UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2002
Commission file number 001-13950
CENTRAL PARKING CORPORATION
---------------------------
(Exact Name of Registrant as Specified in Its Charter)
Tennessee 62-1052916
-------------------------------------------------------------------- ------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
2401 21st Avenue South,
Suite 200, Nashville, Tennessee 37212
---------------------------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (615) 297-4255
---------------
Former name, address and fiscal year, if changed since last report: Not Applicable
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Class Outstanding at August 9, 2002
----------------------------- -----------------------------
Common Stock, $0.01 par value 35,947,669
Page 1 of 25
INDEX
CENTRAL PARKING CORPORATION
PART I. FINANCIAL INFORMATION PAGE
------- ---------------------- ----
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets
-- June 30, 2002 and September 30, 2001 3
Condensed consolidated statements of earnings
-- three and nine months ended June 30, 2002 and 2001 4
Condensed consolidated statements of cash flows
-- nine months ended June 30, 2002 and 2001 5
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosure about Market Risk 23
PART II. OTHER INFORMATION
-------- -------------------
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 24
Page 2 of 25
PART I. FINANCIAL INFORMATION
--------------------------------
Item 1. Financial Statements
-------------------------------
CENTRAL PARKING CORPORATION
Condensed Consolidated Balance Sheets
Unaudited
Amounts in thousands, except share data
June 30, September 30,
2002 2001
----------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 34,571 $ 41,849
Management accounts receivable 38,496 32,613
Accounts receivable - other 14,099 16,149
Current portion of notes receivable (including amounts due from partnerships,
joint ventures and unconsolidated subsidiaries of $5,888 at June 30, 2002
and $4,304 at September 30, 2001) 8,433 6,836
Prepaid expenses 11,214 6,939
Deferred income taxes 259 259
----------- ---------------
Total current assets 107,072 104,645
Notes receivable, less current portion 42,887 42,931
Property, equipment and leasehold improvements, net 426,607 415,405
Contract and lease rights, net 112,438 88,094
Goodwill, net 251,533 250,630
Investment in and advances to partnerships, joint ventures
and unconsolidated subsidiaries 15,375 30,704
Other assets 49,344 54,472
----------- ---------------
Total Assets $1,005,256 $ 986,881
=========== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 53,229 $ 53,337
Accounts payable 79,566 77,887
Accrued expenses 29,722 24,997
Management accounts payable 23,319 20,541
Income taxes payable 14,396 7,134
----------- ---------------
Total current liabilities 200,232 183,896
Long-term debt and capital lease obligations, less current portion 195,269 208,885
Deferred rent 30,385 22,310
Deferred income taxes 14,944 15,757
Minority interest 30,970 31,121
Other liabilities 34,030 33,466
----------- ---------------
Total liabilities 505,830 495,435
----------- ---------------
Company-obligated mandatorily redeemable convertible securities of
subsidiary holding solely parent debentures 78,085 110,000
Shareholders' equity:
Common stock, $0.01 par value; 50,000,000 shares authorized, 35,945,319
and 35,791,550 shares issued and outstanding at June 30, 2002 and
September 30, 2001, respectively 360 358
Additional paid-in capital 241,600 238,464
Accumulated other comprehensive loss, net (2,070) (1,979)
Retained earnings 182,373 145,308
Other (922) (705)
----------- ---------------
Total shareholders' equity 421,341 381,446
----------- ---------------
Total Liabilities and Shareholders' Equity $1,005,256 $ 986,881
=========== ===============
See accompanying notes to condensed consolidated financial statements.
Page 3 of 25
CENTRAL PARKING CORPORATION
Condensed Consolidated Statements of Earnings
Unaudited
Amounts in thousands, except per share data
Three months ended Nine months ended
June 30, June 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues:
Parking $151,664 $154,260 $448,804 $454,785
Management contract and other 31,301 24,885 90,246 75,959
--------- --------- --------- ---------
182,965 179,145 539,050 530,744
Reimbursement of management contract expenses 97,370 90,986 289,705 273,477
--------- --------- --------- ---------
Total revenues 280,335 270,131 828,755 804,221
--------- --------- --------- ---------
Costs and expenses:
Cost of parking 133,452 128,485 391,932 379,180
Cost of management contracts 12,403 11,193 37,743 31,192
General and administrative 17,224 17,474 52,571 51,311
Goodwill and non-compete amortization 94 3,001 310 9,003
--------- --------- --------- ---------
163,173 160,153 482,556 470,686
Reimbursed management contract expenses 97,370 90,986 289,705 273,477
--------- --------- --------- ---------
Total costs and expenses 260,543 251,139 772,261 744,163
--------- --------- --------- ---------
Property-related gains (losses), net (2,298) (3,058) 4,735 (2,577)
--------- --------- --------- ---------
Operating earnings 17,494 15,934 61,229 57,481
Other income (expenses):
Interest income 1,277 1,362 4,087 4,341
Interest expense (3,142) (4,457) (9,461) (15,726)
Dividends on Company-obligated mandatorily redeemable
convertible securities of a subsidiary trust (1,093) (1,472) (3,823) (4,415)
Gain on repurchase of Company-obligated mandatorily
redeemable convertible securities of a subsidiary trust 881 -- 9,245 --
Equity in partnership and joint venture earnings 1,271 1,510 3,252 4,152
--------- --------- --------- ---------
Earnings before income taxes, minority interest
and cumulative effect of accounting change 16,688 12,877 64,529 45,833
Income tax expense (5,211) (5,007) (22,199) (17,711)
Minority interest, net of tax (1,374) (1,133) (3,652) (2,969)
--------- --------- --------- ---------
Earnings before cumulative effect of accounting change 10,103 6,737 38,678 25,153
Cumulative effect of accounting change, net of tax -- -- -- (258)
--------- --------- --------- ---------
Net earnings $ 10,103 $ 6,737 $ 38,678 $ 24,895
========= ========= ========= =========
Basic earnings per share:
Earnings before cumulative effect of accounting change $ 0.28 $ 0.19 $ 1.08 $ 0.70
Cumulative effect of accounting change, net of tax -- -- -- --
--------- --------- --------- ---------
Net earnings $ 0.28 $ 0.19 $ 1.08 $ 0.70
========= ========= ========= =========
Diluted earnings per share:
Earnings before cumulative effect of accounting change $ 0.28 $ 0.19 $ 1.07 $ 0.70
Cumulative effect of accounting change, net of tax -- -- -- (0.01)
--------- --------- --------- ---------
Net earnings $ 0.28 $ 0.19 $ 1.07 $ 0.69
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
Page 4 of 25
CENTRAL PARKING CORPORATION
Condensed Consolidated Statements of Cash Flows
Unaudited
Amounts in thousands
Nine months ended
June 30,
2002 2001
--------- ---------
Cash flows from operating activities:
Net earnings $ 38,678 $ 24,895
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 25,759 32,567
Equity in partnership and joint venture earnings (3,252) (4,152)
Distributions from partnerships and joint ventures 3,353 2,649
Net (gains) losses on property-related activities (4,735) 2,577
Gain on repurchase of company-obligated mandatorily redeemable
securities of a subsidiary trust (9,245) --
Deferred income taxes (963) (537)
Minority interest 3,652 2,969
Changes in operating assets and liabilities (net of acquisitions):
Management accounts receivable (3,799) 1,208
Accounts receivable - other 2,616 (1,461)
Prepaid expenses (4,275) 526
Other assets 1,614 (7,102)
Accounts payable, accrued expenses and other liabilities 5,239 (12,461)
Management accounts payable 2,340 (3,943)
Deferred rent 8,075 1,961
Income taxes payable 7,236 (6,864)
--------- ---------
Net cash provided by operating activities 72,293 32,832
--------- ---------
Cash flows from investing activities:
Proceeds from disposition of property and equipment 15,716 21,325
Proceeds from sale of investment in partnership 18,399 --
Purchase of property, equipment and leasehold improvements (19,777) (22,562)
Purchase of contract and lease rights (18,801) (2,041)
Acquisitions, net of cash acquired (17,662) --
Other investing activities (483) 2,430
--------- ---------
Net cash used by investing activities (22,608) (848)
--------- ---------
Cash flows from financing activities:
Dividends paid (1,613) (1,625)
Net borrowings under revolving credit agreement 9,500 16,100
Principal repayments on long-term debt and capital lease obligations (41,512) (42,478)
Payment to minority interest partners (3,972) (3,672)
Repurchase of common stock (488) (10,863)
Repurchase of mandatorily redeemable securities (21,823) --
Proceeds from issuance of common stock and exercise of stock options 3,261 2,077
--------- ---------
Net cash used by financing activities (56,647) (40,461)
--------- ---------
Foreign currency translation (316) 176
--------- ---------
Net decrease in cash and cash equivalents (7,278) (8,301)
Cash and cash equivalents at beginning of period 41,849 43,214
--------- ---------
Cash and cash equivalents at end of period $ 34,571 $ 34,913
========= =========
See accompanying notes to condensed consolidated financial statements.
Page 5 of 25
CENTRAL PARKING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Central Parking Corporation ("Central Parking" or the "Company") have been
prepared in accordance with accounting principles generally accepted in the
United States of America and pursuant to the rules and regulations of the
Securities and Exchange Commission related to interim financial statements.
Accordingly, these financial statements do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, the unaudited condensed consolidated financial statements reflect
all adjustments considered necessary for a fair presentation, consisting only of
normal and recurring adjustments. All significant inter-company transactions
have been eliminated in consolidation. Operating results for the three and nine
months ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 30, 2002. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto for the year ended
September 30, 2001 (included in the Company's annual report on Form 10-K).
Certain prior year amounts have been reclassified to conform to current year
presentation.
(2) ACQUISITIONS
BUSINESS COMBINATIONS
The Company completed the four business combinations described below during
the nine months ended June 30, 2002. Each acquisition was financed through the
Company's existing credit facility and was accounted for as a purchase. The
operating results of the acquisitions have been included from their respective
dates of acquisition. Pro forma results for prior periods are not presented as
the impact of acquisitions to reported results is not significant. The net
assets acquired and liabilities assumed are summarized as follows (in
thousands):
Estimated fair value of tangible assets acquired $ 5,542
Estimated fair value of intangible assets acquired 14,339
Purchase price in excess of net assets acquired (goodwill) 903
Estimated fair value of liabilities assumed (2,936)
--------
Net purchase price 17,848
Cash acquired (186)
--------
Net cash paid for acquisitions $17,662
========
Park One of Louisiana, LLC
On January 1, 2002, the Company purchased certain assets and liabilities of
Park One of Louisiana, LLC, for $5.6 million in cash. The purchase included 24
management and 17 lease contracts located in New Orleans, Louisiana. The fair
value of the assets acquired as of the acquisition date was as follows (in
thousands):
Tangible assets $ 491
Contract rights 5,864
Liabilities assumed (805)
-------
Net assets acquired $5,550
=======
The tangible assets purchased and liabilities assumed consist primarily of
management accounts receivable and management accounts payable, respectively.
The contract rights will be amortized over 15 years, which is the estimated life
of the contracts including future renewals.
USA Parking Systems
On October 1, 2001, the Company purchased substantially all of the assets
of USA Parking Systems, Inc, for $11.5 million in cash. The purchase included 61
management and lease contracts located primarily in south Florida and Puerto
Rico. The fair value of the assets acquired as of the acquisition date was as
follows (in thousands):
Page 6 of 25
Tangible assets $ 2,779
Noncompete agreement 175
Trade name 100
Contract rights 8,475
-------
Net assets acquired $11,529
=======
The tangible assets primarily consisted of accounts receivable and parking
equipment. The noncompete agreement is with the seller, who is now employed by
the Company. The duration of the agreement extends five years beyond the
seller's termination of such employment and will begin to be amortized when such
termination occurs. The trade name is included as goodwill and is not subject to
amortization. The contract rights will be amortized over 15 years, which is the
average estimated life of the contracts including future renewals. The purchase
agreement also contained an incentive provision whereby the seller may receive
an additional payment of up to $2.3 million based on the earnings of USA Parking
for the twelve months ended March 31, 2004. The incentive provision is not
conditional upon employment. Any amounts owed under this incentive provision
will be recorded as goodwill in the period incurred.
Universal Park Holdings
On October 1, 2001, the Company purchased 100% of the common stock of
Universal Park Holdings ("Universal") for $535 thousand. Universal provides fee
collection and related services for state, local and national parks and had
contracts to provide these services to six parks in the western United States as
of the acquisition date. The purchase price included $385 thousand paid in cash
at closing and a $150 thousand commitment to be paid after one year, contingent
upon retention of acquired contracts. The purchase resulted in goodwill of $646
thousand, which is not deductible for tax purposes. This acquisition expanded
the Company's presence in the municipal, state and national parks market.
Lexis Systems, Inc.
On October 1, 2001, the Company purchased a 70% interest in Lexis Systems,
Inc. ("Lexis") for $350 thousand in cash. Lexis manufactures and sells automated
pay stations used primarily for parking facilities. The purchase resulted in
goodwill of $157 thousand, which is not deductible for tax purposes. The Company
intends to use the automated pay stations in its existing parking operations as
well as for sale to other parking operators.
PROPERTY ACQUISITIONS
In April 2002, the Company acquired four properties in Atlanta for $16.5
million, including acquisition costs. The purchase was funded through two notes
payable secured by the acquired properties. The notes require the Company to
make monthly interest payments at a weighted average rate of one-month LIBOR
plus 157.5 basis points, with the principal balance due in April 2007. The
properties are currently being leased to another parking operator.
LEASE RIGHTS
In January 2002, the Company purchased the lease rights for three locations
in New York City from an unrelated third party for $16.4 million in cash. The
lease rights will be amortized over the remaining terms of the individual lease
agreements which range from 10 to 30 years. The Company had previously operated
each of these locations under an agreement entered into in September 1992. This
agreement, which terminates in August 2004, initially covered approximately 80
locations; however, all but seven of these locations had been renegotiated with
extended terms or terminated as of June 30, 2002. These seven remaining
locations had revenues and operating income of approximately $14 million and $3
million, respectively, in fiscal 2001. The Company intends to enter into
negotiations to extend the terms of these remaining locations prior to the
termination of the existing agreement. There can be no assurance that these
locations will be renewed or, if renewed, that the new agreements will not have
substantially different terms.
The Company is entitled to receive a termination fee, as defined in the
agreement, as the third party disposes of certain properties or renegotiates the
lease agreements. The termination fee is based on the earnings of the location
and the remaining duration of the agreement. During the nine months ended June
30, 2002, the Company received $8.4 million in termination fees related to the
three locations described above and two additional locations which were disposed
of during the period. These amounts have been recorded as deferred rent and will
be amortized through August 2004 to offset the guaranteed rent payments due
under the original agreement.
Page 7 of 25
(3) EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock, or if restricted
shares of common stock were to become fully vested. The following table sets
forth the computation of basic and diluted earnings per share:
Three months ended Three months ended
June 30, 2002 June 30, 2001
-------------------------------- --------------------------------
Income Common Income Common
Available Shares Per Share Available Shares Per Share
($000's) (000's) Amount ($000's) (000's) Amount
----------- ------- ---------- ----------- ------- ----------
Basic earnings per share. . . . . . . $ 10,103 35,923 $ 0.28 $ 6,737 35,740 $ 0.19
Effect of dilutive stock and options:
Stock option plan . . . . . . . . -- 664 -- -- 91 --
Restricted stock plan . . . . . . -- -- -- -- 69 --
----------- ------- ---------- ----------- ------- ----------
Diluted earnings per share. . . . . . $ 10,103 36,587 $ 0.28 $ 6,737 35,900 $ 0.19
=========== ======= ========== =========== ======= ==========
Nine months ended Nine months ended
June 30, 2002 June 30, 2001
------------------------------- -------------------------------
Income Common Income Common
Available Shares Per Share Available Shares Per Share
($000's) (000's) Amount ($000's) (000's) Amount
----------- ------- ----------- ----------- ------- ----------
Basic earnings per share before
cumulative effect of accounting change $ 38,678 35,817 $ 1.08 $ 25,153 35,818 $ 0.70
Effect of dilutive stock and options:
Stock option plan. . . . . . . . . . -- 373 (0.01) -- 106 --
Restricted stock plan. . . . . . . . -- -- -- -- 122 --
----------- ------- ----------- ----------- ------- ----------
Diluted earnings per share before
cumulative effect of accounting change $ 38,678 36,190 $ 1.07 $ 25,153 36,046 $ 0.70
=========== ======= =========== =========== ======= ==========
The company-obligated mandatorily redeemable securities of the subsidiary
trust have not been included in the diluted earnings per share calculation since
such securities are anti-dilutive. At June 30, 2002 and 2001, such securities
were convertible into 1,419,730 and 2,000,000 shares of common stock,
respectively. For the three months ended June 30, 2002 and 2001, options to
purchase 402,897 and 2,005,406 shares, respectively, are excluded from the
calculation of diluted common shares since they are anti-dilutive. Also, for
the nine months ended June 30, 2002 and 2001, options to purchase 914,636 and
1,884,357 shares, respectively, are excluded since such options are
anti-dilutive.
(4) PROPERTY-RELATED GAINS (LOSSES), NET
The Company routinely disposes of or impairs owned properties and leasehold
improvements due to various factors, including economic considerations,
unsolicited offers from third parties, loss of contracts and condemnation
proceedings initiated by local government authorities. Leased properties are
also periodically evaluated and determinations may be made to sell or exit a
lease obligation. A summary of property-related gains and losses for the three
and nine months ended June 30, 2002 and 2001 is as follows:
Three months ended Nine months ended
June 30, June 30,
2002 2001 2002 2001
---------- ---------- -------- --------
Net gains on sale of property $ 313 $ 1,131 $ 5,173 $ 6,650
Impairment charges for property, equipment
and leasehold improvements (420) (200) (481) (915)
Impairment charges for contract rights, lease
rights and other intangible assets (2,191) -- (3,810) (492)
Net gains on sale of partnership interests -- -- 3,853 --
Lease termination costs -- (3,989) -- (7,820)
---------- ---------- -------- --------
Total property-related gains (losses), net $ (2,298) $ (3,058) $ 4,735 $(2,577)
========== ========== ======== ========
Page 8 of 25
On January 28, 2002, the Company sold its 50% interest in Civic Parking,
LLC ("Civic") for $18.4 million. The transaction resulted in a pre-tax gain of
$3.9 million which is included as a property-related gain for the nine months
ended June 30, 2002. Additionally, the Company recognized $5.2 million of
pre-tax gains on sales of property during the nine months ended June 30, 2002,
primarily from the condemnation of a property in Houston. The Company wrote off
prepaid rent of $2.2 million and leasehold improvements of $0.4 million during
the three months ended June 30, 2002 related to a property in New York City
where the carrying value of the assets was no longer supportable by projected
future cash flows. This was in addition to write-offs of $0.7 million of prepaid
rent in the second quarter of fiscal 2002 related to a condemned location in New
York City and $0.9 million of contract rights in the first quarter of fiscal
2002 for locations in Houston, Fort Worth and San Diego that are no longer
operated by the Company.
The Company recognized $6.7 million of pre-tax gains from property sales
during the nine months ended June 30, 2001. These gains primarily related to the
sale of properties in Baltimore, Birmingham, Chattanooga, Chicago, Houston, St.
Louis and Toledo. Lease termination costs for the nine months ended June 30,
2001 include $6.3 million which the Company incurred to exit unfavorable leases
in New York City during the second and third quarters of fiscal 2001 and $1.5
million which the Company paid to exit an unfavorable lease in Philadelphia
during the first quarter of fiscal 2001. Impairment charges during the nine
months ended June 30, 2001 comprised $0.9 million attributable to properties
where the operating lease agreements were amended such that the carrying value
of the leasehold improvements were no longer supportable by projected future
cash flows. The remaining $0.5 million of impairment charges reflects a
reduction in certain Allright-related intangible assets which are no longer of
value to the Company.
Impaired assets in all periods were held for use at the time of impairment.
The Company determines impairment by comparing the carrying value of the assets
to the projected undiscounted future cash flows from the property or properties
to which they relate. If projected future cash flows are less than the carrying
value of the asset, the asset is considered to be impaired and the carrying
value is written down to its fair value.
(5) GOODWILL AND INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 141 also specifies
criteria which intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. SFAS
No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment at least
annually. Any impairment loss would be measured as of the date of adoption,
and recognized as the cumulative effect of a change in accounting principle.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.
The Company was required to adopt the provisions of SFAS No. 141
immediately. SFAS No. 142 must be adopted by October 1, 2002, but may be
adopted earlier. The Company has elected this early adoption as of October 1,
2001. SFAS No. 142 requires that the Company evaluate its existing intangible
assets and goodwill that were acquired in a prior purchase business combination,
and to make any necessary reclassifications in order to conform with the new
criteria in SFAS No. 141 for recognition apart from goodwill. With the adoption
of SFAS No. 142, the Company has reassessed the useful lives and residual values
of all intangible assets acquired in purchase business combinations, and has
determined that no amortization period adjustments are required. As of June 30,
2002, the Company has not identified any intangible assets with indefinite
useful lives, other than goodwill.
The transitional provisions of SFAS No. 142 require the Company to perform
an assessment of whether there is an indication that goodwill is impaired as of
the date of adoption. To accomplish this, the Company must identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company is structured into geographical segments. Each segment consists of
several cities which report to a single senior vice president. For purposes of
allocating and evaluating goodwill and intangible assets, the Company considers
each city to be a separate reporting unit. The Company has up to six months from
the date of adoption to determine the fair value of each reporting unit and
compare it to the reporting unit's carrying amount. To the extent a reporting
unit's carrying amount exceeds its fair value, an indication exists that the
reporting unit's goodwill may be impaired and the Company must perform the
Page 9 of 25
second step of the transitional impairment test. In the second step, the Company
must compare the implied fair value of the reporting unit's goodwill, determined
by allocating the reporting unit's fair value to all of its assets (recognized
and unrecognized) and liabilities in a manner similar to a purchase price
allocation in accordance with SFAS No. 141, to its carrying amount, both of
which would be measured as of the date of adoption. This second step is required
to be completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings. The Company has completed step one of the transition process and has
identified an estimate of pre-tax impairment loss related to the transition
testing ranging from $3 million to $20 million related to business units in
Chicago and New Jersey. As of September 30, 2001, the goodwill allocated to
these two business units approximated $20 million. The Company will complete the
second step of the goodwill impairment transition testing and recognize any
impairment charges prior to the end of the current fiscal year.
As of September 30, 2001, the Company's unamortized goodwill amounted to
$250.6 million and unamortized identifiable intangible assets amounted to $88.1
million, all of which were subject to the transition provisions of SFAS No. 142.
The effects of adoption of SFAS No. 142 on results of operations for the three
and nine months ended June 30, 2002 and 2001, are as follows (in thousands,
except per share data):
Three months Nine months
ended June 30, ended June 30,
2002 2001 2002 2001
------- ------ ------- -------
Reported net earnings $10,103 $6,737 $38,678 $24,895
Add back: Goodwill amortization, net of tax -- 2,702 -- 8,107
------- ------ ------- -------
Pro forma net earnings $10,103 $9,439 $38,678 $33,002
======= ====== ======= =======
Basic earnings per share:
Reported net earnings $ 0.28 $ 0.19 $ 1.08 $ 0.70
Goodwill amortization -- 0.07 -- 0.22
------- ------ ------- -------
Pro forma net earnings $ 0.28 $ 0.26 $ 1.08 $ 0.92
======= ====== ======= =======
Diluted earnings per share:
Reported net earnings $ 0.28 $ 0.19 $ 1.07 $ 0.69
Goodwill amortization -- 0.07 -- 0.22
------- ------ ------- -------
Pro forma net earnings $ 0.28 $ 0.26 $ 1.07 $ 0.91
======= ====== ======= =======
As of June 30, 2002, the Company had the following amortizable intangible
assets (in thousands):
Gross
Carrying Accumulated
Amount Amortization Net
--------- ------------- --------
Amortizable intangible assets
Contract and lease rights $ 149,974 $ 37,536 $112,438
Noncompete agreements 2,575 2,090 485
--------- ------------- --------
Total $ 152,549 $ 39,626 $112,923
========= ============= ========
Amortization expense related to the contract and lease rights and
noncompete agreements was $2,696,000 and $94,000, respectively, for the three
months ended June 30, 2002, and $7,732,000 and $310,000, respectively, for the
nine months ended June 30, 2002.
In accordance with SFAS No. 142, the Company assigned its goodwill to its
various reporting units during the second quarter of fiscal 2002. The following
table reflects this assignment by reported segment as of October 1, 2001, and
the changes in the carrying amounts for the nine months ended June 30, 2002 (in
thousands):
Page 10 of 25
One Two Three Four Five Six Other Total
------ -------- ------- ----- ------ ------- ------ --------
Balance as of October 1, 2001 $5,829 $194,784 $13,227 $ 831 $5,660 $30,299 $ -- $250,630
Acquired during the period 646 -- -- -- -- -- 257 903
------ -------- ------- ----- ------ ------- ------ --------
Balance as of June 30, 2002 $6,475 $194,784 $13,227 $ 831 $5,660 $30,299 $ 257 $251,533
====== ======== ======= ===== ====== ======= ====== ========
(6) LONG-TERM DEBT
In March 1999, the Company entered into a credit facility (the "Credit
Facility") initially 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 $40 million for standby letters of credit, and a $200
million five-year term loan. The Credit Facility bears interest at LIBOR plus a
grid-based margin dependent upon the Company achieving certain financial ratios.
The amount outstanding under the Company's Credit Facility was $210.0 million
with a weighted average interest rate of 3.3% as of June 30, 2002, including the
principal amount of the term loan of $87.5 million. The term loan is required
to be repaid in quarterly payments of $12.5 million through March 2004. The
aggregate availability under the Credit Facility was $50.0 million at June 30,
2002, which is net of $27.5 million of stand-by letters of credit. The 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 two primary ratios are a leverage ratio and a fixed charge
coverage ratio. Quarterly compliance is calculated using a four quarter rolling
methodology and measured against certain targets.
The Company is required to maintain the aforementioned financial covenants
under the Credit Facility as of the end of each fiscal quarter. The Company was
in compliance with these financial covenants as of June 30, 2002; however, there
can be no assurance that the Company will be in compliance with one or more of
these covenants in future quarters. The Company continues to evaluate various
financing alternatives as it seeks to optimize the rate, duration and mix of its
debt.
(7) CONVERTIBLE TRUST ISSUED PREFERRED SECURITIES
In 1998, the Company completed a private placement of 4,400,000 shares at
$25.00 per share of 5.25% convertible trust issued preferred securities (the
"Preferred Securities"). The Preferred Securities prohibit the payment of
dividends on the Company's common stock if quarterly distributions on the
Preferred Securities are not made.
In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other provisions, the statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, which required that all
gains and losses on extinguishment of debt be classified as an extraordinary
item, net of tax, on the face of the income statement. The statement is
effective for all fiscal years beginning after May 15, 2002, but may be adopted
earlier. The Company adopted this statement in the third quarter of fiscal
2002, retroactive to October 1, 2001.
On June 28, 2002, the Company repurchased 138,800 shares of its Preferred
Securities for $2.5 million. On March 30, 2002, the Company repurchased 500,000
shares of its Preferred Securities for $9.3 million. On December 28, 2001, the
Company repurchased 637,795 shares of the Preferred Securities for $10.0
million. For the three and nine months ended June 30, 2002, these transactions
resulted in pre-tax gains of $0.9 and $9.2 million, net of writedowns of a
proportionate share of the related deferred finance costs of $0.1 and $0.9
million, respectively. Such gains were previously reported as extraordinary
items, net of tax, in the Company's statement of earnings, but are now
classified as a separate component of other income as a result of adoption of
SFAS No. 145. All prior period gains have been reclassified to conform to the
new presentation. The other provisions of SFAS No. 145 are not expected to have
a material effect on the Company's financial statements.
(8) SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash transactions and cash paid for interest and taxes for the nine
months ended June 30, 2002 and 2001, were as follows (in thousands):
Page 11 of 25
Nine months ended
June 30,
2002 2001
-------- -------
Non-cash transactions:
Purchase of real estate and equipment with debt,
including deferred finance costs $17,146 $ --
Unrealized (gain) loss on fair value of derivatives $ (225) $ 1,234
Cash paid for interest $ 9,024 $15,230
Cash paid for income taxes $15,492 $24,783
(9) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses variable rate debt to finance its operations. These debt
obligations expose the Company to variability in interest payments due to
changes in interest rates. If interest rates increase, interest expense
increases. Conversely, if interest rates decrease, interest expense also
decreases. Management believes it is prudent to limit the variability of its
interest payments.
To meet this objective, the Company enters into various types of derivative
instruments to manage fluctuations in cash flows resulting from interest rate
risk. These instruments include interest rate swaps and caps. Under the
interest rate swaps, the Company receives variable interest rate payments and
makes fixed interest rate payments, thereby creating fixed-rate debt. The
purchased interest rate cap agreements also protect the Company from increases
in interest rates that would result in increased cash interest payments made
under its Credit Facility. Under the agreements, the Company has the right to
receive cash if interest rates increase above a specified level.
The Company does not enter into derivative instruments for any purpose
other than cash flow hedging purposes. That is, the Company does not speculate
using derivative instruments. The Company assesses interest rate cash flow risk
by continually identifying and monitoring changes in interest rate exposures
that may adversely impact expected future cash flows and by evaluating hedging
opportunities. The Company maintains risk management control systems to monitor
interest rate cash flow risk attributable to both the Company's outstanding or
forecasted debt obligations as well as the Company's offsetting hedge positions.
The risk management control systems involve the use of analytical techniques,
including cash flow sensitivity analysis, to estimate the expected impact of
changes in interest rates on the Company's future cash flows.
In June 1998, FASB 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. In June 2000, SFAS No. 138 Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an Amendment of FASB Statement No.
133, was issued clarifying the accounting for derivatives under the new
standard. On October 1, 2000, the Company prospectively adopted the provisions
of SFAS No. 133 and SFAS No. 138, which resulted in the recording of a net
transition loss of $380 thousand, net of related income taxes of $253 thousand,
in accumulated other comprehensive loss. Under SFAS No. 133, the Company
recognizes all derivatives as either assets or liabilities, measured at fair
value, in the statement of financial position. Prior to adoption of SFAS No.
133 and SFAS No. 138, the Company recorded interest rate cap instruments at cost
and amortized these costs into interest expense over the terms of the cap
agreements. Amounts received under the cap agreements were recorded against
interest expense. Amounts paid or received under the swap agreements were
recorded as increases or decreases to interest expense. The adoption of SFAS
No. 133 and SFAS No. 138 resulted in the Company reducing derivative instrument
assets by $280 thousand and recording $353 thousand of derivative instrument
liabilities.
At June 30, 2002, the Company's derivative financial instruments consisted
of three interest rate cap agreements with a combined notional amount of $75
million and two interest rate swaps with a combined notional amount of $38
million that effectively convert an equal portion of its debt from a variable
rate to a fixed rate. The derivative financial instruments are reported at their
fair values, and are included as other assets and other liabilities,
respectively, on the face of the balance sheet. The following table lists the
amortized cost and carrying value (fair value) of each type of derivative
financial instrument (amounts in thousands):
Page 12 of 25
June 30, 2002 September 30, 2001
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ------ ---------- ------
Derivative instrument assets:
Interest rate caps $ 306 $ 16 $ 440 $ 63
Derivative instrument liabilities:
Interest rate swaps $ -- $2,687 $ -- $2,975
The underlying terms of the interest rate swaps and caps, including the
notional amount, interest rate index, duration, and reset dates, are identical
to those of the associated debt instruments and therefore the hedging
relationship results in no ineffectiveness. Accordingly, such derivative
instruments are classified as cash flow hedges. As such, any changes in the fair
market value of the derivative instruments are included in accumulated other
comprehensive loss on the face of the balance sheet. Approximately $107
thousand, net of income tax benefit of $72 thousand, is expected to be amortized
to earnings in the next twelve months.
During the three and nine months ended June 30, 2002, the Company
recognized unrealized (losses) gains of ($275) and $225 thousand, respectively,
net of related income tax benefit (expense) of $183 and ($150) thousand,
respectively, in accumulated other comprehensive loss. During the three and nine
months ended June 30, 2001, the Company recognized unrealized gains (losses) of
$152 and ($854) thousand, respectively, net of related income tax (expense)
benefit of ($101) and $569 thousand, respectively, in accumulated other
comprehensive loss. The Company decreased derivative instrument assets by $26
and $45 thousand and increased (decreased) derivative instrument liabilities by
$477 and ($288) thousand for the three and nine months ended June 30, 2002,
respectively. The Company increased (decreased) derivative instrument assets by
$19 and ($218) thousand and increased (decreased) derivative instrument
liabilities by ($190) thousand and $1.3 million for the three and nine months
ended June 30, 2001, respectively.
(10) REVENUE RECOGNITION
The Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements ("SAB 101") during the quarter ended March 31, 2001 as a
change in accounting principle retroactive to October 1, 2000. Adoption of SAB
101 required the Company to change the timing of recognition of performance-
based revenues on certain management contracts. The cumulative effect of this
accounting change was a loss of $258 thousand, net of tax of $171 thousand, as
of October 1, 2000.
In January 2002, the Emerging Issues Task Force ("EITF") released Issue No.
01-14, Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred, which the Company adopted in the third
quarter of fiscal 2002. This pronouncement requires the Company to recognize as
both revenues and expenses, in equal amounts, costs directly reimbursed from its
management clients. Previously, expenses directly reimbursed under management
agreements were netted against the reimbursement received. Amounts have been
reclassified to conform to the presentation of these reimbursed expenses in all
prior periods presented. Adoption of the pronouncement resulted in an increase
in total revenues and total costs and expenses in equal amounts of $97.4 million
and $91.0 million for the three months ended June 30, 2002 and 2001,
respectively, and $289.7 million and $273.5 million for the nine months ended
June 30, 2002 and 2001, respectively. This accounting change has no impact on
operating earnings or net earnings.
(11) RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supersedes both SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No.
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale. SFAS No. 144 also
resolves certain implementation issues associated with SFAS No. 121 by providing
guidance on how a long-lived asset that is used as part of a group should be
evaluated for impairment, establishing criteria for when a long-lived asset is
held for sale, and prescribing the accounting for a long-lived asset that will
be disposed of other than by sale. SFAS No. 144 retains the basic provisions of
Opinion 30 on how to present discontinued operations in the income statement but
Page 13 of 25
broadens that presentation to include a component of an entity (rather than a
segment of a business). SFAS No. 144 does not apply to goodwill. Rather,
goodwill is evaluated for impairment under SFAS No. 142. The Company will adopt
SFAS No. 144 for the quarter ending December 31, 2002. Management does not
expect such adoption to have a material impact on the Company's financial
statements because the impairment assessment under SFAS No. 144 is largely
unchanged from SFAS No.121.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Statement 146
replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. Management
does not expect this statement to have a material impact on the Company's
financial statements.
(12) COMMITMENTS AND CONTINGENCIES
The Company entered into a partnership agreement effective June 1, 2000, to
operate certain locations in Puerto Rico. The Company is the general partner.
The partners entered into an option agreement on that date whereby the other
partner has the option to sell its partnership interest to the Company during
the period from May 1, 2003 to November 30, 2003. If the other partner does not
exercise its option, then the Company has an option to purchase the other
partner's interest during the period from May 1, 2004 to October 31, 2004. The
agreed upon purchase price under both of these options is approximately $14.3
million, backed by a letter of credit provided by the Company's chairman. The
Company believes that it is probable that one of these options will be exercised
and, accordingly, has included this commitment on its balance sheet in other
liabilities.
(13) COMPREHENSIVE INCOME
Comprehensive income for the three and nine months ended June 30, 2002 and
2001, was as follows (in thousands):
Three months Nine months
ended June 30, ended June 30,
2002 2001 2002 2001
-------- ------ -------- --------
Net earnings $10,103 $6,737 $38,678 $24,895
Gain (loss) on fair value of derivatives (275) 152 225 (1,234)
Foreign currency cumulative translation adjustment (170) 1 (316) 176
-------- ------ -------- --------
Comprehensive income $ 9,658 $6,890 $38,587 $23,837
======== ====== ======== ========
(14) BUSINESS SEGMENTS
The Company is managed based on segments administered by senior vice
presidents. These segments are generally organized geographically, with
exceptions depending on the needs of specific regions. The following are
summaries of revenues and operating earnings of each segment for the three and
nine months ended June 30, 2002 and 2001, as well as identifiable assets for
each segment as of June 30, 2002 and 2001. During fiscal year 2002, the Company
realigned certain locations among segments. All prior year segment data has
been reclassified to conform to the new segment alignment.
Three months Nine months
ended June 30, ended June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues:
Segment One $ 29,155 $ 27,735 $ 91,191 $ 81,081
Segment Two 103,716 110,182 311,213 327,583
Segment Three 41,440 40,440 124,661 123,823
Segment Four 28,199 25,308 81,347 71,442
Segment Five 32,310 34,232 98,650 103,474
Segment Six 31,655 30,955 92,116 91,533
Other 13,860 1,279 29,577 5,285
-------- -------- -------- --------
Total revenues $280,335 $270,131 $828,755 $804,221
======== ======== ======== ========
Page 14 of 25
Operating earnings:
Segment One $ 579 $ 1,612 $ 2,376 $ 4,147
Segment Two 5,836 2,714 18,172 13,595
Segment Three 3,148 2,884 10,593 8,934
Segment Four 1,915 1,974 5,653 6,015
Segment Five 2,306 2,202 8,168 7,504
Segment Six 1,987 2,083 6,033 5,192
Other 1,723 2,465 10,234 12,094
-------- -------- -------- --------
Total operating earnings $ 17,494 $ 15,934 $ 61,229 $ 57,481
======== ======== ======== ========
June 30,
2002 2001
---------- --------
Identifiable assets:
Segment One $ 17,486 $ 21,811
Segment Two 376,533 359,586
Segment Three 37,055 31,746
Segment Four 35,887 28,736
Segment Five 24,633 23,037
Segment Six 41,986 45,865
Other 471,676 483,212
---------- --------
Total assets $1,005,256 $993,993
========== ========
Segment One encompasses the western region of the United States and Vancouver,
BC.
Segment Two encompasses the northeastern United States, including New York City,
New Jersey, Boston and Philadelphia.
Segment Three encompasses Texas, Louisiana, Ohio and parts of Tennessee and
Alabama.
Segment Four encompasses Florida, Puerto Rico, Europe, Central and South
America.
Segment Five encompasses the midwestern region of the United States, as well as
western Pennsylvania and western New York. It also includes Canada (except
Vancouver).
Segment Six encompasses the southeastern region of the United States, including
North and South Carolina, Virginia, West Virginia and Washington, D.C.
Other encompasses home office, eliminations, owned real estate, USA Parking and
certain partnerships.
Page 15 of 25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
--------------
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This report includes various forward-looking statements regarding the
Company that are subject to risks and uncertainties, including, without
limitation, the factors set forth below and under the caption "Risk Factors" in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations section of the Company's annual report on Form 10-K for the year
ended September 30, 2001. 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 report, and the Company's annual report on Form 10-K for the year ended
September 30, 2001 could affect the future financial results of the Company and
could cause actual results to differ materially from those expressed in
forward-looking statements contained or incorporated by reference in this
document:
-- ongoing integration of acquisitions, in light of challenges in retaining
key employees, implementing technology systems, synchronizing business
processes and efficiently integrating facilities, marketing, and
operations;
-- successful implementation of the Company's operating and growth strategy,
including possible strategic acquisitions;
-- successful renegotiation and retention of leases and management agreements
on terms favorable to the Company;
-- fluctuations in operating results caused by a variety of factors including
the timing of property-related gains and losses, preopening costs, the
effect of weather on travel and transportation patterns, player strikes or
other events affecting major league sports, acts of terrorism, restrictions
imposed on travel and local, national and international economic
conditions;
-- the ability of the Company to form and maintain strategic relationships
with key real estate owners and operators;
-- global and/or regional economic factors
-- compliance with laws and regulations, including, without limitation,
environmental, anti-trust and consumer protection laws and regulations at
the federal, state and international levels.
OVERVIEW
The Company operates parking facilities under three types of arrangements:
leases, fee ownership, and management contracts. As of June 30, 2002, the
Company operated 1,780 parking facilities through management contracts, leased
1,894 parking facilities, and owned 212 parking facilities, either independently
or in joint ventures with third parties. Parking revenues consist of revenues
from leased and owned facilities. Cost of parking relates to both leased and
owned facilities and includes rent, payroll and related benefits, depreciation
(if applicable), maintenance, insurance, and general operating expenses.
Management contract and other revenues consist of management fees (both fixed
and performance based) and fees for ancillary services such as insurance,
accounting, equipment leasing, and consulting. The cost of management contracts
includes insurance premiums and claims and other indirect overhead.
Parking revenues from owned properties amounted to $16.9 million and $18.1
million for the three months ended June 30, 2002 and 2001, respectively,
representing 11.2% and 11.8% of total parking revenues for the respective
periods. For the nine months ended June 30, 2002 and 2001, parking revenues from
owned properties were $50.7 million and $54.7 million, respectively,
representing 11.3% and 12.0% of total parking revenues for the respective
periods. Ownership of parking facilities, either independently or through joint
ventures, typically requires a larger capital investment and greater risk than
managed or leased facilities, but provides maximum control over the operation of
the parking facility and the greatest profit potential of the three types of
operating arrangements. All owned facility revenues flow directly to the
Company, and the Company has the potential to realize benefits of appreciation
in the value of the underlying real estate if the property is sold. The
ownership of a parking facility brings the Company complete responsibility for
all aspects of the property, including all structural, mechanical or electrical
maintenance or repairs.
Page 16 of 25
Parking revenues from leased facilities amounted to $134.7 million and
$136.1 million for the three months ended June 30, 2002 and 2001, respectively,
and $398.1 million and $400.1 million for the nine months ended June 30, 2002
and 2001, respectively. Parking revenues from leased facilities accounted for
88.8% and 88.2% of total parking revenues for the three months ended June 30,
2002 and 2001, respectively, and 88.7% and 88.0% of total parking revenues for
the nine months ended June 30, 2002 and 2001, respectively. The Company's leases
generally require the payment of a fixed amount of rent, regardless of the
profitability of the parking facility. In addition, many leases also require the
payment of a percentage of gross revenues above specified threshold levels.
Generally speaking, leased facilities require a longer commitment and a larger
capital investment to the Company and represent a greater risk than managed
facilities but provide a greater opportunity for long-term growth in revenues
and profits. The cost of parking includes rent, payroll and related benefits,
depreciation, maintenance, insurance, and general operating expenses. Under its
leases, the Company is typically responsible for all facets of the parking
operations, including pricing, utilities, and ordinary and routine maintenance,
but is generally not responsible for structural, mechanical or electrical
maintenance or repairs. Lease arrangements are typically for terms of three to
ten years, with a renewal term, and generally provide for increases in base rent
based on indices, such as the Consumer Price Index, or on pre-determined
amounts.
Management contract and other revenues amounted to $31.3 million and $24.9
million for the three months ended June 30, 2002 and 2001, respectively, and
$90.2 million and $76.0 million for the nine months ended June 30, 2002 and
2001, respectively. 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, the Company 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. In general, management contracts are for terms of one to three years and
are renewable for successive one-year terms, but are cancelable by the property
owner on short notice. With respect to insurance, the Company's clients have the
option of obtaining liability insurance on their own or having the Company
provide insurance as part of the services provided under the management
contract. Because of the Company's size and claims experience, management
believes it can purchase such insurance at lower rates than the Company's
clients can generally obtain on their own. Accordingly, the Company historically
has generated profits on the insurance provided under its management contracts.
In January 2002, the Emerging Issues Task Force released Issue No. 01-14,
Income Statement Characterization of Reimbursements Received for "Out-of-Pocket"
Expenses Incurred, which the Company adopted in the third quarter of fiscal
2002. This pronouncement requires the Company to recognize as both revenues and
expenses, in equal amounts, costs directly reimbursed from its management
clients. Previously, expenses directly reimbursed under management agreements
were netted against the reimbursement received. Amounts have been reclassified
to conform to the presentation of these reimbursed expenses in all prior periods
presented. Adoption of EITF 01-14 resulted in an increase in total revenues and
total costs and expenses in equal amounts of $97.4 million and $91.0 million for
the three months ended June 30, 2002 and 2001, respectively, and $289.7 million
and $273.5 million for the nine months ended June 30, 2002 and 2001,
respectively. This accounting change has no impact on operating earnings or net
earnings.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. Accounting estimates are an integral
part of the preparation of the financial statements and the financial reporting
process and are based upon current judgments. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Certain accounting
estimates are particularly sensitive because of their complexity and the
possibility that future events affecting them may differ materially from the
Company's current judgments and estimates.
This listing of critical accounting policies is not intended to be a
comprehensive list of all of the Company's accounting policies. In many cases,
the accounting treatment of a particular transaction is specifically dictated by
accounting principles generally accepted in the United States of America, with
no need for management's judgment regarding accounting policy. The Company
believes that of its significant accounting policies, as discussed in Note 1 of
the consolidated financial statements included in the Company's annual report on
Form 10-K for the year ended September 30, 2001, the following may involve a
higher degree of judgment and complexity:
Page 17 of 25
Impairment of Long-Lived Assets and Goodwill
In accounting for the Company's long-lived assets, other than goodwill and
other intangible assets, the Company applies the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Beginning
October 1, 2001, the Company accounts for goodwill and other intangible assets
under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. The
determination and measurement of an impairment loss under these accounting
standards require the significant use of judgment and estimates. The
determination of fair value of these assets and the timing of an impairment
charge are two critical components of recognizing an asset impairment charge
that are subject to the significant use of judgment and estimation. Future
events may indicate differences from these judgments and estimates.
Contract and Lease Rights
The Company capitalizes payments made to third parties which provide the
Company the right to manage or lease facilities. Lease rights and management
contract rights which are purchased individually are amortized on a
straight-line basis over the terms of the related agreements which range from 5
to 30 years. Management contract rights acquired through acquisition of an
entity are amortized as a group over the estimated term of the contracts,
including anticipated renewals and terminations based on the Company's
historical experience (typically 15 years). If the renewal rate of contracts
within an acquired group is less than initially estimated, accelerated
amortization or impairment may be necessary.
Lease Termination Costs
The Company has recognized lease termination costs in accordance with
Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring), in its financial statements. Lease
termination costs are based upon certain estimates of liabilities related to
costs to exit an activity. Liability estimates may change as a result of future
events.
Income Taxes
The Company uses the asset and liability method of SFAS No. 109, Accounting
for Income Taxes, to account for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The Company has certain net operating loss carry
forwards which expire between 2002 and 2016. The ability of the Company to fully
utilize these net operating losses to offset taxable income is limited due to
changes in ownership of the companies which generated these losses. These
limitations have been considered in the determination of the Company's deferred
tax asset valuation allowance. The valuation allowance has been provided for net
operating loss carry forwards for which recoverability is deemed to be
uncertain. The carrying value of the Company's net deferred tax assets assumes
that the Company will be able to generate sufficient future taxable income in
certain tax jurisdictions, based on estimates and assumptions. If these
estimates and related assumptions change in the future, the Company will be
required to adjust its deferred tax valuation allowances resulting in changes to
income tax expense in the Company's financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which supersedes both SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business (as previously defined in that Opinion).
SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing
and measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale. SFAS No. 144 also resolves certain
implementation issues associated with SFAS No. 121 by providing guidance on how
a long-lived asset that is used as part of a group should be evaluated for
impairment, establishing criteria for when a long-lived asset is held for sale,
and prescribing the accounting for a long-lived asset that will be disposed of
other than by sale. SFAS No. 144 retains the basic provisions of Opinion 30 on
how to present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). SFAS No. 144 does not apply to goodwill. Rather, goodwill is
evaluated for impairment under SFAS No. 142. The Company will adopt SFAS No. 144
for the quarter ending December 31, 2002. Management does not expect such
adoption to have a material impact on the Company's financial statements because
the impairment assessment under SFAS No. 144 is largely unchanged from SFAS
No.121.
Page 18 of 25
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146
replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. Management
does not expect this statement to have a material impact on the Company's
financial statements.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Parking revenues for the third quarter of fiscal 2002 decreased to $151.7
million from $154.3 million in the third quarter of fiscal 2001, a decrease of
$2.6 million, or 1.7%. The decrease primarily resulted from a decrease in
same-store sales of $4.4 million due to decreased monthly parking in major
metropolitan areas which management believes is a result of increased
unemployment. This decline was partially offset by the USA Parking ("USA") and
Park One of Louisiana ("Park One") acquisitions. These acquisitions added $2.2
million of parking revenues during the third quarter of fiscal 2002. Revenues
from foreign operations amounted to approximately $10.3 million and $10.6
million for the quarters ended June 30, 2002 and 2001, respectively.
Management contract and other revenues for the third quarter of fiscal 2002
increased to $31.3 million from $24.9 million in the same period of fiscal 2001,
an increase of $6.4 million, or 25.8%. The aforementioned acquisitions added
$1.9 million of management contract and other revenues during the third quarter
of fiscal 2002, with the remainder of the increase resulting from new business
growth and increased fees.
Cost of parking in the third quarter of 2002 increased to $133.5 million
from $128.5 million in the third quarter of 2001, an increase of $5.0 million,
or 3.9%. This increase was due primarily to a $2.0 million, or 7.2%, increase in
payroll expense due to the additions of USA and Park One, and a $1.3 million
increase in depreciation and amortization due to the addition of $33.2 million
of contract rights during the fiscal year. Rent expense, as a percentage of
parking revenues, increased to 49.9% during the quarter ended June 30, 2002,
from 49.2% in the quarter ended June 30, 2001. Payroll and benefit expenses were
19.4% of parking revenues during the third quarter of fiscal 2002 as compared to
17.8% in the comparable prior year period. Cost of parking as a percentage of
parking revenues increased to 88.0% in the third quarter of fiscal 2002 from
83.3% in the third quarter of fiscal 2001. The increase is primarily due to the
inability of the Company to reduce the fixed expense component of its cost
structure to match the lower parking revenues.
Cost of management contracts in the third quarter of fiscal 2002 increased
to $12.4 million from $11.2 million in the comparable period in 2001, an
increase of $1.2 million, or 10.8%. The increase in cost was primarily the
result of acquisitions and increases in certain costs, including health
insurance costs. Cost of management contracts, as a percentage of management
contract and other revenues, decreased to 39.6% for the third fiscal quarter of
2002 from 45.0% for the same period in 2001, due to the increase in revenues
previously noted and better management of certain costs.
General and administrative expenses decreased to $17.2 million for the
third quarter of fiscal 2002 from $17.5 million in the third quarter of fiscal
2001, a decrease of $0.3 million, or 1.4%. This decrease is primarily a result
of the Company's process improvement initiatives and is partially offset by $0.8
million of additional general and administrative expenses due to the USA and
Park One acquisitions during the current fiscal year. General and administrative
expenses, as a percentage of total revenues, decreased to 6.1% for the third
quarter of fiscal 2002 compared to 6.5% for the third quarter of fiscal 2001.
Goodwill and non-compete amortization for the third quarter of fiscal 2002
decreased to $0.1 million from $3.0 million in the third quarter of fiscal 2001,
a decrease of $2.9 million. With the adoption of SFAS No. 142 on October 1,
2001, the Company no longer amortizes goodwill.
Net property-related losses for the three months ended June 30, 2002
decreased to $2.3 million from $3.1 million in the comparable period in the
prior year. The Company recognized an impairment charge of $2.6 million during
the third quarter of fiscal 2002 related to leasehold improvements and prepaid
rent at a location in New York City where changes in traffic flow patterns have
resulted in a reduction of revenues from that site. This charge was offset by
$0.3 million of net gains from routine asset sales during the third quarter of
fiscal 2002. The Company's property-related losses for the three months ended
June 30, 2001 were primarily comprised of a $4.0 million charge for early
termination of an unfavorable lease and $0.2 million for impairment of leasehold
improvements, offset by net gains of $1.1 million from routine asset sales.
Page 19 of 25
Interest income declined slightly to $1.3 million for the third quarter of
fiscal 2002 from $1.4 million in the third quarter of fiscal 2001, a decrease of
$0.1 million, or 6.2%.
Interest expense and dividends on Company-obligated mandatorily redeemable
convertible securities of a subsidiary trust decreased to $4.2 million for the
third quarter of fiscal 2002 from $5.9 million in the third quarter of fiscal
2001, a decrease of $1.7 million, or 28.6%. This decrease was primarily
attributable to the lower amount of overall debt outstanding during the current
quarter, coupled with lower interest rates. The weighted average balance
outstanding for the Company's debt obligations and convertible securities was
$355.2 million during the quarter ended June 30, 2002, at a weighted average
interest rate of 4.7% compared to $394.6 million during the quarter ended June
30, 2001 at an average interest rate of 5.8%.
In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other provisions, the Statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, which required that all
gains and losses on extinguishment of debt be classified as an extraordinary
item, net of tax, on the face of the income statement. The Company adopted this
Statement in the third quarter of fiscal 2002, retroactive to October 1, 2001.
On June 28, 2002, the Company repurchased 138,800 shares of its convertible
trust issued preferred securities (the "Preferred Securities") for $2.5 million.
For the three months ended June 30, 2002, these transactions resulted in a gain
of $0.9 million, net of a writedown of a proportionate share of the related
deferred finance costs of $0.1 million. As a result of adopting SFAS 145 the
net pre-tax gain has been classified as a separate component of other income.
The other provisions of SFAS No. 145 are not expected to have a material effect
on the Company's financial statements.
Income taxes increased to $5.2 million for the third quarter of fiscal 2002
from $5.0 million in the third quarter of fiscal 2001, an increase of $0.2
million, or 4.1%. The effective tax rate for the third quarter of fiscal 2002
was 31.2% compared to 38.9% for the third quarter of fiscal 2001. Goodwill
amortization recognized in previous periods was primarily nondeductible for tax
purposes. With the adoption of SFAS No. 142 in October 2001, the Company no
longer amortizes goodwill, resulting in a reduction of its effective tax rate.
Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001
Parking revenues for the first nine months of fiscal 2002 decreased to
$448.8 million from $454.8 million in the first nine months of fiscal 2001, a
decrease of $6.0 million, or 1.3%. The decrease primarily resulted from a $14.1
million decrease in same-store revenues, which includes a $10.4 million decrease
in New York region same-store revenues caused mainly by the effects of the
September 11, 2001 terrorist attacks and a $3.7 million decrease in same-store
revenues from all other locations reflecting decreases in monthly parking
activity stemming from higher unemployment rates. This decrease was partially
offset by $5.6 million of new parking revenues from the USA and Park One
acquisitions. Revenues from foreign operations amounted to approximately $29.4
million and $28.4 million for the nine-month periods ended June 30, 2002 and
2001, respectively.
Management contract and other revenues for the first nine months of fiscal
2002 increased to $90.2 million from $76.0 million in the same period of fiscal
2001, an increase of $14.2 million, or 18.8%. The USA and Park One acquisitions
were responsible for $5.0 million of the increase. The remainder of the increase
is primarily attributable to new business growth and increased fees.
Cost of parking in the first nine months of fiscal 2002 increased to $391.9
million from $379.2 million in the first nine months of fiscal 2001, an increase
of $12.7 million, or 3.4%. This increase was due primarily to a $3.9 million, or
1.8%, increase in rent expense due to new lease agreements, a $3.7 million
increase in depreciation and amortization due to the addition of $33.2 million
of contract rights since the start of the 2002 fiscal year, and a $3.3 million,
or 4.1%, increase in payroll expense due to the addition of USA and Park One.
Rent, as a percentage of parking revenues, increased to 49.8% in the first nine
months of fiscal 2002 from 48.3% in the same period of 2001. Payroll and
benefit expenses were 18.9% of parking revenues during the first nine months of
fiscal 2002 compared to 17.9% in the comparable prior year period. Cost of
parking, as a percentage of parking revenues, increased to 87.3% in the first
nine months of fiscal 2002 from 83.4% in the first nine months of fiscal 2001
due to the inability of the Company to reduce the fixed expense component of its
cost structure to match its lower parking revenues.
Cost of management contracts for the nine months ended June 30, 2002
increased to $37.7 million from $31.2 million in the comparable period in 2001,
an increase of $6.5 million, or 21.0%. The increase in cost was primarily the
result of acquisitions and increases in certain costs, including insurance
costs. Cost of management contracts, as a percentage of management contract and
other revenues, increased slightly to 41.8% for the first nine months of fiscal
2002 from 41.1% for the same period in 2001, primarily due to rising insurance
costs.
Page 20 of 25
General and administrative expenses increased to $52.6 million for the
first nine months of fiscal 2002 from $51.3 million in the first nine months of
2001, an increase of $1.3 million, or 2.5%. This increase is due primarily to
$1.6 million of additional general and administrative expenses due to the USA
and Park One acquisitions, partially offset by results of the Company's process
improvement initiatives. General and administrative expenses, as a percentage of
total revenues, decreased to 6.3% for the first nine months of fiscal 2002 from
6.4% for the same period in fiscal 2001.
Goodwill and non-compete amortization for the nine-month period ended June
30, 2002 decreased to $0.3 million from $9.0 million in the same period in 2001
due to the adoption of SFAS No. 142, effective October 1, 2001.
Net property-related gains for the nine months ended June 30, 2002 amounted
to $4.7 million compared to net property-related losses of $2.6 million for the
comparable period in fiscal 2001. Current year pre-tax gains primarily include
$4.6 million from the sale of a property in Houston and $3.9 million from the
sale of the Company's Civic partnership interest. These gains were offset by
impairment of $2.6 million of leasehold improvements and prepaid rent at a New
York City location, and $1.6 million of impairment charges for condemned
locations. For the same period in fiscal 2001, pre-tax gains on sale of property
of $6.6 million were offset by impairment charges for leasehold improvements and
intangible assets totaling $4.0 million and lease termination charges of $5.2
million.
Interest income declined to $4.1 million for the first nine months of
fiscal 2002 from $4.3 million in the first nine months of fiscal 2001.
Interest expense and dividends on Company-obligated mandatorily redeemable
convertible securities of a subsidiary trust decreased to $13.3 million for the
first nine months of fiscal 2002 from $20.1 million in the first nine months of
fiscal 2001, a decrease of $6.8 million, or 34.0%. This decrease in interest
expense was primarily attributable to lower overall outstanding debt balances
coupled with lower interest rates during the period. The weighted average
balance outstanding under such credit facilities and convertible securities was
$374.3 million during the nine-month period ended June 30, 2002, at a weighted
average interest rate of 4.7% compared to $400.5 million during the same period
ended June 30, 2001 at an average interest rate of 6.5%.
In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Among other provisions, the Statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, which required that all
gains and losses on extinguishment of debt be classified as an extraordinary
item, net of tax, on the face of the income statement. The Company adopted this
Statement in the third quarter of fiscal 2002, retroactive to October 1, 2001.
On June 28, 2002, the Company repurchased 138,800 shares of its Preferred
Securities for $2.5 million. On March 30, 2002, the Company repurchased 500,000
shares of its Preferred Securities for $9.3 million. On December 28, 2001, the
Company repurchased 637,795 shares of the Preferred Securities for $10.0
million. For the nine months ended June 30, 2002, these transactions resulted
in a pre-tax gain of $9.2 million, net of a writedown of a proportionate share
of the related deferred finance costs of $0.9 million. Such gains were
previously reported as extraordinary items, net of tax, in the Company's
statement of earnings, but are now classified as a separate component of other
income as a result of the adoption of SFAS No. 145. The other provisions of
SFAS No. 145 are not expected to have a material effect on the Company's
financial statements.
Income taxes, excluding cumulative effect of accounting change, increased
to $22.2 million for the first nine months of fiscal 2002 from $17.7 million in
the first nine months of 2001, an increase of $4.5 million, or 25.3%. The
effective tax rate for the first nine months of fiscal 2002 was 34.4% compared
to 38.6% for the first nine months of fiscal 2001. Goodwill amortization
recognized in previous periods was nondeductible for tax purposes. With the
adoption of SFAS No. 142 in October 2001, the Company no longer amortizes
goodwill, resulting in a reduction of its effective tax rate.
The Company recognized a loss from the cumulative effect of an accounting
change of $258 thousand, net of tax, during the nine months ended June 30, 2001.
This loss resulted from the adoption of Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, as of October 1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the nine months ended June 30, 2002 provided net
cash of $72.3 million, compared to $32.8 million of cash provided by operating
activities for the nine months ended June 30, 2001. Net earnings of $38.7
million and depreciation and amortization of $25.8 million, along with net
decreases in operating assets and net increases in operating liabilities
totaling $19.0 million were offset by $14.0 million of non-operating gains to
account for the majority of the cash provided by operating activities during the
first nine months of fiscal 2002. Net earnings of $24.9 million and
depreciation and amortization of $32.6 million, offset by decreases in accounts
payable and accrued expenses of $12.5 million and income taxes payable of $6.9
Page 21 of 25
million and increases in other assets of $7.1 million, account for the majority
of the cash provided by operating activities during the first nine months of
fiscal 2001.
Investing activities for the nine months ended June 30, 2002 used net cash
of $22.6 million, compared to $0.8 million for the same period in the prior
year. Acquisitions of $17.7 million, purchases of contract and lease rights of
$18.8 million and capital expenditures of $19.8 million, offset by proceeds of
$34.1 million from the disposition of assets, accounted for the majority of the
cash used by investing activities in the first nine months of fiscal 2002.
Proceeds of $21.3 million from the disposition of property and equipment, offset
by the purchase of property, equipment, leasehold improvements, and contract
rights of $24.6 million account for the majority of the cash used by investing
activities in the first nine months of fiscal 2001.
Financing activities for the nine months ended June 30, 2002 used net cash
of $56.6 million compared to $40.5 million in the same period in the prior year.
Principal repayments on long-term debt and capital lease obligations of $41.5
million and repurchase of Preferred Securities of $21.8 million, offset by net
borrowings under the revolving credit agreement of $9.5 million comprised a
majority of the cash used by financing activities for the nine months ended June
30, 2002. Principal repayments on long-term debt and capital lease obligations
of $42.5 million and the repurchase of $10.9 million of common stock, offset by
net borrowings under the revolving credit facility of $16.1 million account for
the majority of the cash used by financing activities during the nine months
ended June 30, 2001.
In March 1999, the Company entered into a credit facility (the "Credit
Facility") initially 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 $40 million for standby letters of credit, and a $200
million five-year term loan. The Credit Facility bears interest at LIBOR plus a
grid-based margin dependent upon the Company achieving certain financial ratios.
The amount outstanding under the Company's Credit Facility was $210.0 million
with a weighted average interest rate of 3.3% as of June 30, 2002, including the
principal amount of the term loan of $87.5 million. The term loan is required
to be repaid in quarterly payments of $12.5 million through March 2004. The
aggregate availability under the Credit Facility was $50.0 million at June 30,
2002, which is net of $27.5 million of stand-by letters of credit. The 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 two primary ratios are a leverage ratio and a fixed charge
coverage ratio. Quarterly compliance is calculated using a four quarter rolling
methodology and measured against certain targets.
The Company is required to maintain the aforementioned financial covenants
under the Credit Facility as of the end of each fiscal quarter. The Company was
in compliance with these financial covenants as of June 30, 2002; however, there
can be no assurance that the Company will be in compliance with one or more of
these covenants in future quarters. The Company continues to evaluate various
financing alternatives as it seeks to optimize the rate, duration and mix of its
debt.
If the Company identifies investment opportunities requiring cash in excess
of the Company's cash flows and the Credit Facility, the Company may seek
additional sources of capital, including seeking to further amend the existing
credit facility to obtain additional indebtedness. The Allright Registration
Rights Agreement, as noted under the caption "Risk Factors" in the Management's
Discussion and Analysis of Financial Condition and Results of Operations section
of the Company's annual report on Form 10-K for the year ended September 30,
2001, provided certain limitations and restrictions upon the Company's ability
to issue new shares of the Company's common stock. Although certain shareholders
continue to have rights to register shares under the Allright Registration
Rights Agreement, the restrictions in the agreement on the Company's ability to
issue new shares of the Company's common stock expired in February 2002.
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 from the Company's Credit
Facility over the next twelve months.
Future Cash Commitments
On January 18, 2000, the Company's board of directors authorized the
repurchase of up to $50 million in outstanding shares of the Company's capital
stock. The Company's bank lenders subsequently approved the repurchase program
on February 14, 2000. Subject to availability, the repurchases may be made from
time to time in open market transactions or in privately negotiated off-market
transactions at prevailing market prices that the Company deems appropriate. As
of June 30, 2002, the Company had repurchased 1.6 million shares of common stock
at a total cost of $28.0 million (average cost of $17.74 per share). As of June
30, 2002, the Company had repurchased 1.3 million shares of the Preferred
Securities at a total cost of $21.8 million, thereby reducing debt with a
carrying value of $31.9 million.
Page 22 of 25
The Company routinely makes capital expenditures to maintain or enhance
parking facilities under its control. The Company expects capital expenditures
for fiscal 2002 to be approximately $26 to $28 million, of which the Company has
spent $19.8 million during the first nine months of fiscal 2002.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
-------------------------------------------------------------------------
Interest Rates
The Company's primary exposure to market risk consists of changes in
interest rates on variable rate borrowings. As of June 30, 2002, the Company had
$210.0 million of variable rate debt outstanding under the Credit Facility
priced at LIBOR plus 87.5 basis points. Of this amount, $87.5 million is payable
in quarterly installments of $12.5 million and $122.5 million in revolving
credit loans are due in March 2004. The Company anticipates paying the scheduled
quarterly payments out of operating cash flow and, if necessary, will renew the
revolving credit facility.
The Company is required under the Credit Facility to enter into interest
rate protection agreements designed to limit the Company's exposure to increases
in interest rates. As of June 30, 2002, interest rate protection agreements had
been purchased to hedge $100 million of the Company's variable rate debt related
to its Credit Facility. These instruments were comprised of an interest rate
swap agreement under which the Company pays to the counterparty a fixed rate of
6.16% and receives a variable rate equal to LIBOR, and three separate $25
million interest rate cap agreements with rates of 8.0%, 8.0% and 8.5%. All of
these derivative instruments have terms consistent with the terms of the Credit
Facility and are accounted for as cash flow hedges.
The weighted average interest rate on the Company's Credit Facility at June
30, 2002 was 3.3%. An increase (decrease) in LIBOR of 1% would result in an
increase (decrease) of annual interest expense of $1.9 million based on the
Company's outstanding Credit Facility balance of $210.0 million at June 30,
2002, less $25.0 million which is effectively fixed by the interest rate swap
agreement. Additional increases (decreases) in LIBOR would result in
proportionate increases (decreases) in interest expense until LIBOR exceeded
8.0% and 8.5%, at which point an additional $50.0 million and $25.0 million of
the balance, respectively, would be fixed by the interest rate cap agreements.
In March 2000, a limited liability company of which the Company is the sole
shareholder, purchased a parking structure for $19.6 million and financed $13.3
million with a five-year note bearing interest at one-month floating LIBOR plus
162.5 basis points. To fix the interest rate, the Company entered into a
five-year LIBOR swap, yielding an effective interest cost of 8.91% for the
five-year period. The notional amount of the swap is reduced in conjunction
with the principal payments on the related variable rate debt.
Foreign Currency Risk
The Company's exposure to foreign exchange risk is minimal. All foreign
investments are denominated in U.S. dollars, with the exception of Canada. As of
June 30, 2002, the Company has approximately GBP 1.0 million (USD 1.6 million)
of cash denominated in British Pounds, IEP 0.9 million (USD 1.1 million) of cash
denominated in Irish Pounds, GRD 337.2 million (USD 1.0 million) of cash
denominated in Greek Drachmas, CAD 1.2 million (USD 0.8 million) of cash
denominated in Canadian dollars and USD 0.9 million of cash denominated in
various other foreign currencies. The company has no foreign-denominated debt
instruments at June 30, 2002. The Company does not hold any hedging instruments
related to foreign currency transactions. The Company monitors foreign currency
positions and may enter into certain hedging instruments in the future should it
determine that exposure to foreign exchange risk has increased.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------- ------------------
The ownership of property and provision of services to the public entails
an inherent risk of liability. Although the Company is engaged in routine
litigation incidental to its business, there is no legal proceeding to which the
Company is a party, which, in the opinion of management, will have a material
adverse effect upon the Company's financial condition, results of operations, or
liquidity. The Company carries liability insurance against certain types of
claims that management believes meets industry standards; however, there can be
no assurance that any future legal proceedings (including any judgments,
settlements or costs) will not have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
In connection with the merger of Allright Holdings, Inc. with a subsidiary
of the Company, the Antitrust Division of the United States Department of
Justice (the "Antitrust Division") filed a complaint in U.S. District Court for
the District of Columbia seeking to enjoin the merger on antitrust grounds. In
addition, the Company received notices from several states, including Tennessee,
Texas, Illinois and Maryland, that the attorneys general of those states were
reviewing the merger from an antitrust perspective. Several of these states
also requested certain information relating to the merger and the operations of
Central Parking and Allright in the form of civil investigative demands.
Page 23 of 25
Central Parking and Allright entered into a settlement agreement with the
Antitrust Division on March 16, 1999, under which the two companies divested a
total of 74 parking facilities in 18 cities, representing approximately 18,000
parking spaces. None of the states that reviewed the transaction from an
antitrust perspective became a party to the settlement agreement with the
Antitrust Division. The settlement agreement provides that Central Parking and
Allright may not operate any of the divested facilities for a period of two
years following the divestiture of such facility.
Item 6. Exhibits and Reports on Form 8-K
------- -------------------------------------
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 -- Chief Executive
Officer (filed herewith)
99.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 -- Chief Financial
Officer (filed herewith)
(b) Reports on Form 8-K
On April 30, 2002, the Company filed a current report on Form 8-K
announcing its results for the quarter ended March 31, 2002, incorporating the
text of a press release dated April 29, 2002.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned party duly authorized.
CENTRAL PARKING CORPORATION
Date: August 14, 2002 By: /s/ Hiram A. Cox
---------------------
Hiram A. Cox
Senior Vice President
and Chief Financial Officer
Page 24 of 25
Exhibit 99.1
Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report on Form 10-Q for Central Parking Corporation ("Issuer") for the period
ending June 30, 2002, as filed with the Securities and Exchange Commission on
the date hereof (the "Report"):
(a) fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Issuer.
This Certification is executed as of August 14, 2002.
/s/ William J. Vareschi, Jr.
--------------------------------
William J. Vareschi, Jr.
Vice Chairman
and Chief Executive Officer
Exhibit 99.2
Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report on Form 10-Q for Central Parking Corporation ("Issuer") for the period
ending June 30, 2002, as filed with the Securities and Exchange Commission on
the date hereof (the "Report"):
(a) fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Issuer.
This Certification is executed as of August 14, 2002.
/s/ Hiram A. Cox
-------------------
Hiram A. Cox
Senior Vice President
and Chief Financial Officer
Page 25 of 25