740
Foreign currency translation adjustment 193 359
Retained earnings 64,122 88,811
Deferred compensation on restricted stock (570) (502)
- ----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 96,851 255,704
Commitments and contingencies (Notes 7, 10, 11, 12, 13, 15 & 18)
$ 234,014 $ 544,873
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
E-22
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CONSOLIDATED STATEMENTS OF EARNINGS
Amounts in thousands, except per share data
Year Ended September 30,
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Parking $ 109,272 $ 180,886 $ 328,285
Management contract 32,534 39,568 54,890
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Total revenues 141,806 220,454 383,175
- ----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of parking 97,686 157,382 280,288
Cost of management contracts 9,769 11,793 15,000
General and administrative 17,419 22,507 33,866
Goodwill and non-compete amortization -- 920 7,140
- ----------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 124,874 192,602 336,294
- ----------------------------------------------------------------------------------------------------------------------------------
Operating earnings 16,932 27,852 46,881
- ----------------------------------------------------------------------------------------------------------------------------------
Other income (expenses):
Interest income 2,303 1,842 2,719
Interest expense -- (4,582) (7,373)
Dividends on company-obligated mandatorily redeemable
convertible securities of a subsidiary trust (Note 9) -- -- (3,160)
Net gains on sales of property and equipment 1,192 3,137 71
Equity in partnership and joint venture earnings (Note 7) 641 4,163 5,086
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 21,068 32,412 44,224
Income tax expense (Note 12):
Current 6,647 11,842 15,491
Deferred 585 365 2,123
- ----------------------------------------------------------------------------------------------------------------------------------
Total income taxes 7,232 12,207 17,614
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 13,836 $ 20,205 $ 26,610
==================================================================================================================================
Basic earnings per common share (Note 10) $ 0.54 $ 0.78 $ 0.96
Diluted earnings per common share (Note 10) $ 0.53 $ 0.77 $ 0.94
See accompanying notes to consolidated financial statements.
E-23
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Consolidated Statements of Shareholders' Equity
Amounts in thousands, except per share data
Foreign Deferred
Additional Currency Compensation
Number of Common Paid-In Translation Retained on Restricted
Shares Stock Capital Adjustment Earnings Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 23,058 $ 231 $ 8,069 $ 51 $ 33,009 $ -- $ 41,360
Net earnings -- -- -- -- 13,836 -- 13,836
Issuance of common stock net
of offering costs 2,798 28 19,986 -- -- -- 20,014
Issuance under restricted
stock plan 272 3 2,582 -- -- (705) 1,880
Common stock dividends
$.05 per share -- -- -- -- (1,396) -- (1,396)
Exercise of stock options and
related tax benefits 88 -- 1,023 -- -- -- 1,023
Amortization of deferred
compensation -- -- -- -- -- 68 68
Foreign currency translation
adjustment -- -- -- 8 -- -- 8
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 26,216 $ 262 $ 31,660 $ 59 $ 45,449 $ (637) $ 76,793
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- -- 20,205 -- 20,205
Issuance under restricted
stock plan -- -- 46 -- -- -- 46
Common stock dividends
$.06 per share -- -- -- -- (1,532) -- (1,532)
Exercise of stock options and
related tax benefits 88 1 1,137 -- -- -- 1,138
Amortization of deferred
compensation -- -- -- -- -- 67 67
Foreign currency translation
adjustment -- -- -- 134 -- -- 134
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 26,304 $ 263 $ 32,843 $ 193 $ 64,122 $ (570) $ 96,851
==================================================================================================================================
Net earnings -- -- -- -- 26,610 -- 26,610
Issuance of common stock
for acquisitions 1,006 10 42,528 -- -- -- 42,538
Issuance of common stock net
of offering and issuance costs 2,138 21 89,074 -- -- -- 89,095
Issuance under restricted
stock plan 3 -- 129 -- -- -- 129
Issuance under Employee Stock
Ownership Plan 67 1 926 -- -- -- 927
Common stock dividends
$.06 per share -- -- -- -- (1,921) -- (1,921)
Exercise of stock options and
related tax benefits 52 1 1,240 -- -- -- 1,241
Amortization of deferred
compensation -- -- -- -- -- 68 68
Foreign currency translation
adjustment -- -- -- 166 -- -- 166
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 29,570 $ 296 $166,740 $ 359 $ 88,811 $ (502) $255,704
==================================================================================================================================
See accompanying notes to consolidated financial statements.
E-24
16
Consolidated Statements of Cash Flows
Amounts in thousands
Year Ended September 30,
1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 13,836 $ 20,205 $ 26,610
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation 2,500 4,049 5,430
Amortization of goodwill and non-compete agreements -- 920 7,140
Amortization of contract and lease rights, straight-line rent,
deferred financing fees and other 920 1,530 2,713
Equity in partnership and joint venture earnings (641) (4,163) (5,086)
Distributions from partnerships and joint ventures 1,023 2,920 4,314
Net gains on sales of property and equipment (1,192) (3,137) (71)
Deferred income taxes 585 365 2,123
Changes in operating assets and liabilities, excluding effects of acquisitions:
Management accounts receivable (2,211) (2,117) (538)
Notes and accounts receivable -- other 5,179 (1,820) (467)
Prepaid expenses (749) (3,266) (6,753)
Prepaid and refundable income taxes -- (533) 888
Other assets (3,277) 1,429 908
Accounts payable, accrued expenses,
and deferred compensation 730 5,867 9,887
Management accounts payable 2,156 (68) 6,017
Income taxes payable (872) 178 (2,970)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,987 22,359 50,145
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of property and equipment 1,467 12,529 596
Purchase of property, equipment, and leasehold improvements (16,684) (6,261) (25,593)
Investments in notes receivable, net (2,283) (345) --
Purchase of assets held for resale -- (45,962) --
Proceeds from sale of assets held for resale -- 45,962 --
Purchase of contract rights (300) (45) (4)
Investments in and advances to partnerships, joint ventures
and unconsolidated subsidiaries (1,562) (47,715) (224)
Acquisitions of companies, net of cash acquired -- (49,963) (213,612)
Proceeds from maturities and calls of investments 151 330 374
Purchase of investments (388) (601) (707)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (19,599) (92,071) (239,170)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (1,046) (1,488) (1,871)
Net borrowings under revolving credit agreement, net of issuance costs -- 70,352 (24,360)
Proceeds from issuance of company-obligated mandatorily redeemable
securities, net of issuance costs -- -- 106,477
Proceeds from issuance of notes payable, net of issuance costs -- -- 99,700
Principal repayments on notes payable -- (19,096) (102,903)
Distribution of debt proceeds from partnerships and joint ventures -- -- 30,285
Proceeds from issuance of common stock and exercise of stock options, net 21,037 1,184 91,392
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,991 50,952 198,720
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation 8 134 166
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,387 (18,626) 9,861
Cash and cash equivalents at beginning of period 10,218 28,605 9,979
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 28,605 $ 9,979 $ 19,840
- -----------------------------------------------------------------------------------------------------------------------------------
Non-cash transactions:
Exchange of properties, net of cash $ 2,644 $ -- $ --
Note receivable on property sale $ -- $ 10,225 $ --
Issuance of stock in acquisitions $ -- $ -- $ 42,538
Issuance of restricted stock $ 1,880 $ -- $ 130
- -----------------------------------------------------------------------------------------------------------------------------------
Effects of acquisitions:
Estimated fair value of assets acquired $ 72,950 $ 93,281
Purchase price in excess of the net assets acquired (goodwill) 32,713 231,134
Estimated fair values of liabilities assumed (49,144) (61,793)
Common stock issued -- (42,538)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash paid $ 56,519 $ 220,084
Less cash acquired (6,556) (6,472)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash paid for acquisitions $ 49,963 $ 213,612
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
E-25
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows:
(a) Organization
Central Parking Corporation ("CPC") is a United States company chartered in the
State of Tennessee. The consolidated financial statements include accounts of
Central Parking Corporation and its subsidiaries (the "Company" or "Central
Parking") including Central Parking System, Inc. ("CPS") and its wholly-owned
U.S. subsidiaries; Kinney System Holdings, Inc. and its wholly owned
subsidiaries; Central Parking System of the United Kingdom, Ltd. and its
wholly-owned subsidiary ("CPS-UK"); and Central Parking System Realty, Inc. and
its wholly-owned subsidiaries ("Realty"). Central Parking Finance Trust was
established during the year ended September 30, 1998. All significant
inter-company transactions have been eliminated.
The Company provides parking consulting services and manages parking facilities
throughout the world, principally in the United States and United Kingdom. The
Company manages and operates owned or leased parking facilities, manages and
operates parking facilities owned or leased by third parties, and provides
financial and other advisory services to clients.
(b) Revenues
Parking 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 such as consulting and transportation management 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 $457 million, $583 million, and $846 million for
the years ended September 30, 1996, 1997 and 1998, respectively.
Management accounts payable reflected on the accompanying consolidated balance
sheets is reflected net of cash of $5,348,000 and $6,510,000 at September 30,
1997 and 1998, respectively. Such cash balances belong to the owners of the
various managed facilities, but they are held by the Company and are used to
pay expenses of the managed facilities and ultimately to settle the balance due
to the owners of the managed facilities.
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash and
cash equivalents to include cash on hand, in banks, and short-term, highly
liquid investments which include investments with original maturities of three
months or less.
(d) Investments
Investment securities consist of debt obligations of states and political
subdivisions and are classified into one of three categories, as follows: (i)
held-to-maturity debt securities, (ii) trading securities, and (iii) securities
available-for-sale. Classification of a debt security as held-to-maturity is
based on the Company's positive intent and ability to hold such security to
maturity. Such securities are stated at amortized cost adjusted for
amortization of premiums and accretion of discounts, unless there is a decline
in value which is considered to be other than temporary, in which case the cost
basis of such security is written down to fair value and the amount of the
write-down is reflected in earnings. Securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading account securities, which are valued at fair value with the unrealized
gains and losses included in earnings. Securities classified as
available-for-sale are reported at fair value with the unrealized gains and
losses excluded from earnings and reported, net of tax, in shareholders'
equity. At September 30, 1997 and 1998, all of the Company's investment
securities were classified as held-to-maturity.
(e) Property, Equipment, and Leasehold Improvements
Property, equipment, computer software, computer hardware, and leasehold
improvements are recorded at cost. Depreciation is provided principally on a
straight-line basis over a period of five to ten years for furniture, fixtures,
and equipment, over three years for computer software, over five years for
computer hardware, over the remaining lives of the corresponding leases for
leasehold improvements, and over thirty years for buildings. Accelerated
depreciation is used for income tax purposes.
(f) Investment in Partnerships and Joint Ventures
Investment in general and limited partnerships and joint ventures are
accounted for using the equity method of accounting. The Company has a number
of joint ventures to operate and develop parking garages through either
corporate joint ventures, general partnerships, limited liability companies, or
limited partnerships. The financial results of the Company's joint ventures are
accounted for under the equity method and are included in equity in partnership
and joint venture earnings in the accompanying consolidated statements of
earnings.
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18
(g) Contract Rights
Contract rights consist of capitalized payments made to third-party parking
service companies pursuant to agreements which provide the Company the
opportunity to manage or lease facilities owned, leased or previously managed
by such companies. Contract rights are allocated among respective locations and
are amortized on a straight-line basis over the terms of related agreements
which range from five to ten years.
(h) Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, ranging from 5 - 30 years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
(i) Other assets
Other assets is comprised of a combination of the cash surrender value of key
man life insurance policies, security deposits, key money deposits with clients,
deferred issuance costs related to the sale of Preferred Securities discussed in
Note 9, deferred debt issuance costs related to the Company's credit facilities,
and non-compete agreements. Key money represents deposits and prepayments
tendered to clients at the inception of long-term relationships, and is
amortized over the life of the applicable lease. Non-compete agreements are
amortized over the life of the agreement, or economic useful life whichever is
shorter. Deferred issuance costs related to the Preferred Securities are
amortized over the 30 year life of the underlying subordinated debentures.
Deferred debt issuance costs are amortized over the life of the related debt.
(j) 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 rent and other expenses. The difference between actual lease payments
and straight-line lease expenses over the lease term is included in accrued
expense or deferred rent, as appropriate.
In connection with its acquisitions, the Company revalued certain leases to
estimated fair market value at the time of the respective acquisition.
Favorable operating leases of entities acquired represent the present value of
the excess of the current market rental over the contractual lease payments.
Unfavorable operating leases of entities acquired represent the present value
of the excess of the contractual lease payments over the current market rental.
Such write-ups and write-downs are amortized on a straight-line basis over the
remaining life of the underlying lease, or 30 years, whichever is shorter.
Favorable and unfavorable lease rights are reflected on the accompanying
consolidated balance sheets in contract and lease rights and other liabilities,
respectively.
(k) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", on October 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 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.
The Company periodically reviews the carrying value of long-lived assets,
including goodwill, contract and lease rights, and non-compete agreements, to
determine if the net book values of such assets continue to be recoverable over
the remainder of the original estimated useful life. In performing this review
for recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized
based on the estimated diminution of value. Since the assets involved are held
and used in the operations of the Company, consideration is also given to
actions or remediations the Company might take in order to achieve the original
estimates of cash flows. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(l) Income Taxes
The Company files a consolidated federal income tax return. The Company uses
the asset and liability method to account for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in
E-27
19
tax rates is recognized in income in the period that includes the enactment
date. Work opportunity tax credits are accounted for by the flow-through
method, which recognizes the credits as reductions of income tax expense in the
year utilized. The Company does not provide for federal income taxes on the
accumulated earnings considered permanently reinvested in foreign subsidiaries.
(m) Preopening Expenses
The direct and incremental costs of hiring and training personnel associated
with the opening of new parking facilities and the associated internal
development costs are expensed as incurred.
(n) Per Share and Share Data
Effective October 1, 1997, the Company adopted the provisions of the Financial
Accounting Standards Board Statement No. 128, ("SFAS No. 128"), "Earnings Per
Share." Statement 128 replaced the previously reported primary and fully
diluted earning per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Earnings per share for all periods presented
have been calculated in accordance with SFAS No. 128. All share and earnings
per share data included herein have been adjusted for a recapitalization of
shares in October 1995, the three-for-two stock split completed in March 1996
and the three-for-two stock split completed in December 1997.
(o) Foreign Currency Translation
The financial position and results of operations of the Company's foreign
subsidiaries and equity method joint ventures are measured using local currency
as the functional currency. Translation adjustments arising from the
differences in exchange rates from period to period are included in the
currency translation adjustment in shareholders' equity.
(p) Fair Value of Financial Instruments
The Company discloses the fair values of most on-and-off balance sheet
financial instruments for which it is practicable to estimate the value. Fair
value disclosures exclude certain financial instruments such as trade
receivables and payables when carrying values approximate the fair value. Fair
value disclosures are not required for employee benefit obligations, lease
contracts, and all non-financial instruments such as land, buildings and
equipment. The fair values of the financial instruments are estimates based
upon current market conditions and quoted market prices for the same or similar
instruments as of September 30, 1998. Book value approximates fair value for
substantially all of the Company's assets and liabilities that fall under the
fair value disclosure requirements.
(q) Stock Option Plan
The Company applies the intrinsic value based method of accounting prescribed
by Accounting Principles Board opinion No. 25 ("APB No. 25") Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock options. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price.
(r) Business Concentration
Approximately 34% of the Company's total parking spaces managed, owned or leased
at September 30, 1998 and approximately 67% of total Company revenues for the
year then ended were attributable to parking and management contract operations
geographically located in the Northeastern and Mid-Atlantic areas of the United
States.
(s) Risk Management
The Company is self insured up to certain maximum losses for liability, health
and workers' compensation claims. The accompanying consolidated balance sheets
reflect the estimated losses related to such risks.
(t) Use of Estimates
Management of the Company has made certain estimates and assumptions relating
to the reporting of assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
(u) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This pronouncement is effective for fiscal
years beginning after December 15, 1997 and requires the reporting of
comprehensive income within the financial statements. The Company will adopt
SFAS 130 in fiscal 1999. Management does not anticipate that the pronouncement
will significantly impact the presentation of the Company's consolidated
financial statements.
E-28
20
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which
supersedes SFAS No. 14. This pronouncement is effective for fiscal years
beginning after December 15, 1997. The Company will adopt SFAS No. 131 in
fiscal 1999. Management does not anticipate that the pronouncement will
significantly impact the presentation of the Company's consolidated financial
statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which amends SFAS Nos. 87, 88, and 106. This pronouncement is effective for
fiscal years beginning after December 15, 1997. The Company will adopt SFAS No.
132 in fiscal 1999. Management does not anticipate that the pronouncement will
significantly impact the presentation of Central Parking's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
supercedes SFAS Nos. 80, 105, and 119. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Management is
evaluating the impact Central Parking's consolidated financial statements.
(v) Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(2) ACQUISITIONS
The Company's acquisitions over the last two years, all of which were accounted
for under the purchase method of accounting, are as follows:
Civic Parking LLC. On December 31, 1996, the Company purchased for cash,
Civic Parking LLC ("Civic"), which owns four parking garages in St. Louis:
Kiener East, Kiener West, Stadium East and Stadium West. The four garages
had previously been operated by Central Parking under management
agreements. The purchase price was approximately $91.0 million, which was
financed through working capital and $67.2 million of borrowings under the
Company's credit facilities. Of the $91.0 million, $46.0 million was held
for resale to a joint venture partner and $45.0 was recorded as an
investment in joint ventures. The transaction was accounted for using the
purchase method. The estimated fair value of the garages at the date of
the acquisition approximated the purchase price and, accordingly,
management has allocated the purchase price to the land and buildings
acquired.
On April 16, 1997 the Company consummated the sale of 50% of Civic to its
joint venture partner, an affiliate of Equity Capital Holdings, LLC, for
$46.0 million in cash. No gain or loss was recognized on the sale of the
50% interest. The Company accounts for the remaining interest in Civic
under the equity method. Such results are included in the accompanying
consolidated financial statements from December 31, 1996. Central Parking
continues to operate these garages pursuant to a lease and operating
agreement with Civic.
Square Industries, Inc. On January 18, 1997, Central Parking completed a
cash tender to acquire all of the outstanding shares of Square Industries,
Inc. ("Square") for $54.8 million, including transaction fees and other
related expenses. In addition, Central Parking assumed $23.2 million of
existing Square debt. As of September 30, 1997, the Company refinanced
$18.9 million of the debt assumed from Square through a draw on the
Company's credit facilities.
Square operated facilities primarily in the northeast. The Square
acquisition was accounted for using the purchase method and, accordingly,
the results of operations of Square have been included in the Company's
consolidated financial statements from January 18, 1997. The purchase
price has been allocated to Square's assets and liabilities based on their
estimated fair values at the date of acquisition. The excess of the
purchase price over the fair value of the net assets acquired of $29.3
million is being amortized on a straight-line basis over 25 years.
Car Park Corporation. On May 29, 1997, the Company acquired for cash
certain assets and leases of Car Park Corporation ("Car Park") for $3.5
million; consisting of parking facilities in the San Francisco
metropolitan area. The acquisition was accounted for as a purchase, and,
accordingly, the results of operations of Car Park have been included in
the Company's consolidated financial statements from the date of
acquisition. The excess of purchase price over the fair value of the net
assets acquired of $3.3 million is being amortized on a straight-line
basis over 25 years.
Diplomat Parking Corporation. On October 1, 1997, Central Parking acquired
the stock and certain assets of Diplomat Parking Corporation ("Diplomat")
for approximately $22.2 million in cash and notes payable. Diplomat
operated parking facilities located primarily in Washington, D.C. and
Baltimore, Maryland. The acquisition was accounted for as a purchase, and
accordingly, the results of operations of Diplomat have been included in
the Company's consolidated financial statements from the date of
acquisition. The excess of purchase price over the fair value of the net
assets acquired of $20.7 million is being amortized on a straightline basis
over 25 years.
Kinney System Holding Corp. On February 12, 1998, Central Parking acquired
Kinney System Holding Corp ("Kinney"), a privately held company
headquartered in New York City. In addition to facilities in New York
City, Kinney increased Central
E-29
21
Parking's presence in a number of other major metropolitan areas such as
Boston, Philadelphia and Washington, D.C. and broadened the Company's
geographic coverage in the following nine states: Connecticut, Florida,
Kentucky, Maryland, Massachusetts, New Hampshire, New York, Pennsylvania,
and Virginia.
Consideration for the Kinney acquisition was approximately $208.8 million,
including $171.8 million in cash, including transaction fees and related
expenses, and $37.0 million (882,422 shares) in Central Parking common
stock. In connection with this transaction, Central Parking assumed $10.3
million in capital leases, refinanced $24.2 million in existing Kinney debt
and assumed $4.6 million of Kinney debt.
The Kinney acquisition was accounted for using the purchase method, and
accordingly, the results of operations of Kinney have been included in the
Company's consolidated financial statements from February 12, 1998. The
excess of purchase price over the fair value of the net assets acquired of
$197.6 million is being amortized on a straight-line basis over 30 years.
In connection with the Kinney acquisition, the remaining 50% interest in
Spectrum Parking Associates ("Spectrum") was acquired for $3.6 million.
The acquisition was accounted for as a purchase and the results of
operations are included from February 13, 1998. The excess of purchase
price over the fair value of net assets acquired of $2.2 million is being
amortized on a straight-line basis over 18 years.
Central Parking System of Louisiana, Inc. Central Parking has historically
owned 50% of Central Parking System of Louisiana, Inc ("CPS-Louisiana") and
on March 30, 1998 purchased the remaining 50% from Property Service
Corporation for $2.5 million in Central Parking common stock (52,631
shares). The acquisition was accounted for as a purchase and, accordingly,
the purchase price has been allocated to CPS-Louisiana's assets and
liabilities. The excess of purchase price over fair value of net assets
acquired of $2.5 million is being amortized on a straight-line basis over 5
years.
Turner Parking System, Inc. On April 1, 1998, Central Parking purchased
substantially all of the assets of Turner Parking System, Inc.("Turner"), a
privately-held parking company headquartered in Dallas, Texas, for $3.8
million, including $3.0 million in cash and $800,000 (16,842 shares) in
Central Parking common stock. Turner operated parking facilities in Texas,
Florida, California, Georgia and Washington, D.C. The results of operations
are included in the Company's consolidated financial statements from April
1, 1998. The acquisition was accounted for as a purchase and, accordingly,
the purchase price has been allocated to Turner's assets and liabilities.
The excess of purchase price over fair value of net assets acquired of $3.7
million is being amortized on a straight-line basis over 10 years.
Sterling Parking, Inc. On July 1, 1998, Central Parking purchased
substantially all of the assets of Sterling Parking, Inc. ("Sterling"), a
privately-held parking company headquartered in Atlanta, Georgia for $4.3
million, including $2.1 million in cash, including transaction fees and
other related expenses, and $2.2 million (54,358 shares) in Central Parking
common stock. Sterling operated parking facilities in Georgia, Florida,
Virginia, California, and Kentucky. The results of operations are included
in the Company's consolidated financial statements from July 1, 1998. The
acquisition was accounted for as a purchase and, accordingly, the purchase
price has been allocated to Sterling's assets and liabilities. The excess
of purchase price over fair value of net assets acquired of $4.5 million is
being amortized on a straight-line basis over 10 years.
The following unaudited pro forma condensed results of operations give effect
to the acquisition of Square, Civic Parking, Car Park, Diplomat, Kinney,
CPS-Louisiana, Turner and Sterling as if such transactions had occurred at the
beginning of each period presented (in thousands except for earnings per
share):
Twelve Months Ended September 30,
1997 1998
----------- -----------
Total revenues $ 403,657 $ 435,898
Earnings before income taxes 17,045 39,938
Net earnings 7,637 22,926
Basic earnings per share $ 0.28 $ 0.81
Basic weighted average common shares outstanding 26,943 28,216
Diluted earnings per share $ 0.28 $ 0.80
Diluted weighted average common shares outstanding 27,282 28,685
The foregoing unaudited proforma amounts are based upon certain assumptions and
estimates, including, but not limited to, the recognition of interest expense on
debt incurred to finance the acquisitions and amortization of goodwill over 5 to
30 years. The unaudited proforma amounts do not necessarily represent results
which would have occurred if the acquisitions had taken place on the basis
assumed above, nor are they indicative of the results of future combined
operations. The pro forma results of operations for the year ended September 30,
1997 and 1998 do not reflect certain operational and financial combination
benefits which, in management' opinion, are the direct result of the Square and
Kinney acquisitions. Such estimated amounts total $1.2 million for Square and
$5.6 million for Kinney for the year ended September 30, 1997 and $2.1 million
for Kinney for the year ended September 30, 1998. Had such amounts been
reflected in the pro forma results of operations for the years ended September
30, 1997 and 1998, respectively, the pro forma net earnings would have been
$11.5 million and $24.1 million. Pro forma basic
E-30
22
earnings per common share would have been $0.43 and $0.85, respectively, and pro
forma diluted earnings per common share would have been $0.42 and $0.84, for the
years ended September 30, 1997 and 1998, respectively.
(3) NOTES RECEIVABLE
The Company sold a parking garage in July 1997. As part of the sale, the
Company received $3 million in cash and a note for $10.2 million secured by a
mortgage. The note is a balloon note, with principal due in full on or before
July 7, 2000. The note requires quarterly interest payments at 8.25%. The
Company recognized a gain of $3.1 million on this sale, which is included in
net gains on sales of property and equipment in the accompanying consolidated
statement of earnings.
In connection with the Kinney acquisition, the Company acquired a note
receivable from the City of New York (the "City") related to two parking
garages which were built on behalf of the City. The Company also has 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 8.0% through December 2007. In connection with the purchase, the note
receivable was recorded at estimated fair value. At September 30, 1998, the
carrying value of the note was $12.3 million.
The remainder of notes receivable consist of miscellaneous amounts at both
September 30, 1997 and 1998.
(4) INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses, and
approximate fair values for such securities are presented as follows (in
thousands):
September 30,
1997 1998
- ------------------------------------------------------------------------------
Amortized cost $ 4,754 $ 5,087
Unrealized gains 213 276
Unrealized losses 5 8
- ------------------------------------------------------------------------------
Fair value $ 4,962 $ 5,355
- ------------------------------------------------------------------------------
The amortized cost and approximate fair value of debt securities at September
30, 1998 by average estimated maturity are shown below (in thousands):
Amortized Cost Fair Value
- ------------------------------------------------------------------------------
Due in one year or less $ 614 $ 663
Due after one year through five years 1,372 1,419
Due after five years through ten years 1,803 1,909
Due after ten years 1,298 1,364
- ------------------------------------------------------------------------------
Total securities $ 5,087 $ 5,355
- ------------------------------------------------------------------------------
(5) PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
A summary of property, equipment, and leasehold improvements and related
accumulated depreciation and amortization is as follows (in thousands):
September 30,
1997 1998
- ------------------------------------------------------------------------------
Leasehold improvements $ 10,537 $ 15,005
Buildings 13,573 17,114
Garage and other operating equipment 10,805 19,734
Furniture and fixtures 3,519 3,657
Capital leases -- 3,027
Aircraft 3,955 4,250
- ------------------------------------------------------------------------------
$ 42,389 $ 62,787
Less accumulated depreciation and amortization 15,722 19,394
- ------------------------------------------------------------------------------
26,667 43,393
Land 52,390 74,783
- ------------------------------------------------------------------------------
Property, equipment and
leasehold improvements, net $ 79,057 $118,176
- ------------------------------------------------------------------------------
E-31
23
(6) INTANGIBLE AND OTHER ASSETS
(a) Contract and Lease Rights
The Company and its subsidiaries manage certain parking facilities which are
owned, leased or managed by an unrelated parking services company. Pursuant to
these arrangements, the Company made an initial payment and guarantees
additional annual payments through the term of the respective agreement. Such
additional payments are included in the future minimum payments discussed (Note
11). Such additional payments may increase in the event parking revenues exceed
certain thresholds over the term of the agreement. In the event of a location
termination, the guaranteed additional annual payments referred to above are to
be reduced on a predetermined basis.
Contract and lease rights and accumulated amortization are as follows (in
thousands):
September 30,
1997 1998
- ---------------------------------------------------------------------------------------------
Contract rights $ 9,026 $ 8,984
Lease rights -- 14,284
Less accumulated amortization 4,005 5,495
- ---------------------------------------------------------------------------------------------
Contract and lease rights, net $ 5,021 $ 17,773
- ---------------------------------------------------------------------------------------------
(b) Goodwill
Goodwill at September 30, 1997 and 1998 consists of (in thousands):
September 30,
1997 1998
- ---------------------------------------------------------------------------------------------
Excess of purchase price over net assets acquired $32,713 $ 262,705
Less accumulated amortization 850 7,708
- ---------------------------------------------------------------------------------------------
Goodwill, net $31,863 $ 254,997
- ---------------------------------------------------------------------------------------------
(c) Other assets
Included in other assets are unamortized balances related to non-competition
agreements of $875,000 at September 30, 1997 and $1.8 million at September 30,
1998.
(7) INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS AND JOINT VENTURES
The following tables reflect the financial position and results of operations
for the partnerships and joint ventures as of September 30, 1997 and 1998, and
for the three years ended September 30, 1998 (in thousands):
Investment in and
Accumulated Losses Advances to
In Partnerships and Partnerships and
Joint Ventures Joint Ventures
1997 1998 1997 1998
- ----------------------------------------------------------------------------------------------------
Civic Parking, LLC $ 45,421 $ 14,907 $ -- $ --
Commerce Street Joint Venture (868) (872) 743 721
Larimer Square Parking Associates 1,015 1,007 2,394 2,212
12 West 48th Street, LLC -- 8,585 -- --
Lodo Parking Garage 1,270 1,230 -- --
Arizona Stadium Parking Garage LLC 1,500 1,505 -- --
CPS Mexico 472 976 2,103 2,313
Other 1,919 4,760 337 --
- ----------------------------------------------------------------------------------------------------
$ 50,729 $ 32,098 $ 5,577 $ 5,246
- ----------------------------------------------------------------------------------------------------
E-32
24
Equity in
Partnerships and Joint Venture
Joint Ventures Earnings Debt
1996 1997 1998 1997 1998
- --------------------------------------------------------------------------------------------------------------
Civic Parking, LLC $ -- $ 2,877 $ 2,383 $ -- $59,709
Commerce Street Joint Venture 400 504 602 7,606 7,346
Larimer Square Parking Associates 22 59 103 3,554 3,334
12 West 48th Street, LLC -- -- 548 -- --
Lodo Parking Garage 77 126 145 -- --
Arizona Stadium Parking Garage LLC -- -- 230 1,800 1,976
CPS Mexico 153 514 505 -- --
Other (11) 83 570 4,524 4,481
- --------------------------------------------------------------------------------------------------------------
$ 641 $ 4,163 $ 5,086 $17,484 $76,846
- --------------------------------------------------------------------------------------------------------------
(a) Civic Parking, LLC
As explained in Note 2, the Company acquired its 50% joint venture
ownership in Civic Parking during the fiscal year ended September 30,
1997. The Company's results of operations include 50% of Civic
Parking's net earnings from January 1, 1997 to September 30, 1997, and
the net earnings from October 1, 1997 to September 30, 1998. The four
parking garages are located in St. Louis, Missouri and contain retail
spaces.
In March 1998, Civic obtained financing with a financial institution
for $60 million. Civic distributed the loan proceeds to its
shareholders, and as a result, Central Parking received net proceeds of
$30.3 million from this transaction, which reduced the Company's
carrying value of its investment in partnerships and joint ventures.
Unaudited summary information for Civic Parking is as follows (in
thousands):
September 30,
1997 1998
- --------------------------------------------------------------------
Financial position:
Land, property and equipment, net $90,925 $89,124
Cash 1,669 1,662
Other assets 175 108
Liabilities (768) (60,932)
- --------------------------------------------------------------------
Net assets $92,001 $29,962
- --------------------------------------------------------------------
January 1, Year ended
to September 30, September 30,
1997 1998
- ------------------------------------------------------------------------
Results of operations:
Revenue $ 7,668 $ 9,241
Cost of operations 2,458 4,649
- --------------------------------------------------------------------
Net earnings $ 5,210 $ 4,592
Distributions to Central Parking $ 3,680 $32,910
- --------------------------------------------------------------------
(b) Commerce Street Joint Venture
Realty has a 50% interest in a joint venture that owns a parking
complex in Nashville, Tennessee. The complex consists of the original
parking garage and retail space (the "Original Facility") and an
addition to the parking garage (the "Addition") constructed several
years after the completion of the Original Facility.
The joint venture financed the Original Facility with industrial
development bonds in the original principal amount of $8,600,000 (the
"Series A Bonds") issued by The Industrial Development Board of the
Metropolitan Government of Nashville and Davidson County (the "Metro
IDB"). The Metro IDB holds title to the Original Facility, which it
leases to the joint venture under a lease expiring in 2016. The lease
of the Original Facility obligates the venture to make lease payments
corresponding to principal and interest payable on Series A Bonds and
provides the venture with an option to purchase the Original Facility
at any time by paying the amount due under the Series A Bonds and
making a nominal purchase payment to the Metro IDB. The joint venture
refinanced the Series A Bonds in 1994 to achieve more favorable
interest rate terms. The outstanding principal amount of Series A
Bonds is reflected in the above table at September 30, 1997 and 1998.
E-33
25
Also included in investments in and advances to partnerships and joint
ventures are the Series B Bonds purchased in April 1994 relating to
the Commerce Street Joint Venture in the amounts of $760,000 and
$743,000 at September 30, 1997 and 1998, respectively. The Bonds
require monthly interest and principal payments at the index rate
(prime) plus 250 basis points (11% at September 30, 1998) through
2009. The minimum interest rate is 9.5% and the maximum interest rate
is 12%. The Bonds are secured by a mortgage on the project which is
subordinate to the industrial development bonds. The remainder of the
Series B Bonds are owned by the other joint venture partner.
(c) Larimer Square Parking Associates
In October 1994, the Company acquired a 50% interest in a joint
venture to construct a parking complex in Denver, Colorado. The
complex, which was completed in February 1996, was constructed and
financed by the joint venture partners. The Company invested $991,000
in the joint venture and loaned the joint venture $1,100,000 in the
form of a construction note, bearing interest at 9.5%, which was
converted to a term note in August 1996, following completion of the
project. An additional $1,430,000 was loaned by the Company which will
be repaid through sales tax and property tax revenues by the Denver
Urban Renewal Authority at an interest rate of 10%. The Company
manages the parking facility for the venture.
(d) 12 West 48th Street, LLC
In connection with the Kinney acquisition, the Company acquired a 40%
interest in a limited liability company which owns and operates a
garage and two adjacent buildings in New York City. Kinney's carrying
value of $4.4 million was adjusted to reflect the estimated fair value
of the partnership's underlying net assets by $3.8 million.
(e) Lodo Parking Garage, LLC
In March 1995, the Company acquired a 50% interest in a joint venture
which holds a parking complex in Denver, Colorado. The Company invested
$1.4 million in the joint venture and manages the parking facility for
the joint venture.
(f) Arizona Stadium Parking Garage, LLC
The Company owns a 50% interest in a joint venture which constructed
the Arizona Diamondback Stadium Parking Garage. The Company operates
this parking facility for the joint venture.
(g) CPS Mexico, Inc.
The Company holds 50% interest in a Mexican joint venture which
manages and leases various parking structures in Mexico. The Company
also has advanced $2.1 and $2.3 million at September 30, 1997 and 1998,
respectively, to the affiliate. These loans bear interest between 10%
and 15% and require principal payments over various terms through
2001.
(8) LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt includes an unsecured credit facility ("Credit Facility") which
expires February 11, 2003. The Credit Facility originally provided for an
aggregate availability of up to $300 million, consisting of a five-year $200
million revolving credit facility, including a sub-limit of $25 million for
standby letters of credit, and a $100 million term loan. The Credit Facility
bore interest until June 30, 1998 at a rate of LIBOR plus 1.25%. On June 30,
1998 the interest rate on the Credit Facility and the commitment fee on the
unused portion reverted to a grid pricing based upon the achievement of various
financial ratios. The Credit Facility contains certain covenants including
those that require the Company to maintain certain financial ratios, restrict
further indebtedness, and limit the amount of dividends payable. On March 18,
1998, the Company completed offerings of equity and convertible trust issued
preferred securities, from which the Company obtained $195.6 million in net
proceeds. The Company repaid and terminated the $100 million term loan with
proceeds from these offerings. The amount outstanding under the Company's
Credit Facility as of September 30, 1998 is $48.2 million, with an interest
rate of 6.5% (LIBOR plus 75 basis points). The weighted average interest rate
was 6.88% for the period the Credit Facility was outstanding. At September 30,
1998, the Company had $147.1 million available on the Credit Facility. The
amount available is adjusted to reflect letters of credit outstanding of $4.8
million. In addition, certain contractual obligations are collateralized by
irrevocable letters of credit in the amount of $3.5 million at September 30,
1998.
The Company's previous credit facility, which was unsecured, was scheduled to
expire January 31, 2000. Credit available under the prior facility amounted to
$120 million. As of September 30, 1997 the Company had $70.8 million
outstanding, and $48.0
E-34
26
million available for borrowing, under the credit facility. The average
interest rate for the period during which the Company had debt outstanding,
beginning December 31, 1996, was 7.1% and the interest rate at September 30,
1997 was 6.7%. Commitment fees for the unused portion of the credit facility
approximated 0.25% of the unused balance.
In addition to the Credit Facility, the Company also has several notes payable
outstanding totaling $4.9 million, which are secured by related real estate and
equipment and bear interest at rates ranging from 6.1% to 10.0%. These balances
mature from dates in 1998 to 2006. Future maturities under notes payable are as
follows (in thousands):
Year ended
September 30,
- ---------------------------------------------------------------------------
1999 $ 667
2000 660
2001 649
2002 597
2003 48,632
thereafter 1,801
- ---------------------------------------------------------------------------
$ 53,006
- ---------------------------------------------------------------------------
In connection with the Kinney acquisition, the Company assumed an agreement
whereby a parking structure and the corresponding land upon which it sits are
leased under a long-term arrangement. The parking structure is accounted for as
a capital lease, and the underlying land is accounted for as an operating lease.
The original agreement called for lease payments over a twenty-year term at a
17.4% interest rate. In connection with purchase accounting, the carrying value
of the related obligation was recorded at fair value. The carrying amount of the
capital lease obligation at September 30, 1998 was $9.2 million, bearing
interest at a rate of 8.0% per annum and requiring monthly payments of
approximately $167,000 per month. The operating lease requires a payment of
approximately $183,000 per month. The lease agreements run through December
2003.
E-35
27
The future minimum lease payments under these capital lease obligations include
the following are as follows (in thousands):
Year ended
September 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1999 $ 4,670
2000 4,628
2001 4,687
2002 4,504
2003 4,482
Thereafter 1,125
- ----------------------------------------------------------------------------------------------------------------------------------
24,096
Less interest portion at rates ranging from 6.1% to 10% (14,173)
Less current portion (1,558)
- ----------------------------------------------------------------------------------------------------------------------------------
$ 8,365
- ----------------------------------------------------------------------------------------------------------------------------------
(9) CONVERTIBLE TRUST ISSUED PREFERRED SECURITIES OFFERINGS
On March 18, 1998, the Company created Central Parking Finance Trust ("Trust")
which completed a private placement of 4,400,000 shares at $25.00 per share of
5.25% convertible trust issued preferred securities ("Preferred Securities")
pursuant to an exemption from registration under the Securities Act of 1933, as
amended. The Preferred Securities represent preferred undivided beneficial
interests in the assets of Central Parking Finance Trust, a statutory business
trust formed under the laws of the State of Delaware. The Company owns all of
the common securities of the Trust. The Trust exists for the sole purpose of
issuing the Preferred Securities and investing the proceeds thereof in an
equivalent amount of 5.25% Convertible Subordinated Debentures ("Convertible
Debentures") of the Company due 2028. The net proceeds to the Company from the
Preferred Securities private placement were $106.5 million. Each Preferred
Security is entitled to receive cumulative cash distributions at an annual rate
of 5.25% (or $1.312 per share) and will be convertible at the option of the
holder thereof into shares of Company common stock at a conversion rate of
0.4545 shares of Company common stock for each Preferred Security (equivalent to
$55.00 per share of Company common stock), subject to adjustment in certain
circumstances. The Preferred Securities do not have a stated maturity date but
are subject to mandatory redemption upon the repayment of the Convertible
Debentures at their stated maturity (April 1, 2028) or upon acceleration or
earlier repayment of the Convertible Debentures.
The Company's consolidated balance sheets reflect the Preferred Securities of
the Trust as company-obligated mandatorily redeemable convertible securities of
subsidiary holding solely parent debentures.
(10) SHAREHOLDERS' EQUITY
(a) Recapitalization
As of September 29, 1995, the Board of Directors and shareholders of the Company
approved a plan of recapitalization which was effective immediately prior to the
effectiveness of the Company's initial public offering of common stock on
October 10, 1995. Under the plan of recapitalization, the Company authorized the
issue of 1,000,000 shares of preferred stock and 30,000,000 shares of common
stock. At the February 28,1997 Annual Meeting, shareholders approved an increase
in the authorized common stock to 50,000,000 shares. The Class A Preferred,
nonvoting common and voting common shares issued and outstanding as of the
effective date of the plan of recapitalization, were canceled and exchanged for
common stock (split adjusted) as follows:
Number of Number of
Canceled Shares
Class Shares Issued
- ----------------------------------------------------------------------------------------------------------------------------------
A-1 Preferred 3,100 65,200
A-2 Preferred 5,200 125,775
A-3 Preferred 5,000 121,764
A-4 Preferred 2,650 62,316
Nonvoting Common 1,040,223 11,449,463
Voting Common 850,500 11,233,482
- ----------------------------------------------------------------------------------------------------------------------------------
1,906,673 23,058,000
==================================================================================================================================
For purposes of calculating the exchange ratio for recapitalization, the Company
utilized $10.00 (adjusted for the stock splits) as the price per share of the
Company's common stock. Weighted average common shares and net earnings per
common share for all years presented have been adjusted to reflect the
recapitalization and subsequent stock splits.
(b) Initial Public Offering
E-36
28
On October 10, 1995, the Company completed an initial public offering of common
stock in which 2,796,750 shares were sold by the Company for net proceeds of
$20.0 million.
(c) Secondary stock offering
On March 13, 1998, the Company completed a secondary public offering of common
stock in which 2,137,500 shares were sold which generated net proceeds to the
Company of $89.1 million.
(d) Stock Splits
On November 21, 1997 the Company's Board of Directors approved a three-for-two
stock split which was effected on December 12, 1997. On March 19, 1996 the
Company effected a three-for-two stock split. All share and per share amounts
have been adjusted to reflect both stock splits.
(e) Earnings Per Share
Effective October 1, 1997, the Company adopted the provisions of SFAS No. 128.
Statement 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic earnings per
share excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Earnings per share for all periods
presented have been calculated and presented in accordance with SFAS No.
128.
The following tables set forth the computation of basic and diluted earnings per
share:
Year Ended Year Ended Year Ended
September 30, 1996 September 30, 1997 September 30, 1998
Income Common Income Common Income Common
Available Shares Per-share Available Shares Per-share Available Shares Per-share
($000's) (000's) Amount (000's) (000's) Amount (000's) (000's) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings
per share $13,836 25,762 $ 0.54 $20,205 25,991 $ 0.78 $26,610 27,857 $ 0.96
Stock option plan -- 112 -- -- 120 -- -- 244 (0.01)
Restricted stock plan -- 127 (0.01) -- 172 (0.01) -- 172 (0.01)
Deferred stock unit plan -- -- -- -- -- -- -- 9 --
Employee stock
purchase plan -- 41 -- -- 47 -- -- 44 --
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings
per share $13,836 26,042 $ 0.53 $20,205 26,330 $ 0.77 $26,610 28,326 $ 0.94
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares used for the computation of basic earnings per
share excludes certain common shares issued pursuant to the Company's restricted
stock plan because under the related deferred compensation agreement the officer
forfeits such shares if he voluntarily terminates his employment with the
Company (see note 13). The effect of the conversion of the company-obligated
mandatorily redeemable securities of the subsidiary trust has not been included
in the diluted earnings per share calculation since such securities were
anti-dilutive. At September 30, 1998, such securities were convertible into
2,000,000 shares of common stock.
(11) OPERATING LEASE COMMITMENTS
The Company and its subsidiaries conduct a portion of their operations on leased
premises under operating leases expiring at various dates through 2101. Lease
agreements provide for minimum payments and contingent payments based upon a
percentage of revenue or a combination of both. Certain locations additionally
require the Company and its subsidiaries to pay real estate taxes and other
occupancy expenses.
E-37
29
Future minimum rental commitments under operating leases are as follows (in
thousands):
Year Ended
September 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1999 $ 124,369
2000 106,764
2001 95,784
2002 83,530
2003 74,530
Thereafter 396,226
- ----------------------------------------------------------------------------------------------------------------------------------
Total future operating lease commitments $ 881,203
==================================================================================================================================
Included in the future minimum rental commitments under operating leases are
aggregate payments of $74.9 million resulting from commitments incurred under
the agreement described in Note 6(a).
Rental expense for all operating leases was as follows (in thousands):
Year Ended September 30,
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Rentals:
Minimum $ 38,882 $ 66,177 $ 132,582
Contingent 19,330 23,952 40,092
- ----------------------------------------------------------------------------------------------------------------------------------
Total rentals $ 58,212 $ 90,129 $ 172,674
==================================================================================================================================
(12) INCOME TAXES
Income tax expense consists of the following (in thousands):
Year Ended September 30,
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Current:
Federal and state $5,585 $9,940 $13,116
Jobs credit, net of federal tax benefit -- (98) (247)
- ----------------------------------------------------------------------------------------------------------------------------------
Net federal current tax expense 5,585 9,842 12,869
State 639 1,312 1,684
Non-U.S 423 688 938
- ----------------------------------------------------------------------------------------------------------------------------------
6,647 11,842 15,491
Deferred:
Federal and state 585 378 2,123
Non-U.S. -- (13) --
- ----------------------------------------------------------------------------------------------------------------------------------
585 365 2,123
- ----------------------------------------------------------------------------------------------------------------------------------
Total income tax expense from earnings $7,232 $12,207 $17,614
- ----------------------------------------------------------------------------------------------------------------------------------
Total income taxes are allocated as follows (in thousands):
Year Ended September 30,
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax expense from continuing operations $7,232 $12,207 $17,614
Acquisition related expenses for tax purposes in excess of amounts
recognized for financial reporting purposes -- (1,423) (1,467)
Shareholders' equity, for compensation expense for tax
purposes in excess of amounts recognized for financial
reporting purposes (310) (213) (568)
- ----------------------------------------------------------------------------------------------------------------------------------
Total income taxes $6,922 $10,571 $15,579
==================================================================================================================================
Provision has not been made for U.S. or additional foreign taxes on
approximately $2,863,000, $2,878,000 and $3,578,000 at September 30, 1996, 1997,
and 1998, respectively, of undistributed earnings of foreign subsidiaries, as
those earnings are intended to be permanently reinvested.
E-38
30
A reconciliation between actual income taxes and amounts computed by applying
the federal statutory rate to earnings before income taxes is summarized as
follows (in thousands):
Year Ended September 30,
1996 1997 1998
$ % $ % $ %
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Federal statutory rate on earnings before income taxes $ 7,164 34.0% $ 11,344 35.0% $15,478 35.0%
State and city income taxes, net of federal income tax benefit 422 2.0 853 2.6 1,095 2.5
Jobs credits, net of federal tax benefit -- -- (98) (0.3) (247) (0.6)
Tax-exempt interest income (312) (1.5) (88) (0.3) (100) (0.2)
Nondeductible goodwill amortization -- -- 282 0.9 2,158 4.9
Other (42) (0.2) (86) (0.2) (770) (1.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Income tax expense $ 7,232 34.3% $ 12,207 37.7% $17,614 39.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Sources of deferred tax assets and deferred tax liabilities are as follows
(in thousands):
September 30,
1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Deferred compensation expense $ 1,620 $ 1,936
Accrued expenses and reserves 439 79
Prepaid expenses 197 333
Charitable contribution of property 3,080 1,922
Net operating loss carry forwards 1,151 2,569
Capitalized leases -- 2,570
Tax credit carry forwards -- 587
Deferred and capitalized expenses 380 3,866
Other 172 462
- ----------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 7,039 14,324
Deferred tax liabilities:
Deferred tax gain on sales of properties (1,230) (1,367)
Deferred installment gain on sale of property (2,062) (2,019)
Timing differences in recognition of partnership earnings (482) (702)
Property, plant and equipment, due to differences in depreciation and
purchase business combinations (8,324) (11,532)
Other (11) (49)
- ----------------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (12,109) (15,669)
Valuation allowance on net operating loss carry forwards (890) (272)
- ----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ (5,960) $ (1,617)
==================================================================================================================================
Net operating losses and contribution carry forwards expire between 2002 and
2013. Management believes that it is more likely than not that the results of
operations will generate sufficient taxable income to realize deferred tax
assets after giving consideration to the valuation allowance. The valuation
allowance has been provided for loss carry forwards for which recoverability is
not deemed to be more likely than not.
(13) EMPLOYEE BENEFIT PROGRAMS
(a) Stock Plans
In August 1995, the Board of Directors and shareholders approved a stock plan
for key personnel, which included a stock option plan and a restricted stock
plan. Under this plan, incentive stock options, as well as nonqualified options
and other stock-based awards, may be granted to officers, employees and
directors. A total of 1,417,500 common shares have been reserved for issuance
under these two plans combined. Options representing 678,403 shares are
outstanding under this plan at September 30, 1998. Options are granted with an
exercise price equal to the fair market value at the date of grant and generally
expire ten years after the date of grant. At September 30, 1998, 276,863 shares
had been issued through the restricted stock plan. Expense related to the
vesting of restricted stock is recognized by the Company over the vesting
period.
In August 1995, the Board of Directors and shareholders also approved a stock
plan for directors. This plan provides for the grant, upon each director's
initial election, of options to purchase 11,250 shares to each non-employee
director. In addition, each non-employee director who has served for a minimum
of six months on the last day of each fiscal year will receive additional
options to purchase 4,500 shares on that date. A total of 225,000 shares have
been reserved for issuance under the plan. Options to purchase 135,500 shares
are outstanding under this plan at September 30, 1998.
E-39
31
The following table summarizes the transactions pursuant to the Company's stock
option plans for the last three fiscal years:
Number Option Price
of Shares Range Per Share
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1995 -- --
Granted 449,250 $ 8.00 to $21.67
Exercised 89,175 $ 8.00
Canceled 40,650 $ 8.00
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1996 319,425 $ 8.00 to $21.67
- ---------------------------------------------------------------------------------------------------------------------------------
Granted 281,975 $21.25 to $30.50
Exercised 45,525 $ 8.00
Canceled 18,000 $ 21.25
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1997 537,875 $ 8.00 to $30.50
- ---------------------------------------------------------------------------------------------------------------------------------
Granted 381,648 $32.54 to $51.06
Exercised 52,370 $ 8.00 to $22.50
Canceled 53,250 $21.25 to $43.44
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1998 813,903 $ 8.00 to $51.06
- ---------------------------------------------------------------------------------------------------------------------------------
At September 30, 1998, options to purchase 412,083 shares were exercisable.
The Company accounts for these plans under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and accordingly, no
compensation cost has been recognized. If compensation cost for these plans had
been determined consistent with SFAS No. 123, "Accounting for
Stock-Based-Compensation", the Company's net earnings and earnings per share
would have been reduced to the following pro forma amounts:
Year Ended September 30,
1996 1997 1998
----------------------------------
As reported:
Net income (in thousands) $13,836 $20,205 $26,610
Basic earnings per share 0.54 0.78 0.96
Diluted earnings per share 0.53 0.77 0.94
Pro Forma - SFAS 123
Net income (in thousands) $12,840 $19,238 $24,029
Basic earnings per share 0.50 0.74 0.86
Diluted earnings per share 0.49 0.73 0.84
The estimated weighted average fair value of the options granted were $3.60 for
1996 option grants, $11.90 for 1997 option grants and $11.57 for 1998 option
grants using the Black-Scholes option pricing model with the following
assumptions: dividend yield based on historic dividend rates at the date of
grant, volatility of 35%, risk free interest based on the treasury bill rate of
10 year instruments at the date of grant, and an expected life of ten years for
all grants.
The Company also has an Employee Stock Purchase Plan which began April 1, 1996,
under which 450,000 shares of common stock have been reserved for issuance. The
plan allows participants to contribute up to 10% of their normal pay (as defined
in the Plan) to a custodial account for purchase of the Company's common stock.
Participants may enroll or make changes to their enrollment annually, and they
may withdraw from the plan at any time by giving the Company written notice.
Employees purchase stock annually following the end of the plan year at a price
per share equal to the lesser of 85% of the closing market price of the common
stock on the first or the last trading day of the plan year. At September 30,
1998, 107,432 shares had been issued under this plan.
(b) Profit Sharing Plan
The Company has a profit-sharing plan for domestic employees to which employer
contributions are at the discretion of the Board of Directors. Voluntary
after-tax contributions not in excess of 10% of compensation may be made by
non-highly compensated employees.
Eligible employees, 20 years or older, may become a participant in the plan
after one year of continuous service, if the employee was employed prior to
reaching age 65. An employee's interest in the plan vests after two years at the
rate of 20% each year, so that the employee is fully vested at the end of seven
continuous years of service.
Employer expense associated with this plan was $971,000, $1,136,000 and
$1,400,000 in years 1996, 1997, and 1998, respectively.
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(c) Incentive Compensation Agreements
The Company has incentive compensation agreements with certain key employees.
Participating employees receive an annual bonus based on profitability of the
operations for which they are responsible. Incentive compensation expense is
accrued during the year based upon management's estimate of amounts earned under
the related agreements. Incentive compensation under all such agreements was
approximately $4,371,000, $5,160,000, and $5,775,000 in years 1996, 1997 and
1998, respectively.
(d) Deferred Compensation Agreements
The Company has a deferred compensation agreement with the President and Chief
Operating Officer of the Company in which the officer is entitled to receive
upon retirement, payments in an aggregate amount equal to 5% of the increase in
the Company's cumulative after tax profits since September 30, 1983. Upon the
closing of the Company's initial public offering, the Company and the officer
modified the existing agreement by issuing to the officer 267,750 shares of
restricted common stock under the Company's restricted stock plan. Further, the
officer may be entitled to receive additional shares of restricted common stock
until his normal retirement or, if earlier, the date of termination of his
employment, in an amount determined by a formula based upon the Company's
performance over such period. If the officer voluntarily terminates his
employment with the Company before his normal retirement, or if the Company
terminates his employment for cause, all shares of stock received and to be
received under the restricted stock plan are to be forfeited. The market value
of the restricted stock at the date of issuance was $670,000 greater than the
Company's deferred compensation liability. Accordingly, the Company recorded
deferred compensation expense in its shareholders' equity, which is being
amortized ratably over the remaining expected term of the officer's employment.
If it is determined that additional shares are to be issued under the agreement,
the Company will recognize compensation expense, spread ratably over the
remaining expected term of the officer's employment, equivalent to the market
value of such shares, subject to future market fluctuations prior to the
issuance of such shares.
The Company has a deferred compensation agreement that entitles the Chairman and
Chief Executive Officer to annual payments of $500,000 for a period of ten years
following his termination, for any reason other than death, in exchange for a
covenant not to compete. Thereafter, the officer is entitled to annual payments
of $300,000 until his death and, in the event his wife survives him, she is
entitled to annual payments of $300,000 until her death. The Company recognizes
annual compensation expense pursuant to this agreement equivalent to the
increase in the actuarially determined future obligation under the agreement.
Compensation expense associated with these agreements was approximately
$412,000, $88,000, and $330,000 in fiscal years 1996, 1997 and 1998,
respectively.
(e) Deferred Unit Plan
On December 19, 1996, the Board of Directors approved the adoption of the
Company's Deferred Stock Unit Plan. Under the plan, certain key employees have
the opportunity to defer the receipt of certain portions of their cash
compensation, instead receiving shares of common stock following certain periods
of deferral. Approximately nine key employees will be eligible to participate in
the plan. The plan is administered by a committee, appointed by the board of
directors of the Company consisting of at least two non-employee "outside"
directors of the Company.
The Company reserved 375,000 shares of common stock for issuance under the 1996
Deferred Stock Unit Plan. Participants may defer up to 50% of their salary. As
of September 30, 1998 $490,207 of compensation has been deferred under this
plan.
(f) Severance Agreement
The Company entered into a severance agreement with the President and Chief
Operating Officer providing for a severance payment to him in cash or stock, at
the Company's election, in an amount currently equal to three weeks of his total
compensation for each year of employment with the Company, upon the termination
of his employment with the Company for any reason other than fraud or
malfeasance.
(14) RELATED PARTIES
The Company leases two properties from an entity 50% owned by the Company's
chairman for $290,000 per year for a 10-year term and pays percentage rent to
the entity. Total rent expense, including percentage rent, was $290,000,
$354,000, and $442,000 in 1996, 1997 and 1998, respectively. The Company will
receive 25% of the gain in the event of a sale of these properties during the
term of the lease pursuant to the lease agreements. Management believes that
such transactions have been on terms no less favorable to the Company than those
that could have been obtained from unaffiliated persons.
(15) CONTINGENCIES
The Company is subject to various legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the ultimate
liability with respect to those proceedings and claims will not materially
affect the financial position, operations, or liquidity of the Company. The
Company maintains liability insurance coverage for individual claims in excess
of $50,000, subject to annual aggregate limits.
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(16) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments made for interest and income taxes were as follows (in thousands):
Year Ended September 30,
1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
Interest $ -- $ 4,368 $ 7,029
Income taxes $7,209 $10,899 $15,829
(17) BUSINESS SEGMENTS
The Company's business activities consist of domestic and foreign operations.
Foreign operations are conducted primarily in the United Kingdom, with segments
in Canada and Malaysia. The Company also conducts business through joint
ventures in Mexico, Germany, and Spain. Revenues attributable to foreign
operations were less than 10% of consolidated revenues for each of fiscal years
1996, 1997 and 1998. Further, with the exception of the United Kingdom, there
are no countries that account for 10% or greater of total foreign revenues.
Therefore, the Company includes all foreign operations in a single reporting
segment.
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A summary of information about the Company's operations by segments is as
follows (in thousands):
Year Ended September 30,
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenues:
Domestic $ 128,631 $ 202,346 $ 360,209
Foreign 13,175 18,108 22,966
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated $ 141,806 $ 220,454 $ 383,175
=================================================================================================================================
Operating earnings:
Domestic $ 15,873 $ 25,967 $ 43,983
Foreign 1,059 1,885 2,898
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated $ 16,932 $ 27,852 $ 46,881
=================================================================================================================================
Earnings before income taxes:
Domestic $ 19,748 $ 30,065 $ 40,562
Foreign 1,320 2,347 3,662
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated $ 21,068 $ 32,412 $ 44,224
=================================================================================================================================
September 30,
1997 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets:
Domestic $ 227,471 $ 533,770
Foreign 6,543 11,103
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated $ 234,014 $ 544,873
=================================================================================================================================
(18) MERGER AGREEMENT
On September 21, 1998, the Company entered into a definitive agreement pursuant
to which the Company has agreed to merge with Allright Holdings, Inc.
("Allright"). Allright (dba Allright Parking) is headquartered in Houston and is
one of the largest parking services companies in the United States with revenues
of $217.4 million for the fiscal year ended June 30, 1998. The transaction,
which is expected to be accounted for as a pooling-of-interests, is valued using
a base purchase price of $564.4 million. The base purchase price of Allright
will be adjusted for certain items such as assumed long-term indebtedness,
certain expenses, asset acquisitions or dispositions, and material variations of
amounts estimated or represented by Allright Management prior to the closing
date. The equity purchase price of Allright is calculated in equivalent shares
of Central Parking common stock, based on a fixed share price of $46.00 per
share. Under terms of the agreement, Central Parking expects to issue
approximately 7.6 million shares of common stock to the shareholders of
Allright.
The merger remains subject to certain closing conditions, including the
expiration of the waiting period under the Hart-Scott-Rodino Act. The
transaction is subject to approval by the shareholders of both Central Parking
and Allright at separate meetings to be scheduled.
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