SP Plus Corp - Quarter Report: 2009 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-50796

 

STANDARD PARKING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware		16-1171179
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

900 N. Michigan Avenue, Suite 1600
Chicago, Illinois 60611-1542
(Address of Principal Executive Offices, Including Zip Code)

(312) 274-2000
(Registrant’s Telephone Number, Including Area Code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

As of October 30, 2009, there were 15,364,521 shares of common stock of the registrant outstanding.

 

 

STANDARD PARKING CORPORATION
FORM 10-Q INDEX

Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008			3
Condensed Consolidated Statements of Income (Unaudited) for the three months ended September 30, 2009 and 2008 and the nine months ended September 30, 2009 and 2008			4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and September 30, 2008			5
Notes to Condensed Consolidated Interim Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			38
Item 4. Controls and Procedures			39
Part II. Other Information
Item 1A. Risk Factors			40
Item 4. Submission of Matters to a Vote of Security Holders			41
Item 6. Exhibits			43
Signatures			44
Index to Exhibits			45
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 32.1

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

STANDARD PARKING CORPORATION

		September 30, 2009				December 31, 2008
		(Unaudited)				(see Note)
ASSETS
Current assets:
Cash and cash equivalents		$	8,641			$	8,301
Notes and accounts receivable, net			44,930				45,198
Prepaid expenses and supplies			1,946				2,496
Deferred taxes			3,253				3,253
Total current assets			58,770				59,248
Leasehold improvements, equipment and construction in progress, net			17,388				17,542
Advances and deposits			4,044				4,433
Long-term receivables, net			9,480				6,680
Intangible and other assets, net			6,613				6,916
Cost of contracts, net			13,254				10,872
Goodwill			126,535				123,550
Total assets		$	236,084			$	229,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	45,523			$	46,446
Accrued and other current liabilities			29,636				31,416
Current portion of long-term borrowings			722				1,068
Total current liabilities			75,881				78,930
Deferred taxes			7,600				3,305
Long-term borrowings, excluding current portion			119,879				123,996
Other long-term liabilities			22,502				22,052
Standard Parking Corporation’s stockholders’ equity:
Common stock, par value $.001 per share; 21,300,000 shares authorized; 15,312,089 and 16,110,781 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively			15				16
Additional paid-in capital			90,565				103,541
Accumulated other comprehensive income			357				85
Treasury stock, at cost 627,423 shares as of December 31, 2008			—				(11,161	)
Accumulated deficit			(80,652	)			(91,464	)
Total Standard Parking Corporation stockholders’ equity			10,285				1,017
Noncontrolling interest			(63	)			(59	)
Total equity			10,222				958
Total liabilities and stockholders’ equity		$	236,084			$	229,241

See Notes to Condensed Consolidated Interim Financial Statements.

STANDARD PARKING CORPORATION

		Three Months Ended								Nine Months Ended
		September 30, 2009				September 30, 2008				September 30, 2009				September 30, 2008
Parking services revenue:
Lease contracts		$	35,576			$	38,634			$	105,963			$	116,331
Management contracts			39,266				36,858				114,870				109,153
			74,842				75,492				220,833				225,484
Reimbursed management contract expense			97,480				101,919				297,632				300,687
Total revenue			172,322				177,411				518,465				526,171
Cost of parking services:
Lease contracts			32,899				35,506				98,780				105,110
Management contracts			20,696				16,510				61,025				51,718
			53,595				52,016				159,805				156,828
Reimbursed management contract expense			97,480				101,919				297,632				300,687
Total cost of parking services			151,075				153,935				457,437				457,515
Gross profit:
Lease contracts			2,677				3,128				7,183				11,221
Management contracts			18,570				20,348				53,845				57,435
Total gross profit			21,247				23,476				61,028				68,656
General and administrative expenses (1)			11,295				12,017				34,376				35,457
Depreciation and amortization			1,582				1,539				4,482				4,489
Operating income			8,370				9,920				22,170				28,710
Other expenses (income):
Interest expense			1,546				1,777				4,510				4,381
Interest income			(54	)			(106	)			(216	)			(189	)
			1,492				1,671				4,294				4,192
Income before income taxes			6,878				8,249				17,876				24,518
Income tax expense			2,654				3,144				6,920				9,734
Net income			4,224				5,105				10,956				14,784
Less: Net income (loss) attributable to noncontrolling interest			38				(4	)			144				121
Net income attributable to Standard Parking Corporation		$	4,186			$	5,109			$	10,812			$	14,663
Common stock data:
Net income per share:
Basic		$	0.27			$	0.30			$	0.71			$	0.83
Diluted		$	0.27			$	0.29			$	0.69			$	0.81
Weighted average shares outstanding:
Basic			15,277,601				17,244,932				15,274,214				17,753,188
Diluted			15,696,136				17,694,208				15,659,351				18,165,087

See Notes to Condensed Consolidated Interim Financial Statements.

STANDARD PARKING CORPORATION

		Nine Months Ended
		September 30, 2009				September 30, 2008
Operating activities:
Net income		$	10,956			$	14,784
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			4,173				4,147
Loss on sale of assets			286				291
Amortization of debt issuance costs			481				287
Write off of debt issuance cost			—				13
Non-cash stock-based compensation			1,754				985
Excess tax benefit related to stock option exercises			(136	)			(878	)
Provision (reversal) for losses on accounts receivable			(174	)			79
Deferred income taxes			4,295				6,247
Change in operating assets and liabilities, net of acquisition related			(6,856	)			(6,302	)
Net cash provided by operating activities			14,779				19,653
Investing activities:
Acquisitions			(2,500	)			(5,463	)
Purchase of leaseholds improvements and equipment			(2,820	)			(3,539	)
Cost of contracts purchased			(904	)			(446	)
Proceeds from sale of assets			39				264
Contingent purchase payments			(259	)			(64	)
Net cash used in investing activities			(6,444	)			(9,248	)
Financing activities:
Repurchase of common stock			(3,885	)			(37,512	)
Proceeds from exercise of stock options			125				722
Tax benefit related to stock option exercises			136				878
(Payments on) proceeds from senior credit facility			(3,600	)			32,450
Distribution to noncontrolling interest			(148	)			(207	)
Payments on long-term borrowings			(90	)			(110	)
Payments of debt issuance costs			(30	)			(2,349	)
Payments on capital leases			(775	)			(1,233	)
Net cash used in financing activities			(8,267	)			(7,361	)
Effect of exchange rate changes on cash and cash equivalents			272				(159	)
Increase in cash and cash equivalents			340				2,885
Cash and cash equivalents at beginning of period			8,301				8,466
Cash and cash equivalents at end of period		$	8,641			$	11,351
Supplemental disclosures:
Cash paid during the period for:
Interest		$	4,516			$	6,960
Income taxes			2,449				2,392

See Notes to Condensed Consolidated Interim Financial Statements.

STANDARD PARKING CORPORATION

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Standard Parking Corporation have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information 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 notes required by accounting principles generally accepted in the United States for complete financial statements.

In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results for the three-month and nine-month period ended September 30, 2009 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ending December 31, 2009. The financial statements presented in this report should be read in conjunction with the consolidated financial statements and footnotes thereto included in our 2008 Annual Report on Form 10-K filed March 13, 2009, and the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on November 3, 2009.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures in which the Company has more than 50% ownership interest. Noncontrolling interest recorded in the consolidated statement of income is the joint venture partner’s non-controlling interest in consolidated joint ventures. We have interests in twelve joint ventures, each of which operates between one and twenty-two parking facilities. Of the twelve joint ventures, nine are majority owned by us and are consolidated into our financial statements, and three are single purpose entities where we have a 50% interest or a minority interest. Investments in joint ventures where the Company has a 50% or less non-controlling ownership interest are accounted for under the equity method. All significant intercompany profits, transactions and balances have been eliminated in consolidation.

Variable Interest Entities

Commencement of

Nature of

Equity

Operations

Activities

% Ownership

Locations

Other investments in VIEs

Sep 93 — Jun 08

Management of parking lots, shuttle operations and parking meters

50

%

Various states

The existing VIEs in which we have a variable interest are not consolidated into our financial statements because we are not the primary beneficiary.

Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair value due to the short-term nature of these financial instruments. Other long-term debt has a carrying value that approximates fair value because these instruments bear interest at market rates.

2. Stock Split

On December 4, 2007, the Board of Directors declared a 2-for-1 stock split in the form of a 100% common stock dividend to stockholders of record as of the close of business on January 8, 2008, which was distributed on January 17, 2008. All share and per share data included in the consolidated financial statements and accompanying notes have been adjusted to reflect this stock split.

3. Stock-Based Compensation

We measure share-based compensation expense at the grant date, based on the fair value of the award, and the expense is recognized over the requisite employee service period (generally the vesting period) for awards expected to vest (considering estimated forfeitures).

The Company has an amended and restated Long-Term Incentive Plan that was adopted in conjunction with our IPO. On February 27, 2008, our Board approved an amendment to our Long-Term Incentive Plan, subject to shareholder approval, that increased the maximum number of shares of common stock available for awards under the Long-Term Incentive Plan from 2,000,000 to 2,175,000 and extended the Plan’s termination date. Our shareholders approved this Plan amendment on April 22, 2008, and the Plan now terminates twenty years from the date of such approval, or April 22, 2028. At September 30, 2009, 113,558 shares remained available for award under the Plan. In most cases, options granted under the Plan vest at the end of a three-year period from the date of the award. Options are granted with an exercise price equal to the closing price at the date of grant.

Stock Options and Grants

We use the Black-Scholes option pricing model to estimate the fair value of each option grant as of the date of grant. The volatilities are based on the 90 day historical volatility of our common stock as of the grant date. The risk free interest rate is based on zero-coupon U.S. government issues with a remaining term equal to the expected life of the option. For options granted prior to 2008, the expected life for options was calculated using the simplified method. The simplified method was calculated as the vesting term plus the contractual term divided by two.

There were no options granted during the nine months ended September 30, 2009.

On January 24, 2008, we issued vested stock grants totaling 1,084 shares to a director. The total value of the grant was $25 and is included in general and administrative expenses.

On April 22, 2008, we issued vested stock grants totaling 18,900 shares to certain directors. The total value of the grant was $385 and is included in general and administrative expenses.

On August 14, 2009, we issued vested stock grants totaling 9,591 shares to certain directors. The total value of the grant was $165 and is included in general and administrative expense.

The Company recognized no stock based compensation expense related to stock options for the three months ended September 30, 2009 and $30 of stock based compensation expense related to stock options for the nine months ended September 30, 2009. The Company recognized no stock based compensation expense for the three months ended September 30, 2008 and $2 of stock based compensation expense for the nine months ended September 30, 2008, respectively, which is included in general and administrative expense. As of September 30, 2009, there was no unrecognized compensation costs related to unvested options.

Performance-Based Incentive Program

In December 2006, the Board of Directors adopted a performance-based incentive program under our Long-Term Incentive Plan. This new program provided participating executives with the opportunity to earn a combination of stock (50%) and cash (50%) if certain performance targets for pre-tax income and pre-tax free cash flow are achieved. On February 23, 2007, certain participating executives became entitled to performance restricted stock based on the stock price at the commencement of the three year performance cycle (2007-2009) and as a result 16,404 shares were issued subject to vesting upon the achievement of the performance goals. On April 13, 2007, an additional 13,294 shares of the performance restricted stock were issued subject to vesting upon the achievement of the three year performance goals to the remaining participating executives. On December 31, 2007, 3,849 shares were released free of restrictions in accordance with the achievement of the first year performance goals. On December 31, 2008, 7,072 shares were released free of restrictions in accordance with the achievement of the second year performance goals. On August 11, 2009, 2,816 forfeited shares were retired.

We record stock-based compensation expense for awards with performance conditions based on the probable outcome of that performance condition. The Company recognized $11 and $26 of stock-based compensation expense and $11 and $26 of cash compensation expense related to the performance-based incentive program, for the three months ended September 30, 2009 and 2008, respectively, which is included in general and administrative expenses. The Company recognized $32 and $80 of stock-based compensation expense and $32 and $80 of cash compensation expense related to the performance-based incentive program, for the nine months ended September 30, 2009 and 2008, respectively, which is included in general and administrative expenses. As of September 30, 2009, there was $22 of unrecognized compensation costs related to the performance-based incentive program which is expected to be recognized over a weighted average period of 0.25 years.

Restricted Stock Units

In March 2008, the Company’s Compensation Committee and the Board of Directors authorized a one-time grant of 750,000 restricted stock units that subsequently were awarded to members of our senior management team on July 1, 2008. In November 2008, an additional 5,000 restricted stock units were awarded. The restricted stock units vest in one-third installments on each of the tenth, eleventh and twelfth anniversaries of the grant date. The restricted stock unit agreements provide for accelerated vesting upon the recipient’s retirement age.

The cost of restricted stock units is determined using the fair value of our common stock on the date of the grant, and compensation expense is recognized over the vesting period. We estimated forfeitures at the time of the grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest.

The Company recognized $505 and $1,527 of stock based compensation expense related to the restricted stock units for the three and nine months ended September 30, 2009, respectively, which is included in general and administrative expense. The Company recognized $494 of stock based compensation expense related to the restricted stock units for the three and nine months ended September 30, 2008, respectively, which is included in general and administrative expense. As of September 30, 2009, there was $10,294 of unrecognized stock-based compensation costs, net of estimated forfeitures, related to the restricted stock units that is expected to be recognized over a weighted average period of approximately 7.4 years.

4. Net Income Per Common Share

Companies are required to present basic and diluted earnings per share. Basic net income per share is computed by dividing net income by the weighted daily average number of shares of common stock outstanding during the period. Diluted net income per share is based upon the weighted daily average number of shares of common stock outstanding for the period plus dilutive potential common shares, including stock options and restricted stock units using the treasury-stock method.

A reconciliation of the weighted average basic common shares outstanding to the weighted average diluted common shares outstanding is as follows (Unaudited):

		Three Months Ended September 30								Nine Months Ended September 30,
		2009				2008				2009				2008
Weighted average common shares outstanding — Basic			15,277,601				17,244,932				15,274,214				17,753,188
Effect of dilutive options			418,535				449,276				385,137				411,899
Weighted average common shares outstanding — Diluted			15,696,136				17,694,208				15,659,351				18,165,087
Net income per share:
Basic		$	0.27			$	0.30			$	0.71			$	0.83
Diluted		$	0.27			$	0.29			$	0.69			$	0.81

Weighted average shares issuable upon the exercise of stock options, which were not included in the diluted earnings per share calculation because they were anti-dilutive, were 19,068 for the three and nine months ended September 30, 2009. There were no anti-dilutive options for the three and nine months ended September 30, 2008.

For the three and nine months ended September 30, 2009 and 2008, 15,961 and 25,849 shares, respectively, of performance based restricted stock were not included in the computation of weighted diluted common share amounts because the number of shares ultimately issued is contingent on the Company’s performance goals, which were not achieved as of that date.

There are no additional securities that could dilute basic EPS in the future that were not included in the computation of diluted EPS, other than those disclosed.

5. Recently Issued Accounting Pronouncements

Accounting Standards Net Yet Adopted

In June 2009, the FASB issued updated accounting guidance that amends the requirements for determination of the primary beneficiary of a variable interest entity, requires an ongoing assessment of whether an entity is the primary beneficiary and requires enhanced interim and annual disclosures that will provide users of financial information regarding an enterprise’s involvement in a variable interest entity. The updated accounting guidance is effective for annual reporting periods beginning after November 15, 2009. We are currently evaluating the impact, if any, the adoption will have on our future results of operations and financial condition.

In June 2009, the FASB issued updated accounting guidance that amends and eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria and changes the initial measurement of a transferor’s interest in transferred financial assets. We are required to adopt the updated accounting guidance at the beginning of 2010 We are currently evaluating the impact, if any, the adoption will have on our future results of operations and financial condition.

Accounting Standards Adopted

In June 2009, the Financial Accounting Standards Board (“FASB”) issued The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the Codification”) which became the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. The Codification reorganized the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. The codification is effective for financial statements issued for reporting periods that end after September 15, 2009. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. We adopted the Codification effective September 30, 2009. As the Codification did not change or alter existing GAAP, the adoption of the Codification did not impact our results of operations or financial condition.

During the second quarter of 2009, the FASB issued accounting guidance that requires entities to disclose the date through which they have evaluated subsequent events and whether the date corresponds with the release of their financial statements. The Company has evaluated subsequent events through the date and time the financial statements were issued on November 9, 2009, and have made the necessary disclosures in footnote 18, if any.

In April 2009, the FASB issued updated accounting guidance on determining fair value when the volume and level of activity for an asset or liability has significantly decreased and identifying transactions that are not orderly. If after evaluating those factors, the evidence indicates there has been a significant decrease in the volume and level of activity in relation to normal market activity, observed transactional values or quoted prices may not be determinative of fair value and adjustment to the observed transactional values or quoted prices may be necessary to estimate fair value. The updated accounting guidance also prospectively expands and increases the frequency of existing disclosures related primarily to additional security types and valuation methodologies. The Company’s adoption of this updated accounting guidance did not impact the financial condition or results of operations of the Company. The FASB issued updated accounting guidance on how to assess whether an asset has experienced an other-than-temporary impairment and, if so, where the impairment should be recorded in the financial statements. The Company’s adoption of this updated accounting guidance did not impact the financial condition or results of operations of the Company.

In September 2006, the FASB issued updated accounting guidance which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The updated accounting guidance does not require new fair value measurements, but is applied to the extent that other accounting guidance requires or permit fair value measurements. The updated accounting guidance emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Companies are required to disclose the extent to which fair value is used to measure assets and liabilities, the inputs used to develop the measurements, and the effect of certain of the measurements on earnings (or changes in net assets) for the period. On January 1, 2008, the Company adopted the updated accounting guidance related to financial assets and liabilities, as well as other liabilities carried at fair value on a recurring basis. These provisions did not have a material impact on the Company’s consolidated financial statements. On January 1, 2009, the Company adopted the updated accounting guidance related to nonfinancial assets and liabilities. The adoption of this updated accounting guidance did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2009, we adopted the updated accounting guidance which established principles and requirements on how an acquirer recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, noncontrolling interests in the acquiree, goodwill or gain from a bargain purchase and accounting for transaction costs. Additionally, the updated accounting guidance determined what information must be disclosed to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The adoption of the updated accounting guidance is in our consolidated financial statements and we have made the necessary disclosures in footnote 6.

In December of 2007, the FASB issued updated accounting guidance on reporting Noncontrolling Interests in Consolidated Financial Statements. The updated accounting guidance requires all entities to report noncontrolling (minority) interests as a component of shareholders’ equity on the balance sheet; include all earnings of a consolidated subsidiary in consolidated results of operations; and treat all transactions between the parent and its noncontrolling interest holder that increase or decrease the noncontrolling interest as equity provided the parent does not lose control. On January 1, 2009 we adopted the updated accounting guidance on Noncontrolling Interests in Consolidated Financial Statements and is reflected in these financial statements on a retrospective basis.

6. Acquisitions

2009 Acquisitions

On July 1, 2009, the Company acquired substantially all of the assets and liabilities of Gameday Management Group U.S. Gameday Management, based in Orlando, FL, plans and operates transportation and parking systems for major stadiums and sporting events. Among the assets acquired is Gameday’s Click and Park online parking and traffic management system, which enables customers to purchase reserved parking online in advance of an event. The acquisition represents an acquisition of a business and was accounted for using the purchase method of accounting. This acquisition is not considered material to the Company.

The purchase price allocations are based on preliminary estimates. These estimates are subject to revision after the Company completes its fair value analysis. The Company financed the acquisition through additional term borrowings under the senior credit facility and existing cash. The results of operations of this acquisition are included in the Company’s consolidated statement of income from the date of acquisition.

The Company expensed acquisition related costs of $149 in 2009 and $240 in 2008. These costs are included in General and Administrative expenses in the income statement.

2008 Acquisitions

During the year ended December 31, 2008, the Company completed two acquisitions. Consideration for all acquisitions was $8,505 of which $6,008 was paid in cash and $2,497 in a discounted non-interest bearing note to be paid in annual installments of $600, commencing February 2009 and an estimated $187 to be paid in the future based upon financial performance compared to forecast. On March 31, 2009, we entered into a settlement agreement with the principals of G.O. Parking which amended the installment payment agreement, provided for a termination fee and a reimbursement of legal fees we incurred for post acquisition disputes. On April 14^th we paid G.O. parking $1,680 in lieu of the original installment payment obligation. In addition, the Company paid and capitalized $310 in acquisition costs. A summary of the acquisitions follows:

•

In November 2008, we acquired certain assets of Downtown Valet, LLC, a valet parking operator in Seattle, Washington.

•

In February 2008, we acquired certain assets of G.O. Parking, a parking operator in Chicago, Illinois.

The acquisitions of Downtown Valet, LLC and G.O. Parking represent acquisitions of businesses.

These acquisitions consisted of goodwill of $3,007, cost of contract of $5,314, intangible assets of $233 and equipment of $261. As of September 30, 2009, we have made contingency payments of $259 related to acquisitions, of which $225 had been accrued at December 31, 2008.

The acquisitions for 2008 were accounted for using the purchase method of accounting. The Company financed the acquisitions through additional term borrowings under the senior credit facility and existing cash. The results of operations of these acquisitions are included in the Company’s consolidated statement of income from the date of acquisition. None of the acquisitions, either individually or in the aggregate, is considered material to the Company.

7. Leasehold Improvements, Equipment and Construction in Progress, Net

A summary of leasehold improvements, equipment, and construction in progress and related accumulated depreciation and amortization is as follows:

		Ranges of Estimated
		useful life				September 30, 2009				December 31, 2008
						(Unaudited)
Equipment		2-10 years				$	28,769			$	29,615
Leasehold improvements		Shorter of lease term or economic life up to 10 years					10,176				10,340
Construction in progress							7,184				6,517
							46,129				46,472
Less accumulated depreciation and amortization							(28,741	)			(28,930	)
Leasehold improvements, equipment and construction in progress, net						$	17,388			$	17,542

Depreciation expense was $991 and $2,921 for the three and nine months ended September 30, 2009, respectively, and $1,201 and $3,268 for the three and nine months ended September 30, 2008, respectively. Depreciation includes losses on abandonments of leasehold improvements and equipment of $93 and $286 for the three and nine months ended September 30, 2009, respectively, and $167 and $342 for the three and nine months ended September 30, 2008, respectively.

8. Cost of Contracts, Net

Cost of contracts represents the contractual rights associated with providing parking services at a managed or leased facility. Cost consists of either capitalized payments made to third parties or the value ascribed to contracts acquired through acquisition. Cost of contracts is amortized over the estimated life of the contracts, including anticipated renewals and terminations.

The balance of cost of contracts is comprised of the following:

		September 30, 2009				December 31, 2008
		(Unaudited)
Cost of contracts		$	18,857			$	15,303
Accumulated amortization			(5,603	)			(4,431	)
Cost of contracts, net		$	13,254			$	10,872

During 2008, we retired fully amortized contracts in the amount of $29,177 that had expired.

Amortization expense related to cost of contracts was $560 and $1,359 for the three and nine months ended September 30, 2009, respectively, and $348 and $988 for the three and nine months ended September 30, 2008, respectively. The weighted average useful life is 9 years for 2009 and 10 years for 2008.

9. Goodwill

Goodwill is assigned to reporting units based upon the specific Region where the assets acquired and associate goodwill resided.

As a result of the prior acquisitions, as of September 30, 2009, our contingent payment obligations totaled $4,230, on an aggregate undiscounted basis, which may be paid over time provided certain performance criteria is achieved. Such contingent payments will be accounted for as additional purchase price if the performance criteria is achieved; accordingly, the contingent payment obligation is not recorded at December 31, 2008, pursuant to previously existing purchase accounting rules.

The following table reflects the changes in the carrying amounts of goodwill by reported segment for the nine months ended September 30, 2009 (Unaudited).

		Region				Region				Region				Region
		One				Two				Three				Four				Total
Balance as of January 1, 2009		$	61,056			$	5,190			$	32,392			$	24,912			$	123,550
Acquisitions			—				2,500				—				—				2,500
Adjustments to purchase price			(104	)			—				—				—				(104	)
Contingency payments related to acquisitions			26				—				8				—				34
Foreign currency translation			—				555				—				—				555
Balance as of September 30, 2009		$	60,978			$	8,245			$	32,400			$	24,912			$	126,535

Long-term receivables, net, consist of the following:

		Amount Outstanding
		September 30, 2009				December 31, 2008
		(Unaudited)
Bradley International Airport
Deficiency payments		$	8,761			$	5,961
Other Bradley related, net			3,203				3,203
Valuation allowance			(2,484	)			(2,484	)
Total long-term receivables, net		$	9,480			$	6,680

Agreement

We entered into a 25-year agreement with the State of Connecticut that expires on April 6, 2025, under which we operate the surface parking and 3,500 garage parking spaces at Bradley International Airport located in the Hartford, Connecticut metropolitan area. The Company expects to receive a management fee for managing this parking facility.

The parking garage was financed on April 6, 2000 through the issuance of $53,800 of State of Connecticut special facility revenue bonds, representing $47,700 non-taxable Series A bonds and a separate taxable issuance of $6,100 Series B bonds. The Series B bonds were retired on July 1, 2006 according to the terms of the indenture. The Bradley agreement provides that we deposit with a trustee for the bondholders all gross revenues collected from operations of the surface and garage parking, and from these gross revenues, the trustee pays debt service on the special facility revenue bonds, operating and capital maintenance expenses of the surface and garage parking facilities and specific annual guaranteed minimum payments to the State. Principal and interest on the Bradley special facility revenue bonds increase from approximately $3,600 in lease year 2002 to approximately $4,500 in lease year 2025. Annual guaranteed minimum payments to the State will increase from approximately $8,300 in lease year 2002 to approximately $13,200 in lease year 2024; $9,731 is the guaranteed minimum payment for calendar year 2009. The annual minimum guaranteed payment to the State by the trustee for the nine months ended September 30, 2009 and 2008 was $7,269 and $7,119, respectively.

All of the cash flow from the Parking Facilities is pledged to the security of the bonds and is collected and deposited with the bond trustee. Each month the bond trustee makes certain required monthly distributions, which are characterized as “Guaranteed Payments.” To the extent the monthly gross receipts generated by the Parking Facilities are not sufficient for the trustee to make the required Guaranteed Payments, we are obligated to deliver the deficiency amount to the trustee. Additionally, the Guaranteed Payments are required to be paid before we are reimbursed for deficiency payments or management fees.

The following is the list of Guaranteed Payments:

•

Garage and surface operating expenses,

•

Principal and interest on Bonds,

•

Trustee expenses

•

Major maintenance and capital improvement deposits

•

State Minimum Guarantee

However, to the extent there is a cash surplus in any month during the term of the Lease, we have the right to be repaid the principal amount of any and all deficiency payments previously made, together with actual interest expenses and a premium, not to exceed 10% of the initial deficiency payment. We calculate and record interest income and premium income in the period the associated deficiency payment is received from the trustee.

Deficiency Payments

To the extent that monthly gross receipts are not sufficient for the trustee to make the required payments, we are obligated pursuant to our agreement to deliver the deficiency amount to the trustee within three business days of being notified. We are responsible for these deficiency payments regardless of the amount of utilization for the Bradley parking facilities. The deficiency payments represent contingent interest bearing advances to the trustee to cover operating cash flow requirements. To the extent sufficient funds are available in the appropriate fund, the trustee is then directed by the State to reimburse us for deficiency payments up to the amount of the calculated surplus.

In the nine months ended September 30, 2009, we made deficiency payments (net of repayments received) of $2,800 and we did not record or receive any interest and premium income deficiency repayments from the trustee. In the nine months ended September 30, 2008, we made deficiency payments (net of repayments received) of $1,329 and we did not record or receive any interest and premium income related to deficiency repayments from the trustee. The receivable from the trustee for interest and premium income related to deficiency repayments was $0 as of September 30, 2009, compared to $52 as of September 30, 2008.

The deficiency payments, if any, are recorded as a receivable by us for which we are reimbursed from time to time as provided in the trust agreement. As of September 30, 2009 and December 31, 2008, we have a receivable of $8,761 and $5,961, respectively, compromised of cumulative deficiency payments to the trustee, net of reimbursements. We believe these advances to be fully recoverable and therefore have not recorded a valuation allowance for them. We do not guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.

The Construction, Financing and Operating Special Facility Lease Agreement, which governs reimbursement of Guarantor Payments, places no time restriction or limits on our right to reimbursement.

The following table reconciles the beginning and ending balance of the receivable for each period presented:

		September 30, 2009				December 31, 2008
		(Unaudited)
Deficiency payments:
Balance at beginning of period		$	5,961			$	4,135
Deficiency payments made			2,800				2,153
Deficiency repayment received			—				(327	)
Balance at end of period			8,761				5,961
Other Bradley related			3,203				3,203
Valuation allowance			(2,484	)			(2,484	)
Total long-term receivables		$	9,480			$	6,680

Compensation

In addition to the recovery of certain general and administrative expenses incurred, our agreement provides for an annual management fee payment which is based on three operating profit tiers calculated for each year during the term of the agreement. The management fee is further apportioned 60% to us and 40% to an un-affiliated entity. To the extent that funds are available for the trustee to make a distribution, the annual management fee is paid when sufficient cash is paid after the Guaranteed Payments (as defined in our agreement), and after the repayment of all deficiency payments, including accrued interest and premium. However, our right to the management fee accrues each year during the term of the agreement and is paid when sufficient cash is available for the trustee to make a distribution.

The annual management fee is paid after the repayment of all deficiency payments, including accrued interest and premium. Therefore, due to the existence and length of time for repayment of the deficiency amounts to the Company, no management fees have been recognized. Management fees will be recognized in accordance with SAB 104 when “collectibility is reasonably assured”.

Cumulative management fees of $4,050 have not been recognized as of September 30, 2009 and no management fee income was recognized during the nine months ending September 30, 2009 and 2008.

11. Borrowing Arrangements

Long-term borrowings, in order of preference, consist of:

		Amount Outstanding
		Due Date				September 30, 2009				December 31, 2008
						(Unaudited)
Senior credit facility		June 2013				$	117,000			$	120,600
Capital lease obligations		Various					2,264				3,039
Obligations on Seller notes and other		Various					1,337				1,425
							120,601				125,064
Less current portion							722				1,068
						$	119,879			$	123,996

Senior Credit Facility

On July 15, 2008, we amended and restated our credit facility.

The $210,000 revolving senior credit facility will expire in July 2013. The revolving senior credit facility includes a letter of credit sub-facility with a sublimit of $50,000.

This revolving senior credit facility bears interest, at our option, at either (1) LIBOR plus an applicable LIBOR margin of between 2.00% and 3.50% depending on the ratio of our total funded indebtedness to our EBITDA from time to time (“Total Debt Ratio”) or (2) the Base Rate (as defined below) plus an applicable Base Rate Margin of between 0.50% and 2.00% depending on our Total Debt Ratio. We may elect interest periods of one, two, three or six months for LIBOR based borrowings. The Base Rate is the greater of (i) the rate publicly announced from time to time by Bank of America, N.A. as its “prime rate”, or (ii) the overnight federal funds rate plus 0.50%.

Our senior credit facility includes a fixed charge ratio covenant, a total debt to EBITDA ratio covenant, a limit on our ability to incur additional indebtedness, issue preferred stock or pay dividends, and certain other restrictions on our activities. We are required to repay borrowings under our senior credit facility out of the proceeds of future issuances of debt or equity securities and asset sales, subject to certain customary exceptions. Our senior credit facility is secured by substantially all of our assets and all assets acquired in the future (including a pledge of 100% of the stock of our existing and future domestic guarantor subsidiaries and 65% of the stock of our existing and future foreign subsidiaries).

We are in compliance with all of our financial covenants as of September 30, 2009.

The weighted average interest rate on our senior credit facility at September 30, 2009 and December 31, 2008 was 3.2% and 3.6%, respectively. The rate includes all outstanding LIBOR contracts, interest rate cap effect and letters of credit. The weighted average interest rate on outstanding borrowings, not including letters of credit, was 3.2% and 3.8% at September 30, 2009 and December 31, 2008, respectively.

At September 30, 2009, we had $18,884 of letters of credit outstanding under the senior credit facility, borrowings against the senior credit facility aggregated $117,000, and we had $26,791 available under the senior credit facility.

We have entered into various financing agreements, which were used for the purchase of equipment.

12. Stock Repurchases

2009 Stock Repurchases

In July 2008, our Board of Directors authorized us to repurchase shares of our common stock, on the open market or through private purchases, up to $60,000 in aggregate. As of December 31, 2008, $22,857 remained available for repurchase under this authorization.

During the first quarter of 2009, we repurchased 93,600 shares from third party shareholders at an average price of $18.23 per share, including average commissions of $0.03 per share, on the open market. Our former majority shareholder sold 119,701 shares to us in the first quarter of 2009 at an average price of $18.20 per share. The total value of the first quarter transactions was $3,884. We retired 200,650 shares during the first quarter of 2009, and retired and the remaining 12,651 shares in April 2009.

We did not make any share repurchases in the second and third quarters of 2009.

As of September 30, 2009, $18,973 remained available for repurchase under the July 2008 authorization by the Board of Directors.

2008 Stock Repurchases

In December 2007, the Board of Directors authorized us to repurchase shares of our common stock, on the open market or through private purchases, up to $25,000 in aggregate. As of December 31, 2007, $22,882 remained available for repurchase under this authorization.

During the first quarter of 2008, we repurchased from third party shareholders 257,125 shares at an average price of $20.79 per share, including average commissions of $0.03 per share, on the open market. Our former majority shareholder sold to us 120,111 shares in the first quarter at an average price of $20.76 per share. The total value of the first quarter transactions was $7,839. In March 2008, 214,500 shares were retired and the remaining 162,736 shares were retired in June 2008.

During the second quarter of 2008, we repurchased from third party shareholders 120,000 shares at an average price of $20.70 per share, including average commissions of $0.03 per share, on the open market. Our former majority shareholder sold to us 125,964 shares in the second quarter at an average price of $20.67 per share. The total value of the second quarter transactions was $5,087. In June 2008, 173,701 shares were retired and the remaining 72,263 were retired during the third quarter.

In July 2008 the Board of Directors authorized us to repurchase shares of our common stock, on the open market or through private purchases, up to an additional $60,000 in aggregate.

During the third quarter of 2008, we repurchased from third party shareholders 565,447 shares at an average price of $21.19 per share, including average commissions of $0.03 per share, on the open market. Our majority shareholder sold to us 580,060 shares in the third quarter at an average price of $21.16 per share. In addition, we repurchased from third party shareholders 14,600 shares at an average price of $22.66 per share, including average commissions of $0.03 per share, on the open market. The total value of the third quarter transactions was $24,586. 994,841 shares were retired during the third quarter of 2008 and the remaining 165,266 shares were held as treasury stock at September 30, 2008.

The December 2007 repurchase authorization by the Board of Directors was completed in August 2008.

13. Business Unit Segment Information

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by our chief operating decision maker, in deciding how to allocate resources. Our chief operating decision maker is the Company’s President and Chief Executive Officer.

Each of the operating segments is directly responsible for revenue and expenses related to their operations including direct regional administrative costs. Finance, information technology, human resources, and legal are shared functions that are not allocated back to the four operating segments. The CODM assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest, taxes, and depreciation and amortization, but does not evaluate segments using discrete asset information. There are no inter-segment transactions and the Company does not allocate interest and other income, interest expense, depreciation and amortization or taxes to operating segments. The accounting policies for segment reporting are the same as for the Company as a whole.

Our business is managed based on regions administered by executive vice presidents. Regions one and three are generally organized geographically. Region two encompasses our Canadian operations, event planning and transportation and our technology based parking and traffic management systems. Region four encompasses our major airports and transportation operations nationwide. The following is a summary of revenues (excluding reimbursed management contract expense) and gross profit by regions for the three and nine months ended September 30, 2009 and 2008. Information related to prior periods has been recast to conform to the current region alignment.

The Company has provided this business unit segment information for all comparable prior periods. Segment information is summarized as follows (in thousands):

		For the three months ended																For the nine months ended
		September 30,				Gross				September 30,				Gross				September 30,				Gross				September 30,				Gross
		2009				Margin				2008				Margin				2009				Margin				2008				Margin
Revenues:
Region One
Lease contracts		$	20,557							$	21,436							$	59,877							$	61,468
Management contracts			13,414								14,179								40,364								43,316
Total Region One			33,971								35,615								100,241								104,784
Region Two
Lease contracts			683								1,066								2,032								1,631
Management contracts			4,046								982								8,864								2,923
Total Region Two			4,729								2,048								10,896								4,554
Region Three
Lease contracts			4,796								5,739								14,580								19,356
Management contracts			13,973								13,874								41,378								39,695
Total Region Three			18,769								19,613								55,958								59,051
Region Four
Lease contracts			9,550								10,399								29,486								33,821
Management contracts			7,916								7,815								24,278								23,500
Total Region Four			17,466								18,214								53,764								57,321
Other
Lease contracts			(10	)							(6	)							(12	)							55
Management contracts			(83	)							8								(14	)							(281	)
Total Other			(93	)							2								(26	)							(226	)
Reimbursed expense			97,480								101,919								297,632								300,687
Total revenues		$	172,322							$	177,411							$	518,465							$	526,171
Gross Profit
Region One
Lease contracts			1,633				8	%			1,817				8	%			4,140				7	%			4,747				8	%
Management contracts			7,223				54	%			7,440				52	%			21,111				52	%			22,353				52	%
Total Region One			8,856								9,257								25,251								27,100
Region Two
Lease contracts			(12	)			(2	)%			436				41	%			89				4	%			611				37	%
Management contracts			1,339				33	%			1,088				111	%			3,133				35	%			2,867				98	%
Total Region Two			1,327								1,524								3,222								3,478
Region Three
Lease contracts			458				10	%			356				6	%			1,288				9	%			2,711				14	%
Management contracts			6,267				45	%			6,894				50	%			18,502				45	%			19,888				50	%
Total Region Three			6,725								7,250								19,790								22,599
Region Four
Lease contracts			654				7	%			899				9	%			1,762				6	%			2,946				9	%
Management contracts			3,850				49	%			3,477				44	%			11,754				48	%			10,472				45	%
Total Region Four			4,504								4,376								13,516								13,418
Other
Lease contracts			(56	)			(560	)%			(380	)			(6,333	)%			(96	)			(800	)%			206				374	%
Management contracts			(109	)			(131	)%			1,449				18,113	%			(655	)			(4,679	)%			1,855				(660	)%
Total Other			(165	)							1,069								(751	)							2,061
Total gross profit			21,247								23,476								61,028								68,656
General and administrative expenses			11,295								12,017								34,376								35,457
General and administrative expense percentage of gross profit			53	%							51	%							56	%							52	%
Depreciation and amortization			1,582								1,539								4,482								4,489
Operating income			8,370								9,920								22,170								28,710
Other expenses (income):
Interest expense			1,546								1,777								4,510								4,381
Interest income			(54	)							(106	)							(216	)							(189	)
			1,492								1,671								4,294								4,192
Income before income taxes			6,878								8,249								17,876								24,518
Income tax expense			2,654								3,144								6,920								9,734
Net income			4,224								5,105								10,956								14,784
Less: Net income attributable to noncontrolling interest			38								(4	)							144								121
Net income attributable to Standard Parking Corporation		$	4,186							$	5,109							$	10,812							$	14,663

Region One encompasses operations in Delaware, District of Columbia, Florida, Georgia, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Rhode Island, Tennessee, Vermont, Virginia, and Wisconsin.

Region Two encompasses our Canadian operations, event planning and transportation, and our technology based parking and traffic management systems.

Region Three encompasses operations in Arizona, California, Colorado, Hawaii, Louisiana, Nevada, Texas, Utah, Washington, and Wyoming.

Region Four encompasses all major airport and transportation operations nationwide.

Other consists of ancillary revenue that is not specifically identifiable to a region and insurance reserve adjustments related to prior years.

The CODM does not evaluate segments using discrete asset information.

14. Comprehensive Income

Comprehensive income consists of the following components (Unaudited):

		For the three months ended_								For the nine months ended
		September 30, 2009				September 30, 2008				September 30, 2009				September 30, 2008
Net income		$	4,224			$	5,105			$	10,956			$	14,784
Revaluation of interest rate cap			—				62				—				95
Effect of foreign currency translation			329				(99	)			272				(159	)
Comprehensive income			4,553				5,068				11,228				14,720
Less: Net income attributable to noncontrolling interest			38				(4	)			144				121
Comprehensive income attributable to Standard Parking Corporation		$	4,515			$	5,072			$	11,084			$	14,599

For the three months ended September 30, 2009, the Company recognized income tax expense of $2,654 on pre-tax earnings of $6,878 compared to $3,144 income tax expense on pre-tax earnings of $8,249 for the three months ended September 30, 2008. For the nine months ended September 30, 2009, the Company recognized income tax expense of $6,920 on pre-tax earnings of $17,876 compared to $9,734 income tax expense on pre-tax earnings of $24,518 for the nine months ended September 30, 2008. Income tax expense is based on a projected annual effective tax rate of approximately 39.4% for the nine months ended September 30, 2009 compared to approximately 39.7% for the nine months ended September 30, 2008. The change in the Company’s effective tax rate resulted primarily from an increase in the Company’s benefit from federal income tax credits, a decrease in the Company’s U.S. tax liability related to foreign earnings, and the adoption of the FASB updated accounting guidance on reporting noncontrolling interests in consolidated financial statements.

In July 2006, the FASB issued accounting guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes recognized in an enterprise’s financial statements also 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. The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense. Upon adoption, the Company completed a detailed analysis of its tax positions and determined that the implementation of this guidance did not have an impact on the Company’s financial position or results from operations. As of September 30, 2009, the Company has not identified any tax positions that would have a material impact on the Company’s financial position.

The tax years that remain subject to examination for the Company’s major tax jurisdictions at September 30, 2009 are shown below:

2004 – 2008		United States — federal income tax
2003 – 2008		United States — state and local income tax
2004 – 2008		Canada

On May 2, 2008, we entered into a definitive settlement agreement with our insurance carrier to finalize all of our open claims with respect to Hurricane Katrina. The settlement agreement was for $4,225 of which $2,000 was received previously. We were required to reimburse the owners of the leased and managed locations for property damage of approximately $2,228. After payment of settlement fees, expenses and other amounts due under contractual arrangements, in the second quarter of 2008, we recorded $1,997 in pre-tax income, of which $1,360 was recorded as parking services revenue lease contracts and $217 was recorded as parking services revenue management contracts, and $420 was recorded as a reduction of general and administrative expenses.

17. Legal Proceedings

In the normal course of business, we are from time to time involved in various legal proceedings that consist principally of lease and contract disputes. We consider these claims and legal proceedings to be routine and incidental to our business. We do not believe that any pending claim, proceeding or litigation, either alone or in the aggregate will have a material adverse effect on our financial position operations or liquidity however, the outcome of these legal proceedings cannot be predicted.

We have been in mediation and discussions with plaintiffs regarding the possible resolution of a California labor code violations case brought against the Company in which plaintiffs are seeking class certification of their claims. There have been five reported settlements of similar cases against parking companies operating in California. The range of settlement for these reported cases is from $250,000 to $1,290,000. We anticipate having further discussions regarding a possible negotiated settlement with the plaintiffs’ attorneys.

18. Subsequent Event

As stated in Note 5, we adopted the accounting guidance for subsequent events, during the second quarter of 2009. The Company has evaluated subsequent events through the date and time the financial statements were issued on November 9, 2009.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our results of operations should be read in conjunction with the consolidated financial statements and the notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and the notes thereto included in our Annual Report on our Form 10-K for the year ended December 31, 2008.

Overview

Our Business

We manage parking facilities in urban markets and at airports across the United States and in three Canadian provinces. We do not own any facilities, but instead enter into contractual relationships with property owners or managers.

We operate our clients’ properties through two types of arrangements: management contracts and leases. Under a management contract, we typically receive a base monthly fee for managing the facility, and we may also receive an incentive fee based on the achievement of facility performance objectives. We also receive fees for ancillary services. Typically, all of the underlying revenue and expenses under a standard management contract flow through to our clients rather than to us. However, some management contracts, which are referred to as “reverse” management contracts, usually provide for larger management fees and require us to pay various costs. Under lease arrangements, we generally pay to the property owner either a fixed annual rent, a percentage of gross customer collections or a combination thereof. We collect all revenue under lease arrangements and we are responsible for most operating expenses, but we are typically not responsible for major maintenance, capital expenditures or real estate taxes. Margins for lease contracts vary significantly, not only due to operating performance, but also due to variability of parking rates in different cities and varying space utilization by parking facility type and location. As of September 30, 2009, we operated approximately 90% of our locations under management contracts and approximately 10% of our locations under leases. For the nine months ended September 30, 2009, we derived approximately 88% of our gross profit under management contracts and approximately 12% of our gross profit under leases.

In evaluating our financial condition and operating performance, management’s primary focus is on our gross profit, total general and administrative expense and general and administrative expense as a percentage of our gross profit. Although the underlying economics to us of management contracts and leases are similar, the manner in which we are required to account for them differs. Revenue from leases includes all gross customer collections derived from our leased locations (net of parking tax), whereas revenue from management contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management contracts, therefore, are not included in our revenue. Accordingly, while a change in the proportion of our operating agreements that are structured as leases versus management contracts may cause significant fluctuations in reported revenue and expense of parking services, that change will not affect our gross profit. For example, as of September 30, 2009, we operated approximately 90% of our locations under management contracts, and for the nine months ended September 30, 2009, we derived approximately 88% of our gross profit under management contracts. Only approximately 52% of total revenue (excluding reimbursed management contract expenses), however, was from management contracts because under those contracts the revenue collected from parking customers belongs to our clients. Therefore, gross profit and total general and administrative expense, rather than revenue, are management’s primary focus.

General Business Trends

We believe that sophisticated commercial real estate developers and property managers and owners recognize the opportunity for parking and related services to be a profit generator rather than a cost center. Often, the parking experience makes both the first and the last impressions on their properties’ tenants and visitors. By outsourcing these services, they are able to capture additional profit by leveraging the unique operational skills and controls that an experienced parking management company can offer. Our ability to consistently deliver a uniformly high level of parking and related services and maximize the profit to our clients improves our ability to win contracts and retain existing locations. Our location retention rate for the twelve-month period ended September 30, 2009 was approximately 90%, compared to approximately 90% for the twelve-month period ended September 30, 2009, which also reflects our decision not to renew, or terminate, unprofitable contracts.

For the three months ended September 30, 2009 compared to the three months ended September 30, 2008, average gross profit per location decreased by 9.3% from $10.7 thousand to $9.7 thousand, primarily due to the economic recession and a negative fluctuation in prior years insurance reserve adjustments, in addition to the Hurricane Katrina settlement received in 2008 that did not recur in 2009.

Summary of Operating Facilities

We focus our operations in core markets where a concentration of locations improves customer service levels and operating margins. The following table reflects our facilities operated at the end of the periods indicated:

		September 30, 2009				December 31, 2008				September 30, 2008
Managed facilities			1,976				1,986				1,947
Leased facilities			220				229				238
Total facilities			2,196				2,215				2,185

Revenue

We recognize parking services revenue from lease and management contracts as the related services are provided. Substantially all of our revenue comes from the following two sources:

•		Parking services revenue—lease contracts. Parking services revenue related to lease contracts consist of all revenue received at a leased facility, including parking receipts (net of parking tax), consulting and real estate development fees, gains on sales of contracts and payments for exercising termination rights.
•		Parking services revenue—management contracts. Management contract revenue consists of management fees, including both fixed and performance-based fees, and amounts attributable to ancillary services such as accounting, equipment leasing, payments received for exercising termination rights, consulting, developmental fees, gains on sales of contracts, as well as insurance and other value-added services with respect to managed locations. We believe we generally purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability and worker’s compensation claims by maintaining a large per-claim deductible. As a result, we have generated operating income on the insurance provided under our management contracts by focusing on our risk management efforts and controlling losses. Management contract revenue does not include gross customer collections at the managed locations as this revenue belongs to the property owner rather than to us. Management contracts generally provide us with a management fee regardless of the operating performance of the underlying facility.

Conversions between type of contracts (lease or management) are typically determined by our client and not us. Although the underlying economics to us of management contracts and leases are similar, the manner in which we account for them differs substantially.

Reimbursed Management Contract Expense

Reimbursed management contract expense consists of the direct reimbursement from the property owner for operating expenses incurred under a management contract, which is reflected in our revenue.

Cost of Parking Services

Our cost of parking services consists of the following:

•

Cost of parking services—lease contracts. The cost of parking services under a lease arrangement consists of contractual rental fees paid to the facility owner and all operating expenses incurred in connection with operating the leased facility. Contractual fees paid to the facility owner are generally based on either a fixed contractual amount or a percentage of gross revenue or a combination thereof. Generally, under a lease arrangement we are not responsible for major capital expenditures or real estate taxes.

•

Cost of parking services—management contracts. The cost of parking services under a management contract is generally the responsibility of the facility owner. As a result, these costs are not included in our results of operations. However, our reverse management contracts, which typically provide for larger management fees, do require us to pay for certain costs.

Reimbursed Management Contract Expense

Reimbursed management contract expense consists of direct reimbursed costs incurred on behalf of property owners under a management contract, which is reflected in our cost of parking services.

Gross Profit

Gross profit equals our revenue less the cost of generating such revenue. This is the key metric we use to examine our performance because it captures the underlying economic benefit to us of both lease contracts and management contracts.

General and Administrative Expenses

General and administrative expenses include salaries, wages, payroll taxes, insurance, travel and office related expenses for our headquarters, field offices, supervisory employees, chairman of the board and board of directors.

Depreciation and Amortization

Depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes or in the case of leasehold improvements, over the initial term of the operating lease or its useful life, whichever is shorter. Intangible assets determined to have finite lives are amortized over their remaining useful life.

Valuation Allowance Related to Long-Term Receivables

Valuation allowance related to long-term receivables is recorded when there is an extended length of time estimated for collection of long-term receivables.

Seasonality

During the first quarter of each year, seasonality impacts our performance with regard to moderating revenue, with the reduced levels of travel most clearly reflected in the parking activity associated with our airport and hotel businesses as well as increases in certain costs of parking services, such as snow removal, both of which negatively affect gross profit. Although our revenue and profitability are affected by the seasonality of the business, general and administrative costs are relatively stable throughout the fiscal year.

Results of Operations

Three Months ended September 30, 2009 Compared to Three Months ended September 30, 2008

The following table presents the material factors that impact our revenue.

		Three Months Ended
		September 30,								Variance
		2009				2008				Amount				%
Lease contract revenue:
New location		$	1.1			$	0.1			$	1.0				1,000.0
Contract expirations			—				2.8				(2.8	)			(100.0	)
Same location:
Short-term parking			21.1				21.9				(0.8	)			(3.7	)
Monthly parking			9.7				10.2				(0.5	)			(4.9	)
Total same location			30.8				32.1				(1.3	)			(4.0	)
Conversions			0.4				1.1				(0.7	)			(63.6	)
Acquisitions			3.3				2.5				0.8				32.0
Total lease contract revenue		$	35.6			$	38.6			$	(3.0	)			(7.8	)
Management contract revenue:
New location		$	2.3			$	0.1			$	2.2				2,200.0
Contract expirations			0.1				4.1				(4.0	)			(97.6	)
Same location			32.3				30.4				1.9				6.3
Conversions			—				—				—				—
Acquisitions			4.6				2.3				2.3				100.0
Total management contract revenue		$	39.3			$	36.9			$	2.4				6.5
Reimbursed management contract expense		$	97.5			$	101.9			$	(4.4	)			(4.3	)

Parking services revenue—lease contracts. Lease contract revenue decreased $3.0 million, or 7.8%, to $35.6 million in the three months ended September 30, 2009, compared to $38.6 million for the three months ended September 30, 2008. The decrease resulted primarily from a decrease in same location short-term and monthly parking revenue, conversions, and contract expirations, which was partially offset by increases from our acquisitions and new locations. Same location revenue for those facilities, which as of September 30, 2009 are the comparative periods for the two years presented, decreased 4.0%. Revenue associated with contract expirations relates to contracts that expired during the current period.

Parking services revenue—management contracts. Management contract revenue increased $2.4 million, or 6.5%, to $39.3 million for three months ended September 30, 2009, compared to $36.9 million for the three months ended September 30, 2008. The increase resulted primarily from same location revenue, new locations and acquisitions, partially offset by decreases in revenue from contract expirations. Same locations revenue for those facilities, which as of September 30, 2009 are the comparative for the two years presented, increased 6.3%.

Reimbursed management contract expense. Reimbursed management contract expense decreased $4.4 million, or 4.3%, to $97.5 million for the three months ended September 30, 2009, compared to $101.9 million for the three months ended September 30, 2008. This decrease resulted from a reduction in reimbursed costs incurred on behalf of owners.

The following table presents the material factors that impact our cost of parking services.

		Three Months Ended
		September 30,								Variance
		2009				2008				Amount				%
Cost of parking services lease contracts:
New location		$	1.0			$	—			$	1.0				100.0
Contract expirations			0.1				2.8				(2.7	)			(96.4	)
Same location:
Rent			21.6				22.5				(0.9	)			(4.0	)
Payroll and payroll related			4.3				4.3				—				—
Other operating costs			2.7				2.9				(0.2	)			(6.9	)
Total same location			28.6				29.7				(1.1	)			(3.7	)
Conversions			0.3				0.9				(0.6	)			(66.7	)
Acquisitions			2.9				2.1				0.8				38.1
Total cost of parking services lease contracts		$	32.9			$	35.5			$	(2.6	)			(7.3	)
Cost of parking services management contracts:
New locations		$	1.1			$	—			$	1.1				100.0
Contract expirations			0.6				1.9				(1.3	)			(68.4	)
Same location:
Payroll and payroll related			8.0				6.8				1.2				17.6
Other operating expenses			7.7				6.2				1.5				24.2
Total same location			15.7				13.0				2.7				20.8
Conversions			—				—				—				—
Acquisitions			3.3				1.6				1.7				106.3
Total cost of parking services management contracts		$	20.7			$	16.5			$	4.2				25.5
Reimbursed management contract expense		$	97.5			$	101.9			$	(4.4	)			(4.3	)