1
EXHIBIT 13
CENTRAL PARKING CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA
On March 19, 1999, Central Parking completed a merger with Allright
Holdings, Inc. ("Allright"). The transaction constituted a tax-free
reorganization and has been accounted for as a pooling-of-interests under
Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations."
Accordingly, Central Parking's consolidated financial statements have been
restated to reflect the combined results of operations, financial position and
cash flows of Central Parking and Allright as if Allright had been part of
Central Parking since Allright's inception date of October 31, 1996. Prior to
the consummation of the merger, Allright's fiscal year end was June 30. In
recording the business combination, Allright's consolidated financial statements
as of June 30, 1997 and for the eight months period then ended, and as of June
30, 1998 and for the year then ended, have been combined with Central Parking's
consolidated financial statements for the fiscal years ended September 30, 1997
and 1998, respectively. There were no material transactions between Central
Parking and Allright prior to the Merger. Certain reclassifications have been
made to Allright's historical financial statements to conform to Central
Parking's presentation.
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 1999 VS 1998
-------------------------------------------------------------- 5 YEAR
GROWTH
1995 1996 1997 1998 1999 INCREASE (DECREASE) RATE
---- ---- ---- ---- ---- ------------------- ----
STATEMENT OF EARNINGS DATA:
Revenues: % %
Parking $ 94,383 $ 109,272 $ 295,692 $ 534,573 $ 645,075 $ 110,502 20.7 61.7
Management contract 30,630 32,534 43,245 65,826 91,386 25,560 38.8 31.4
Total revenues 125,013 141,806 338,937 600,399 736,461 136,062 22.7 55.8
Costs and expenses before
merger costs 111,411 124,874 298,511 528,747 659,032 130,285 24.6 56.0
Merger costs -- -- -- -- 40,970 40,970
Operating earnings 13,602 16,932 40,426 71,652 36,459 (35,193) -49.1 28.0
Percentage of total revenues
(3) 10.9% 11.9% 11.9% 11.9% 5.0% -25.9%
Interest income (expense), net 1,462 2,303 (15,922) (24,555) (20,312) 4,243 17.3
Dividends on company-obligated
mandatorily redeemable
convertible securities of a
subsidiary trust -- -- -- (3,247) (5,926) (2,679) -82.5
Net gains (losses) on sales and
divestitures of property and
equipment 81 1,192 3,118 (639) 4,222 4,861
Equity in partnership and
joint venture earnings 362 641 4,238 5,246 5,233 (13) -0.2
Minority Interest -- -- (163) (1,939) (2,612) (673) 34.7
Earnings before income tax 15,507 21,068 31,697 46,518 17,064 (29,454) -63.3 28.0
Income taxes 5,563 7,232 13,011 20,373 12,380 (7,993) -39.2 22.0
Income tax percentage of
earnings before income tax 35.9 34.3R 41.0R 43.8R 72.6R
Net earnings 9,944 13,836 17,654 26,145 3,682 (22,463) -85.9 -21.8
Percentage of total revenues
(3) 8.0 9.8 5.2 4.4 0.5R
PER SHARE DATA:
Net earnings before
extraordinary item - basic $ 0.43 $ 0.54 $ 0.62 $ 0.72 $ 0.13 $ (0.59) -81.9
Net earnings before
extraordinary item - diluted $ 0.43 $ 0.53 $ 0.61 $ 0.72 $ 0.13 $ (0.59) -81.9
Basic weighted average common
shares 23,058 25,762 30,070 34,618 36,349 1,731 5.0
Diluted weighted average
common shares 23,058 26,042 30,512 35,312 37,056 1,744 4.9
Dividends per common share(3) $ -- $ 0.05 $ 0.05 $ 0.05 $ 0.06R -- --
Net book value per common
share outstanding at Sept
30 (3) $ 1.79 $ 2.93 $ 5.28 $ 9.36 $ 9.44 $ 0.01 0.1
Merger cost per diluted common
share $ -- $ -- $ -- $ -- $ 0.81 $ 0.81
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SEPTEMBER 30,
-------------------------------------------------------
1999 VS 1998
1995 1996 1997 1998 1999 INCREASE (DECREASE)
-------- ---------- ---------- ---------- ---------- -----------------------
BALANCE SHEET DATA (2): %
Cash and cash equivalents $ 10,218 $ 28,605 $ 17,308 $ 39,495 $ 53,669 $ 14,174 35.9
Working capital 2,676 19,707 (17,520) (30,897) (30,659) 238 0.8
Goodwill, net -- -- 65,428 288,170 277,800 (10,370) -3.6
Total assets 70,440 107,212 598,693 954,022 1,064,577 110,555 11.6
Long-term debt and capital
lease obligations, less
current portion -- -- 73,725 283,319 337,481 54,162 19.1
Company-obligated mandatorily
redeemable convertible
securities of subsidiary
holding solely parent
debentures -- -- -- 110,000 110,000 -- --
Shareholders' equity 41,360 76,793 173,114 341,914 347,119 5,205 1.5
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1999 VS 1998
1995 1996 1997 1998 1999 INCREASE (DECREASE)
---- ---- ---- ---- ---- ---------------------
OTHER DATA: %
Depreciation and amortization $ 2,882 $ 3,420 $13,547 $28,674 $ 43,131 $ 14,457 50.7
Employees (2) (3) 6,000 6,600 14,300 17,450 16,700 (750) -4.3
Number of shareholders (2) (3) 3,000 5,500 7,000 8,100 10,325 2,225 27.5
Market capitalization in
millions (1) (2) (3) N/A $ 568 $ 1,000 $ 1,840 $ 1,075
Return on equity (3) (4) 27.2% 23.4% 14.1% 10.2% 1.1%
(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 1999 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 fiscal year net earnings
divided by average shareholders' equity for the fiscal year.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR YEARS ENDING SEPTEMBER 30, 1997, 1998, AND 1999
Allright Merger
On March 19, 1999, Central Parking completed a merger with Allright
Holdings, Inc. ("Allright"). The transaction constituted a tax-free
reorganization and has been accounted for as a pooling-of-interests under
Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations."
Accordingly, prior period financial statements presented have been restated to
include the combined results of operations, financial position and cash flows of
Allright as if it had been part of Central Parking from the date of Allright's
inception, October 31, 1996. Refer to notes 1 and 2 to the accompanying
consolidated financial statements.
As a result of the aforementioned Allright merger, the Company significantly
expanded its operations by obtaining approximately 2,300 locations and adding
$272.5 million in revenues for fiscal year 1999. The highlights of the Allright
merger are as follows:
- - Added 2,300 locations
- - Revenues, which are included in the restated revenues of the Company
were $272.5 million for 1999
- - Added new market presence in 25 cities and expanded market presence in
approximately 70 cities.
- - Assumed debt of Allright of approximately $260 million including costs
of the transaction
- - Issued 7.0 million shares of common stock and 0.5 million options and
warrants to purchase common stock
During the year, the Company recorded merger costs, pre-tax, of
approximately $41.0 million, which resulted in reducing after tax earnings by
$30.0 million or $0.81 per share.
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. The Company's strategy is to
grow both internally from adding locations and increasing same location revenues
and adding properties through acquisitions.
Parking revenues consist of revenues from leased and owned facilities. Cost
of parking relates to both leased and owned facilities and includes rent,
payroll and related benefits, depreciation (if applicable), maintenance,
insurance, and general operating expenses. Parking revenues in fiscal 1999
increased to $645.1 million from $534.6 million in fiscal 1998, an increase of
$110.5 million, or 20.7%. Of the $110.5 million increase, $53.4 million, or
48.3% of the increase, resulted from the acquisition of Kinney System Holding
Corp ("Kinney"), Turner Parking ("Turner"), and Sterling Parking ("Sterling")
leased and owned locations.
Although the Company experienced a net decline in the number of leased and
owned locations in 1999 of 112, (233 added leased and owned locations offset by
345 lost locations), the Company generally added larger locations with the
potential to generate higher revenues and profits than the locations that were
lost. The net reduction in locations is primarily a result of the merger with
Allright. Of the locations lost, 22 properties were divested as a result of an
agreement entered into with the Antitrust Division of the U.S. Department of
Justice and 180 lost locations resulted from the Allright merger and 43
locations were closed because they were not profitable.
Parking revenues from owned properties amounted to $40.9 million, $62.1
million, and $70.5 million for the years ended September 30, 1997, 1998 and
1999, respectively. Owned properties parking revenues, as a percentage of all
parking revenues, amounted to 13.8% in 1997, 11.6% in 1998, and 10.9% in 1999.
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. 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 for owned facilities. Central Parking
assumes complete responsibility for all aspects of
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the property, including all structural, mechanical, or electrical maintenance or
repairs and property taxes.
Parking revenues from leased facilities amounted to $254.8 million, $472.5
million, and $574.6 million for the years ended September 30, 1997, 1998, and
1999 respectively. Leased properties parking revenues, as a percentage of
parking revenues, accounted for 86.2% in 1997, 88.4% in 1998, and 89.1% in 1999.
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 1999, management contract revenues increased 38.8% to $91.4 million,
primarily as a result of the addition of 543 managed facilities acquired in 1998
from the transactions with National Garages, Inc. ("National"), Kinney, Turner,
and Sterling, and from the net addition of 159 additional management locations.
Management contract revenues amounted to $43.2 million, $65.8 million, and $91.4
million for the years ended September 30, 1997, 1998, and 1999, respectively.
Management contract revenues consist of management fees (both fixed and
percentage of revenues) and fees for ancillary services such as insurance,
accounting, equipment leasing, and consulting. The cost of management contracts
includes insurance premiums and claims and other indirect overhead. The
Company's responsibilities under a management contract as a facility manager
include hiring, training, and staffing parking personnel, and providing
collections, accounting, record keeping, insurance, and facility marketing
services. In general, Central Parking is not responsible under its management
contracts for structural, mechanical, or electrical maintenance or repairs, or
for providing security or guard services or for paying property taxes. The
typical management contract is for a term of one to three years and generally is
renewable for successive one-year terms, but is cancelable by the property owner
on short notice. The Company's renewal rates for each of the past five fiscal
years were in excess of 90%.
FISCAL YEARS ENDED SEPTEMBER 30,
HISTORICAL FINANCIAL SUMMARY ($ MILLIONS) 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
Parking revenues 94.4 109.3 295.7 534.6 645.1
% Growth over prior year 13.9% 15.8% 170.6% 80.8% 20.7%
Management contract revenues 30.6 32.5 43.2 65.8 91.4
% Growth over prior year 7.7% 6.2% 32.9% 52.2% 38.8%
Total revenues 125.0 141.8 338.9 600.4 736.5
% Growth over prior year 12.3% 13.4% 139.0% 77.1% 22.7%
Cost of parking and management contracts 95.7 107.5 259.8 456.7 568.9
% of total revenues 76.6% 75.8% 76.7% 76.1% 77.2%
General and administrative expenses
excluding merger costs 15.7 17.4 37.0 63.7 77.3
% of total revenues 12.6% 12.3% 10.9% 10.6% 10.5%
Goodwill and non-compete amortization -- -- 1.7 8.3 11.6
% of total revenues -- -- 0.5% 1.4% 1.6%
Depreciation and amortization -
excluding goodwill 2.9 3.4 11.9 20.4 31.5
Merger costs -- -- -- -- 41.0
% of total revenue -- -- -- -- 5.6%
Operating earnings 13.6 16.9 40.4 71.7 36.5
% of total revenues 10.9% 11.9% 11.9% 11.9% 5.0%
Interest income (expense), net 1.5 2.3 (15.9) (24.6) (20.3)
Dividends on company-obligated mandatorily
redeemable securities of subsidiary trust
holding solely parent debentures -- -- (3.2) (5.9)
Equity in partnerships & joint venture earnings 0.4 0.6 4.2 5.2 5.2
Net gains (losses) on sales of
property & equipment -- 1.2 3.1 (0.6) 4.0
Net earnings before extraordinary items 9.9 13.8 18.7 26.1 4.7
% of total revenues 8.0% 9.8% 5.5% 4.4% 0.6
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
purchases such insurance at prices that, management believes, represent a
discount to the prices that would be charged to parking facility owners on a
stand-alone basis. Accordingly, Central Parking historically has generated
profits on the insurance provided under its management contracts.
As of September 30, 1999, Central Parking operated 2,096 parking facilities
through management contracts, leased 2,455 parking facilities, and owned 259
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,
1997 1998 1999
------------------------------------------------
Managed 1,241 1,937 2,096
Leased 2,024 2,565 2,455
Owned 237 261 259
------------- ------------- -----------
Total 3,502 4,763 4,810
============= ============= ===========
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A summary of the facilities operated domestically and internationally by
Central Parking as of September 30, 1999 is as follows:
PERCENT
MANAGED LEASED OWNED TOTAL OF TOTAL SPACES
-----------------------------------------------------------------------------------------------------
Total U.S. and Puerto Rico 1,845 2,293 257 4,395 91.4% 1,455,662
----------------------------------------------------------------------
United Kingdom 164 60 -- 224 4.7% 70,096
Mexico (1) 48 39 -- 87 1.8% 44,796
Germany (1) -- 12 -- 12 0.2% 6,494
Canada 35 44 2 81 1.6% 49,239
Ireland 4 4 0.1% 500
Spain (1) -- 3 -- 3 0.1% 1,693
Malaysia 1 -- -- 1 0.0% 5,400
Chile 3 -- -- 3 0.1% 1,276
----------------------------------------------------------------------
Total foreign 251 162 2 415 8.6% 179,494
----------------------------------------------------------------------
Total facilities 2,096 2,455 259 4,810 100.0% 1,635,156
======================================================================
(1) Operated through 50% owned joint ventures
The table below sets forth certain information regarding the Company's managed,
leased and owned facilities in the periods indicated.
SEPTEMBER 30,
1997 1998 1999
------------------------------------------------
Managed Facilities (1):
Beginning of year 770 1,241 1,937
----------------------------------------------------------------------------------
Acquired or merged during year (2) 392 543 18
Added during year 218 294 354
Deleted during year (3)(4) (139) (141) (213)
------------------------------------------------------------------------------------
End of year 1,241 1,937 2,096
-----------------------------------------------------------------------------------
Renewal Rate 90.6% 93.2% 91.6%
Leased Facilities (1):
Beginning of year 552 2,024 2,565
-----------------------------------------------------------------------------------
Acquired or merged during year(2) 1,394 380 1
Added during year (4) 260 368 225
Deleted during year (5) (182) (207) (336)
------------------------------------------------------------------------------------
End of year 2,024 2,565 2,455
-----------------------------------------------------------------------------------
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Owned Facilities (1)(6):
Beginning of year 37 237 261
-----------------------------------------------------------------------------------
Acquired or merged during
year(2)(3) 198 11 -
Purchased during year 12 20 7
Sold during year (10) (7) (9)
------------------------------------------------------------------------------------
End of year 237 261 259
-----------------------------------------------------------------------------------
Total facilities (end of year) 3,502 4,763 4,810
-----------------------------------------------------------------------------------
Percentage net growth including
acquisitions in number of facilities:
Managed 61.2% 56.1% 8.2%
Leased 266.7% 26.7% (4.3%)
Owned 540.5% 10.1% (3.3%)
----------- ---------- ---------
Total facilities 157.7% 36.0% 1.0%
=========== ========== =========
(1) Includes 48 managed, 54 leased and 16 owned properties operated under joint
venture agreements at September 30, 1999. (2) Includes Allright merged
locations of 254 managed, 1,273 leased and 178 owned in the fiscal 1997
acquisitions. (3) Fiscal 1997 includes four facilities that were previously
managed and subsequently purchased. (4) Includes Central Parking's lease in
fiscal 1997, 1998 and 1999 of one facility, 11 facilities, and two
facilities, respectively, that were previously managed. (5) 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. Excluded in 1999 are 17 management
accounts which were transfered to lease location (6) Includes the Company's
corporate headquarters in Nashville, Tennessee.
The renewal rate calculation is 100% minus lost locations divided by the
sum of the beginning of the year, acquired and added during the year for
management locations.
Net gains/(losses) derived from sales and divestiture of property and
equipment were $3.1 million, $(639) thousand, and $4.2 million for fiscal 1997,
1998, and 1999, respectively.
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MERGER WITH ALLRIGHT
On March 19, 1999, Central Parking completed a merger with Allright
Holdings, Inc. ("Allright"), pursuant to which, approximately 7.0 million shares
of Central Parking stock, and approximately 0.5 million options and warrants to
purchase such common stock of Central Parking were exchanged for all of the
outstanding shares of common stock and options and warrants to purchase common
stock of Allright. Each outstanding share of Allright common stock and each
outstanding option or warrant to purchase such common stock was exchanged for
87.637 shares of Central Parking common stock. The transaction constituted a
tax-free reorganization and has been accounted for as a pooling-of-interests
under Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations." Accordingly, prior period financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows of Allright as if it had been part of Central Parking from the
date of Allright's inception, October 31, 1996. Refer to notes 1 and 2 to the
accompanying consolidated financial statements.
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.
SEPTEMBER 30,
1997 1998 1999
----------------------------------------------------------------------------------------------
Parking revenues 87.2% 89.0% 87.6%
Management contract revenues 12.8 11.0 12.4
----------------------------------------------------------------------------------------------
Total revenues 100.0 100.0 100.0
Cost of parking and management contracts 76.7 76.1 77.2
General and administrative expenses
excluding merger costs and impairment loss 10.9 10.6 10.5
Goodwill and non-compete amortization 0.5 1.4 1.6
Impairment loss -- -- 0.2
Merger costs -- -- 5.5
----------------------------------------------------------------------------------------------
Operating earnings 11.9 11.9 5.0
Interest income (expense), net (4.8) (4.1) (2.7)
Dividends on company-obligated mandatorily
redeemable securities of subsidiary
trust holding solely parent debentures -- (0.5) (0.8)
Net gains on sales and divestiture of property
and equipment 0.9 (0.1) 0.5
Minority interest and divestitures -- (0.3) (0.4)
Equity in partnership and joint venture earnings 1.3 0.9 0.7
-----------------------------------------------------------------------------------------------
Earnings before income taxes 9.3 7.8 2.3
Income taxes 3.8 3.4 1.7
-----------------------------------------------------------------------------------------------
Net earnings before extraordinary item 5.5% 4.4% 0.6%
-----------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
Parking revenues include revenue from leased and owned facilities. Parking
revenues in fiscal 1999 increased to $645.1 million from $534.6 million in
fiscal 1998, an increase of $110.5 million, or 20.7%. Of the $110.5 million
increase, $53.4 million, or 48.3% of the increase, resulted from the following
acquisitions of leased and owned locations: Kinney, $38.5 million; Turner, $1.3
million; Sterling, $2.1 million; and Allied Parking $11.5 million. The remaining
increase of $57.1 million, or 10.7%, is from a combination of increased rates
and higher utilization of parking spaces at existing facilities and 215 new
locations being larger in revenue and size than the 336 lost locations.
Management contract revenues in fiscal 1999 increased to $91.4 million from
$65.8 million in fiscal 1998, an increase of $25.6 million, or 38.8%. Of the
$25.6 million increase, $3.1 million, or 12.2%, resulted from the acquisitions
of Kinney, $0.3 million; Turner, $0.1 million; Sterling, $0.2 million and
National, $2.5 million. The
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remaining increase resulted primarily from the addition of 159 net new
locations.
Revenues from foreign operations increased to $34.2 million in 1999 from
$33.9 million in 1997. The increase of 0.8% in revenues from foreign operations
resulted primarily from increased revenues on existing locations.
Cost of parking in fiscal 1999 increased to $541.2 million from $441.7
million in fiscal 1998, an increase of $99.5 million, or 22.5%. Rent expense
increased $59.1 million, principally as a result of new locations from merger
and acquisitions and additional rent on existing locations. Of the remaining
$40.4 million increase in cost of parking, payroll expense accounted for $19.5
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 73.5% in fiscal 1999 from
73.6% in fiscal 1998. 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 1999 increased to $27.7 million from
$15.0 million in the comparable period in 1998, an increase of $12.7 million, or
84.9%. 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, increased to 30.4% in fiscal 1999 from 22.8% in fiscal 1998.
The increase in the cost of management contracts as a percentage of management
contract revenue is primarily a result of higher group insurance expense related
to medical claims. The renewal rates for management contracts of 91.4% in 1998,
and 93.2% in 1999, are generally consistent with the Company's five year average
renewal rates.
General and administrative expenses, excluding goodwill and non-compete
amortization, increased to $77.3 million in 1999 from $63.7 million in fiscal
1998, an increase of $13.6 million, or 21.3%. This increase was primarily a
result of an increase in payroll expense of $4.6 million associated with the
additional general and administrative expenses of acquired and merged
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 to 10.5% in 1999 from 10.6% in 1998. This is a result of
spreading of general and administrative expenses over a broader revenue base and
eliminating some duplicative costs after merging with Allright.
Amortization expense of goodwill and non-compete agreements increased
significantly to $11.6 million in fiscal 1999 from $8.3 million in fiscal 1998,
an increase of $3.3 million. This increase was a result of recording
amortization expense for the entire year on $233.6 million in goodwill and
non-compete assets recorded in connection with the acquisitions of National,
Kinney, the remaining 50% of CPS-Louisiana, Turner, and Sterling. Goodwill and
non-compete agreements are amortized over periods ranging from 5 to 30 years.
The Company incurred merger costs related to the merger of Allright of
approximately $41.0 million during the second, third, and fourth quarters of
fiscal 1999. Included in these costs are approximately $20.7 million for
professional fees, comprised of investment banking, legal, accounting, and
consulting fees; $11.3 million related to employment agreements; $7 million
related to the restructuring agreement with the limited partner of Edison
Parking Management, L.P.; and the balance of $2.0 million in travel, supplies,
printing, and other out of pocket costs. There were no merger related costs
incurred in prior years.
Interest income in fiscal 1999 increased to $6.6 million from $5.7 million
in fiscal 1998. This increase of $0.9 million was primarily attributable to
increased investment in notes receivable from $47.9 million at September 30,
1998 to $60.4 million at the end of fiscal 1999.
Interest expense decreased to $27.0 million in 1999 compared to $30.2
million in 1998. The decrease in interest expense of $3.2 million was primarily
attributable to the lower interest rates achieved by repaying the Allright
indebtedness, which carried a higher rate, with the lower interest rate on the
New Credit Facility described in Note 8 to the Company's Consolidated Financial
Statements. The weighted average balance outstanding under such indebtedness was
$334.3 million during 1999, at a weighted average interest rate of 8.1% compared
to $310.5 million during 1998, at a weighted average interest rate of 9.7%.
Dividends on Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust increased to $5.9 million in the fiscal year
ended September 30, 1999 from $3.2 million in the prior year as a result of
having
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the balance outstanding for the entire fiscal year 1999 compared to
approximately 6 months of the prior year.
Equity in partnership and joint venture earnings for fiscal 1999 remained
constant at approximately $5.2 million in fiscal 1998 and 1999.
The Company's effective income tax rate related to earnings before
extraordinary items was 72.5% for fiscal 1999 compared to 43.8% for fiscal 1998.
The rate increase was attributable to nondeductible merger related costs in the
current year, increased nondeductible goodwill, amortization expenses primarily
due to amortizing goodwill from Kinney for the entire year, and decreased
earnings. (see Note 12 to the Company's Consolidated Financial Statements). The
unusual 1999 effective tax rate of 72.5% caused primarily by merger costs, is
not expected to continue in the future.
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 $534.6 million from $295.7 million in
fiscal 1997, an increase of $238.9 million, or 80.8%. Of the $238.9 million
increase, $102.6 million, or 42.9% of the increase, resulted from the following
acquisitions 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 $81.6
million represent 15.3% 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 $136.3 million, or 57.1%,
is from a combination of the addition of 174 net locations, increased rates and
higher utilization of parking spaces at existing facilities.
Management contract revenues in fiscal 1998 increased to $65.8 million from
$43.2 million in fiscal 1997, an increase of $22.6 million, or 52.2%. Of the
$22.6 million increase, $9.4 million, or 41.6%, resulted from the acquisitions
of Diplomat, $2.1 million; Kinney, $4.9 million; Turner, $0.5 million; Sterling,
$0.1 million and National, $1.8 million. The remaining increase resulted
primarily from the addition of 153 net new locations.
Revenues from foreign operations increased to $33.9 million in 1998 from
$26.2 million in 1997. The increase of 29.4% 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 $441.7 million from $248.1
million in fiscal 1997, an increase of $193.6 million, or 78.1%. Rent expense
increased $114.7 million, principally as a result of new locations from merger
and acquisitions and additional rent on existing locations. Of the remaining
$78.9 million increase in cost of parking, payroll expense accounted for $48.9
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 82.6% in fiscal 1998 from
83.9% 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 22.8% in fiscal 1998 from 27.3% 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 93.2% in 1998, and 91.6% in 1997, are generally consistent with the
Company's five year average renewal rates.
General and administrative expenses, excluding goodwill and non-compete
amortization, increased to $63.7 million from $37.0 million in fiscal 1997, an
increase of $26.7 million, or 72.2%. This increase was primarily a result of an
increase in payroll expense of $12.2 million associated with the additional
general and administrative expenses of acquired and merged 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 to 10.6% in
1998 from 10.9% in 1997. This is a result of
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spreading of general and administrative expenses over a broader revenue base.
Amortization expense of goodwill and non-compete agreements increased
significantly to $8.3 million in fiscal 1998 from $1.7 million in fiscal 1997,
an increase of $6.6 million. This increase was a result of $233.6 million in
goodwill and non-compete assets recorded in connection with the acquisitions of
Diplomat, National, Kinney, the remaining 50% of CPS-Louisiana, Turner, and
Sterling. Goodwill and non-compete agreements are amortized over periods ranging
from 5 to 30 years.
Interest income in fiscal 1998 increased to $5.7 million from $2.6 million
in fiscal 1997. This increase of $3.1 million was primarily attributable to
increased investment in notes receivable and interest income associated with
restructuring activities as a result of the merger with Allright.
Interest expense increased to $30.2 million in 1998 compared to $18.5
million in 1997. The increase in interest expense of $11.7 million was primarily
attributable to the increase in indebtedness under the Company's credit
facilities. The weighted average balance outstanding under such credit
facilities was $310.5 million during 1998, at a weighted average interest rate
of 9.7%.
Dividends on Company-obligated mandatorily redeemable convertible
securities to a Subsidiary trust amounted to $3.2 million in fiscal 1998. There
were no manditorily redeemable convertible securities outstanding in 1997.
Equity in partnership and joint venture earnings for fiscal 1998 increased
to $5.2 million from $4.2 million in fiscal 1997. The increase of $1.0 million
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 related to earnings before
extraordinary items was 43.8% for fiscal 1998 compared to 41.0% for fiscal 1997.
The rate increase was attributable to the increase in the Company's addition of
nondeductible goodwill amortization and the increase in the effective state
income tax rate (see Note 12 to the Company's Consolidated Financial
Statements).
QUARTERLY RESULTS
The Company experiences fluctuations in its quarterly net earnings as a
result of merger costs incurred in the second, third and fourth quarters of
fiscal 1999 and recognition of intermittent gains on sales and divestitures of
properties. The Company restated its second fiscal quarter ended March 31, 1999
to record a pre-tax merger cost of $7 million. 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 Edison
Parking Management, L.P. ("Edison"), 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 the relative degree of success
of various sports teams. The following table sets forth certain quarterly
statements of earnings data for the eight fiscal quarters preceding the end of
the fiscal year 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 Diplomat (October 1997), National (December
1997), Kinney (February 1998), CPS -Louisiana (March 1998), Turner (April 1998),
Sterling (July 1998) and net gains on sales of property and equipment of $2.9
million in the quarter ended March 31, 1999. 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 to the Company's Consolidated Financial Statements).
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Amounts in thousands, except per share data
1998 FISCAL YEAR
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------------------------
Total revenues $ 121,255 100.0% $ 142,800 100.0% $ 165,596 100.0% $ 170,748 100.0%
Operating earnings 14,599 12.0 17,510 12.3 19,654 11.9 19,889 11.6
Net gains on sales and
divestitures of property
& equipment (38) -- (654) -0.5 (17) -- 70 --
Earnings before Income taxes 9,667 8.0 9,787 6.9 13,113 7.9 13,950 8.2
Net earnings $ 5,515 4.5% $ 6,034 4.2% $ 7,751 4.7% $ 6,844 4.0%
Earnings per share - basic $ 0.17 $ 0.18 $ 0.21 $ 0.19
Earnings per share - diluted $ 0.17 $ 0.18 $ 0.21 $ 0.19
1999 FISCAL YEAR
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------------------------
Total revenues $ 180,665 100.0% $ 183,223 100.0% $ 190,718 100.0% $ 181,855 100.0%
Operating earnings (1) 23,390 12.9 (15,225) -4.5 19,345 10.1 8,949 1.1
Net gains (losses) on sales
and divestitures of
property & equipment (85) -- 2,893 1.6 379 0.2 1,035 0.4
Earnings before income taxes
and extraordinary item 16,576 0.9 (19,379) -6.8 14,843 7.8 5,024 -1.1
Net earnings before
extraordinary items $ 10,139 0.6% $ (16,577) -7.1% $ 8,674 4.5% $ 2,448 -1.2%
Earnings before extraordinary
items per share - basic $ 0.28 $ (0.48) $ 0.24 $ 0.07
Earnings before extraordinary
items per share - diluted $ 0.27 $ (0.48) $ 0.23 $ 0.07
(1) - Includes a deduction for merger costs of $34.3 million, $2.9 million, and
$3.8 million for the quarters ended March 31, June 30, and September 30, 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for fiscal 1999 was $34.2 million,
a decrease of $42.0 million from net cash provided by operating activities of
$76.2 million during the same period in fiscal 1998. The primary factors which
contributed to this change were decreased net earnings of $21.5 million,
primarily as a result of merger costs of $30.3 million after income tax effect,
increases in management accounts receivable of $11.4 million, increases in other
accounts receivable of $7.3 million, partially offset by increases in
depreciation of $7.8 million and amortization expense of $6.7 million, and net
increases in other working capital of $16.3 million during fiscal 1999.
Net cash used in investing activities was $90.7 million for fiscal 1999, a
decrease in cash used in investing activities of $193.5 million from net cash of
$284.2 million used in investing activities during fiscal 1998. The acquisitions
of Edison, Diplomat, Kinney, National, Turner, and Sterling utilized cash of
$216.5 million, net of cash acquired and land, property and equipment purchases
used $72.2 million in fiscal 1998, while investments in notes receivable,
purchase of property and equipment, purchase of contract rights, and purchase of
interest in LLC used $114.5 million, partially offset by $25.3 million provided
by proceeds from sales of property and equipment during fiscal 1999.
Net cash provided by financing activities for fiscal 1999 was $59.2 million,
a decrease of $170.9 million from net cash of $230.1 million provided by
financing activities for fiscal 1998. The Company generated proceeds from
issuance of notes payable, Company-obligated mandatorily redeemable securities,
and common stock of $333.8 million, less principal repayments on notes and
capital leases of $107.8 million during fiscal 1998, compared to net borrowings
of $98.7 million, and issuance of stock of $3.4 million, partially offset by net
repayments of notes payable of $38.8 million in fiscal 1999.
On March 19,1999, the Company established a new credit facility (the "New
Credit Facility") providing for an aggregate availability of up to $400 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 $200 million
five-year term loan. The principal amount of the term loan shall be repaid in
quarterly payments of $12.5 million commencing June 30, 2000 and continuing
until the loan is repaid. Interest is payable on borrowings under the New Credit
Facility, at the election of the Company, at either a "Base Rate" or a
"Eurodollar Rate" (each as defined in the New Credit Facility agreement), plus a
grid based margin based upon the Company achieving certain financial ratios
(prior to and including June 30, 1999, borrowings under the New Credit Facility
were fixed at either prime rate plus 0.5% or LIBOR plus a margin of 1.125%). The
New Credit Facility contains covenants including those that require the Company
to maintain certain financial ratios, restrict further indebtedness and limit
the amount of dividends paid. The Company used the
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New Credit Facility to replace the Company's previous credit facility and to
refinance the existing debt of Allright Holdings, Inc. The amount outstanding
under the Company's New Credit Facility as of September 30, 1999 is $349.1
million with a weighted average interest rate of 6.45% for the period from March
19, 1999 through September 30, 1999.
The Company had previously established a credit facility (the "Previous
Credit Facility") providing 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 $100 million term loan was repaid with proceeds from debt and equity
offerings completed in March 1998, and the remaining balance of the revolving
credit facility was repaid with proceeds from the New Credit Facility.
The Company is required under the New Credit Facility to enter into certain
interest rate protection agreements designed to fix interest rates on variable
rate debt and reduce exposure to fluctuations in interest rates. On October 27,
1999 the Company entered into a $25 million interest rate swap for a term of
four years, cancelable after two years at the option of the counterparty, under
which the Company will pay to the counterparty a fixed rate of 6.16%, and the
counterparty will pay to the Company a variable rate equal to LIBOR. The
transaction involved an exchange of fixed rate payments for variable rate
payments and do not involve the exchange of the underlying nominal value.
On December 28, 1999 the Company entered into an amendment and waiver to
the New Credit Facility agreement relating to the waiver of noncompliance with
certain financial covenants. This amendment and waiver contains, among other
things, provisions for up-front fees of 0.125%. Interest rates are not to be
affected by the amendment and will continue to be based upon the existing grid
and determined based on certain financial ratios, as amended.
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,
1999, Central Parking had no material outstanding commitments for capital
improvements expenditures. On May 10, 1999 Central Parking announced that it had
signed a definitive agreement to purchase a parking facility that is being
developed in Chicago by a wholly owned subsidiary of Prime Group Realty Trust.
The agreement is valued at approximately $37.3 million. Central Parking expects
to finance this purchase through a synthetic lease or borrow through other
indebtedness. 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 seeking to
amend the credit facility to obtain additional indebtedness. The Allright
Registration Rights Agreement, as noted in "Risk Factors", provides certain
limitations and restrictions upon Central Parking's ability to issue new shares
of Central Parking common stock. Until certain shareholders of Central Parking
have received at least $350 million from the sale of Central Parking common
stock in either registered offerings or otherwise, Central Parking cannot sell
any shares of its common stock on its own behalf, subject to certain exceptions.
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.
MERGERS AND 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 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 mergers and acquisitions over the last two years are as follows:
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MERGER
As described in Note 2 to the Company Consolidated Financial Statements,
Central Parking completed the Merger with Allright Holdings, Inc. on March 19,
1999.
ACQUISITIONS
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.
National Garages, Inc.
On December 1, 1997, Allright purchased substantially all of the assets of
National Garages, Inc. ("National"), a privately owned parking company based in
Detroit, which operated 210 facilities located primarily in the Midwestern
United States. The purchase price of approximately $3.7 million was paid in cash
and financed through working capital and $2.2 million in debt under Allright's
previous revolving line of credit.
Kinney System Holding Corp.
On February 12, 1998, Central Parking acquired the stock of Kinney, a
privately held company headquartered in New York City which 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 purchase price 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.
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 thousand (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 and $2.2 million in Central
Parking common stock (54,358 shares). Central Parking financed the cash portion
of the Sterling purchase
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with borrowings under the Credit Facility. At the time of the acquisition,
Sterling operated 31 parking facilities in Georgia, Florida, Virginia,
California, and Kentucky.
Allied Parking
On October 1, 1998, Allright purchased from Allied Parking, Inc. ("Allied
Parking") four leases relating to parking facilities in Manhattan, maturing in
years ranging from 2006 to 2029 for approximately $14.2 million. Allied agreed
to lease to Allright two more lots for 19 years each in exchange for a prepaid
lease payment of $4.9 million. Allright also purchased the right to use the
"Allied Parking" name for $835 thousand.
On November 8, 1998, Allright purchased six additional leases from Allied
Parking maturing in years ranging from 1999 to 2008 for $5.1 million. Allright
also purchased the right to use the "Allied Parking" name associated with these
leases for $300 thousand.
INTERNATIONAL FOREIGN CURRENCY EXPOSURE
The Company operates wholly owned subsidiaries in the United Kingdom,
Canada and the Netherlands. Total revenues from wholly owned foreign operations
amounted to 7.7%, 5.7%, and 4.6% for the years ended September 30, 1997, 1998,
and 1999, 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, 1999,
revenues from the United Kingdom and Canada operations represented 62.5% and
34.17%, respectively, of total revenues generated by foreign operations,
excluding earnings from joint ventures.
ECONOMIC AND MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and a new currency called the "euro." These countries adopted the
euro as their common legal currency on that date. The euro now trades on
currency exchanges and is 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 have adopted the euro. The Company
has assessed 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, 1997, 1998 and 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." Statement 130 established standards for
reporting and display of comprehensive income and its components. Comprehensive
income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Comprehensive income includes all changes in equity except those resulting from
investments by and distributions to owners. This pronouncement was adopted by
the Company in 1999.
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within the financial statements. The Company adopted SFAS 130 in fiscal year
1999.
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 has adopted SFAS 131 in fiscal
year 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits,"
which amends SFAS Nos. 87, 88, and 106. This pronouncement is effective for
fiscal years beginning after December 15, 1997. The Company has adopted SFAS 132
in fiscal year 1999. The pronouncement did not significantly impact the
presentation of Central Parking's consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective for fiscal years
beginning after December 16, 1998. SOP 98-1 defines which costs incurred to
develop or purchase internal-use software should be capitalized and which should
be expensed. The Company is in the process of determining what impact, if any,
this pronouncement will have its 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. Statement 133 established reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts. Under SFAS No. 133, the Company would recognize all derivatives
as either assets or liabilities, measured at their fair value, in the statement
of financial position. This Statement is currently expected to be effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Management is
evaluating the impact of SFAS 133 to Central Parking's consolidated financial
statements.
YEAR 2000
The Company has considered the impact of Year 2000 issues on its computer
systems and applications and has developed remediation plans. These plans are
part of the Company'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 have been accounted for
as regular capital expenditures and are being depreciated over their estimated
useful lives of 3 - 5 years. The ongoing expenses of training and testing are
expensed as they are incurred. Through September 30, 1999, the Company has spent
in excess of $6 million upgrading its computer
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information systems in accordance with its plans for technological enhancement.
Such expenditures are not material to the Company's liquidity. System hardware
and software that in management's estimation are not Year 2000 compliant have
been fully depreciated. Central Parking has tested newly installed systems to
determine their compliance with Year 2000 issues.
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. Substantially all such equipment that
is not Year 2000 compliant has available certain program modifications that will
enable it to function adequately in the Year 2000. 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 and procedures 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.
Certain property management systems that were not previously Year 2000
compliant have been replaced with systems that management believes adequately
address the Year 2000 issue. All such systems are Year 2000 compliant.
Central Parking has communicated, by means of Year 2000 questionnaires,
with each of its major vendors to determine third party compliance with Year
2000 issues. 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 document, and documents that have been incorporated herein by
reference, include various forward-looking statements regarding the Company that
are subject to risks and uncertainties, including, without limitation, the
factors set forth under the caption "Risk Factors." Forward-looking statements
include, but are not limited to, discussions regarding the Company's operating
strategy, growth strategy, acquisition strategy, cost savings initiatives,
industry, economic conditions, financial condition, liquidity and capital
resources and results of operations. Such statements include, but are not
limited to, statements preceded by, followed by or that otherwise include the
words "believes," "expects," "anticipates," "intends," "estimates" or similar
expressions. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
The following important factors, in addition to those discussed elsewhere
in this document, and the documents which are incorporated herein by reference,
could affect the future financial results of the Company and the combined
company and could cause actual results to differ materially from those expressed
in forward-looking statements contained or incorporated by reference 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;
- - 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, player strikes or other events affecting major league sports
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;
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- - the ability of the Company to successfully complete Year 2000
Compliance measures; and 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.
RISK FACTORS
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ALLRIGHT, WE COULD LOSE KEY
EMPLOYEES, CUSTOMERS AND FAIL TO REALIZE THE EXPECTED BENEFITS OF THE MERGER.
The Allright merger involves the integration of two companies that have
previously operated independently. Although Central Parking has acquired and
integrated various companies into its organizational and financial structure in
the past, Allright is a larger company than any of the companies Central parking
has acquired previously. As a result of the merger, Central Parking has
substantially increased the number of persons it employs, the number of
facilities it operates, and the geographic markets it services. Although Central
Parking believes that it can successfully manage the acquired operations and
achieve certain economies of scale, there can be no assurance that Allright will
be successfully integrated into Central Parking's operations, that cost savings
or operating efficiencies will be realized to the extent anticipated by Central
Parking, or that the acquired operations will achieve levels of profitability
that justify Central Parking's investments.
THE FAILURE TO SUCCESSFULLY INTEGRATE PAST AND FUTURE ACQUISITIONS COULD
HAVE A NEGATIVE IMPACT ON CENTRAL PARKING'S BUSINESS AND THE MARKET PRICE OF ITS
COMMON STOCK. Central Parking completed the acquisition of Allright Holdings,
Inc. in fiscal 1999. In addition, Central Parking completed three acquisitions
in fiscal 1997 and four acquisitions in fiscal 1998, including the Kinney System
Holding Corp. acquisition in February 1998, and plans to pursue additional
acquisitions in the future. Central Parking can give no assurance that any
acquired facility or company will be successfully integrated into its
operations. Also, because of the price paid by Central Parking or because of the
performance of acquired operations after such acquisitions, there can be no
assurance that the results of the acquired operations will not be dilutive to
Central Parking's per share earnings. Any acquisition contemplated or completed
by Central Parking may result in adverse short-term effects on Central Parking's
reported operating results, divert management's attention, introduce
difficulties in retaining, hiring and training key personnel, and introduce
risks associated with unanticipated problems or legal liabilities, some or all
of which could have a negative effect on Central Parking's business and
financial results.
IF CENTRAL PARKING IS UNABLE TO MAINTAIN ITS HISTORICAL PERCENTAGE GROWTH
RATE, THE MARKET PRICE OF ITS STOCK MAY BE ADVERSELY AFFECTED. As Central
Parking continues to expand its operations, its ability to maintain its
historical percentage growth rate is expected to become increasingly difficult.
The merger with Allright significantly increased the size of the company, which
is likely to reduce the impact of future acquisitions on the results of
operations of Central Parking. Central Parking's growth rate also will be
directly affected by the increasingly competitive environment for acquisitions
of other operators and Central Parking's ability to obtain suitable financing
for acquisitions. In addition, the growth rate will be affected by the results
of operations of added parking facilities, which will depend largely upon
Central Parking's ability to integrate acquired operations. There can be no
assurance that Central Parking's failure to maintain its historical percentage
growth rate will not negatively affect the market price of its stock.
IF SIGNIFICANT SHAREHOLDERS OF CENTRAL PARKING SELL A SUBSTANTIAL AMOUNT OF
THEIR STOCK AT THE SAME TIME, THESE SALES COULD HAVE AN ADVERSE IMPACT ON THE
MARKET PRICE OF CENTRAL PARKING COMMON STOCK. There are several shareholders who
own significant blocks of Central Parking common stock. If each of these
significant shareholders sold a substantial amount of Central Parking common
stock as allowed under the Securities Act at the same time, such sales could
have a significant negative impact on the market price of Central Parking common
stock. In order to provide a mechanism for these significant shareholders to
dispose of their shares of Central Parking common stock with a minimized impact
on Central Parking's trading market, Central Parking agreed to allow certain
shareholders to require Central Parking to register such shares under the
federal securities laws. In connection with the acquisition of Allright, Central
Parking entered into a registration rights agreement (the "Allright Registration
Rights Agreement"), which requires Central Parking to register up to $350
million worth of Central Parking common stock. In addition, Central Parking
entered into a registration rights agreement in connection with the acquisition
of Kinney System Holding Corp. (the "Kinney Registration Rights Agreement"),
which requires Central Parking to register up to 882,422 shares of Central
Parking common stock upon certain terms
38
18
and conditions. The exercise of such registration rights under the Allright
Registration Rights Agreement or the Kinney Registration Rights Agreement could
result in a large number of shares of Central Parking common stock being sold in
the market which, in turn, could result in a reduction in the market price of
Central Parking common stock.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF CENTRAL PARKING COMMON STOCK
BY MONROE CARELL, CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF CENTRAL PARKING, THE
CARELL CHILDREN'S TRUST AND VARIOUS OTHER CARELL FAMILY TRUSTS AND FOUNDATIONS
UNDER THE ALLRIGHT REGISTRATION RIGHTS AGREEMENT, COULD NEGATIVELY AFFECT THE
MARKET PRICE OF CENTRAL PARKING COMMON STOCK. The Allright Registration Rights
Agreement grants Monroe Carell, Jr., The Carell Children's Trust and various
other Carell family trusts and foundations rights to sell up to $100 million of
Central Parking common stock in an initial underwritten offering and up to $150
million in subsequent offerings. Although Monroe Carell and the other entities
described above will remain significant shareholders following such sales, the
sale of substantial amounts of stock by insiders, such as Monroe Carell, could
be perceived negatively by the securities market. As a result, these sales could
adversely affect the market price of Central Parking common stock.
CENTRAL PARKING WILL BE UNABLE TO RAISE MONEY THROUGH COMMON STOCK
OFFERINGS UNTIL IT COMPLETES ITS OBLIGATIONS UNDER THE ALLRIGHT REGISTRATION
RIGHTS AGREEMENT. The Allright Registration Rights Agreement provides certain
limitations and restrictions upon Central Parking's ability to issue new shares
of Central Parking common stock. Until certain shareholders of Central Parking
have received at least $350 million from the sale of Central Parking common
stock in either registered offerings or otherwise, Central Parking cannot sell
any shares of its common stock on its own behalf, subject to certain exceptions.
As a result, Central Parking may not have access to the capital markets for a
significant period of time. There can be no assurance or guarantee that the
restrictions upon Central Parking's ability to raise funds through common stock
offerings will not have a negative effect on Central Parking.
INCREASED INDEBTEDNESS COULD ADVERSELY AFFECT CENTRAL PARKING'S ABILITY TO
BORROW ADDITIONAL FUNDS IN THE FUTURE. Primarily as a result of the merger with
Allright, Central Parking's indebtedness increased from approximately $286.2
million, as of September 30, 1998, to approximately $369.2 million as September
30, 1999, which may affect its ability to borrow additional funds in the future.
Central Parking's existing credit facility provides for an aggregate
availability of $400 million. Thus, Central Parking may have limited sources to
raise additional funds if needed in its operations or for additional
acquisitions. There can be no assurance that Central Parking's increased debt
level will not have a negative effect on Central Parking.
THE INCREASED NUMBER OF LEASED AND OWNED FACILITIES RESULTING FROM THE
ALLRIGHT MERGER WILL INCREASE THE RISK THAT THE COMPANY MAY NOT BE ABLE TO COVER
THE FIXED COSTS OF ITS LEASED AND OWNED FACILITIES. The Company leases and owns
significantly more facilities than it did prior to the Allright merger. Although
there is more potential for income from leased and owned facilities than from
management contracts, they also carry more risk if there is a downturn in
property performance or commercial real estate occupancy rates because a
significant part of the costs to operate such facilities typically is fixed. For
example, in the case of leases, there are typically minimum lease payments, and
in the case of owned facilities, there are the normal risks of ownership and
costs of capital. In addition, maintenance and operating expenses for both
leased and owned facilities are borne by Central Parking and are not passed
through to the owner, as is the case with management contracts. Generally,
performance of Central Parking's parking facilities depend, in part, on its
ability to negotiate favorable contract terms, its ability to control operating
expenses, financial conditions prevailing generally and in areas where parking
facilities are located, the nature and extent of competitive parking facilities
in the area, weather conditions in areas where parking facilities are located
and the real estate market generally.
IF OUR INFORMATION SYSTEMS OR PARKING OPERATIONS EXPERIENCE INTERRUPTIONS
DUE TO YEAR 2000 NON-COMPLIANCE, OUR REVENUES MAY BE ADVERSELY AFFECTED. As the
year 2000 approaches, an issue impacting all companies has emerged regarding how
existing application software programs and operating systems can accommodate
this date. In brief, many existing programs and systems in the marketplace were
designed to accommodate a two digit date position which represents the year
(e.g., "98" is stored on the system and represents the year 1998). Consequently,
the year 2000 could be inaccurately processed as the year 1900.
39
19
The Company has considered the impact of Year 2000 issues on its computer
systems and applications and has developed remediation plans. However, there can
be no assurance that the mediation plans will be adequate to address all
potential Year 2000 issues. Central Parking has communicated, by means of Year
2000 questionnaires, with each of its major vendors to determine third party
compliance with Year 2000 issues. 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.
WE HAVE FOREIGN OPERATIONS THAT MAY BE ADVERSELY AFFECTED BY FOREIGN
CURRENCY EXCHANGE RATE FLUCTUATIONS. Central Parking operates in the United
Kingdom, Germany, Mexico, the Republic of Ireland, Chile, , Canada, and Spain,
maintains a business development office in the Netherlands, and intends to
expand its business in these and other international locations. For the year
ended September 30, 1999, revenues from foreign operations represented 4.9%] of
Central Parking's total revenues. Of these foreign revenues, revenues from
United Kingdom operations represented 62.5% of such revenues, excluding earnings
from joint ventures. Central Parking receives revenues and incurs expenses in
various foreign currencies in connection with its foreign operations and, as a
result, Central Parking is subject to currency exchange rate fluctuations.
Central Parking intends to continue to invest in foreign leased or owned parking
facilities, either independently or through joint ventures, where appropriate,
and may become increasingly exposed to foreign currency fluctuations. Presently,
Central Parking has limited exposure to foreign currency risk and anticipates
implementing a hedge program if such risk materially increases.
IF WE INCREASE OPERATIONS IN EUROPE, THE EURO CONVERSION MAY ADVERSELY
AFFECT OUR BUSINESS. On January 1, 1999, eleven of the fifteen member countries
of the European Union established fixed conversion rates between their existing
sovereign currencies and a new currency called the "euro." These countries
adopted the euro as their common legal currency on that date. The euro trades on
currency exchanges and is available for non-cash transactions. Until January 1,
2002, the existing sovereign currencies will remain legal tender in these
countries. On 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, Central Parking has operations in countries which have adopted the
euro. Central Parking 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.
IN CONNECTION WITH THE OWNERSHIP OR OPERATION OF PARKING FACILITIES,
CENTRAL PARKING MAY BE POTENTIALLY LIABLE FOR ENVIRONMENTAL PROBLEMS. Under
various federal, state, and local environmental laws, ordinances, and
regulations, a current or previous owner or operator of real property may be
liable for the cost of removal or remediation of hazardous or toxic substances
on, under, or in such property. Such laws typically impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. There can be no assurance that a
material environmental claim will not be asserted against Central Parking or
against its owned or operated parking facilities. The cost of defending against
claims of liability, or of remediating a contaminated property, could have a
negative effect on Central Parking's business and financial results.
IF WE CANNOT MAINTAIN POSITIVE RELATIONSHIPS WITH LABOR UNIONS REPRESENTING OUR
EMPLOYEES, A WORK STOPPAGE MAY ADVERSELY AFFECT OUR BUSINESS. Approximately
3,479 employees of Central Parking and are represented by labor unions. There
can be no assurance that Central Parking will be able to renew existing labor
union contracts on acceptable terms. Employees could exercise their rights under
the labor union contract, which could include a strike or walk-out. In such
cases, there are no assurances that Central Parking would be able to staff
sufficient employees for its short-term needs. Any such labor strike or the
inability of Central Parking to negotiate a satisfactory contract upon
expiration of the current agreements could have a negative effect on Central
Parking's business and financial results.
40
20
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, 1998 and 1999, and the
related consolidated statements of earnings, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended September 30, 1999. 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. Separate
financial statements of Allright Holdings, Inc. also included in the 1997 and
1998 restated consolidated financial statements were audited by other auditors
whose report dated October 9, 1998, expressed an unqualified opinion on those
statements and referred to business combination effective October 31, 1996 which
resulted in new basis of accounting for the assets and liabilities of Allright
Holdings, Inc., the successor company. Our opinion, insofar as it relates to
the amounts included for Allright Holdings, Inc., is based solely on the report
of the other auditors.
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, based on our audits and the reports of the other auditors,
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, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Nashville, Tennessee
December 8, 1999, except as to note 8,
which is as of December 28, 1999.
41
21
CENTRAL PARKING CORPORATION
CONSOLIDATED BALANCE SHEETS
Amounts in thousands, except share data
SEPTEMBER 30,
1998 1999
- ----------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 39,495 $ 53,669
Management accounts receivable 19,847 33,288
Accounts receivable - other 13,449 18,966
Current portion of notes receivable (including amounts due
from related parties of $238 in 1998 and $509 in 1999) 1,472 12,503
Prepaid rent 15,930 14,222
Prepaid other expenses 6,765 7,438
Deferred income taxes 545 247
Prepaid and refundable income taxes 1,266 5,374
- ----------------------------------------------------------------------------------------------------
Total current assets 98,769 145,707
Investments, at amortized cost (fair value
$5,355 in 1998 and $5,480 in 1999) 5,087 5,488
Notes receivable, less current portion 46,524 47,870
Property, equipment, and leasehold improvements, net 382,506 421,090
Contracts and lease rights, net 62,472 97,158
Goodwill, net 288,170 277,800
Investment in and advances to partnerships and joint ventures 40,376 32,218
Other assets 30,118 37,246
- ----------------------------------------------------------------------------------------------------
$ 954,022 $ 1,064,577
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease
obligations $ 2,881 $ 31,682
Accounts payable 54,918 74,778
Accrued payroll and related costs 16,908 12,268
Accrued expenses 27,403 20,051
Management accounts payable 26,611 33,416
Income taxes payable 945 4,171
- ----------------------------------------------------------------------------------------------------
Total current liabilities 129,666 176,366
Long-term debt and capital lease obligations, less current portion 283,319 337,481
Deferred rent 14,875 17,681
Deferred compensation 11,359 12,058
Deferred income taxes 32,894 27,702
Minority interest 23,103 31,112
Other liabilities 6,892 5,058
- ----------------------------------------------------------------------------------------------------
Total liabilities 502,108 607,458
- ----------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable convertible securities of
Subsidiary holding solely parent debentures 110,000 110,000
Shareholders' equity
Common stock, $0.01 par value; 50,000,000 shares
authorized, 36,521,500 and 36,753,977 shares issued and
outstanding in 1998 and 1999, respectively 366 368
Additional paid-in capital 256,405 259,853
Foreign currency translation adjustment (150) (20)
Retained earnings 85,795 87,364
Deferred compensation on restricted stock (502) (446)
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 341,914 347,119
- ----------------------------------------------------------------------------------------------------
Commitments and contingencies
$ 954,022 $ 1,064,577
=========== ===========
See accompanying notes to consolidated financial statements.
42
22
CENTRAL PARKING CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Amounts in thousands, except per share data
YEAR ENDED SEPTEMBER 30,
1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------------
Revenues:
Parking $ 295,692 $ 534,573 $ 645,075
Management contract 43,245 65,826 91,386
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 338,937 600,399 736,461
- ---------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of parking 248,052 441,704 541,157
Cost of management contracts 11,793 15,000 27,740
General and administrative 37,011 63,726 77,312
Goodwill and non-compete amortization 1,655 8,317 11,607
Impairment loss -- -- 1,216
Merger costs -- -- 40,970
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 298,511 528,747 700,002
- ---------------------------------------------------------------------------------------------------------------------
Operating earnings 40,426 71,652 36,459
- ---------------------------------------------------------------------------------------------------------------------
Other income (expenses):
Interest income 2,575 5,677 6,639
Interest expense (18,497) (30,232) (26,951)
Dividends on company-obligated mandatorily redeemable
convertible securities of a subsidiary trust -- (3,247) (5,926)
Net gains (losses) on sales and divestitures of property and equipment 3,118 (639) 4,222
Minority interest (163) (1,939) (2,612)
Equity in partnership and joint venture earnings 4,238 5,246 5,233
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and extraordinary item 31,697 46,518 17,064
Income tax expense:
Current 12,676 17,596 15,423
Deferred 335 2,777 (3,043)
- ---------------------------------------------------------------------------------------------------------------------
Total income taxes 13,011 20,373 12,380
Net earnings before extraordinary item 18,686 26,145 4,684
Extraordinary item, net of tax (1,032) -- (1,002)
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 17,654 $ 26,145 $ 3,682
========= ========= =========
Basic earnings per share:
Net earnings before extraordinary item $ 0.62 $ 0.76 $ 0.13
Extraordinary item, net of tax $ (0.03) $ -- $ 0.03
Net earnings $ 0.59 $ 0.76 $ 0.10
Diluted earnings per share:
Net earnings before extraordinary item $ 0.61 $ 0.74 $ 0.13
Extraordinary item, net of tax $ (0.03) $ -- $ 0.03
Net earnings $ 0.58 $ 0.74 $ 0.10
See accompanying notes to consolidated financial statements.
43
23
CENTRAL PARKING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
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, 1996 26,216 $ 262 $ 31,660 $ 59 $ 45,449 $(637) $ 76,793
----------------------------------------------------------------------------------------------------------------------------
Initial formation of Allright 5,950 60 72,869 -- -- -- 72,929
Issuance of common stock 528 5 6,016 -- -- -- 6,021
Issuance under restricted stock -- -- 46 -- -- -- 46
plan
Common stock dividends -- -- -- -- (1,532) -- (1,532)
Exercise of stock options and
related tax benefits 88 1 1,137 -- -- -- 1,138
Amortization of deferred
compensation -- -- -- -- -- 67 67
Comprehensive income:
Net earnings -- -- -- -- 17,654 -- 17,654
Foreign currency translation
adjustment -- -- -- (2) -- -- (2)
------------
Total Comprehensive income 17,652
----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 32,782 $ 328 $111,728 $ 57 $ 61,571 $(570) $ 173,114
----------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for
acquisitions 1,006 10 42,528 -- -- -- 42,538
Issuance of common stock, net of
offering and issuance costs 2,612 26 99,854 -- -- -- 99,880
Issuance under restricted stock
plan and employment agreements 3 -- 129 -- -- -- 129
Issuance under Employee Stock
Ownership Plan 67 1 926 -- -- -- 927
Common stock dividends -- -- -- -- (1,921) -- (1,921)
Exercise of stock options and
related tax benefits 52 1 1,240 -- -- -- 1,241
Amortization of deferred
compensation -- -- -- -- -- 68 68
Comprehensive income:
Net earnings 26,145 26,145
Foreign currency translation
adjustment -- -- -- (207) -- -- (207)
------------
Total comprehensive income 25,938
----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 36,522 $ 366 $256,405 $(150) $ 85,795 $(502) $ 341,914
----------------------------------------------------------------------------------------------------------------------------
Allright equity adjustment to
conform fiscal years -- -- -- -- (20) -- (20)
Issuance under restricted stock
plan and employment agreements 1 -- 74 -- -- -- 74
Issuance under Employee Stock
Ownership Plan 48 -- 1,401 -- -- -- 1,401
Common stock dividends -- -- -- -- (2,093) -- (2,093)
Exercise of stock options and
related tax benefits 183 2 1,973 -- -- -- 1,975
Amortization of deferred
compensation -- -- -- -- -- 56 56
Comprehensive income:
Net earnings -- -- -- -- 3,682 -- 3,682
Foreign currency translation
adjustment -- -- -- 130 -- -- 130
---------
Total comprehensive income 3,812
----------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 36,754 $ 368 $259,853 $ (20) $ 87,364 $(446) $ 347,119
----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
44
24
CENTRAL PARKING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in thousands
YEAR ENDED SEPTEMBER 30,
1997 1998 1999
-------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings before extraordinary item $ 18,686 $ 26,145 $ 4,684
Extraordinary item, net of tax (1,032) -- (1,002)
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization of property 8,642 15,063 22,872
Amortization of goodwill and non-compete agreements 1,655 8,317 11,607
Amortization of contract and lease rights, straight-line rent,
deferred financing fees and other 3,250 5,294 8,652
Equity in partnership and joint venture earnings (4,238) (5,246) (5,233)
Distributions from partnerships and joint ventures 2,990 4,369 5,149
Net (gains) losses on sales and divestitures of property and equipment (3,118) 639 (4,222)
Impairment loss -- -- 1,216
Deferred income taxes (196) 2,777 (3,043)
Minority interest 163 1,939 2,612
Charge for Edison minority interest write-up -- -- 7,000
Changes in operating assets and liabilities, excluding effects of
acquisitions:
Management accounts receivable (3,160) (1,955) (13,441)
Accounts receivable - other (3,658) 1,870 (5,432)
Prepaid rent (3,915) (6,767) 1,708
Prepaid expenses - other (289) 735 (1,673)
Prepaid and refundable income taxes (533) 888 (4,108)
Other assets 1,176 (321) (10,864)
Accounts payable, accrued expenses,
and deferred compensation 10,032 13,114 7,653
Management accounts payable 2,876 12,269 6,805
Income taxes payable 178 (2,970) 3,226
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,509 76,160 34,166
-------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales and divestitures of property and equipment 15,170 6,975 25,252
Investments in notes receivable, net (17,651) (395) (12,377)
Purchase of property, equipment, and leasehold improvements (14,634) (72,222) (38,000)
Purchase of assets held for resale (45,962) -- --
Proceeds from sale of assets held for resale 45,962 -- --
Purchase of contract and lease rights (3,850) (1,573) (43,338)
Investments in and advances to partnerships, joint ventures
and unconsolidated subsidiaries (47,720) (223) (219)
Purchase of remaining interest in unconsolidated subsidiary -- -- (20,789)
Acquisitions of companies, net of cash acquired (270,837) (216,454) (785)
Proceeds from maturities and calls of investments 330 374 712
Purchase of investments (601) (707) (1,113)
-------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (339,793) (284,225) (90,657)
-------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (1,488) (1,871) (1,986)
Net borrowings under revolving credit agreement, net of issuance costs 70,352 (24,360) 98,677
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 168,211 125,137 263,615
Capital contributions upon formation of Allright 67,428 -- --
Payment to minority interest partner -- -- (2,103)
Principal repayments on notes payable (21,775) (107,759) (302,413)
Distribution of debt proceeds from partnerships and joint ventures -- 30,285 --
Proceeds from issuance of common stock and exercise of stock options, net 7,205 102,177 3,448
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 289,933 230,086 59,238
-------------------------------------------------------------------------------------------------------------------------
Foreign currency translation 134 166 178
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (20,217) 22,187 2,925
Cash and cash equivalents at beginning of period 28,605 17,308 39,495
Cash and cash equivalents derived from Allright merger 8,920 -- 11,249
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 17,308 $ 39,495 $ 53,669
-------------------------------------------------------------------------------------------------------------------------
Non-cash transactions:
Purchase of property and equipment in exchange for liabilities $ -- $ 1,314 $ --
Note receivable on property sale $ 10,225 $ -- $ --
Issuance of stock in acquisitions $ -- $ 42,538 $ --
Issuance of restricted stock $ -- $ 129 $ 74
Effects of acquisitions:
Estimated fair value of assets acquired $ 457,021 $ 94,718 $ 285
Purchase price in excess of the net assets acquired (goodwill) 33,633 233,333 500
Estimated fair values of liabilities assumed (204,728) (62,587) --
Common stock issued -- (42,538) --
-----------------------------------------------------------------------------------------------------------------------
Cash paid $ 285,926 $ 222,926 $ 785
Less cash acquired (15,089) (6,472) --
-----------------------------------------------------------------------------------------------------------------------
Net cash paid for acquisitions $ 270,837 $ 216,454 $ 785
========== ========= ========
See accompanying notes to consolidated financial statements
45
25
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 and Basis of Presentation
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 ("Kinney"); Central Parking System of the United Kingdom, Ltd. and
its wholly-owned subsidiary ("CPS-UK"); Central Parking System Realty, Inc. and
its wholly-owned subsidiaries ("Realty"); Allright Holdings, Inc. and its
wholly-owned subsidiaries ("Allright"), including Edison Parking Management,
L.P. ("Edison"), a 50% owned partnership under Allright control. The results of
operations of the remaining 50% of Edison are eliminated as a minority interest.
Central Parking Finance Trust was established during the year ended September
30, 1998. All significant inter-company transactions have been eliminated.
The accompanying consolidated financial statements have been restated to
reflect the impact of the merger between Central Parking and Allright, which was
consummated on March 19, 1999. The transaction constituted a tax-free
reorganization and has been accounted for as a pooling-of-interests under
Accounting Principles Board ("APB") Opinion No. 16. "Business Combinations."
Accordingly, Central Parking's financial statements have been restated to
reflect the combined results of operations, financial position and cash flows of
Central Parking and Allright as if Allright had been part of Central Parking
since Allright's inception date of October 31, 1996. Prior to the consummation
of the merger, Allright's fiscal year end was June 30. In recording the merger,
Allright's historical consolidated financial statements as of and for the
eight-month period ended June 30, 1997 and as of and for the year ended June 30,
1998, have been combined with the Company's consolidated financial statements as
of and for the Company's fiscal years ended September 30, 1997 and 1998,
respectively. As a result of conforming Allright's fiscal year with that of the
Company's, the historical results of operations of Allright for the three-month
period ended September 30, 1998 have been recorded directly to the Company's
consolidated shareholders' equity. In addition, the consolidated income tax
provision has been restated on a combined basis. The impact of the restatement
was to increase net earnings by $849 thousand in 1997 and to decrease net
earnings by $533 thousand and 1998. There were no material transactions between
Central Parking and Allright prior to the Merger.
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.
Management accounts payable reflected on the accompanying consolidated
balance sheets is reflected net of cash. 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
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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. At September 30, 1998 and 1999, all
of the Company's investment securities were classified as held-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.
(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 one to fifteen years for furniture,
fixtures, and equipment, over three years for computer software, over five years
for computer hardware, and over thirty to forty years for buildings. Leasehold
improvements are amortized over the remaining base lease term or the estimated
useful life of the asset, whichever is shorter.
(f) Investment in Partnerships and Joint Ventures
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 generally accounted for under the equity method and
are included in equity in partnership and joint venture earnings in the
accompanying consolidated statements of earnings with the exception of Edison,
which is consolidated into the Company's financial statements, with the
remaining 50% eliminated through minority interest.
(g) Investment in Edison Parking Management, L.P.
On June 1, 1997, Allright acquired a 50 percent controlling interest in
Edison. Edison's assets include management contracts contributed by the limited
partner, Park Fast Parking Management, L.P. ("Park Fast"), a third party. These
management contracts were recorded at their estimated fair market value and are
being amortized on a straight-line basis over their estimated lives, which
average 12 years.
In conjunction with the Company's merger with Allright, Allright entered into
a restructuring agreement whereby Allright loaned an additional $9.9 million to
the limited partner and amended certain other related agreements. In addition,
the parties agreed that the limited partner's capital account would be increased
to $29.4 million as of the effective date of the restructuring, which coincided
with the consummation date of the merger with Allright. As a result of this
increase in the limited partner's capital account, the Company recorded a $7
million charge to operations concurrent with the merger. Such charge is
reflected in merger costs in the accompanying consolidated statement of earnings
for fiscal 1999.
(h) Contract and Lease Rights
Contract and lease rights consist of capitalized payments made to
third-parties, which provide the Company the opportunity to manage or lease
facilities. Contract and lease rights are allocated among respective locations
and are amortized principally on a straight-line basis over the terms of related
agreements which range from five to thirty years, or an estimated term
considering anticipated terminations and renewals.
(i) 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.
(j) 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
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27
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.
(k) 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. 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.
(l) 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." 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 net 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. If the assets involved are to be
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.
(m) 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 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.
(n) Pre-opening 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.
(o) Per Share and Share Data
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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.
(p) 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 generally included in the currency
translation adjustment in shareholders' equity.
(q) 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, 1999. Book value approximates fair value for
substantially all of the Company's assets and liabilities that fall under the
fair value disclosure requirements.
(r) 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.
(s) Business Concentration
Approximately 40% of the Company's total revenues for fiscal year 1999 were
attributable to parking and management contract operations geographically
located in the Northeastern area of the United States. See also Note 17.
(t) Risk Management
The Company utilizes a combination of indemnity and self insurance coverages
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. These policies have deductibles which must be
met before the insurance companies are required to reimburse the Company for
costs and liabilities related to covered claims.
(u) 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.
(v) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 established
standards for reporting and display of comprehensive income and its components.
Comprehensive income is the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Comprehensive income includes all changes in equity except those
resulting from investments by and distributions to owners. This pronouncement is
effective for fiscal years beginning after December 15, 1997 and requires the
reporting of comprehensive income
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within the financial statements. The Company adopted SFAS No. 130 in fiscal year
1999. Prior years financial statements have been reclassified to conform to SFAS
No. 130.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which
supercedes SFAS No. 14. This pronouncement is effective for fiscal years
beginning after December 15, 1997. The Company has adopted SFAS No. 131 in
fiscal 1999. See Note 17.
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 adopted SFAS No. 132
in fiscal 1999. The pronouncement did not impact the presentation of Central
Parking's consolidated financial statements or disclosure.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
established reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts. Under SFAS No. 133, the
Company would recognize all derivatives as either assets or liabilities,
measured at fair value, in the statement of financial position. In July 1999,
SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FASB No. 133, An Amendment of FASB Statement No.
133" was issued deferring the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000. The Company is in the process of evaluating the
impact, if any, these pronouncements will have on its consolidated financial
statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective for fiscal years
beginning after December 16, 1998. SOP 98-1 defines which costs incurred to
develop or purchase internal use software should be capitalized and which should
be expensed. The Company is in the process of determining what impact, if any,
this pronouncement will have on its consolidated financial statements.
(w) Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation. Certain reclassifications have been made to Allright's
historical financial statements to conform to the Company's presentation.
(2) BUSINESS COMBINATIONS
ALLRIGHT MERGER
On March 19, 1999, Central Parking completed a merger with Allright, pursuant
to which approximately 7.0 million shares of Central Parking common stock and
approximately 0.5 million options and warrants to purchase common stock of
Central Parking, were exchanged for all of the outstanding shares of common
stock and options and warrants to purchase common stock of Allright. Each
outstanding share of Allright common stock and each outstanding option or
warrant to purchase such common stock was exchanged for 87.6367273 shares of
Central Parking common stock. The transaction has been accounted for as a
pooling-of-interests under APB Opinion No. 16. Accordingly, Central Parking's
consolidated financial statements have been restated to reflect the combined
results of operations, financial position and cash flows of Central Parking and
Allright as if Allright had been part of Central Parking since October 31, 1996,
the date of Allright's inception.
The Company incurred merger costs of approximately $41.0 million in fiscal
1999 in connection with the merger with Allright. These costs, which are
directly attributable to the merger and incremental to the combining
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companies, are recognized when incurred and are reflected in the accompanying
statement of earnings as merger costs. Included in these costs are approximately
$20.7 million for professional fees; comprised of investment banking, legal,
accounting, and consulting fees; $11.3 million related to employment agreements
and severance contracts; $7 million related to the restructuring agreement with
the limited partner of Edison (See Note 1(g)); and the balance of $2.0 million
in travel, supplies, printing, and other out of pocket costs. In connection with
the merger, Allright entered into certain employment and management continuity
agreements with certain employees. See Note 13.
Following are the results of operations for the separate companies prior to the
merger and the combined amounts presented in the consolidated financial
statements (in thousands):
YEARS ENDED SEPTEMBER 30
1997 1998
-------------------------------
Total revenue:
Central Parking $220,454 $383,175
Allright 118,483 217,224
-------- --------
$338,937 $600,399
======== ========
Earnings (loss) before income taxes
and
Extraordinary item:
Central Parking $ 32,412 $ 44,224
Allright (715) 2,294
-------- --------
$ 31,697 $ 46,518
======== ========
PURCHASE ACQUISITIONS
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
million 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 management contract 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 Northeastern, part of the United
States. 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")
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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 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 straight-line basis over 25 years.
National Garages, Inc.
On December 1, 1997, Allright purchased substantially all of the assets of
National Garages, Inc. ("National"), a privately owned parking company based in
Detroit, which operated facilities located primarily in the Midwestern United
States. The purchase price of approximately $3.7 million was paid in cash and
financed through working capital and $2.2 million in debt under Allright's
previous revolving line of credit.
Kinney System Holding Corp.
On February 12, 1998, Central Parking acquired Kinney System Holding Corp
("Kinney"), a privately held parking company headquartered in New York City, for
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. Central Parking
financed the Kinney acquisition through borrowings under the Company's credit
facility, and ultimately from the issuance of Central Parking common stock and
Central Parking obligations pursuant to the Trust Issued Preferred Securities.
Kinney operated parking facilities in the New York City metropolitan area,
Boston, Philadelphia and Washington, D.C. The acquisition was accounted for as a
purchase and the results of operations are included in the Company's
consolidated financial statements from February 12, 1998. The excess of purchase
price over the fair value of 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 ("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 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 thousand (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
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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.
Allied Parking
On October 1, 1998, Allright purchased from Allied Parking, Inc. ("Allied")
four leases relating to parking facilities in New York City, with maturities
ranging from 2006 to 2029 for approximately $14.2 million. Allied agreed to
lease to Allright two more lots for 19 years, each in exchange for a note
receivable of $4.9 million, secured by an assignment of rents. Allright also
purchased the right to use the "Allied Parking" name associated with these
leases for $835 thousand. On November 8, 1998, Allright purchased six additional
leases from Allied Parking with maturities ranging from 1999 to 2008 for $5.1
million. Allright also purchased the right to use the "Allied Parking" name
associated with these leases for $300 thousand. During April 1999, the Company
purchased an additional lease from Allied Parking which matures in 2020 for $3.0
million, and also purchased the right to use the "Allied Parking" name
associated with it as part of the purchase price.
New York Partnership
On May 28, 1999 the Company purchased the remaining 60% interest in a
partnership, a limited liability company, which operates a parking facility in
New York City for $20.5 million in cash. The Company previously owned 40% of the
partnership. The previous partner will continue to manage the garage for the
next 7 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
October 1, 1997 (in thousands except for earnings per share):
Twelve Months Ended
September 30, 1998
------------------
Total revenues $ 653,122
Earnings before income taxes and extraordinary item 42,232
Net earnings, before extraordinary item 22,461
Basic earnings before extraordinary item per share $ 0.64
Basic weighted average common shares outstanding 34,982
Diluted earnings before extraordinary item per share $ 0.63
Diluted weighted average common shares outstanding 35,682
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, 1998 do not reflect certain operational and financial combination
benefits which, in management' opinion, are the direct result of the Square and
Kinney acquisitions.
Prime Group Realty Trust
On May 10, 1999, the Company announced a definitive agreement to purchase a
parking facility that is being developed in Chicago by a wholly owned subsidiary
of Prime Group Realty Trust (NYSE: PGE). The purchase price is approximately
$37.3 million. The garage will have a total of 1,018 parking spaces as well as
4,200 square feet suitable for retail. Under the terms of the agreement, the
purchase will occur upon completion of the parking facility, which is expected
in the latter part of 2000.
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(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 was included in
net gains on sales and divestitures of property and equipment in the
consolidated statement of earnings for fiscal 1997.
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 thousand 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, 1999, the book
value of the note receivable was $11.5 million.
In June 1997, Allright loaned the limited partner of Edison $16.5 million
in connection with Allright's acquisition of its general partnership interest in
Edison. In conjunction with the merger of Allright and Central Parking, the
partnership agreement was restructured and an additional $9.9 million was
advanced to the limited partner. The amended note receivable totals $26.4
million and bears interest at 10%. The note matures June 1, 2006 and is secured
by a pledge of, and security interest in, the limited partner's partnership
interest in Edison.
In connection with the Allright merger, the Company acquired a mortgage
note of $2.5 million, bearing interest at 7.7%, from a partnership which is
secured by a parking garage and rental assignments. The loan is a balloon note
which matures in August 2010. In connection with the acquisition of Allied, the
Company obtained notes receivables totaling $4.9 million, secured by an
assignment of rents from the properties being leased. The notes are payable
monthly and bear interest at the rate of 7%.
The remainder of the notes receivable consist of notes ranging from $17
thousand to $1.1 million at the end of fiscal 1998, and notes ranging from $10
thousand to $1.5 million at the end of fiscal 1999. The notes bear interest at
rates ranging from 8% to 12% at the end of fiscal 1999.
(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,
1998 1999
------------------------------
Amortized cost $ 5,087 $ 5,488
Unrealized gains 276 67
Unrealized losses (8) (75)
----------- -------------
Fair value $ 5,355 $ 5,480
=========== =============
The amortized cost and approximate fair value of debt securities at
September 30, 1999 by average estimated maturity are shown below (in thousands):
AMORTIZED COST FAIR VALUE
------------------------------------------------------------------------------------
Due in one year or less $ 679 $ 675
Due after one year through five years 1,714 1,763
Due after five years through ten years 1,920 1,939
Due after ten years 1,175 1,103
----------- -------------
Total securities $ 5,488 $ 5,480
=========== =============
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(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,
1998 1999
- ----------------------------------------------------------------------------------------------------------
Leasehold improvements $ 25,364 $ 38,579
Buildings and garages 52,482 72,302
Operating equipment 36,662 52,907
Furniture and fixtures 3,657 5,101
Capital leases 5,127 5,096
Aircraft 4,250 4,250
----------- -------------
$ 127,542 $ 178,235
Less accumulated depreciation and amortization 28,836 46,667
----------- -------------
98,706 131,568
Land 283,800 289,522
----------- -------------
Property, equipment and
leasehold improvements, net $ 382,506 $ 421,090
=========== =============
In the fourth quarter of fiscal 1999, the Company recognized an impairment
loss of approximately $1.2 million related to a parking garage which the Company
intends to dispose of. The net book value of the property before impairment
charge approximated $4.6 million and the estimated net realizable value, based
on a signed sale contract, is estimated to be $3.4 million. The sale is expected
to close in January 2000.
(6) INTANGIBLE AND OTHER ASSETS.
Contract and lease rights and accumulated amortization are as follows (in
thousands):
SEPTEMBER 30,
1998 1999
----------------------------------------------------------------------------------------
Contract and lease rights $ 71,403 $ 115,535
Less accumulated amortization 8,931 18,377
----------- -------------
Contract and lease rights, net $ 62,472 $ 97,158
=========== =============
Goodwill at September 30, 1998 and 1999 consists of (in thousands):
SEPTEMBER 30,
1998 1999
----------------------------------------------------------------------------------------
Excess of purchase price over net assets acquired $ 298,082 $ 298,831
Less accumulated amortization 9,912 21,031
----------- -------------
Goodwill, net $ 288,170 $ 277,800
=========== =============
Amortization of goodwill amounted to $1.5 million, $8.0 million, and $11.1
million for the years ended September 30, 1997, 1998, and 1999, respectively.
Included in other assets are unamortized balances related to non-competition
agreements of $1.8 million at September 30, 1998, and $1.9 million at September
30, 1999.
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35
(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, 1998 and
1999, and for the three years ended September 30, 1999 (in thousands):
INVESTMENT IN
AND ACCUMULATED ADVANCES
LOSSES IN TO PARTNERSHIPS
PARTNERSHIPS AND AND JOINT
JOINT VENTURES VENTURES
1998 1999 1998 1999
- -------------------------------------------------------------------------------------------------------------------
Civic Parking, LLC $ 14,907 $ 14,439 $ -- $
Commerce Street Joint Venture (872) (898) 721 688
Larimer Square Parking Associates 1,007 1,003 2,212 2,022
12 West 48th Street, LLC 8,585 -- -- --
Lodo Parking Garage 1,230 1,200 -- --
Arizona Stadium Parking Garage LLC 1,505 1,540 -- --
CPS Mexico 976 1,615 2,313 3,222
157166 Canada, Inc. (47) (46) 1,138 1,150
Walnut-12 1,197 932 -- --
Other 5,464 3,995 40 1,356
----------- ----------- ----------- ---------
$ 33,952 $ 23,780 $ 6,424 $ 8,438
=========== =========== =========== =========
EQUITY IN PARTNERSHIPS AND JOINT VENTURES
JOINT VENTURES EARNINGS DEBT
1997 1998 1999 1998 1999
- -------------------------------------------------------------------------------------------------------------------
Civic Parking, LLC $ 2,877 $ 2,383 $ 1,844 $ 59,709 $ 59,060
Commerce Street Joint Venture 504 602 584 7,346 7,058
Larimer Square Parking Associates 59 103 164 3,334 3,137
12 West 48th Street, LLC -- 548 510 -- --
Lodo Parking Garage 126 145 203 -- --
Arizona Stadium Parking Garage LLC -- 230 20 1,976 1,969
CPS Mexico 514 505 638 -- --
157166 Canada, Inc. (3) (4) 5 -- --
Walnut-12 143 164 158 -- --
Other 18 570 1,107 4,481 4,343
--------- --------- --------- --------- ---------
$ 4,238 $ 5,246 $ 5,233 $ 76,846 $ 75,567
========= ========= ========= ========= =========
(a) Civic Parking, LLC
The Company has a 50% joint venture ownership in Civic Parking LLC ("Civic")
which owns four parking garages and retail space in St. Louis Missouri. The
Company's results of operations include 50% of the net earnings of Civic for the
periods presented.
In March 1998, Civic obtained financing with a financial institution for
approximately $60 million. Civic distributed the loan proceeds to its
shareholders, and as a result, Central Parking received in 1998 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,
1998 1999
-------------------------------------
Financial position:
Land, property and equipment, net $ 89,124 $ 88,304
Cash 1,662 1,121
Other assets 108 344
Liabilities (60,932) (60,567)
------------- -------------
Net assets $ 29,962 $ 29,202
============= =============
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36
YEAR ENDED SEPTEMBER 30,
1998 1999
-------------------------------------
Results of operations:
Revenue $ 9,241 $ 10,038
Cost of operations 4,649 6,704
------------- -------------
Net earnings $ 4,592 $ 3,334
Distributions to Central Parking $ 32,910 $ 2,313
============= =============
(b) Commerce Street Joint Venture Realty
Commerce Street Joint Venture Realty, a subsidiary of Central Parking
Corporation, 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 $8.6 million (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.
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 $743 thousand and $716 thousand at
September 30, 1998 and 1999, respectively. The Bonds require monthly interest
and principal payments at the index rate (prime) plus 250 basis points (11% at
September 30, 1999) 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
The Company owns a 50% interest in a joint venture that owns 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 thousand in the joint venture and loaned the joint venture $1.1 million 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 $1.4 million 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
increased by $3.8 million to reflect the estimated fair value of the
partnership's underlying net assets. During 1999, the Company purchased the
remaining 60% interest in the limited liability company for $20.5 million in
cash. The previous partner will continue to manage the garage for the next seven
years.
(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. The Company purchased the remaining interest in
this partnership in November 1999 for $1.5 million.
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37
(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 $2.3
and $3.2 million at September 30, 1998 and 1999, respectively, to the affiliate.
These loans bear interest between 10% and 15% and require principal payments
over various terms through 2001.
(h) 157166 Canada, Inc.
In September 1998, the Company acquired a 50% interest in a Canadian joint
venture which holds a parking facility in Montreal, Quebec. The Company operates
this parking facility for the joint venture.
(8) LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt and capital lease obligations consisted of the following (in
thousands):
As of September 30,
1998 1999
--------------------------
New Credit Facility
Term note payable $ -- $ 200,000
Revolving credit facility -- 149,100
Previous Credit Facility
Term note payable -- --
Revolving credit facility 48,150 --
Allright Facilities
CSFB Term Loans 184,954 --
Permitted Acquisition Loan 31,260 --
Other notes payable 8,048 6,715
Capital lease obligations 13,788 13,348
-------- ----------
Total 286,200 369,163
Less: current maturities of long term obligations (2,881) (31,682)
-------- ----------
Total long term obligations $283,319 $ 337,481
======== ==========
On March 19,1999, the Company established a new credit facility (the "New
Credit Facility") providing for an aggregate availability of up to $400 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 $200 million
five-year term loan. The principal amount of the term loan shall be repaid in
quarterly payments of $12.5 million commencing June 30, 2000 and continuing
until the loan is repaid. Interest is payable on borrowings under the New Credit
Facility, at the election of the Company, at either a "Base Rate" or a
"Eurodollar Rate" (each as defined in the New Credit Facility agreement), plus a
grid based margin based upon the Company achieving certain financial ratios
(prior to and including June 30,1999, borrowings under the New Credit Facility
were fixed at either prime rate plus 0.5% or LIBOR plus a margin of 1.125%). The
Company used the New Credit Facility to replace the Company's previous credit
facility and to refinance the existing debt of Allright. The amount outstanding
under the Company's New Credit Facility as of September 30, 1999 is $349.1
million with a weighted average interest rate of 6.45% as of September 30, 1999.
The New Credit Facility contains covenants including those that require the
Company to maintain certain financial ratios, restrict further indebtedness and
limit the amount of dividends paid. On December 28, 1999 the Company entered
into an amendment and waiver to the New Credit Facility agreement relating to
the waiver of non-compliance with certain loan covenants at September 30, 1999.
This amendment and waiver contains, among other things, provisions for up-front
fees of 0.125%. Interest rates are not be affected by the amendment and will
continue to be based upon the existing grid and determined based on certain
financial ratios, as amended.
The Company is required under the New Credit Facility to enter into certain
interest rate protection agreements designed to fix interest rates on variable
rate debt and reduce exposure to fluctuations in interest rates. On October
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38
27, 1999 the Company entered into a $25 million interest rate swap for a term of
four years, cancelable after two years at the option of the counterparty, under
which the Company will pay to the counterparty a fixed rate of 6.16%, and the
counterparty will pay to the Company a variable rate equal to LIBOR. The
transaction involved an exchange of fixed rate payments for variable rate
payments and do not involve the exchange of the underlying nominal value.
The Company had previously established a credit facility (the "Previous
Credit Facility") providing 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 $100 million term loan was repaid with proceeds from securities
offerings completed in March 1998, and the remaining balance of the revolving
credit facility was repaid with proceeds from the New Credit Facility.
In October 1996, Allright entered into a credit agreement for the purpose
of financing the purchase of Allright Corporation ("CFSB Term Loan").
Additionally, in October 1996, Allright defeased all of its Industrial
Development Revenue Bonds (IRBs) in the amount of $17.9 million and recorded an
extraordinary loss of $1.0 million, net of tax. At September 30, 1999,
approximately $15.0 million of the IRB's remain outstanding in a trust secured
by U.S. Treasury Bills which were used to defease these instruments. The credit
facility was obtained in two tranches with two sub-portions to the first
tranche. The first tranche, sub-part A of $30 million, bore an annual interest
rate of one month LIBOR plus 3.00% through October 30, 1998, and LIBOR plus
3.25% thereafter. The first tranche, sub-part B of $125 million bore an annual
interest rate of LIBOR plus 3.00% through October 31, 1998, and LIBOR plus 3.25%
thereafter. The second tranche, of $30 million, bore an annual interest rate of
12.25% up to October 30, 1998, and 12.5% thereafter. All tranches were set to
mature October 30, 1999. These obligations were repaid upon consummation of the
merger of Allright and the Company from proceeds of the New Credit Facility,
described above. In connection with the repayment of such amounts, the Company
recognized an extraordinary loss of $1.0 million, net of tax.
Allright had a revolving line of credit (Permitted Acquisition Loan) with a
maximum borrowing capacity of $75 million, maturing October 30, 1999. The
Permitted Acquisition Loan provided for interest per annum equal to LIBOR plus
3.75 percent on outstanding borrowings. Allright also had a revolving line of
credit and letter of credit agreement ("revolver") with a maximum borrowing
capacity of $5.1 million, maturing October 1, 1999. The revolver provided for
interest per annum equal, at the Company option, to either the Prime Rate of
interest or LIBOR plus 2.75 percent on outstanding borrowings. The revolver and
permitted acquisition facilities were terminated in conjunction with the merger.
In addition to the Credit Facility, the Company also has several notes
payable outstanding totaling $6.7 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 1999 to 2021. Future maturities under these
notes payable are as follows (in thousands):
YEAR ENDED
SEPTEMBER 30,
----------------
2000 $ 2,683
2001 397
2002 355
2003 390
2004 426
Thereafter 2,464
----------------
$ 6,715
================
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, 1999 was $7.9 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
59
39
approximately $183,000 per month. The lease agreements run through December
2003.
The future minimum lease payments under all capital lease obligations are
as follows (in thousands):
YEAR ENDED SEPTEMBER
2000 $ 4,991
2001 3,616
2002 3,214
2003 2,605
2004 814
Thereafter 1,742
-------------
16,982
Less interest portion at rates ranging from
6.1% to 10% (3,635)
Less current portion (3,999)
-------------
$ 9,348
=============
(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
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.
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.
In connection with Allright's acquisition of Allright Corporation in
October 1996, warrants to purchase 1,177 shares of Allright common stock at
$0.01 exercise price were issued. The fair value of the warrants on the date of
grant, estimated at $1,177,000, was recorded as additional purchase
consideration in the formation of Allright. As a result of the Company's merger
with Allright, such warrants represent rights to acquire 103,148 shares of
Central Parking common stock.
Effective October 1, 1997, the Company adopted the provisions of SFAS No.
128. SFAS No. 128 replaced the
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40
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, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
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 before
extraordinary item $18,686 30,070 $0.62 $26,145 34,618 $0.76 $4,684 36,349 $0.13
Effects of dilutive
stock and options:
Stock option plan
and warrants -- 210 (.01) -- 474 (0.02) -- 466 --
Restricted stock plan -- 185 -- -- 172 -- -- 173 --
Deferred stock unit plan -- -- -- -- 9 -- -- 30 --
Employee stock
Purchase plan -- 47 -- -- 39 -- -- 38 --
------- ------ ----- ------- ------ ----- ------ ------ -----
Diluted earnings per
share before
extraordinary item $18,686 30,512 $0.61 $26,145 35,312 $0.74 $4,684 37,056 $0.13
======= ====== ===== ======= ====== ===== ====== ====== =====
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 and deferred compensation agreement, because under the
related agreements the holders of restricted stock will forfeit such shares if
certain employment or service requirements are not met. 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 for all periods. At
September 30, 1999, such securities were convertible into 2,000,000 shares of
common stock. Options to acquire 481,573 shares of common stock were excluded
from the 1999 diluted earnings per share calculation because they were
antidilutive.
(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.
Future minimum rental commitments under operating leases and subleases are as
follows (in thousands):
YEAR ENDED SEPTEMBER 30,
------------------------
Fixed Sub-rental Net
Rent Income Rent
------------------------------------------------
2000 $ 196,116 $ 5,734 $ 190,382
2001 165,201 4,681 160,520
2002 135,256 3,664 131,592
2003 111,678 3,350 108,328
2004 92,278 2,779 89,499
Thereafter 622,379 8,008 614,371
------------ ----------- -------------
Total future operating lease commitments $ 1,322,908 $ 28,216 $ 1,294,692
============ =========== =============
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41
Rental expense for all operating leases and rental income from subleases are
reflected in cost of parking and were as follows (in thousands):
YEAR ENDED SEPTEMBER
1997 1998 1999
----------------------------------------------
Rentals:
Minimum $ 108,169 $ 206,241 $ 237,684
Contingent 36,131 60,989 75,732
----------- ---------- -----------
Total rent expense 144,300 267,230 313,416
Less sub-lease income 4,809 8,433 12,706
----------- ----------------------------
Total rent expense, net $ 139,491 $ 258,797 $ 300,710
=========== ========== ===========
(12) INCOME TAXES
Income tax expense consists of the following (in thousands):
YEAR ENDED SEPTEMBER
1997 1998 1999
----------------------------------------------
Current:
Federal $ 9,940 $ 13,593 $ 12,781
Jobs credit, net of federal tax benefit (98) (247) (325)
----------- ---------- ------------
Net federal current tax expense 9,842 13,346 12,456
State 1,940 3,251 1,355
Non-U.S 894 999 1,612
----------- ---------- ------------
12,676 17,596 15,423
Deferred:
Federal and state 366 2,780 (3,043)
Non-U.S. (31) (3) --
----------- ---------- ------------
335 2,777 (3,043)
----------- ---------- ------------
Total income tax expense from continuing operations $ 13,011 $ 20,373 $ 12,380
=========== ========== ===========
Total income taxes are allocated as follows (in thousands):
YEAR ENDED SEPTEMBER
1997 1998 1999
----------------------------------------------
Income tax expense from continuing operations $ 13,011 $ 20,373 $ 12,380
Acquisition related expenses for tax purposes
in excess of amounts recognized for financial
reporting purposes (1,423) (1,467) (707)
Shareholders' equity, for compensation expense for
tax purposes in excess of amounts recognized for
financial reporting purposes (213) (568) (635)
Extraordinary item (502) -- (587)
----------- ---------- -----------
Total income taxes $ 10,873 $ 18,338 $ 10,451
=========== ========== ===========
Provision has not been made for U.S. or additional foreign taxes on
approximately $11.9 million, $12.1 million and $14.8 million at September 30,
1997, 1998, and 1999, respectively, of undistributed earnings of foreign
subsidiaries, as those earnings are intended to be permanently reinvested.
A reconciliation between actual income taxes and amounts computed by
applying the federal statutory rate to earnings before income taxes and
extraordinary item is summarized as follows (in thousands):
Year Ended September 30,
1997 1998 1999
$ % $ % $ %
--------------------------------------------------------------
U.S. Federal statutory rate on earnings before
income taxes and extraordinary loss $ 11,094 35.0% $ 16,281 35.0% $ 5,972 35.0%
State and city income taxes, net of federal
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42
income tax benefits 1,296 4.1 2,113 4.5 881 5.2
Jobs credits, net of federal tax benefit (98) -0.3 (247) -0.5 (325) -1.9
Non-deductible goodwill amortization 524 1.7 2,598 5.6 3,438 20.1
Non-deductible merger costs -- -- -- -- 3,820 22.4
Other 195 0.5 (372) -0.8 (1,406) -8.3
--------------------------------------------------------------
Income tax expense from continuing operations $ 13,011 41.0% $ 20,373 43.8% $ 12,380 72.5
==============================================================
Sources of deferred tax assets and deferred tax liabilities are as follows (in
thousands):
SEPTEMBER 30,
1998 1999
----------------------------
Deferred tax assets:
Deferred compensation expense $ 6,182 $ 6,105
Accrued expenses and reserves 104 25
Prepaid expenses 333 288
Charitable contribution of property 1,922 696
Net operating loss carry forwards 19,990 21,200
Capitalized leases 2,554 2,396
Tax credit carry forwards 587 849
Temporary differences related to Edison and its management contracts 702 4,030
Deferred and capitalized expenses 4,635 5,518
Other 462 397
---------- -----------
Total gross deferred tax assets 37,471 41,504
Deferred tax liabilities:
Deferred tax gain on sales of properties (1,367) (1,367)
Deferred installment gain on sale of property (2,019) (2,019)
Timing differences in recognition of partnership earnings (702) (590)
Accrued expenses and reserves -- (833)
Property, plant and equipment, due to differences in
depreciation and purchase business combinations (47,923) (46,402)
Other (446) (384)
---------- -----------
Total gross deferred tax liabilities (52,457) (51,595)
Valuation allowance on net operating loss carry forwards (17,363) (17,364)
---------- -----------
Net deferred tax liabilities $ (32,349) $ (27,455)
========== ===========
As of September 30, 1999, the Company has Federal net operating loss carry
forwards of approximately $46.1 million, state and city net operating loss carry
forwards of approximately $76.5 million, and foreign net operating loss carry
forwards of approximately $0.5 million which expire between 2002 and 2014. The
ability of the Company to fully utilize these net operating losses is limited
due to changes in ownership of the companies which generated these losses. These
limitations have been considered in determining the deferred tax asset valuation
allowance shown above. 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 2,317,500 common shares have been reserved for issuance
under these two plans combined. Options representing 1,145,546 shares are
outstanding under this plan at September 30, 1999. 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, 1999, 279,311 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-
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43
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
211,500 shares are outstanding under this plan at September 30, 1999.
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, 1999, 175,400 shares had been issued under this
plan.
As part of the transactions effecting the formation of Allright in October
1996, management of the Allright Corporation was granted an effective interest
equal to $5.5 million. $1.7 million of this commitment was granted in October
1996.
Effective January 1, 1998, the Allright 1998 Employee Stock Option Plan
(the "1998 Incentive Plan") authorized 3,850 shares of common stock to be
available for awards. The 1998 Incentive Plan is intended in part, as a vehicle
by which Allright's board of directors could fulfill the commitment made to
management of Allright Corporation, the predecessor company. Effective May 20,
1998, 1,605 incentive stock options (ISOs) were issued to management of Allright
to purchase 1,605 shares of Allright's common stock at a price of $1,700 per
share. Under the terms of the award, at the time of exercise, a special cash
bonus shall be paid equal to the number of shares of common stock for which the
ISO has been exercised times $1,700 per share. One-third of the ISOs vested on
May 20, 1998, one-third on January 1, 1999, and the remaining third will vest
on January 1, 2000. The ISOs expire January 1, 2008. In connection with the
merger, these options were converted into options to purchase 140,657 shares of
Central Parking common stock.
In February 1997, stock options to purchase 2,917 shares of Allright's
common stock were granted to an executive of Allright at an option price per
share above market on the date of grant. Vesting commenced on March 1, 1997,
with such options vesting at the rate of 61 shares per month. In connection with
the merger, these options were converted into options to purchase 255,636 shares
of Central Parking common stock.
In July 1997, stock options to purchase 740 shares of common stock were
granted to an executive of Allright at an option price per share above market on
the date of grant. The options were scheduled to vest 25 percent on July 25,
1998, 1999, 2000 and 2001. In connection with the merger, these options were
converted into options to purchase 64,851 shares of Central Parking common
stock.
Based on the terms in the respective agreements, all options to acquire
Allright's common stock outstanding at June 30, 1999 accelerated at various
rates due to the consummation of the merger between Allright and Central
Parking.
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, 1996 319,425 $8.00 to $21.67
----------------------------------------------------------------------------------------------------------
Granted 537,609 $12.55 to $30.50
Exercised 45,525 $8.00
Canceled 18,000 $21.25
----------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1997 793,509 $8.00 to $30.50
----------------------------------------------------------------------------------------------------------
Granted 587,155 $19.40 to $51.06
Exercised 52,370 $8.00 to $22.50
Canceled 53,250 $21.25 to $43.44
---------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1998 1,275,044 $8.00 to $51.06
----------------------------------------------------------------------------------------------------------
Granted 330,370 $27.75 to $50.38
Exercised 174,836 $8.00 to $32.54
Canceled 73,532 $21.25 to $50.38
---------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1999 1,357,046 $8.00 to $51.06
----------------------------------------------------------------------------------------------------------
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At September 30, 1999, options to purchase 853,601 shares of common stock
were exercisable at a weighted average exercise price of $20.32. Such options
had a weighted average remaining contractual life of 7.8 years.
The range of exercise prices per share for such options was $8.00 to $51.06.
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,
1997 1998 1999
----------------------------------------------------
As reported:
Net income (in thousands) $ 17,654 $ 26,145 $ 3,682
Basic earnings per share 0.59 0.76 0.10
Diluted earnings per share 0.58 0.74 0.10
Pro Forma - SFAS 123
Net income (in thousands) $ 16,462 $ 23,114 $ 1,807
Basic earnings per share 0.55 0.67 0.05
Diluted earnings per share 0.54 0.65 0.05
The estimated weighted average fair value of the options granted were
$8.64 for 1997 option grants, $12.00 for 1998 option grants, and $16.02 for
1999 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 37%, 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.
(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.
A trusteed noncontributory profit sharing plan covered substantially all of
the employees of Allright and was merged with the Company's existing profit
sharing plan effective July 1, 1999.
Employer expense associated with these plans was $1.8 million, $2.8
million, and $2.3 million in years 1997, 1998, and 1999, respectively.
(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 $5.2 million, $5.8 million, and $5.0 million
in years 1997, 1998 and 1999, 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
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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 thousand 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 thousand until his death and, in the event his wife
survives him, she is entitled to annual payments of $300 thousand 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 $88
thousand, $330 thousand, and $370 thousand in fiscal years 1997, 1998 and 1999,
respectively.
Agreements with certain former key executives of Allright provide for
aggregate annual payments ranging from $20 thousand to $144 thousand per year
for periods ranging from 10 years to life, beginning when the executive retires
or upon death or disability. Under certain conditions, the amount of deferred
benefits can be reduced. Life insurance contracts with a face value of
approximately $9.3 million have been purchased to fund, as necessary, the
benefits under these agreements. The cash surrender value of the life insurance
contracts is approximately $1.1 million and $1.5 million at June 30, 1998 and
September 30, 1999, respectively, and is included in other non-current assets.
The plan is a nonqualified plan and is not subject to ERISA funding
requirements. Net deferred compensation costs for 1997, 1998 and 1999 were $316
thousand, $494 thousand and $557 thousand, respectively. At September 30, 1999,
the Company had recorded a liability of $7.4 million for accrued pension costs
associated with this plan. The weighted average discount rate and rate of
increase in future compensation levels used in determining the actuarial present
value of the projected benefit obligations was 7%.
(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, 1999 $1.1 million of compensation has been deferred under
this plan.
(f) Employment Agreements
In connection with the Allright merger, Allright and the Company entered
into various employment agreements with employees of Allright. These agreements
included (a) retention payments to be made at the closing date of the merger if
the individuals were still employees at such date, (b) two-year employment
agreements, 50% of each employee's benefit thereunder to be paid at the closing
date of the merger and the other 50% to be paid two years after such date,
assuming the individuals were still employed with the Company, and (c)
continuity benefits which were to be paid six months after the closing date of
the merger, assuming the individuals were still employed at such date. As of
September 30, 1999, payments made under these agreements total $9.3 million.
Accrued and unpaid amounts related to the second installment of the two-year
employment agreements totaled $300 thousand at September 30, 1999. All expenses
associated with these agreements have been recognized in fiscal 1999, except for
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the unearned portion of the second installment of the two-year employment
agreements ($700 thousand).
(14) RELATED PARTIES
The Company leases two properties from an entity 50% owned by the Company's
chairman for $290 thousand per year for a 10-year term and pays percentage rent
to the entity. Total rent expense, including percentage rent, was $354 thousand,
$442 thousand, and $531 thousand in 1997, 1998 and 1999, 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.
In connection with the acquisition of Kinney, the Company entered into a
consulting agreement with a director of the Company. The Company paid $200
thousand to the director pursuant to this agreement during fiscal 1999.
Additionally, the Company has entered into a limited partnership agreement with
the same director whereby the director has agreed to seek new business
opportunities in the form of leases and management contracts and renewals of
existing leases and contracts as requested by the Company. During the
fiscal year ended September 30, 1999, the Company paid or accrued approximately
$418 thousand to the director in connection with this agreement.
(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 various dollar amounts, subject to annual aggregate limits.
In connection with the initial formation of Allright and its acquisition of
Allright Corporation (predecessor company), Nedinco Delaware Incorporated
("Nedinco") and Hang Lung Development Company Ltd. agreed to indemnify Allright
for certain costs and liabilities incurred in connection with or arising out of
Allright's Corporation's operations prior to October 31, 1996. A $25 million
letter of credit supports this indemnification.
(16) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments made for interest and income taxes were as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
1997 1998 1999
----------------------------------------------
Interest $ 14,837 $ 27,516 $ 32,971
Income tax 12,231 17,901 12,181
(17) BUSINESS SEGMENTS
The Company's business activities consist of domestic and foreign
operations. Foreign operations are conducted primarily in the United Kingdom,
Canada, and Ireland. The Company also conducts business through joint ventures
in Mexico, Germany, Poland, Spain and Chile. Revenues attributable to foreign
operations were less than 10% of consolidated revenues for each of fiscal years
1997, 1998 and 1999. In 1999, the United Kingdom and Canada account for 62.5%
and 34.1% of total foreign revenues, respectively. 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
1997 1998 1999
----------------------------------------------
Total revenues:
Domestic $ 312,719 $ 566,472 $ 702,260
Foreign 26,218 33,927 34,201
----------- ----------- -----------
Consolidated $ 338,937 $ 600,399 $ 736,461
=========== =========== ===========
Operating earnings:
Domestic $ 37,798 $ 68,140 $ 31,370
Foreign 2,628 3,512 5,089
----------- ----------- -----------
Consolidated $ 40,426 $ 71,652 $ 36,459
=========== =========== ===========
Earnings before income taxes and extraordinary item:
Domestic $ 28,858 $ 42,801 $ 10,999
Foreign 2,839 3,717 6,065
----------- ----------- -----------
Consolidated $ 31,697 $ 46,518 $ 17,064
=========== =========== ===========
Identifiable assets:
Domestic $ 587,594 $ 935,210 $ 1,040,644
Foreign 11,099 18,812 23,933
----------- ----------- -----------
Consolidated $ 598,693 $ 954,022 $ 1,064,577
=========== =========== ===========
The Company is managed based on segments administered by senior vice
presidents. These segments are generally organized geographically, with
exceptions depending on the needs of specific regions. The following is a
summary of revenues, costs, and other expenses by segment for the year ended
September 30, 1999. It is impractical for the Company to report such segment
information for prior years due to the numerous acquisitions in those periods,
the Allright merger, and the Company's computer conversions in 1999 (in
thousands).
All others
One Two Three Four Five Int'l & gen'l Corp Total
-------------------------------------------------------------------------------------
Parking revenue $ 90,371 $ 268,802 $95,177 $101,772 $61,832 $27,121 $ -- $ 645,075
Management contract 16,814 22,616 16,733 12,573 15,570 7,080 -- 91,386
-------------------------------------------------------------------------------------
Total revenues 107,185 291,418 111,910 114,345 77,402 34,201 -- 736,461
Cost of parking 78,782 214,816 83,244 85,252 54,043 25,020 -- 541,157
Cost of management 4,878 7,424 7,409 4,383 3,985 (339) -- 27,740
General & admin, goodwill,
impairment and merger costs 11,311 34,614 14,130 9,763 8,591 4,431 48,265 131,105
-------------------------------------------------------------------------------------
Operating earnings 12,214 34,564 7,127 14,947 10,783 5,089 (48,265) 36,459
Interest income/(expense)/
dividends, net (295) (18,325) (2,640) (308) (647) (138) (3,885) (26,238)
Gains / losses 4,222 4,222
Minority interest -- (2,612) -- -- -- -- -- (2,612)
Equity in partnerships and
joint ventures 746 -- -- -- 139 1,114 3,234 5,233
---------------------------------------------------------------------
Earnings before income tax
and extraordinary items 12,665 13,627 4,487 14,639 10,275 6,065 (44,694) 17,064
Income tax 12,380
------
Net earnings before
extraordinary items 4,684
Extraordinary items,
net of tax (1,002)
------
Net earnings 3,682
=====
Identifiable assets $ 52,514 $ 352,937 $84,489 $ 32,805 $42,366 $23,933 $475,533 $1,064,577
=====================================================================================
Segment One encompasses the western region of the United States, including West
Texas, and Louisiana.
Segment Two encompasses the northeastern region of the United States, including
New York, New Jersey, Eastern Pennsylvania, and New England.
Segment Three encompasses the southeastern region of the United States, and also
includes Washington D.C.
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Segment Four encompasses parts of the mid-western region of the United States,
and also includes upstate New York. The executive responsible for Segment
Four administers parts of Canada as well.
Segment Five encompasses the inter-mountain region of the United States,
including Northern Texas and parts of the Mid-west.
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