Central Parking Corporation
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 December 31, 2006
Commission file number 001-13950
CENTRAL PARKING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Tennessee
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62-1052916 |
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(State or Other Jurisdiction of Incorporation
or Organization)
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(I.R.S. Employer Identification No.) |
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2401 21st Avenue South,
Suite 200, Nashville, Tennessee
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37212 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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Registrants Telephone Number, Including Area Code: (615) 297-4255
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Former name, address and fiscal year, if changed since last report: Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES o NO þ
Indicate the number of shares outstanding of each of the registrants classes of common stock
as of the latest practicable date.
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Class
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Outstanding at February 2, 2007 |
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Common Stock, $0.01 par value
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32,240,497 |
INDEX
CENTRAL PARKING CORPORATION AND SUBSIDIARIES
Part 1. Financial Information
Item 1. Financial Statements
CENTRAL PARKING CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
Amounts in thousands, except share and per share data
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December 31, |
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September 30, |
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2006 |
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2006 |
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ASSETS |
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Current assets: |
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|
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Cash and cash equivalents |
|
$ |
42,848 |
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$ |
44,689 |
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Management accounts receivable, net of allowance for doubtful accounts of $1,279 and $1,618
at December 31, 2006 and September 30, 2006, respectively |
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50,221 |
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|
47,747 |
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Accounts receivable other, net of allowance for doubtful accounts of $1,371 and $1,234 at
December 31, 2006 and September 30, 2006, respectively |
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15,567 |
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13,406 |
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Current portion of notes receivable (including amounts due from related parties of $148 at
December 31, 2006 and $165 at September 30, 2006) and net of allowance for doubtful
accounts of $65 and $59 at December 31, 2006 and September 30, 2006, respectively |
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4,240 |
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|
3,913 |
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Prepaid Expenses |
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14,756 |
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|
12,306 |
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Assets held for sale |
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420 |
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|
6,682 |
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Refundable income taxes |
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3,536 |
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|
3,817 |
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Deferred income taxes |
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10,788 |
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|
10,003 |
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Total current assets |
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142,376 |
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142,563 |
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Available for sale securities |
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4,933 |
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4,909 |
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Notes receivable, less current portion |
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9,607 |
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10,569 |
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Property, equipment, and leasehold improvements, net |
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300,816 |
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295,923 |
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Contracts and lease rights, net |
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70,011 |
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71,995 |
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Goodwill, net |
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232,056 |
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|
232,056 |
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Investment in and advances to partnerships and joint ventures |
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3,855 |
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3,851 |
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Other assets |
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25,385 |
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26,504 |
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Total assets |
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$ |
789,039 |
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$ |
788,370 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Current portion of long-term debt and capital lease obligations |
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$ |
2,217 |
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$ |
2,862 |
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Accounts payable |
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85,605 |
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88,672 |
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Accrued payroll and related costs |
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12,324 |
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16,095 |
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Accrued expenses |
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32,949 |
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33,937 |
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Management accounts payable |
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24,041 |
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26,450 |
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Total current liabilities |
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157,136 |
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168,016 |
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Long-term debt and capital lease obligations, less current portion |
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89,505 |
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87,625 |
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Subordinated convertible debentures |
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78,085 |
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78,085 |
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Deferred rent |
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21,369 |
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21,547 |
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Deferred income taxes |
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|
6,952 |
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6,184 |
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Other liabilities |
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20,077 |
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20,388 |
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Total liabilities |
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373,124 |
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381,845 |
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Minority interest |
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367 |
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297 |
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Shareholders equity: |
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Common stock, $0.01 par value; 50,000,000 shares authorized, 32,196,033
and 32,154,128 shares issued and outstanding at December 31, 2006 and
September 30, 2006, respectively |
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322 |
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322 |
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Additional paid-in capital |
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180,661 |
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180,091 |
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Accumulated other comprehensive income, net |
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3,366 |
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3,398 |
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Retained earnings |
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231,904 |
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223,122 |
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Other |
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(705 |
) |
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(705 |
) |
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Total shareholders equity |
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415,548 |
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406,228 |
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Total liabilities and shareholders equity |
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$ |
789,039 |
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$ |
788,370 |
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See accompanying notes to consolidated financial statements.
Page 3 of 31
CENTRAL PARKING CORPORATION and SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
UNAUDITED
Amounts in thousands, except per share data
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Three months ended December 31, |
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2006 |
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2005 |
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Revenues: |
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Parking |
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$ |
131,660 |
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$ |
132,147 |
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Management contracts and other |
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29,119 |
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27,886 |
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160,779 |
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160,033 |
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Reimbursement of management contract expenses |
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120,945 |
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112,445 |
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Total revenues |
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281,724 |
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272,478 |
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Costs and expenses: |
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Cost of parking |
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116,645 |
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120,596 |
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Cost of management contracts |
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11,069 |
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10,804 |
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General and administrative |
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17,639 |
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20,922 |
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145,353 |
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152,322 |
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Reimbursed management contract expenses |
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120,945 |
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112,445 |
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|
|
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Total costs and expenses |
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266,298 |
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264,767 |
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Property-related gains, net |
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|
402 |
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22,914 |
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Operating earnings |
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15,828 |
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30,625 |
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Other income (expense): |
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Interest income |
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132 |
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|
302 |
|
Interest expense |
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(2,877 |
) |
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(3,945 |
) |
Loss on derivative instruments |
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(578 |
) |
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(71 |
) |
Equity in partnership and joint venture earnings |
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366 |
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|
421 |
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Earnings from continuing operations before minority interest and income taxes |
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12,871 |
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|
27,332 |
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Minority interest |
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(204 |
) |
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(355 |
) |
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Earnings from continuing operations before income taxes |
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|
12,667 |
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|
26,977 |
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Income tax expense |
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(4,230 |
) |
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(10,566 |
) |
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Earnings from continuing operations |
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8,437 |
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|
16,411 |
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Discontinued operations, net of tax |
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828 |
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1,544 |
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Net earnings |
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$ |
9,265 |
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$ |
17,955 |
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Basic earnings per share: |
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Earnings from continuing operations |
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$ |
0.26 |
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$ |
0.50 |
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Discontinued operations, net of tax |
|
|
0.03 |
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|
0.05 |
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|
|
|
|
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Net earnings |
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$ |
0.29 |
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$ |
0.55 |
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Diluted earnings per share: |
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Earnings from continuing operations |
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$ |
0.26 |
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$ |
0.50 |
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Discontinued operations, net of tax |
|
|
0.02 |
|
|
|
0.04 |
|
|
|
|
|
|
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Net earnings |
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$ |
0.28 |
|
|
$ |
0.54 |
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|
|
|
|
|
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|
|
|
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|
|
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Weighted average shares used for basic per share data |
|
|
32,141 |
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|
32,908 |
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Effect of dilutive common stock options |
|
|
382 |
|
|
|
62 |
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|
|
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|
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Weighted average shares used for dilutive per share data |
|
|
32,523 |
|
|
|
32,970 |
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|
|
|
|
|
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See accompanying notes to consolidated financial statements.
Page 4 of 31
CENTRAL PARKING CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Amounts in thousands
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Three months ended December 31, |
|
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2006 |
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2005 |
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(revised See
Note 3) |
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Cash flows from operating activities: |
|
|
|
|
|
|
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Net earnings |
|
$ |
9,265 |
|
|
$ |
17,955 |
|
Earnings from discontinued operations |
|
|
(828 |
) |
|
|
(1,544 |
) |
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
8,437 |
|
|
|
16,411 |
|
Adjustments to reconcile earnings from continuing operations to net cash provided (used) by
operating activities continuing
operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,929 |
|
|
|
7,754 |
|
Equity in partnership and joint venture earnings |
|
|
(366 |
) |
|
|
(421 |
) |
Distributions from partnerships and joint ventures |
|
|
345 |
|
|
|
1,111 |
|
Property-related gains, net |
|
|
(402 |
) |
|
|
(22,914 |
) |
Loss on derivative instruments |
|
|
578 |
|
|
|
71 |
|
Stock-based compensation |
|
|
180 |
|
|
|
111 |
|
Excess tax benefit related to stock option exercises |
|
|
(72 |
) |
|
|
(44 |
) |
Deferred income taxes |
|
|
(17 |
) |
|
|
(1,054 |
) |
Minority interest |
|
|
204 |
|
|
|
355 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Management accounts receivable |
|
|
(2,048 |
) |
|
|
2,440 |
|
Accounts receivable other |
|
|
(2,047 |
) |
|
|
(2,496 |
) |
Prepaid expenses |
|
|
(2,392 |
) |
|
|
(3,830 |
) |
Other assets |
|
|
(617 |
) |
|
|
1,652 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
(8,557 |
) |
|
|
1,874 |
|
Management accounts payable |
|
|
(2,427 |
) |
|
|
(953 |
) |
Deferred rent |
|
|
(178 |
) |
|
|
(339 |
) |
Refundable income taxes |
|
|
280 |
|
|
|
|
|
Income taxes payable |
|
|
37 |
|
|
|
(3,042 |
) |
|
|
|
|
|
|
|
Net cash used by operating activities continuing operations |
|
|
(2,133 |
) |
|
|
(3,314 |
) |
Net cash provided (used) by operating activities discontinued operations |
|
|
124 |
|
|
|
(95 |
) |
|
|
|
|
|
|
|
Net cash used by operating activities |
|
|
(2,009 |
) |
|
|
(3,409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
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|
|
|
|
|
|
|
Proceeds from disposition of property and equipment |
|
|
3,048 |
|
|
|
39,070 |
|
Purchases equipment and leasehold improvements |
|
|
(3,303 |
) |
|
|
(3,890 |
) |
Other investing activities |
|
|
662 |
|
|
|
46 |
|
|
|
|
|
|
|
|
Net cash
provided by investing activities continuing operations |
|
|
407 |
|
|
|
35,226 |
|
Net cash provided by operating activities discontinued operations |
|
|
1,680 |
|
|
|
1,660 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,087 |
|
|
|
36,886 |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(483 |
) |
|
|
(479 |
) |
Net borrowings under revolving credit agreement |
|
|
|
|
|
|
49,438 |
|
Proceeds from issuance of notes payable, net of issuance costs |
|
|
244 |
|
|
|
433 |
|
Principal repayments on long-term debt and capital lease obligations |
|
|
(1,890 |
) |
|
|
(360 |
) |
Payment to minority interest partners |
|
|
(381 |
) |
|
|
(95 |
) |
Repurchase of common stock |
|
|
|
|
|
|
(75,324 |
) |
Tax benefit related to stock option exercises |
|
|
72 |
|
|
|
44 |
|
Proceeds from issuance of common stock and exercise of stock options |
|
|
390 |
|
|
|
504 |
|
|
|
|
|
|
|
|
Net cash
used by financing activities continuing operations |
|
|
(2,048 |
) |
|
|
(25,839 |
) |
|
|
|
|
|
|
|
Net cash used by operating activities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
used by operating activities |
|
|
(2,048 |
) |
|
|
(25,839 |
) |
|
|
|
|
|
|
|
Foreign currency translation |
|
|
129 |
|
|
|
(132 |
) |
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(1,841 |
) |
|
|
7,506 |
|
Cash and cash equivalents at beginning of period |
|
|
44,689 |
|
|
|
26,055 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
42,848 |
|
|
$ |
33,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Change in unrealized gain on fair value of derivatives and available-for-sale securities, net of tax |
|
$ |
24 |
|
|
$ |
10 |
|
Purchases of fixed assets from capital leases |
|
$ |
2,112 |
|
|
$ |
|
|
Cash payments for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
2,419 |
|
|
$ |
2,943 |
|
Income taxes |
|
$ |
4,061 |
|
|
$ |
15,311 |
|
See accompanying notes to consolidated financial statements.
Page 5 of 31
CENTRAL PARKING CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(1) Basis of Presentation
The accompanying unaudited consolidated financial
statements of Central Parking Corporation (Central
Parking or the Company) have been prepared in accordance with U. S. generally accepted
accounting
principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not
include all of the information and footnotes required by U. S. generally accepted accounting
principles for
complete financial statements. In the opinion of management, the unaudited consolidated
financial statements
reflect all adjustments considered necessary for a fair presentation, consisting only of
normal and recurring
adjustments. All significant inter-company transactions have been eliminated in
consolidation. Operating results
for the three months ended December 31, 2006 are not necessarily indicative of the results
that may be expected
for the fiscal year ending September 30, 2007. For further information, refer to the
consolidated financial
statements and footnotes thereto for the year ended September 30, 2006 (included in the
Companys Annual
Report on Form 10-K).
(2) Stock Based Compensation
Effective October 1, 2005, the Company adopted the fair
value recognition provisions of SFAS No.123R using the modified prospective method. Under this
method, compensation costs in the first quarter of 2007 is based on the estimated fair value of the
respective options and the proportion vesting in the period. Stock-based employee compensation
expense is calculated using the Black-Scholes option-pricing model. The Company utilizes both the
single option and multiple option valuation approaches. Allocation of compensation expense is made
using historical option terms for option grants made to the Companys employees and historical
Central Parking Corporation stock price volatility.
There were no options granted during the quarter ended December 31, 2006. The estimated
weighted average fair value of the options granted during fiscal 2006 was $4.35 using the
Black-Scholes option pricing model with the following assumptions: weighted average dividend yield
based on historic dividend rates at the date of the grant, weighted average volatility of 29% for
fiscal year 2006, weighted average risk free interest based on the treasury bill rate of 10-year
instruments at the date of grant, and a weighted average expected term of 4.5 years for 2006.
The Company recognized $180 thousand and $111 thousand of stock based compensation expense in
the quarter ended December 31, 2006 and 2005, respectively. As of December 31, 2006, there were
approximately $0.9 million of total unrecognized compensation expense related to unvested options
granted under the option plans. The Company used a 7.5% forfeiture to arrive at this expense.
This cost is expected to be fully recognized by the end of Fiscal Year 2010. During the first
three months ended December 31, 2006, the aggregate intrinsic value of options exercised under our
stock plan was $153,003 determined as of the date of option exercise.
Stock Plans
In August 1995, the Board of Directors and shareholders approved a stock plan for key
personnel, which included a stock option plan and a restricted stock plan. Under the plans,
incentive stock options, as well as nonqualified options and other stock-based awards, may be
granted to officers, employees and directors. A total of 7,317,500 common shares had been reserved
for issuance under these two plans combined. Options representing 3,180,524 shares are outstanding
under the stock option plan at December 31, 2006. Under this plan, options generally vest over a
one- to four-year period and generally expire ten years after the date of grant. This plan expired
in August 2005 and no new shares will be granted under the plan.
In February 2006, shareholders approved a new 2006 plan and reserved 1,500,000 shares to be
issued. The Company has issued 300,000 options under the new plan as of December 31, 2006.
Options are expected to be granted with an exercise price equal to the fair market value at the
date of grant, generally vest over a one- to four-year period and generally expire ten years after
the date of grant, similar to the 1995 plans.
In August 1995, both the Board of Directors and shareholders approved a stock plan for
directors. A total of 475,000 shares have been reserved for issuance under the plan. This plan
expired in August 2005 and no new options will be granted under this plan. Options to purchase
77,500 shares are outstanding under this plan at December 31, 2006.
Page 6 of 31
Restricted Stock
As of December 31, 2006, the Restricted Stock Plan had issued 330,463 shares. Expense related
to vesting of restricted stock is recognized by the Company over the vesting period of one year.
This plan expired in August 2005 and no new shares will be granted under the plan. The new stock
plan approved by shareholders in February 2006 is an omnibus plan under which restricted shares may
be issued. The Company has granted 14,000 shares under this plan as of December 31, 2006.
The Company measures compensation cost related to restricted shares using the quoted market
price on the grant date. During the first three months of fiscal year ended 2007, the Company
recognized compensation expense of $54 thousand related to restricted shares and expects to
recognize $91 thousand during fiscal year 2007.
(3) Cash Flow Statement Revisions
The Company has separately disclosed in the accompanying consolidated statements of cash flows
the operating, investing and financing portions of the cash flows attributable to its discontinued
operations, which prior periods were reported on a combined basis in a single amount.
(4) Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock, or if restricted
shares of common stock were to become fully vested.
The subordinated convertible debentures have not been included in the diluted earnings per
share calculation since such securities are anti-dilutive. Such securities were convertible into
1,419,588 shares of common stock on both December 31, 2006 and 2005. For the three months ended
December 31, 2006 and 2005, options to purchase
1,878,358 and 2,830,710 shares, respectively are excluded from the calculation of diluted common
shares since they are anti-dilutive.
(5) Assets Held For Sale, Property-Related Gains, Net and Discontinued Operations
(a) |
|
Assets Held For Sale |
|
|
|
In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
long-lived assets that are classified as held for sale are presented separately in the asset
section of the balance sheet. Assets classified as held for sale are comprised almost
exclusively of real property and are included in the Segment-Other in the identifiable asset
segment table included in note 12. During the quarter ended December 2006, a location in Dallas
with a net book value of $3.5 million was reclassified from Assets Held for Sale because there
is no current contract outstanding and the Company has no current prospective buyers able to
complete negotiations within the ensuing twelve-month period. |
|
(b) |
|
Property-Related Gains (losses), Net |
|
|
|
The Company periodically disposes of or recognizes impairment related to owned properties,
leasehold improvements, contract rights, lease rights and other long-term deferred expenses due
to various factors, including economic considerations, unsolicited offers from third parties,
loss of contracts and condemnation proceedings initiated by local government authorities.
Leased and managed properties are also periodically evaluated and determinations may be made to
sell or exit a lease obligation. A summary of property-related gains and losses for the three
months ended December 31, 2006 and December 31, 2005 is as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Net gains on sale of property |
|
$ |
594 |
|
|
$ |
23,619 |
|
Impairment charges for property,
equipment and leasehold improvements |
|
|
(89 |
) |
|
|
(697 |
) |
Impairment charges for intangible assets |
|
|
(103 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
Property-related gains, net |
|
$ |
402 |
|
|
$ |
22,914 |
|
|
|
|
|
|
|
|
|
|
Net property-related gains for the three months ended December 31, 2006 of $0.4 million was
comprised of gains on sale of property of $0.6 million in Segment-Two; offset by $0.2 million of
impairments of leasehold improvements, contract rights and other intangible assets primarily in Segment-Seven. In
assessing impairment, management considered current operating results, the Companys recent
forecast for the next |
Page 7 of 31
|
|
fiscal year and required capital improvements, management determined that
the projected cash flows for these locations would not be enough to recover the book value of
the assets. The Companys property-related gain for the three months ended December 31, 2005
was $22.9 million. |
|
|
|
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,
the results of operations (including the gain or loss on sale and any recognized asset
impairment) of long-lived assets which qualify as a component of an entity that either have been
disposed of or are classified as held for sale shall be reported in discontinued operations if
(i) the operations and cash flows of the component have been, or will be, eliminated from
operations of the Company as a result of the disposal transaction and (ii) the Company will not
have any significant continuing involvement in the operations of the component after the
disposal transaction. The net property-related gains noted above have been classified in
continuing operations as the individual disposal transactions did not meet the SFAS No. 144 and
EITF 03-13, Applying the Conditions in Paragraph 42 of FASB
Statement No. 144 in Determining Whether to Report Discontinued
Operations, criteria for classification as discontinued operations primarily due to the expected
retention of certain cash flows from assets disposed or the Companys continuing involvement as
arising from contracts to manage the parking properties. If managements assumptions regarding
the timing and amount of such retained cash flows change in the future, the net property gain
(loss) recognized in continuing operations, along with the results of operations related to such
assets, may need to be reclassified to discontinued operations. |
|
(c) |
|
The Company has either disposed of, or designated as held-for-sale, certain locations which
meet the
aforementioned criteria for classification as discontinued operations. The components of
discontinued
operations reflected on the accompanying consolidated statements of income are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Discontinued Operations: |
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
947 |
|
|
$ |
13,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings before property-
related gains, net |
|
|
145 |
|
|
|
627 |
|
Property-related gains, net |
|
|
699 |
|
|
|
1,636 |
|
|
|
|
|
|
|
|
Earnings from discontinued operations,
before taxes |
|
|
844 |
|
|
|
2,263 |
|
Income tax expense |
|
|
16 |
|
|
|
719 |
|
|
|
|
|
|
|
|
Discontinued operations, net of tax |
|
$ |
828 |
|
|
$ |
1,544 |
|
|
|
|
|
|
|
|
For the three months ended December 31, 2006, the Company had either disposed of or designated
as held-for-sale or disposal certain locations, resulting in a gain from discontinued operations of
$0.8 million, net of tax. The gain was primarily related to revenues of $0.9 million less expenses
of $0.7 million, which includes a recovery of bad debt in the amount of $0.7 million from the
transport division in London. Property related gains of $0.7 million consists of a $0.5 million
gain on the sale of the Companys interest in its Polish subsidiary and a $0.2 million gain on the
sale of properties. The Companys prior period results were reclassified to reflect those
locations classified as discontinued operations through December 31, 2006.
(6) Intangible Assets
As of December 31, 2006, the Company had the following amortizable intangible assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Contract and lease rights |
|
$ |
128,919 |
|
|
$ |
58,908 |
|
|
$ |
70,011 |
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to the contract and lease rights was $1.9 million for the three
months ended December 31, 2006, and $2.0 million for the three months ended December 31, 2005.
(7) Long-Term Debt
The Companys Credit Facility provides for aggregate availability of up to $300 million
consisting of a $225
million revolving loan and a $75 million term loan. The Credit Facility requires term loan
payments in the amount of $187,500 for the quarters
Page 8 of 31
ended March 2005 through March 2008 and $9.1
million for the quarters ended June 2008 through March 2010, with the remaining term loan balance
due June 2010. The revolving loan is required to be repaid in February 2008. The facility is
secured by the stock of certain subsidiaries of the Company, certain real estate assets, and
domestic personal property assets of the Company and certain subsidiaries.
The Credit Facility bears interest at LIBOR plus a tier-based margin dependent upon certain
financial ratios. There are separate pricing tiers for the revolving loan and term loan. The
weighted average margin as of December 31, 2006 was 200 basis points. The amount outstanding under
the Companys Credit Facility was $73.5 million, all of which related to the term loan, with an
overall weighted average interest rate of 3.9% at December 31, 2006. The aggregate availability
under the Credit Facility was $171.4 million at December 31, 2006, which is net of $53.6 million of
stand-by letters of credit. During the first quarter of fiscal 2006, the Company repurchased a
total of 4,859,674 shares for $75.3 million using the availability under the Credit Facility.
The Company is required under the Credit Facility to enter into and maintain interest rate
protection agreements designed to limit the Companys exposure to increases in interest rates. On
May 30, 2003, the Company entered into two interest rate swap transactions for a total notional
value of $87.5 million. Both transactions swapped the Companys floating LIBOR interest rates for
fixed interest of 2.45% until June 30, 2007. The derivatives do not qualify as cash flow hedges.
The weighted average interest rate on the Companys Credit Facility at December 31, 2006 was
3.9%, which includes all outstanding LIBOR contracts and swap agreements at December 31, 2006.
(8) Derivative Financial Instruments
The Company periodically enters into various types of derivative instruments to manage
fluctuations in cash flows resulting from interest rate risk. These instruments include interest
rate swaps and caps. Under interest rate swaps, the Company receives variable interest rate
payments and makes fixed interest rate payments, thereby creating fixed-rate debt. Purchased
interest rate cap agreements also protect the Company from increases in interest rates that would
result in increased cash interest payments made under its Credit Facility. Under interest rate cap
agreements, the Company has the right to receive cash if interest rates increase above a specified
level.
Because not all of the terms are consistent with those of the Credit Facility, the derivatives
do not qualify as a cash flow hedge for accounting purposes. As such, any changes in the fair
market value of these derivative instruments are included in the consolidated statement of
operations.
The Company entered into an interest rate cap agreement on the underlying $12.7 million loan
in October 2005. This agreement limits the Companys exposure to the floating interest rate by
paying the Company for interest paid in excess of 5.50%.
The Company has entered into certain foreign currency forward contracts to mitigate the
foreign exchange risk related to various intercompany notes receivable from the Companys
wholly-owned subsidiary in the United Kingdom. These forward contracts are expected to offset the
transactional gains and losses on the intercompany notes denominated in British pounds. The gains
and losses related to such contracts and the transactional gains and losses related to the
intercompany notes recognized during fiscal 2006 and for the first quarter of fiscal 2007 were not
significant. The notional amount of the open contracts at December 31, 2006 totaled approximately
$20.9 million. The fair value of the foreign currency forward contracts at December 31, 2006 was a
liability of $1.1 million.
(9) Commitments and Contingencies
The Company is subject to various legal proceedings and claims, which arise in the ordinary
course of its business. In the opinion of management, the ultimate liability with respect to those
proceedings and claims will not have a material adverse effect on the financial position or
liquidity of the Company, but could have a material effect on the results of operations in a given
reporting period. Where the Company believes that a loss is both probable and estimable, such
amounts have been recorded in the consolidated financial statements. For other pending or
threatened lawsuits, due to the early stage of the litigation, management has not yet concluded
whether it is at least reasonably possible that the Company will incur a loss upon resolution.
The Company has employment and severance agreements with certain employees which require
payments by the Company upon the occurrence of certain events.
Page 9 of 31
(10) Comprehensive Income
Comprehensive income for the three months ended December 31, 2006 and 2005 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Net earnings |
|
$ |
9,265 |
|
|
$ |
17,955 |
|
Change in fair value of investment securities, net of tax |
|
|
24 |
|
|
|
10 |
|
Change in foreign currency cumulative translation adjustment |
|
|
(56 |
) |
|
|
(868 |
) |
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
9,233 |
|
|
$ |
17,097 |
|
|
|
|
|
|
|
|
(11) Stock Repurchase
In August of 2005, the Company made an offer to its shareholders to purchase up to 4,400,000
shares of common stock at a price no greater than $16.75 or lower than $14.50 per share. The
transaction was structured as a modified Dutch Auction tender offer.
The offer was amended to reduce the range from a price no higher than $16.00 and no lower than
$14.00 per share. The transaction was concluded on October 14, 2005 at which time the Company
accepted and purchased 4,400,000 shares at a price of $15.50 per share. The Company exercised its
right to purchase an additional 459,674 shares without extending or modifying the offer. The
Company repurchased a total of 4,859,674 shares for $75.3 million using the availability under the
Credit Facility.
(12) Business Segments
The Companys business activities consist of domestic and foreign operations. Foreign
operations are conducted in the United Kingdom, Canada, Spain, the Republic of Ireland, Puerto
Rico, Chile, Colombia, Peru, Greece, Poland, and Switzerland. Revenues attributable to foreign
operations were less than 10% of consolidated revenues for the quarters ended December 31, 2006 and
2005. For the quarter ended December 31 2006, the United Kingdom and Canada account for 53.2% and
40.1% of total foreign revenues, respectively.
The Company is managed based on segments administered by senior vice presidents. These
segments are generally organized geographically, with exceptions depending on the needs of specific
regions. The following are summaries of revenues and operating earnings (loss) from continuing
operations of each segment for the three months ended December 31, 2006 and 2005, as well as
identifiable assets for each segment as of December 31, 2006 and September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
Three months Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Revenues (a): |
|
|
|
|
|
|
|
|
Segment One |
|
$ |
16,850 |
|
|
$ |
15,033 |
|
Segment Two |
|
|
23,186 |
|
|
|
24,540 |
|
Segment Three |
|
|
25,533 |
|
|
|
25,932 |
|
Segment Four |
|
|
60,056 |
|
|
|
61,164 |
|
Segment Five |
|
|
18,953 |
|
|
|
16,517 |
|
Segment Six |
|
|
4,565 |
|
|
|
4,092 |
|
Segment Seven |
|
|
9,144 |
|
|
|
10,629 |
|
Other |
|
|
2,492 |
|
|
|
2,126 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
160,779 |
|
|
$ |
160,033 |
|
|
|
|
|
|
|
|
Operating earnings (loss): |
|
|
|
|
|
|
|
|
Segment One |
|
$ |
270 |
|
|
$ |
1,333 |
|
Segment Two |
|
|
(379 |
) |
|
|
2,459 |
|
Segment Three |
|
|
1,651 |
|
|
|
3,690 |
|
Segment Four |
|
|
1,432 |
|
|
|
3,509 |
|
Segment Five |
|
|
1,373 |
|
|
|
2,169 |
|
Segment Six |
|
|
204 |
|
|
|
883 |
|
Segment Seven |
|
|
264 |
|
|
|
(2,872 |
) |
Other |
|
|
11,013 |
|
|
|
19,454 |
|
|
|
|
|
|
|
|
Total operating earnings (loss) |
|
$ |
15,828 |
|
|
$ |
30,625 |
|
|
|
|
|
|
|
|
Page 10 of 31
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2006 |
|
|
2006 |
|
Identifiable assets: |
|
|
|
|
|
|
|
|
Segment One |
|
$ |
18,510 |
|
|
$ |
20,878 |
|
Segment Two |
|
|
41,610 |
|
|
|
42,533 |
|
Segment Three |
|
|
76,812 |
|
|
|
74,218 |
|
Segment Four |
|
|
304,339 |
|
|
|
305,061 |
|
Segment Five |
|
|
28,186 |
|
|
|
27,566 |
|
Segment Six |
|
|
13,386 |
|
|
|
12,221 |
|
Segment Seven |
|
|
46,879 |
|
|
|
43,129 |
|
Other |
|
|
259,317 |
|
|
|
262,764 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
789,039 |
|
|
$ |
788,370 |
|
|
|
|
|
|
|
|
(a) Excludes reimbursement of management contract expenses.
Segment One encompasses the Midwestern region of the United States. It also includes Canada.
Segment Two encompasses the southeastern region of the United States and includes Washington DC and Baltimore.
It also includes the Mid Atlantic region including Pennsylvania and Western New York.
Segment
Three encompasses Tennessee, Nebraska, Colorado, Missouri, and
the western region of the United States.
Segment Four encompasses the northeastern region of the United States and includes New York City, New Jersey, and Boston.
Segment Five encompasses Florida, Alabama, and the southeastern region of the United States and includes
the Gulf Coast region and Texas.
Segment Six encompasses the USA Parking acquisition.
Segment Seven encompasses Miami, FL, Europe, Puerto Rico, Central and South America.
Other encompasses the home office, eliminations, owned real estate and certain partnerships.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements May Prove Inaccurate
This report includes various forward-looking statements regarding the Company that are subject
to risks and uncertainties, including, without limitation, the factors set forth below and in Item
1A Risk Factors and Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations section of the Companys annual report on Form 10-K for the year ended
September 30, 2006. Forward-looking statements include, but are not limited to, discussions
regarding the Companys operating strategy, growth strategy, acquisition strategy, cost savings
initiatives, industry, economic conditions, financial condition, liquidity and capital resources,
results of operations and impact of new accounting pronouncements. Such statements include, but are
not limited to, statements preceded by, followed by or that otherwise include the words believes,
expects, anticipates, intends, seeks, estimates, projects, objective, strategy,
outlook, assumptions, guidance, forecasts, goal, intends, pursue, will likely
result, will continue or similar expressions. For those statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
The following important factors, in addition to those discussed elsewhere in this document,
and the Companys 10-K, could affect the future financial results of the Company and could cause
actual results to differ materially from those expressed in forward-looking statements contained in
news releases and other public statements by the Company:
|
- |
|
the Companys ability to achieve the goals described in this report and other reports
filed with the Securities and Exchange Commission, including but not limited to, the
Companys ability to |
|
- |
|
increase cash flow by reducing operating costs, accounts receivable and indebtedness; |
|
|
- |
|
cover the fixed cost of its leased and owned facilities and
maintain adequate liquidity through its cash resources and credit facility; |
|
|
- |
|
integrate future acquisitions, in light of challenges in
retaining key employees, synchronizing business processes and efficiently
integrating facilities, marketing, and operations; |
|
|
- |
|
comply with the terms of its credit facility or obtain waivers of noncompliance; |
Page 11 of 31
|
- |
|
reduce operating losses at unprofitable locations; |
|
|
- |
|
form and maintain strategic relationships with certain large real estate owners and
operators; and |
|
|
- |
|
renew existing insurance coverage and obtain performance and surety bonds on favorable
terms; |
|
- |
|
successful implementation of the Companys strategic plan; |
|
|
- |
|
interest rate fluctuations; |
|
|
- |
|
the loss, or renewal on less favorable terms, of existing management contracts and
leases and the failure to add new locations on favorable terms; |
|
|
- |
|
the timing of property-related gains and losses; |
|
|
- |
|
pre-opening, start-up and break-in costs of parking facilities; |
|
|
- |
|
player strikes or other events affecting major league sports; |
|
|
- |
|
changes in economic and business conditions at the local, regional, national or international levels; |
|
|
- |
|
changes in patterns of air travel or automobile usage, including but not limited to
effects of weather on travel and transportation patterns; |
|
|
- |
|
the impact of litigation and claims; |
|
|
- |
|
higher premium and claims costs relating to medical, liability, workers compensation
and other insurance programs; |
|
|
- |
|
compliance with, or changes in, local, state, national and international laws and
regulations, including, without limitation, local regulations, restrictions and taxation on
real property, parking and automobile usage, security measures, environmental, anti-trust
and consumer protection laws; |
|
|
- |
|
changes in current parking rates and pricing of services to clients; |
|
|
- |
|
extraordinary events affecting parking facilities that the Company manages, including
labor strikes, emergency safety measures, military or terrorist attacks and natural
disasters; |
|
|
- |
|
the loss of key employees; and |
|
|
- |
|
the other factors discussed under Item 1A Risk Factors and in Item 7 -
Managements Discussion and Analysis of Financial Condition and Results of Operations
included in the Companys Annual Report on Form 10-K for the fiscal year ended September
30, 2006. |
Overview
The Company is a leading provider of parking and related services. Central Parking operates
parking facilities in 37 states, the District of Columbia, Canada, Puerto Rico, Chile, Colombia,
Peru, the United Kingdom, the Republic of Ireland, Spain, Greece, Italy and Switzerland. The
Company also provides ancillary products and services, including parking consulting, shuttle,
valet, on-street and parking meter enforcement, and billing and collection services. As of
December 31, 2006, Central Parking operated 1,599 parking facilities through management contracts,
leased 1,279 parking facilities, and owned 134 parking facilities, either independently or in joint
ventures with third parties.
Central Parking operates parking facilities under three general types of arrangements:
management contracts, leases and fee ownership. Parking revenues consist of revenues from leased
and owned facilities. Cost of parking relates to both leased and owned facilities and includes
rent, payroll and related benefits, depreciation (if applicable), maintenance, insurance, and
general operating expenses. Management contract revenues consist of management fees (both fixed
and performance based) and fees for ancillary services such as insurance, accounting, equipment
leasing, and consulting. The cost of management contracts includes insurance premiums, claims and
other direct overhead.
The Company believes that most commercial real estate developers and property owners view
services such as
parking as potential profit centers rather than cost centers. Many of these parties outsource
parking operations to
Page 12 of 31
parking management companies in an effort to maximize profits or leverage the
original rental value to a third-party lender. Parking management companies can increase profits
by using managerial skills and experience, operating systems, and operating controls unique to the
parking industry.
The Companys strategy is to increase the number of profitable parking facilities it operates
by focusing its marketing efforts on adding facilities at the local level and targeting real estate
managers and developers with a national presence.
The Company continues to view privatization of certain governmental operations and facilities
as an opportunity for the parking industry. For example, privatization of on-street parking fee
collection and enforcement in the United Kingdom has provided significant opportunities for private
parking companies. In the United States, several cities have awarded on-street parking fee
collection and enforcement and parking meter service contracts to for-profit parking companies such
as Central Parking.
Critical Accounting Policies
Managements Discussion and Analysis of Financial Condition and Results of Operations
discusses the Companys consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. Accounting estimates are an integral part of
the preparation of the financial statements and the financial reporting process and are based upon
current judgments. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reported period. Certain accounting policies and estimates are particularly sensitive because
of their complexity and the possibility that future events affecting them may differ materially
from the Companys current judgments and estimates.
The following listing of critical accounting policies is not intended to be a comprehensive
list of all of the Companys accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by U. S. generally accepted accounting principles,
with no need for managements judgment regarding accounting policy. The Company believes that of
its significant accounting policies, as discussed in Note 1 to the consolidated financial
statements for the year ended September 30, 2006, the following involve a higher degree of judgment
and complexity:
Impairment of Long-Lived Assets and Goodwill
As of December 31, 2006, the Companys long-lived assets were comprised primarily of $300.8
million of property, equipment and leasehold improvements and $70.0 million of contract and lease
rights. In accounting for the Companys long-lived assets, other than goodwill and other
intangible assets, the Company applies the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. As of December 31, 2006, the Company had $232.1
million of goodwill. 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 includes cash flow projections that assume certain future revenue and cost levels, assumed
discount rates based upon current market conditions and other valuation factors, all of which
involve the use of significant judgment and estimation. The Company recorded impairment loss of
approximately $0.2 million in continuing operations during the quarter ended December 31, 2006. There
were no impairments in discontinued operations. Future events may indicate differences from
managements judgments and estimates which could, in turn, result in increased impairment charges
in the future. Future events that may result in increased impairment charges include changes in
interest rates, which could impact discount rates, unfavorable economic conditions or other factors
which could decrease revenues and profitability of existing locations, and changes in the cost
structure of existing facilities. For the quarter ended December 31, 2005, the Company recorded
$0.7 million of impairment charges related to long-lived assets in continuing operations and $0.1
million of impairment charges related to long-lived assets in discontinued operations.
Contract and Lease Rights
As of December 31, 2006, the Company had $70.0 million of contract and lease rights. The
Company capitalizes payments made to third parties, which provide the Company the right to manage
or lease facilities.
Lease rights and management contract rights which are purchased individually are amortized on
a straight-line
Page 13 of 31
basis over the terms of the related agreements, which range from 5 to 30 years.
Management contract rights acquired through acquisition of an entity are amortized as a group over
the estimated term of the contracts, including anticipated renewals and terminations based on the
Companys historical experience (typically 15 years). If the renewal rate of contracts within an
acquired group is less than initially estimated, accelerated amortization or impairment may be
necessary.
Allowance for Doubtful Accounts
As of December 31, 2006, the Company had $68.4 million of trade receivables, including
management accounts receivable and accounts receivable other. Additionally, the Company had a
recorded allowance for doubtful accounts of $2.7 million. The Company reports management accounts
receivable, net of an allowance for doubtful accounts, to represent its estimate of the amount that
ultimately will be realized in cash. The Company reviews the adequacy of its allowance for
doubtful accounts on an ongoing basis, using historical collection trends, analyses of receivable
portfolios by region and by source, aging of receivables, as well as review of specific accounts,
and makes adjustments in the allowance as necessary. Changes in economic conditions, specifically
in the Northeast and Mid-Atlantic United States, could have an impact on the collection of existing
receivable balances or future allowance considerations.
Lease Termination Costs
The Company recognizes lease termination costs related to disposal activities in accordance
with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. 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, such as the settlement of a
lease termination for an amount less than the amount contractually required.
Self-Insurance Liabilities
The Company purchases comprehensive liability insurance covering certain claims that occur at
parking facilities it owns, leases or manages. The primary amount of such coverage is $1 million
per occurrence and $2 million in the aggregate per facility. In addition, the Company purchases
umbrella/excess liability coverage. The Companys various liability insurance policies have
deductibles of up to $350,000 that must be met before the insurance companies are required to
reimburse the Company for costs incurred relating to covered claims. In addition, the Companys
workers compensation program has a deductible of $250,000. The Company also provides health
insurance for many of its employees and purchases a stop-loss policy with a deductible of $150,000
per claim. As a result, the Company is, in effect, self-insured for all claims up to the
deductible levels. The Company applies the provisions of SFAS No. 5, Accounting for Contingencies,
in determining the timing and amount of expense recognition associated with claims against the
Company. The recognition of liabilities is based upon managements determination of an unfavorable
outcome of a claim being deemed as probable and reasonably estimable, as defined in SFAS No. 5.
This determination requires the use of judgment in both the estimation of probability and the
amount to be recognized as a liability. The Company engages an actuary to assist in determining
the estimated liabilities for customer injury, employee medical costs and workers compensation
claims. Management utilizes historical experience with similar claims along with input from legal
counsel in determining the likelihood and extent of an unfavorable outcome for certain general
litigation. Future events may indicate differences from these judgments and estimates and result
in increased expense recognition in the future. Total discounted self-insurance liabilities at
December 31, 2006 and December 31, 2005 were $22.2 million and $24.3 million, respectively,
reflecting a 4.5% discount rate. The related undiscounted amounts at such dates were $25.0 million
and $28.8 million, respectively.
Classification as Continuing or Discontinuing Operations
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the results of operations (including the gain or loss on sale and any recognized asset
impairment) of long-lived assets which qualify as a component of an entity that either have been
disposed of or are classified as held for sale shall be reported in discontinued operations if (i)
the operations and cash flows of the component have been, or will be, eliminated from operations of
the Company as a result of the disposal transaction and (ii) the Company will not have any
significant continuing involvement in the operations of the component after the disposal
transaction. The net property-related gains noted above have been classified in continuing
operations as the individual disposal transactions did not meet the SFAS No. 144 and EITF 03-13
criteria for classification as discontinued operations primarily due to the expected retention of
certain cash flows from assets disposed or the Companys continuing involvement as arising from
contracts to manage the parking properties. If managements assumptions regarding the timing and
amount of such retained cash flows change in the future, the net property gain (loss)
recognized in
Page 14 of 31
continuing operations, along with the results of operations related to such assets, may need
to be reclassified to discontinued operations.
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 income 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 basis.
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 2007 and
2025. The valuation allowance was established for certain net operating loss carry forwards where
their recoverability is deemed to be uncertain. The carrying value of the Companys 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.
Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. This Interpretation is effective for
fiscal years beginning after December 15, 2006. The Company has not determined the impact, if any,
that the adoption of this pronouncement will have to its consolidated financial statements.
In June 2006, the EITF reached a consensus on Issue No. 06-03, How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation) (EITF 06-03). EITF 06-03 concludes that (a) the scope of
this Issue includes any tax assessed by a governmental authority that is directly imposed on a
revenue-producing transaction between a seller and a customer and (b) that the presentation of
taxes within the scope on either a gross or a net basis is an accounting policy decision that
should be disclosed under Opinion 22. Furthermore, for taxes reported on a gross basis, a company
should disclose the amounts of those taxes in interim and annual financial statements for each
period for which an income statement is presented. The consensus is effective, through
retrospective application, for periods beginning after December 15, 2006. The Company has not
determined the impact, if any, that the adoption of this pronouncement will have to its
consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements. This Standard defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The Company has not
determined the impact, if any, that the adoption of this pronouncement will have to its
consolidated financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB 108 provides guidance regarding the consideration given to prior year
misstatements when determining materiality in current financial statements, and is effective for
fiscal years ending after November 15, 2006. The Company has not determined the impact, if any,
that the adoption of this pronouncement will have to its consolidated financial statements.
In November 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-04,
Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split of
Endorsement Split-Dollar Life Insurance Arrangements, (EITF 06-04). EITF 06-04 reached a
consensus that for a split-dollar life insurance arrangement that provides a benefit to an employee
that extends to postretirement periods, an employer should recognize a liability for future
benefits in accordance with FAS No. 106 or Opinion 12 (depending upon whether a substantive plan is
deemed to exist) based on the substantive agreement with the employee. This
Page 15 of 31
consensus is effective for fiscal years beginning after December 15, 2006. The Company has not
determined the impact, if any, that the adoption of this pronouncement will have to its
consolidated financial statements.
In November 2006, the Emerging Issues Task Force reached a consensus on Issue No.06-05,
Accounting
for Purchases of Life Insurance-Determining the Amount That Could Be Realized in Accordance
with FASB Technical Bulletin No. 85-04, (EITF 06-05). EITF 06-05 reached a consensus
that a policyholder should consider any additional amounts included in the contractual terms of the
policy in determining the amount that could be realized under the insurance contract. The Task
Force agreed that contractual limitations should be considered when determining the realizable
amounts. Those amounts that are recoverable by the policyholder at the discretion of the insurance
company should be excluded from the amount that could be realized. The Task Force also agreed that
fixed amounts that are recoverable by the policyholder in future periods in excess of one year from
the surrender of the policy should be recognized at their present value. The Task Force also
reached a consensus that a policyholder should determine the amount that could be realizable under
the life insurance contract assuming the surrender of an individual-life by individual policy (or
certificate by certificate in a group policy). The Task Force also noted that any amount that is
ultimately realized by the policyholder upon the assumed surrender of the final policy (or final
certificate in a group policy) shall be included in the amount that could be realized under the
insurance contract. This consensus is effective for fiscal years beginning after December 15, 2006.
The Company has not determined the impact, if any, that the adoption of this pronouncement will
have to its consolidated financial statements.
In September 2006, FASB issued FASB Staff Position (FSP) No. AUG AIR -01, Accounting for
Planned Major Maintenance Activities, (FSP No. AUG AIR-01). FSP AUG AIR-01 prohibits the use of
the accrue-in-advance method of accounting for planned major maintenance activities in annual and
interim financial reporting periods. An entity shall apply the same method of accounting for
planned major maintenance activities in annual and interim financial reporting periods. The
guidance in this FSP shall be applied to the first fiscal year beginning after December 15, 2006.
The Company has not determined the impact, if any, that the adoption of this FSP will have to its
consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of
FASB Statements No. 87, 88, 106, and 132R. This Standard requires an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes occur through
comprehensive income of a business entity. This statement requires an employer that is a business
entity and sponsors one or more single-employer defined benefit plans to (i) recognize the funded
status of a benefit plan; (ii) recognize as a component of other comprehensive income, net of tax,
the gains or losses and prior service costs or credits that arise during the period but are not
recognized as components of net periodic benefit cost pursuant to FASB Statement No. 87,
Employerss Accounting for Pensions, or No. 106, Employers Accounting for Postretiremnet Benefits
Other Than Pension; (iii) measure defined benefit plan assets and obligations as of the date of
the employers fiscal year-end statement of financial position; and (iv) disclose in the notes to
the financial statements additional information about certain effects on net periodic benefit cost
for the next fiscal year that arise from delayed recognition of the gains or losses, prior service
costs or credits, and transition asset or obligation. SFAS 158 is effective for financial
statements issued for fiscal years ending after December 15, 2006; except for the measurement date
provisions, which shall be effective for fiscal years ending after December 15, 2008. The Company
has not determined the impact, if any, that the adoption of this pronouncement will have to its
consolidated financial statements.
Results of Operations
Unless otherwise indicated, the following discussion relates to continuing operations.
Three Months Ended December 31, 2006 Compared to Three Months Ended December 31, 2005
Parking revenues for the first quarter of fiscal year 2007 decreased to $131.7 million from
$132.1 million for the first quarter of fiscal year 2006, a decrease of $0.5 million, or 0.4%. The
decrease of $0.5 million is due to a decrease of $9.0 million due to closed locations and a
decrease of $4.3 million related to contracts converted from leased to management deals; partially
offset by an increase of $6.3 million in new locations and an increase of same store sales of $6.5
million.
Page 16 of 31
Management contract revenues for the first quarter of fiscal 2007 increased to $29.1 million
from $27.9 million for the first quarter of fiscal year 2006, an increase of $1.2 million or 4.4%.
The increase was primarily due to an increase in other fees.
Cost of parking for the first quarter of fiscal 2007 decreased to $116.6 million from $120.6
million for the first quarter of fiscal 2006, a decrease of $4.0 million or 3.3%. The decrease was
due primarily to $1.4 million decline in rent expense, $0.4 million in depreciation expense, $0.1
million decline in snow removal, $0.1 million decline in utilities, $0.1 million in payroll
expense, $0.2 million in liability insurance expense and $1.7 million in other. Rent expense as a
percentage of parking revenues decreased to 50.3% during the quarter ended December 31, 2006, from
51.2% in the quarter ended December 31, 2005. Payroll and benefit expenses as a percent of parking
revenues were 18.8% of parking revenues for the first quarter of fiscal 2007 and fiscal 2006. Cost
of parking as a percentage of parking revenues decreased to 88.6% for the first quarter of fiscal
2007 compared to 91.3% for the first quarter of fiscal 2006.
Cost of management contracts for the first quarter of fiscal 2007 increased to $11.1 million
from $10.8 million in the comparable period in 2006, an increase of $0.3 million or 2.5%. The
increase was primarily caused by an increase of $0.7 million in liability insurance expense and an
increase of $0.2 million in bad debt expense; offset by a decrease of $0.6 million in other
insurance related costs. Cost of management contracts as a percentage of management contract
revenue decreased to 38.0% for the first fiscal quarter of 2007 from 38.7% for the same period in
2006.
General and administrative expenses decreased to $17.6 million for the first quarter of fiscal
2007 from $20.9 million for the first quarter of fiscal 2006, a decrease of $3.3 million or 15.7%.
This decrease is due to a decrease of $3.0 million in professional fees, $0.3 million in
depreciation expense, $0.1 million in travel and entertainment and $0.9 million in other expenses;
offset by a $1.0 million increase in payroll expenses. General and administrative expenses as a
percentage of total revenues (excluding reimbursement of management contract expenses) decreased to
11.0% for the first quarter of fiscal 2007 from 13.1% for the first quarter of fiscal 2006.
Net property-related gains for the three months ended December 31, 2006 of $0.4 million was
comprised of gains on sale of property of $0.6 million in Segment-Two; offset by $0.2 million of
impairments of leasehold improvements, contract rights and other intangible assets primarily in
Segment-Seven. In assessing impairment, management considered current operating results, the
Companys recent forecast for the fiscal year and required
capital improvements. Management
determined that the projected cash flows for these locations would not be enough to recover the
book value of the assets. The Companys property-related gain for the three months ended December
31, 2005 was $22.9 million.
Interest expense decreased to $2.9 million for the first quarter of fiscal 2007 compared to
$3.9 million for first quarter of fiscal 2006, a decrease of $1.1 million or 27.1%. The increase
was primarily attributed to a decrease in debt outstanding under the Credit Facility.
The weighted average balance outstanding for the Companys debt obligations and subordinated
convertible debentures was $198.4 million during the quarter ended December 31, 2006, at a weighted
average interest rate of 5.3% compared to a weighted average balance outstanding of $234.1 million
at a weighted average rate of 5.2% during the quarter ended December 31, 2005. Amortization of
deferred finance costs was included in the calculation of the weighted average interest rate.
The
Company recorded income tax expense on earnings from continuing operations of $4.2 million
for the first quarter of fiscal 2007 as compared to $10.6 million for the first quarter of fiscal
2006, a change of $6.3 million. The effective tax rate on earnings from continuing operations
before income taxes for the first quarter of fiscal 2007 was 33.4% compared to 39.2% for the first
quarter of fiscal 2006. The lower effective tax rate in fiscal 2007 is due primarily to a decrease
in 2007 of valuation allowances related to certain state and foreign
tax loss carryforwards.
For the three months ended December 31, 2006, the Company had either disposed of or designated
as held-for-sale or disposal certain locations, resulting in a gain from discontinued operations of
$0.8 million, net of tax. The gain was primarily related to revenues of $0.9 million less expenses
of $0.7 million, which includes a recovery of bad debt in the amount of $0.7 million from the
transport division in London. Property related gains of $0.7 million consists of a $0.5 million
gain on the sale of the Companys interest in its Polish subsidiary and a $0.2 million gain on the
sale of properties. The Companys prior period results were reclassified to reflect those
Page 17 of 31
locations classified as discontinued operations through December 31, 2006.
Liquidity and Capital Resources
Net cash used by operating activities for the first quarter of fiscal year 2007 was $2.0
million, a decrease of $1.4 million from net cash used by operating activities of $3.4 million
during the first quarter of fiscal year 2006. The primary factor which contributed to this change was
the increase in revenue in the first quarter of fiscal year 2007 and changes in working capital components.
Net cash provided by investing activities for the first quarter fiscal year 2007 was $2.1
million compared to $36.9 million of net cash provided by investing activities in the first quarter
of fiscal year 2006. This change was primarily due to a decrease in proceeds from sale of properties
and purchase of property, equipment and leasehold improvements in the
first quarter of fiscal year 2007.
Net
cash used by financing activities for the first quarter of fiscal year 2007 was $2.0 million
compared to cash used of $25.8 million in the first quarter of fiscal year 2006. Net cash used by
financing activities in the first quarter of fiscal year 2007 primarily consisted of capital leases obtained
during the first quarter of fiscal year 2007.
The Companys Credit Facility provides for aggregate availability of up to $300 million
consisting of a $225 million revolving loan and a $75 million term loan. The Credit Facility
requires term loan payments in the amount of $187,500 for the quarters ended March 2005 through
March 2008 and $9.1 million for the quarters ended June 2008 through March 2010, with the remaining
term loan balance due June 2010. The revolving loan is required to be repaid in February 2008.
The facility is secured by the stock of certain subsidiaries of the Company, certain real estate
assets, and domestic personal property assets of the Company and certain subsidiaries.
The Credit Facility bears interest at LIBOR plus a tier-based margin dependent upon certain
financial ratios. There are separate pricing tiers for the revolving loan and term loan. The
weighted average margin as of December 31, 2006 was 200 basis points. The amount outstanding under
the Companys Credit Facility was $73.5 million, all of which related to the term loan, with an
overall weighted average interest rate of 3.9% at December 31, 2006. The aggregate availability
under the Credit Facility was $171.4 million at December 31, 2006, which is net of $53.6 million of
stand-by letters of credit. During the first quarter of fiscal 2006, the Company repurchased a
total of 4,859,674 shares for $75.3 million using the availability under the Credit Facility.
The Company is required under the Credit Facility to enter into and maintain interest rate
protection agreements designed to limit the Companys exposure to increases in interest rates. On
May 30, 2003, the Company entered into two interest rate swap transactions for a total notional
value of $87.5 million. Both transactions swapped the Companys floating LIBOR interest rates for
fixed interest of 2.45% until June 30, 2007. The derivatives do not qualify as cash flow hedges.
The weighted average interest rate on the Companys Credit Facility at December 31, 2006 was
3.9%, which includes all outstanding LIBOR contracts and swap agreements at December 31, 2006.
Future Cash Commitments
The Company routinely makes capital expenditures to maintain or enhance parking facilities
under its control. The Company expects capital expenditures for fiscal 2007 to be approximately
$10 to $13 million, of which the Company has spent $5.4 million during the first three months of
fiscal 2007, including $2.1 million acquired through capital leases.
The following tables summarize the Companys total contracted obligations and commercial
commitments as of December 31, 2006 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
After 5 |
|
|
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
Long-term debt and capital lease
obligations |
|
$ |
91,722 |
|
|
$ |
2,217 |
|
|
$ |
60,832 |
|
|
$ |
28,547 |
|
|
$ |
126 |
|
Subordinated convertible debentures |
|
|
78,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,085 |
|
Operating leases |
|
|
989,577 |
|
|
|
209,594 |
|
|
|
279,410 |
|
|
|
168,813 |
|
|
|
331,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
1,159,384 |
|
|
$ |
211,811 |
|
|
$ |
340,242 |
|
|
$ |
197,360 |
|
|
$ |
409,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 18 of 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of commitment expiration per period |
|
|
|
|
|
|
Less than |
|
1-3 |
|
3-5 |
|
After 5 |
|
|
Total |
|
1 Year |
|
Years |
|
Years |
|
Years |
Unused lines of credit |
|
$ |
171,391 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
171,391 |
|
|
$ |
|
|
Unused lines of credit as of December 31, 2006 are reduced by $53.6 million of standby letters
of credit.
Stock Repurchase
In August of 2005, the Company made an offer to its shareholders to purchase up to 4,400,000
shares of common stock at a price no greater than $16.75 or lower than $14.50 per share. The
transaction was structured as a modified Dutch Auction tender offer.
The offer was amended to reduce the range from a price no higher than $16.00 and no lower than
$14.00 per share. The transaction was concluded on October 14, 2005 at which time the Company
accepted and purchased 4,400,000 shares at a price of $15.50 per share. The Company exercised its
right to purchase an additional 459,674 shares without extending or modifying the offer. The
Company repurchased a total of 4,859,674 shares for $75.3 million using the availability under the
Credit Facility.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Interest Rates
In March 2000, a limited liability company, of which the Company is the sole shareholder,
purchased a parking structure for $19.6 million and financed $13.3 million of the purchase price
with a five-year note bearing interest at one-month floating LIBOR plus 162.5 basis points. In
April 2005, the limited liability company amended the note. The amendment extended the term to a
maturity date of February 28, 2008. The amended $12.7 million loan will continue to bear interest
at a floating basis based on LIBOR plus 162.5 basis points. The Company entered into an interest
rate cap agreement on the underlying $12.7 million loan in October 2005. This agreement limits the
Companys exposure to the floating interest rate by paying the Company for interest paid in excess
of 5.50%.
The Companys primary exposure to market risk consists of changes in interest rates on
variable rate borrowings. As of December 31, 2006, the Company had $73.5 million of variable rate
debt outstanding under the Credit Facility priced at LIBOR plus a weighted average margin of 200
basis points. The Credit Facility is payable in quarterly installments of $187,500 through March
2008 and quarterly payments of $9.1 million from June 2008 through March 2010. The Company
anticipates paying the scheduled quarterly payments from operating cash flows through March 2008.
The Company is evaluating options for the required payments for the period beginning June 2008.
The Company is required under the Credit Facility to enter into and maintain interest rate
protection agreements designed to limit the Companys exposure to increases in interest rates. On
May 30, 2003, the Company entered into two interest rate swap transactions for a combined notional
amount of $87.5 million. Both transactions swapped the Companys floating LIBOR interest rates for
fixed interest of 2.45% until June 30, 2007.
The weighted average interest rate on the Companys Credit Facility at December 31, 2006 was
3.9%, which includes all outstanding LIBOR contracts and swap agreements at December 31, 2006. An
increase (decrease) in LIBOR of 1% would not result in a significant increase (decrease) of annual
interest expense since the swaps, which converted the rates to fixed, totaled $87.5 million and the
Credit Facility, which was all floating interest, was $73.5 million at December 31, 2006.
Foreign Currency Exposure
As of December 31, 2006, the Company has approximately GBP 2.4 million (USD $4.8 million) of
cash and cash equivalents denominated in British pounds, EUR 2.3 million (USD $3.1 million)
denominated in euros, CAD 3.2 million (USD $2.7 million) denominated in Canadian dollars, and USD
$1.9 million denominated in various other foreign currencies.
The Company also has EUR 1.6 million (USD $2.1 million) of notes payable denominated in euros
and GBP 10.3 million (USD $20.2 million) of intercompany notes receivable and notes payable
denominated in British pounds at December 31, 2006. These intercompany notes bear interest at a
floating rate of 5.6% as of December
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31, 2006, and require monthly principal and interest payments through 2012. The Company has
entered into certain foreign currency forward contracts to mitigate the foreign exchange risk
related to various intercompany notes receivable from the Companys wholly-owned subsidiary in the
United Kingdom. These forward contracts are expected to offset the transactional gains and losses
on the intercompany notes denominated in British pounds. The gains and losses related to such
contracts and the transactional gains and losses related to the intercompany notes recognized
during fiscal 2006 and the first quarter of fiscal 2007 were not significant. The notional amount
of the open contracts at December 31, 2006 totaled approximately $20.9 million. The fair value of
the foreign currency forward contracts at December 31, 2006 was a $1.1 million liability.
Based on the Companys overall currency rate exposure as of December 31, 2006, management does
not believe a near-term change in currency rates, based on historical currency movements, would
materially affect the Companys consolidated financial statements.
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ITEM 4. Controls and Procedures
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this quarterly report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures effectively and timely provide them with material information
relating to us and our consolidated subsidiaries required to be disclosed in the reports we file or
submit under the Exchange Act.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our first quarter
ended December 31, 2006 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various legal proceedings and claims, which arise in the ordinary
course of its business. In the opinion of management, the ultimate liability with respect to those
proceedings and claims will not have a material adverse effect on the financial position or
liquidity of the Company, but could have a material effect on the results of operations in a given
reporting period. Where the Company believes that a loss is both probable and estimable, such
amounts have been recorded in the consolidated financial statements. For other pending or
threatened lawsuits, due to the early stage of the litigation management has not yet concluded
whether it is at least reasonably possible that the Company will incur a loss upon resolution.
Item 1A. Risk Factors
You should carefully consider the following specific risk factors as well as the other
information contained or incorporated by reference in this report, as these are important factors,
among others, that could cause our actual results to differ from our expected or historical
results. It is not possible to predict or identify all such factors. Consequently, you should not
consider any such list to be a complete statement of all of our potential risks or uncertainties.
Our financial performance is sensitive to changes in economic conditions that may impact
employment and consumer spending and commercial office occupancy.
Economic slowdowns in the United States could adversely affect employment levels, consumer
spending and commercial office occupancy, which, in turn, could reduce the demand for parking. The
reduced demand for parking could negatively impact our revenues and net income. Future economic
conditions affecting disposable consumer income, employment levels, business conditions, fuel and
energy costs, interest rates, and tax rates, are also likely to adversely affect our business.
Our concentration of operations in the Northeastern and Mid-Atlantic regions of the United
States, particularly in New York City, increases the risk of negative financial fluctuations due to
events or factors that affect these areas.
Our operations in the Northeastern and Mid-Atlantic regions of the United States, which
includes the cities of New York, Newark, Boston, Philadelphia, Pittsburgh, Baltimore and
Washington, D.C. generated approximately 43.4% of our total revenues from continuing operations
(excluding reimbursement of management contract expenses) in first quarter of fiscal 2007.
Revenues from our operations in New York City and surrounding areas accounted for approximately
26.3% of our total revenues from continuing operations (excluding reimbursement of management
expenses) in the first quarter of fiscal 2007. The concentration of operations in these areas
increases the risk that local or regional events or factors that affect these cities or regions
such as severe winter weather, labor strikes, and changes in local or state laws and regulations,
economic conditions or acts of terrorism, can have a disproportionate impact on our operating
results and financial condition.
Page 21 of 31
Compliance with and any failure to comply with current regulatory requirements will result in
additional expenses and may adversely affect us.
Keeping abreast of, and in compliance with, changing laws, regulations and standards relating
to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, Securities
and Exchange Commission regulations and NYSE Stock Market rules, has required an increased amount
of management attention. We remain committed to maintaining high standards of corporate governance
and public disclosure. As a result, we intend to invest all reasonably necessary resources to
comply with evolving standards, and this investment has resulted in, and we expect will continue to
result in, increased general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities.
Changes in the insurance marketplace, including significantly higher premiums, higher
deductibles and coverage restrictions and increased claims costs, have negatively impacted our net
income in recent years and could have a material adverse effect on our results of operations and
financial condition in the future.
We purchase insurance covering certain types of claims that occur at parking facilities we
own, lease or manage. In addition, we purchase workers compensation, group health, directors and
officers liability and certain other insurance coverages. Due to changes in the insurance
marketplace, we have experienced in recent years a substantial increase in the premiums we pay for
most types of insurance coverage and an increase in the deductibles relating to such coverage. We
also have experienced an increase in certain claims costs, including workers compensation,
liability and group health. In addition, coverages of certain types of risk, such as terrorism
coverage, have been significantly restricted or are no longer available at a reasonable cost. The
changes in the insurance marketplace, including increased premium and claims costs, higher
deductibles and coverage restrictions, have negatively impacted our earnings in recent years and
could have a material adverse effect on our results of operations and financial condition in the
future.
Acts of terrorism, such as the September 11, 2001 attacks, can have a significant adverse
affect on our results of operations and financial condition.
We estimate that the terrorist attacks on September 11, 2001 reduced our revenues in the
fourth quarter of fiscal year 2001 by approximately $5 million and approximately $10 million in the
first half of fiscal year 2002. Not only did the attack cause physical damage to some of the
parking facilities operated by us, but the reduction in the number of commuters parking in the
areas affected, reduction in tourists and local consumers traveling to the area as well as the
broader reduction in airplane travel and lower attendance at sporting events, concerts and other
venues, also impacted our operations adversely. The closing of streets in the vicinity of the
World Trade Center and other areas of New York City and the imposition of certain restrictions on
traffic and other security measures in New York City and at the nations airports also had a
negative impact on our operations. Our operations are concentrated heavily in the downtown areas
of major U.S. cities and some are located near landmarks or other sites that have been mentioned as
potential targets of terrorists. In addition, we manage the parking operations at approximately 30
airports. Additional terrorist attacks or the imposition of additional security measures,
particularly in New York, Washington, D.C. or other major cities in which we have a significant
presence, or at airports, could have a material adverse effect on our results of operations and
financial condition.
The offer or sale of a substantial amount of our common stock by significant shareholders
could have an adverse impact on the market price of our common stock.
In February 2001, we filed a registration statement on Form S-3 covering 7,381,618 shares of
our common stock held by certain shareholders. These shares were registered pursuant to
registration rights previously granted to these shareholders. Although we believe a significant
portion of these shares has been sold, these shareholders may sell any remaining shares that were
registered on any stock exchange, market or trading facility on which the shares are traded, or in
private transactions. Other substantial shareholders, including the
Executive Chairman of Central Parking,
Monroe Carell, Jr., the Carell Childrens Trust, and other family members and related entities (the
Carell Family), are permitted to sell significant amounts of our common stock under Rule 144 and
other exemptions from registration under the federal securities laws. In addition, the Carell
Family has certain rights to register substantially all of the shares held by the family and
related entities. The offer or sale of substantial amounts of our common stock by these or other
significant shareholders, particularly if such offers or sales occur simultaneously or relatively
close in time, could have a significant negative impact on our stocks market price.
We are dependent on the continued availability of capital to support our business.
We have significant working capital requirements, including but not limited to, repair and
maintenance obligations for our parking facilities. We are dependant on the cash generated from
our operations and Credit Facility to meet our working capital requirements. The Credit Facility
contains covenants including those that
Page 22 of 31
require us to maintain certain financial ratios, restrict further indebtedness and certain
acquisition activity and limit the amount of dividends paid. The primary ratios are a leverage
ratio, senior leverage ratio and a fixed charge coverage ratio. Quarterly compliance is calculated
using a four-quarter rolling methodology and measured against certain targets. Our inability to
meet debt covenants and debt service payments under the Credit Facility would have a material
adverse effect on us.
We are subject to interest rate risk.
We are subject to market risk from exposure to changes in interest rates based upon our
financing, investing and cash management activities. The Credit Facility bears interest at LIBOR
plus a tier-based margin dependent upon certain financial ratios. There are separate tiers for the
revolving loan and term loan. The weighted average margin as of December 31, 2006, was 200 basis
points. The amount outstanding under our Credit Facility was $73.5 million with a weighted average
interest rate of 3.9% as of December 31, 2006. We have reduced a portion of our interest rate risk
by executing two interest rate swap transactions whereby we have fixed $87.5 million of floating
rate debt. The term loan is required to be repaid in quarterly payments of $0.2 million through
March 2008 and quarterly payments of $9.1 million from June 2008 through March 2010. An increase
(decrease) in LIBOR of 1% would result in no increase (decrease) of annual interest expense since
the swaps, which converted the rates to fixed, totaled $87.5 million and the Credit Facility, which
was all floating interest, was $73.5 million on December 31, 2006. We expect to pay both quarterly
principal amortization and monthly interest payments out of operating cash flow.
Our large number of leased and owned facilities increases the risk that we may become
unprofitable and that we may not be able to cover the fixed costs of our leased and owned
facilities.
We leased or owned 1,413 facilities as of December 31, 2006. Although there is more potential
for income from leased and owned facilities than from management contracts, they also carry more
risk if there is a downturn in the economy, property performance or commercial real estate
occupancy rates because a significant part of the costs to operate such facilities typically is
fixed. For example, in the case of leases, there are typically minimum lease payments that must be
made regardless of the revenues or profitability of the facility. In particular, it is difficult
to forecast revenues of newly constructed parking facilities because these facilities do not have
an operating history. Start-up costs, the length of the breakin period during which parking
demand is built and economic conditions at the time the facility is opened, are very difficult to
predict at the time the lease is executed (and the base rent is agreed upon), which is often two or
more years prior to the opening of the facility.
In the case of owned facilities, there are the normal risks of ownership and costs of capital.
In addition, operating expenses for both leased and owned facilities are borne by us and are not
passed through to the owner, as is the case with management contracts. In the case of owned
facilities and generally in the case of longer-term leased facilities, we also are responsible for
property taxes and all maintenance and repair costs, including structural, mechanical and systems
repairs. Performance of our parking facilities depends, in part, on our ability to negotiate
favorable contract terms and control operating expenses, economic conditions prevailing generally
and in areas where parking facilities are located, the nature and extent of competitive parking
facilities in the area, weather conditions and the real estate market.
An increase in government regulation or taxation could have a negative effect on our
profitability.
Our business is subject to numerous federal, state and local laws and regulations, and in some
cases, municipal and state authorities directly regulate parking facilities. In addition, many
cities impose a substantial tax or surcharge on parking services, which generally range from 10% to
50%. Substantial increases in the tax or surcharge on parking such as occurred in recent years in
Pittsburgh and Miami can have a significant negative effect on profitability in a given city. The
profitability of our business is also affected by increases in property taxes because the Company
is responsible for paying property taxes on its owned properties and on many of its leased
facilities. Several state and local laws have been passed in recent years that are designed to
encourage car-pooling or the use of mass transit or impose certain restrictions on automobile
usage. An example is the restrictions imposed by the City of New York in the wake of the September
11 terrorist attacks, which included street closures and a requirement for passenger cars entering
certain bridges and tunnels to have more than one occupant during the morning rush hour. We also
are subject to federal, state and local employment and labor laws and regulations, and several
cities in which we have operations either have adopted or are considering the adoption of so-called
living wage ordinances. The adoption of such laws and regulations, the imposition of additional
parking taxes or surcharges and increases in property and other taxes could adversely impact our
profitability.
Page 23 of 31
The sureties for our performance bond program may increase rates and require additional
collateral to issue or renew performance bonds in support of certain contracts.
Under substantially all of our contracts with municipalities and government entities and
airports, we are required to provide a performance bond to support our obligations under the
contract. We are also required to provide performance bonds under certain leases and other
contracts with non-governmental entities. In recent years, the sureties for our performance bond
program increased the rates we pay on these bonds and required us to collateralize a greater
percentage of our performance bonds with letters of credit. Although we believe our performance
bond program is adequate for its present needs, if we are unable to provide sufficient collateral
in the future, our sureties may not issue or renew performance bonds to support our obligations
under certain contracts.
As is customary in the industry, a surety provider can refuse to provide a bond principal with
new or renewal surety bonds. If any existing or future surety provider refuses to provide us with
surety bonds, there can be no assurance that we would be able to find alternate providers on
acceptable terms, or at all. Our inability to provide surety bonds could result in the loss of
existing contracts or future business, which could have a material adverse effect on our business
and financial condition.
Our net income could be adversely affected if accruals for future insurance losses are not
adequate.
We provide liability, medical and workers compensation insurance coverage. We are obligated
to pay for each loss incurred up to the amount of a deductible specified in our insurance policies.
Our financial statements reflect our anticipated costs based upon loss experience and guidance and
evaluation we have received from third party insurance professionals, such as actuaries. There can
be no assurance, however, that the ultimate amount of such costs will not exceed the amounts
presently accrued, in which case we would need to increase accruals and pay additional expenses.
The operation of our business is dependent on key personnel.
Our success is, and will continue to be, substantially dependent upon the continued services
of our management team. The loss of the services of one or more of the members of our senior
management team could have a material adverse effect on our financial condition and the results of
operations. Although we have entered into employment agreements with, and historically have been
successful in retaining the services of our senior management, there can be no assurance that we
will be able to retain these senior management people in the future. In addition, our future
growth depends on our ability to attract and retain skilled operating managers and employees.
We have foreign operations that may be adversely affected by foreign currency exchange rate
fluctuations.
We operate in the United Kingdom, the Republic of Ireland and other countries. For the
quarter ended December 31, 2006, revenues from foreign operations represented 6.3% of our total
revenues, excluding reimbursement of management contract expenses. Our United Kingdom operations
accounted for 53.2% of total revenues from foreign operations, excluding reimbursement of
management contract expense and excluding earnings from joint ventures. We receive revenues and
incur expenses in various foreign currencies in connection with our foreign operations and, as a
result, we are subject to currency exchange rate fluctuations. We intend to continue to invest in
certain foreign leased or owned parking facilities, either independently or through joint ventures,
where appropriate, and may become increasingly exposed to foreign currency fluctuations. We believe
we currently have limited exposure to foreign currency risk. We have entered into certain foreign
currency forward contracts to mitigate the foreign exchange risk related to certain intercompany
notes we have with our subsidiary in the United Kingdom. See note 1 to our consolidated financial
statements.
In connection with ownership or operation of parking facilities, we may be liable for
environmental problems.
Under various federal, state, and local environmental laws, ordinances, and regulations, a
current or previous owner or operator of real property may be liable for the cost of removal or
remediation of hazardous or toxic substances on, under, or in such property. Such laws typically
impose liability without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. There can be no assurance that a material
environmental claim will not be asserted against us or against our owned or operated parking
facilities. The cost of defending against claims of liability, or of remediating a contaminated
property, could have a negative effect on our business and financial results.
If we cannot maintain positive relationships with labor unions representing our employees, a
work stoppage may adversely affect our business.
Approximately 3,907 employees are represented by labor unions. There can be no assurance that
we will be able to renew existing labor union contracts on acceptable terms. Employees could
exercise their rights under these labor union contracts, which could include a strike or walk-out.
In such cases, there are no assurances that
Page 24 of 31
we would be able to staff sufficient employees for its short-term needs. Any such labor strike
or our inability to negotiate a satisfactory contract upon expiration of the current agreements
could have a negative effect on our business and financial results.
Item
Item 6. Exhibits
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2.1
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Plan of Recapitalization, effective October 9, 1997 (Incorporated by reference to
Exhibit 2 to the Companys Registration Statement No. 33-95640 on Form S-1). |
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2.2
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Agreement and Plan of Merger dated September 21, 1998, by and among the Registrant,
Central Merger Sub, Inc., Allright Holdings, Inc., Apollo Real Estate Investment Fund
II, L.P. and AEW Partners, L.P. (Incorporated by reference to Exhibit 2.1 to the
Companys Registration Statement No. 333-66081 on Form S-4 filed on October 21, 1998). |
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2.3
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Amendment dated as of January 5, 1999, to the Agreement and Plan of Merger dated
September 21, 1998 by and among the Registrant, Central Merger Sub, Inc., Allright
Holdings, Inc., Apollo Real Estate Investment Fund II, L.P. and AEW Partners, L.P.
(Incorporated by reference to Exhibit 2.1 to the Companys Registration Statement No.
333-66081 on Form S-4 filed on October 21, 1998, as amended). |
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2.4
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Acquisition Agreement and Plan of Merger dated as of November 7, 1997, by and between
the Registrant and Kinney System Holding Corp and a subsidiary of the Registrant
(Incorporated by reference to the Companys Current Report on Form 8-K filed on
February 17, 1998). |
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3.1
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(a)
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Amended and Restated Charter of the Registrant (Incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement No. 333-23869 on Form S-3). |
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(b)
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Articles of Amendment to the Charter of Central Parking
Corporation increasing the authorized number of shares of common stock,
par value $0.01 per share, to one hundred million (Incorporated by
reference to Exhibit 2 to the Companys 10-Q for the quarter ended
March 31, 1999). |
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3.2
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Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit
4.1 to the Companys Registration Statement No. 333-23869 on Form S-3). |
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4.1
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Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement No. 33-95640 on Form S-1). |
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4.2
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(a)
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Registration Rights Agreement (the Allright Registration Rights Agreement) dated as of September 21, 1998 by and
between the Registrant, Apollo Real Estate Investment Fund II, L.P., AEW Partners, L.P. and Monroe J. Carell, Jr.,
The Monroe Carell Jr. Foundation, Monroe Carell Jr. 1995 Grantor Retained Annuity Trust, Monroe Carell Jr. 1994
Grantor Retained Annuity Trust, The Carell Childrens Trust, The 1996 Carell Grandchildrens Trust, The Carell
Family Grandchildren 1990 Trust, The Kathryn Carell Brown Foundation, The Edith Carell Johnson Foundation, The
Julie Carell Stadler Foundation, 1997 Carell Elizabeth Brown Trust, 1997 Ann Scott Johnson Trust, 1997 Julia
Claire Stadler Trust, 1997 William Carell Johnson Trust, 1997 David Nicholas Brown Trust and 1997 George Monroe
Stadler Trust (Incorporated by reference to Exhibit 4.4 to the Companys Registration Statement No. 333-66081
filed on October 21, 1998). |
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4.2
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(b)
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Amendment dated January 5, 1999 to the Allright Registration Rights Agreement (Incorporated by reference to
Exhibit 4.4.1 to the Companys Registration Statement No. 333-66081 filed on October 21, 1998, as amended). |
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4.2
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(c)
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Second Amendment dated February 1, 2001 to the Allright Registration Rights Agreement. (Incorporated by reference
to Exhibit 4.6 to the Companys Registration Statement No. 333-54914 on Form S-3 filed on February 2, 2001) |
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4.3
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Indenture dated March 18, 1998 between the registrant and Chase Bank of Texas, National Association, as
Trustee regarding up to $113,402,050 of 5-1/4 % Convertible
Subordinated Debentures due 2028. (Incorporated by reference to
Exhibit 4.5 to the Registrants Registration Statement No.
333-52497 on Form S-3). |
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4.4
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Amended and Restated Declaration of Trust of Central Parking Finance Trust dated as
of March 18, 1998. (Incorporated by reference to Exhibit 4.5 to the Registrants
Registration Statement No. 333-52497 on Form S-3). |
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4.5
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Preferred Securities Guarantee Agreement dated as of March 18, 1998 by and between
the Registrant and Chase Bank of Texas, national Association as Trustee (Incorporated
by reference to Exhibit 4.7 to the Registrants Registration Statement No. 333-52497
on Form S-3). |
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4.6
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Common Securities Guarantee Agreement dated March 18, 1998 by the Registrant.
(Incorporated by reference to Exhibit 4.9 to 333-52497 on Form S-3). |
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10.1
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Waiver Agreement dated October 12, 2005 among Central Parking Corporation et. al. and
Bank Of America N. A. et. al. (Incorporated by reference to Exhibit 10.28 to the
Companys Form 10-K for the year ended September 30, 2005) |
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10.2
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Emanuel J. Eads Employment Agreement dated August 2, 2005. (Incorporated
by reference to Exhibit 10.2 to the Companys Report on Form 10-Q for period
ended December 31, 2005) |
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31.1
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Certification of Emanuel Eads pursuant to Rule 13a-14(a). |
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31.2
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Certification of Jeff Heavrin pursuant to Rule 13a-14(a). |
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32.1
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Certification of Emanuel Eads pursuant to Section 1350. |
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32.2
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Certification of Jeff Heavrin pursuant to Section 1350 |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned party duly authorized.
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CENTRAL PARKING CORPORATION
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Date: February 9, 2007 |
By: |
/s/ EMANUEL EADS
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Emanuel Eads |
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Chief Executive Officer |
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CENTRAL PARKING CORPORATION
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Date: February 9, 2007 |
By: |
/s/ JEFF HEAVRIN
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Jeff Heavrin |
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Senior Vice President and Chief
Financial Officer |
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