**Tableof Contents**

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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

** **

**QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly period ended September 30, 2008**

** **

**Commission file number: 000-50796**

** **

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** **

**STANDARD PARKING CORPORATION**

(Exact Name ofRegistrant 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**

(Addressof Principal Executive Offices, Including Zip Code)

 

**(312) 274-2000**

(Registrant’sTelephone Number, Including Area Code)

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. YES x  NO o

 

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

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  YES o  NO x

 

As of October 31,2008, there were 16,874,259 shares of common stock of the registrantoutstanding.

 

 

 

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**STANDARD PARKINGCORPORATIONFORM 10-Q INDEX**

 
| **Part I. Financial Information** | ** **                                                                                                                                                                                                              |
|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Item 1.                           | Financial Statements:                                                                                                                                                                                                   |   |
|                                   | Condensed  Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and  December 31, 2007                                                                                                            | 3 |
|                                   | Condensed  Consolidated Statements of Income (Unaudited) for the three months ended  September 30, 2008 and September 30, 2007 and the nine months ended  September 30, 2008 and September 30, 2007 | 4 |
|                                   | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the nine months ended  September 30, 2008 and September 30, 2007                                                                             | 5 |
|                                   | Notes to Condensed Consolidated Interim Financial  Statements                                                                                                                                                           | 6 |
| Item 2.                           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                             | 17 |
| Item 3.                           | Quantitative  and Qualitative Disclosures about Market Risk                                                                                                                                                             | 27 |
| Item 4.                           | Controls and  Procedures                                                                                                                                                                                                | 28 |
| **Part II.  Other Information**   | ** **                                                                                                                                                                                                              |
| Item 2.                           | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                                                            | 29 |
| Item 6.                           | Exhibits                                                                                                                                                                                                                | 30 |
| Signatures                             |                                                                                                                                                                                                                    | 31 |
| Index  to Exhibits                     | 32                                                                                                                                                                                                                      |

 

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**PART I. FINANCIAL INFORMATION**

** **

**Item 1.**                          *Financial Statements*

** **

**STANDARD PARKINGCORPORATION**

**CONDENSED CONSOLIDATEDBALANCE SHEETS**

***(in thousands, except for shareand per share data)***

** **
| ** **                                                                                                                                                                                              | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                              | ** ** | **(Unaudited)**                  | ** ** | **(see Note)**             | ** ** |
| **ASSETS**                                                                                                                                                                                              | ** ** | ** **                       | ** ** | ** **                      | ** ** |
| Current assets:                                                                                                                                                                                         |       |                             |       |                            |       |
| Cash and cash equivalents                                                                                                                                                                               |       | $                                | 11,351     |                            | $          | 8,466 |   |
| Notes and accounts receivable, net                                                                                                                                                                      |       | 45,944                           |       | 42,706                          |       |
| Prepaid expenses and supplies                                                                                                                                                                           |       | 3,045                            |       | 2,765                           |       |
| Deferred taxes                                                                                                                                                                                          |       | 6,247                            |       | 6,247                           |       |
| Total current assets                                                                                                                                                                                    |       | 66,587                           |       | 60,184                          |       |
|                                                                                                                                                                                                    |       |                             |       |                            |       |
| Leasehold improvements, equipment and construction in progress, net                                                                                                                                     |       | 15,987                           |       | 15,695                          |       |
| Advances and deposits                                                                                                                                                                                   |       | 2,116                            |       | 1,382                           |       |
| Long-term receivables, net                                                                                                                                                                              |       | 6,224                            |       | 4,854                           |       |
| Intangible and other assets, net                                                                                                                                                                        |       | 7,420                            |       | 4,350                           |       |
| Cost of contracts, net                                                                                                                                                                                  |       | 10,307                           |       | 7,688                           |       |
| Goodwill                                                                                                                                                                                                |       | 124,361                          |       | 119,890                         |       |
| Deferred taxes                                                                                                                                                                                          |       | —                           |       | 1,345                           |       |
|                                                                                                                                                                                                    |       |                             |       |                            |       |
| Total assets                                                                                                                                                                                            |       | $                                | 233,002    |                            | $          | 215,388 |   |
|                                                                                                                                                                                                    |       |                             |       |                            |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                          | ** ** | ** **                       | ** ** | ** **                      | ** ** |
| Current liabilities:                                                                                                                                                                                    |       |                             |       |                            |       |
| Accounts payable                                                                                                                                                                                        |       | $                                | 43,541     |                            | $          | 42,941 |   |
| Accrued and other current liabilities                                                                                                                                                                   |       | 30,207                           |       | 33,195                          |       |
| Current portion of long-term borrowings                                                                                                                                                                 |       | 1,215                            |       | 1,938                           |       |
| Total current liabilities                                                                                                                                                                               |       | 74,963                           |       | 78,074                          |       |
|                                                                                                                                                                                                    |       |                             |       |                            |       |
| Deferred taxes                                                                                                                                                                                          |       | 4,902                            |       | —                          |       |
| Long-term borrowings                                                                                                                                                                                    |       | 110,195                          |       | 78,425                          |       |
| Other long-term liabilities                                                                                                                                                                             |       | 23,986                           |       | 19,550                          |       |
|                                                                                                                                                                                                    |       |                             |       |                            |       |
| Stockholders’ equity (1):                                                                                                                                                                          |       |                             |       |                            |       |
| Common stock, par value $.001 per share; 21,300,000 shares  authorized; 16,874,259 and 18,371,308 shares issued and outstanding as of  September 30, 2008 and December 31, 2007, respectively |       | 17                               |       | 18                              |       |
| Additional paid-in capital                                                                                                                                                                              |       | 118,054                          |       | 150,520                         |       |
| Accumulated other comprehensive income                                                                                                                                                                  |       | 418                              |       | 482                             |       |
| Treasury stock, at cost 165,266 and 48,474 shares as of  September 30, 2008 and December 31, 2007, respectively                                                                               |       | (3,687                           | )          | (1,172                          | )          |
| Accumulated deficit                                                                                                                                                                                     |       | (95,846                          | )          | (110,509                        | )          |
| Total stockholders’ equity                                                                                                                                                                         |       | 18,956                           |       | 39,339                          |       |
|                                                                                                                                                                                                    |       |                             |       |                            |       |
| Total liabilities and stockholders’ equity                                                                                                                                                         |       | $                                | 233,002    |                            | $          | 215,388 |   |

 

Note:                        The balance sheet at December 31,2007 has been derived from the audited financial statements at that date butdoes not include all of the information and footnotes required by accountingprinciples generally accepted in the United States for complete financialstatements.

 

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(1)          Adjusted to reflect the effect of the 2-for-1 stocksplit in January 2008.  See Note 2.S*tock Split* for additional information.

 

See Notes toCondensed Consolidated Interim Financial Statements.

 

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**STANDARD PARKINGCORPORATION**

**CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME**

***(inthousands, except for share and per share data, unaudited)***

** **
| ** **                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
|                                    |       |                             |       |                             |       |   |   |   |   |
| Parking services revenue:               |       |                             |       |                             |       |   |   |   |   |
| Lease contracts                         |       | $                                | 38,634     |                             | $          | 36,182 |   | $ | 116,331 |   | $ | 107,368 |   |
| Management contracts                    |       | 36,858                           |       | 31,150                           |       | 109,153 |   | 87,885 |   |
|                                    |       | 75,492                           |       | 67,332                           |       | 225,484 |   | 195,253 |   |
| Reimbursed management contract expense  |       | 101,919                          |       | 85,167                           |       | 300,687 |   | 263,252 |   |
| Total revenue                           |       | 177,411                          |       | 152,499                          |       | 526,171 |   | 458,505 |   |
|                                    |       |                             |       |                             |       |   |   |   |   |
| Cost of parking services:               |       |                             |       |                             |       |   |   |   |   |
| Lease contracts                         |       | 35,506                           |       | 31,666                           |       | 105,110 |   | 95,452 |   |
| Management contracts                    |       | 16,510                           |       | 13,378                           |       | 51,718 |   | 36,805 |   |
|                                    |       | 52,016                           |       | 45,044                           |       | 156,828 |   | 132,257 |   |
| Reimbursed management contract expense  |       | 101,919                          |       | 85,167                           |       | 300,687 |   | 263,252 |   |
| Total cost of parking services          |       | 153,935                          |       | 130,211                          |       | 457,515 |   | 395,509 |   |
|                                    |       |                             |       |                             |       |   |   |   |   |
| Gross profit:                           |       |                             |       |                             |       |   |   |   |   |
| Lease contracts                         |       | 3,128                            |       | 4,516                            |       | 11,221 |   | 11,916 |   |
| Management contracts                    |       | 20,348                           |       | 17,772                           |       | 57,435 |   | 51,080 |   |
| Total gross profit                      |       | 23,476                           |       | 22,288                           |       | 68,656 |   | 62,996 |   |
|                                    |       |                             |       |                             |       |   |   |   |   |
| General and administrative expenses (1) |       | 12,017                           |       | 11,356                           |       | 35,457 |   | 33,014 |   |
| Depreciation and amortization           |       | 1,539                            |       | 1,389                            |       | 4,489 |   | 3,917 |   |
|                                    |       |                             |       |                             |       |   |   |   |   |
| Operating income                        |       | 9,920                            |       | 9,543                            |       | 28,710 |   | 26,065 |   |
| Other expenses (income):                |       |                             |       |                             |       |   |   |   |   |
| Interest expense                        |       | 1,777                            |       | 1,739                            |       | 4,381 |   | 5,312 |   |
| Interest income                         |       | (106                             | )          | (47                              | )          | (189 | ) | (493 | ) |
|                                    |       | 1,671                            |       | 1,692                            |       | 4,192 |   | 4,819 |   |
| Minority interest                       |       | (4                               | )          | 109                              |       | 121 |   | 358 |   |
|                                    |       |                             |       |                             |       |   |   |   |   |
| Income before income taxes              |       | 8,253                            |       | 7,742                            |       | 24,397 |   | 20,888 |   |
| Income tax expense                      |       | 3,144                            |       | 3,213                            |       | 9,734 |   | 8,526 |   |
| Net income                              |       | $                                | 5,109      |                             | $          | 4,529 |   | $ | 14,663 |   | $ | 12,362 |   |
|                                    |       |                             |       |                             |       |   |   |   |   |
| Common stock data (2):                  |       |                             |       |                             |       |   |   |   |   |
| Net income per share:                   |       |                             |       |                             |       |   |   |   |   |
| Basic                                   |       | $                                | 0.30       |                             | $          | 0.24 |   | $ | 0.83 |   | $ | 0.65 |   |
| Diluted                                 |       | $                                | 0.29       |                             | $          | 0.24 |   | $ | 0.81 |   | $ | 0.64 |   |
| Weighted average shares outstanding:    |       |                             |       |                             |       |   |   |   |   |
| Basic                                   |       | 17,244,932                       |       | 18,720,640                       |       | 17,753,188 |   | 18,952,622 |   |
| Diluted                                 |       | 17,694,208                       |       | 19,159,252                       |       | 18,165,087 |   | 19,418,196 |   |

 

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(1)          Non-cash compensation expense of $520 and $985 for thethree and nine months ended September 30, 2008, respectively, and $50 and$422 for the three and nine months ended September 30, 2007, respectively,is included in general and administrative expense.

 

(2)          Share and per share amounts have been retroactivelyadjusted for the effect of the 2-for-1 stock split in January 2008.  See Note 2. *Stock Split*foradditional information.

 

See Notes toCondensed Consolidated Interim Financial Statements.

 

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**STANDARD PARKINGCORPORATION**

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

***(inthousands, unaudited)***

** **
| ** **                                                               | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                               | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
|                                                                     |       |                             |       |   |   |
| **Operating activities:**                                                | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                               |       | $                                | 14,663     |   | $ | 12,362 |   |
| Adjustments to reconcile net income to net cash provided by  operations: |       |                             |       |   |   |
| Depreciation and amortization                                            |       | 4,147                            |       | 3,828 |   |
| Loss (gain) on sale of assets                                            |       | 291                              |       | (533 | ) |
| Amortization of debt issuance costs                                      |       | 287                              |       | 204 |   |
| Write off of debt issuance costs                                         |       | 13                               |       | — |   |
| Non-cash stock-based compensation                                        |       | 985                              |       | 563 |   |
| Excess tax benefit related to stock option exercises                     |       | (878                             | )          | (1,041 | ) |
| Provision (reversal) for losses on accounts receivable                   |       | 79                               |       | (22 | ) |
| Deferred income taxes                                                    |       | 6,247                            |       | 6,348 |   |
| Change in operating assets and liabilities                               |       | (6,388                           | )          | 3,655 |   |
| Net cash provided by operating activities                                |       | 19,446                           |       | 25,364 |   |
|                                                                     |       |                             |       |   |   |
| **Investing activities:**                                                | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Acquisitions                                                             |       | (5,463                           | )          | (5,762 | ) |
| Purchase of leaseholds improvements and equipment                        |       | (3,539                           | )          | (3,024 | ) |
| Proceeds from sale of assets                                             |       | 264                              |       | — |   |
| Cost of contracts purchased                                              |       | (446                             | )          | — |   |
| Contingent purchase payments                                             |       | (64                              | )          | (102 | ) |
| Net cash used in investing activities                                    |       | (9,248                           | )          | (8,888 | ) |
|                                                                     |       |                             |       |   |   |
| **Financing activities:**                                                | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Repurchase of common stock                                               |       | (37,512                          | )          | (14,996 | ) |
| Proceeds from exercise of stock options                                  |       | 722                              |       | 848 |   |
| Tax benefit related to stock option exercises                            |       | 878                              |       | 1,041 |   |
| Proceeds from (payments on) senior credit facility                       |       | 32,450                           |       | (2,900 | ) |
| Payments on long-term borrowings                                         |       | (110                             | )          | (103 | ) |
| Payments of debt issuance costs                                          |       | (2,349                           | )          | (35 | ) |
| Payments on capital leases                                               |       | (1,233                           | )          | (1,745 | ) |
| Net cash used in financing activities                                    |       | (7,154                           | )          | (17,890 | ) |
|                                                                     |       |                             |       |   |   |
| Effect of exchange rate changes on cash and cash equivalents             |       | (159                             | )          | 176 |   |
|                                                                     |       |                             |       |   |   |
| Increase (decrease) in cash and cash equivalents                         |       | 2,885                            |       | (1,238 | ) |
| Cash and cash equivalents at beginning of period                         |       | 8,466                            |       | 8,058 |   |
|                                                                     |       |                             |       |   |   |
| **Cash and cash equivalents at end of period**                           |       | $                                | 11,351     |   | $ | 6,820 |   |
| **Supplemental disclosures:**                                            | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cash paid during the period for:                                         |       |                             |       |   |   |
| Interest                                                                 |       | $                                | 6,960      |   | $ | 5,049 |   |
| Income taxes                                                             |       | 2,392                            |       | 939 |   |
| **Supplemental disclosures of non-cash activity:**                       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Debt issued for capital lease obligation                                 |       | —                           |       | 30 |   |

 

See Notes toCondensed Consolidated Interim Financial Statements.

 

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** **

**STANDARD PARKINGCORPORATIONNOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS**

***(inthousands, except for share and per share data, unaudited)***

 

***1.    Basisof Presentation***

 

The accompanyingunaudited condensed consolidated financial statements of Standard ParkingCorporation have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information andwith 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 byaccounting principles generally accepted in the United States for completefinancial statements.

 

In the opinion ofmanagement, all adjustments (consisting only of adjustments of a normal andrecurring nature) considered necessary for a fair presentation of the financialposition and results of operations have been included. Operating results forthe three-month and nine-month periods ended September 30, 2008 are notnecessarily indicative of the results that might be expected for any otherinterim period or the fiscal year ending December 31, 2008. The financialstatements presented in this report should be read in conjunction with theconsolidated financial statements and footnotes thereto included in our 2007Annual Report on Form 10-K filed March 14, 2008.

 

*Principles ofConsolidation*

* *

The consolidatedfinancial statements include the accounts of the Company, its wholly ownedsubsidiaries, and joint ventures in which the Company has more than 50%ownership interest. Minority interest recorded in the consolidated statement ofincome is the joint venture partner’s non-controlling interest in consolidatedjoint ventures. We have interests in twelve joint ventures, each of whichoperates between one and twenty-two parking facilities. Of the twelve jointventures, nine are majority owned by us and are consolidated into our financialstatements, and three are single purpose entities where we have a 50% interestor a minority interest. Investments in joint ventures where the Company has a50% or less non-controlling ownership interest are accounted for under theequity method. All significant intercompany profits, transactions and balanceshave been eliminated in consolidation.

 

*Variable InterestEntities*

* *
| **Equity**                | ** ** | **Commencement of  Operations** | ** ** | **Nature of  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 inwhich we have a variable interest are not consolidated into our financialstatements because we are not the primary beneficiary.

 

***2.****    ****StockSplit***

 

On December 4, 2007, the Board of Directorsdeclared a 2-for-1 stock split in the form of a 100% common stock dividend tostockholders 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 financialstatements and accompanying notes have been adjusted to reflect this stocksplit.

 

***3.****    ****Stock-BasedCompensation***

 

Effective January 1,2006, we adopted the fair value recognition provisions of SFAS No. 123Rusing the modified prospective method and consequently we have notretroactively adjusted prior period results. Under this method, compensationcosts for the nine months ended September 30, 2008 and 2007 are based onthe estimated fair value of the respective options and the proportion vestingin the period. Deductions for stock-based employee compensation expense for thethree and nine months ended September 30, 2008 and 2007 were calculatedusing the Black-Scholes option pricing model. Allocation of compensationexpense was made using historical option terms for option grants made to ouremployees and historical price volatility.

 

The Company has anamended and restated Long-Term Incentive Plan that was adopted in conjunctionwith our IPO.  On February 27, 2008,our Board approved an amendment to our Long-Term Incentive Plan, subject toshareholder approval, that increased the maximum number of shares of commonstock available for awards under the Long-Term Incentive Plan from 2,000,000 to2,175,000 and extended the Plan’s termination date. Our shareholders approvedthis Plan amendment on April 22, 2008, and the Plan now terminates twentyyears from the date of such approval, or April 22, 2028.  At September 30, 2008, 127,471 sharesremained available for award under the Plan. In most cases, options granted under the Plan vest at the end of athree-year period from the date of the award. Options are granted with anexercise price equal to the closing price at the date of grant.

 

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*StockOptions*

 

We use theBlack-Scholes option pricing model to estimate the fair value of each optiongrant as of the date of grant. The volatilities are based on the 90 dayhistorical volatility of our common stock as of the grant date. The risk freeinterest rate is based on zero-coupon U.S. government issues with a remainingterm equal to the expected life of the option. For options granted prior to2008, the expected life for options was calculated using the simplified method.The simplified method was calculated as the vesting term plus the contractualterm divided by two.

 
| ** **                                               | ** ** | **2007**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|
| Estimated weighted-average fair value of options granted |       | $          | 7.86       | ** ** |
| ** **                                               | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **2007**   | ** ** |
| Weighted average dividend yield                          |       | 0          | %          |
| Weighted average volatility                              |       | 34.84      | %          |
| Weighted average risk free interest rate                 |       | 4.65       | %          |
| Expected life of option (years)                          |       | 7          |       |
|                                                          |            |            |            |  |

 

There were no optionsgranted during the nine months ended September 30, 2008.

 

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

 

The Company recognized nostock based compensation expense for the three months ended September 30,2008 and $2 of stock based compensation expense for the three months ended September 30,2007, which is included in general and administrative expense. The Companyrecognized $411 and $281 of stock based compensation expense, for the ninemonths ended September 30, 2008 and 2007, respectively, which is alsoincluded in general and administrative expense. As of September 30, 2008, there was no unrecognized compensationcosts related to unvested options.

 

*Restricted Stock*

 

In December 2006,the Board of Directors adopted a performance-based incentive program under ourLong-Term Incentive Plan. This new program provided participating executiveswith the opportunity to earn a combination of stock (50%) and cash (50%) ifcertain performance targets for pre-tax income and pre-tax free cash flow areachieved. On February 23, 2007, certain participating executives becameentitled to performance restricted stock based on the stock price at thecommencement of the first three year performance cycle (2007 – 2009) and as aresult 16,404 shares were issued subject to vesting upon the achievement of theperformance goals. On April 13, 2007, an additional 13,294 shares of theperformance restricted stock were issued subject to vesting upon theachievement of the three year performance goals to the remaining participatingexecutives.  On December 31, 2007,3,849 shares were released free of restrictions in accordance with theachievement of the first year performance goals.

 

In March 2008, theCompany’s Compensation Committee and the Board of Directors authorized a one-timegrant of 750,000 restricted stock units that subsequently were awarded tomembers of our senior management team on July 1, 2008 in lieu of anyfurther incentive compensation pursuant to the restricted stock and cash awardprogram for cycles that otherwise would have begun in 2008 and thereafter.

 

In accordance with SFAS No. 123R,recording of stock-based compensation expense for awards with performanceconditions is based on the probable outcome of that performance condition.  The Company recognized $26 and $48 ofstock-based compensation expense and $26 and $48 of cash compensation expenserelated to the performance-based incentive program, for the three months ended September 30,2008 and 2007, respectively, which is included in general and administrativeexpenses.  The Company recognized $80 and$141 of stock-based compensation expense and $80 and $141 of cash compensationexpense related to the performance-based incentive program, for the nine monthsended September 30, 2008 and 2007, respectively, which is included ingeneral and administrative expenses.  Asof September 30, 2008, there was $147 of unrecognized compensation costsrelated to the performance-based incentive program which is expected to berecognized over a weighted average period of 1.25 years.

 

*Restricted Stock Units*

* *

In March 2008, theCompany’s Compensation Committee and the Board of Directors authorized aone-time grant of 750,000 

 

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restricted stock units that subsequently were awardedto members of our senior management team on July 1, 2008.  The restricted stock units vest in one-thirdinstallments on each of the tenth, eleventh and twelfth anniversaries of thegrant date.  The restricted stock unitagreements provide for accelerated vesting upon the recipient’s retirement.

 

The cost of restrictedstock units is determined using the fair value of our common stock on the dateof the grant, and compensation expense is recognized over the vestingperiod.  In accordance with SFAS No. 123R,we estimate forfeitures at the time of the grant and revise those estimates insubsequent periods if actual forfeitures differ from those estimates.  We use historical data to estimatepre-vesting forfeitures and record stock-based compensation expense only forthose awards that are expected to vest.

 

The Company recognized$494 of stock based compensation expense related to the restricted stock unitsfor the three and nine months ended September 30, 2008, which is includedin general and administrative expense. As of September 30, 2008, there was $12,064 of unrecognizedstock-based compensation costs, net of estimated forfeitures, related to therestricted stock units that is expected to be recognized over a weightedaverage period of approximately eight years.

 

***4.    NetIncome Per Common Share***

** **

In accordance with SFASNo.128, Earnings Per Share (“EPS”), basic net income per share is computed bydividing net income by the weighted daily average number of shares of commonstock outstanding during the period. Diluted net income per share is based uponthe weighted daily average number of shares of common stock outstanding for theperiod plus dilutive potential common shares, including stock options andrestricted stock units using the treasury-stock method.

 

A reconciliationof the weighted average basic shares outstanding to the weighted averagediluted shares outstanding is as follows:

 
| ** **                                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                  | ** ** | **(Unaudited)**                                      | ** ** | **(Unaudited)**                                     | ** ** |
| ** **                                                  | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                                  |       | $                                                    | 5,109      |                                                | $          | 4,529 |   | $ | 14,663 |   | $ | 12,362 |   |
| Weighted average basic shares outstanding                   |       | 17,244,932                                           |       | 18,720,640                                          |       | 17,753,188 |   | 18,952,622 |   |
| Effect of dilutive stock options and restricted stock units |       | 449,276                                              |       | 438,612                                             |       | 411,899 |   | 465,574 |   |
| Weighted average diluted shares outstanding                 |       | 17,694,208                                           |       | 19,159,252                                          |       | 18,165,087 |   | 19,418,196 |   |
| Net income per share                                        |       |                                                 |       |                                                |       |   |   |   |   |
| Basic                                                       |       | $                                                    | 0.30       |                                                | $          | 0.24 |   | $ | 0.83 |   | $ | 0.65 |   |
| Diluted                                                     |       | $                                                    | 0.29       |                                                | $          | 0.24 |   | $ | 0.81 |   | $ | 0.64 |   |

 

**Forthe nine months ended September 30, 2008 and 2007, 25,849 and 29,698shares, respectively, of performance based restricted stock were not includedin the computation of weighted diluted common share amounts because the numberof shares ultimately issued is contingent on the Company’s performance goals,which were not achieved as of that date.**

** **

**Thereare no additional securities that could dilute basic EPS in the future thatwere not included in the computation of diluted EPS, other than thosedisclosed.**

** **

***5.    Recently IssuedAccounting Pronouncements***

** **

In September 2006,the FASB issued Statement of Financial Accounting Standards, *Fair Value Measurements* (“Statement No. 157”).Statement No. 157 defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and expandsdisclosures about fair value measurements. The statement does not require newfair value measurements, but is applied to the extent that other accountingpronouncements require or permit fair value measurements. The statementemphasizes that fair value is a market-based measurement that should bedetermined based on the assumptions that market participants would use in pricingan asset or liability. Companies will be required to disclose the extent towhich fair value is used to measure assets and liabilities, the inputs used todevelop the measurements, and the effect of certain of the measurements onearnings (or changes in net assets) for the period. Certain requirements ofStatement No. 157 are required for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. The effective date forother requirements of Statement No. 157 has been deferred for one year bythe FASB. The Company adopted the sections of Statement No. 157 which areeffective for fiscal years beginning after November 15, 2007 and there wasno impact on the Company’s consolidated financial statements. The Company iscurrently evaluating the impact of the delayed Sections of Statement No. 157on its consolidated financial statements, but is not yet in a position todetermine the impact of its adoption.

 

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In December 2007,the FASB issued Statement No. 141 (Revised 2007), *Business Combinations* (“Statement No. 141R”),effective prospectively to business combinations for which the acquisition dateis on or after the beginning of the first annual reporting period beginning onor after December 15, 2008. Statement No. 141R establishes principlesand requirements on how an acquirer recognizes and measures in its financialstatements identifiable assets acquired, liabilities assumed, noncontrollinginterests in the acquiree, goodwill or gain from a bargain purchase andaccounting for transaction costs. Additionally, Statement No. 141Rdetermines what information must be disclosed to enable users of the financialstatements to evaluate the nature and financial effects of the businesscombination. The Company will adopt Statement No. 141R on January 1,2009.

 

In December 2007,the FASB issued Statement No. 160, *NoncontrollingInterests in Consolidated Financial Statements—an amendment of ARB No. 51*.(“Statement No. 160”) Statement No. 160 requires entities to reportnoncontrolling (minority) interests as a component of shareholders’ equity onthe balance sheet; include all earnings of a consolidated subsidiary inconsolidated results of operations; and treat all transactions between theparent and its noncontrolling interest holder that increase or decrease thenoncontrolling interest as equity provided the parent does not lose control.Statement No. 160 is effective for fiscal years beginning

on or after December 15,2008, must be adopted concurrently with SFAS 141R, and adoption isprospective only; however, presentation and disclosure requirements describedabove must be applied retrospectively. The Company is currently evaluating theimpact that Statement No. 160 will have on its financial statements anddisclosures.

 

***6.    Acquisitions***

** **

During February 2008,the Company acquired certain assets of G.O. Parking in Chicago, Illinois.  Consideration for the acquisition wasapproximately $5,261 with an additional $3,000 to be paid in five annualinstallments of $600, commencing February 2009.  In addition, the Company paid and capitalized$202 in acquisition costs.

 

During the yearended December 31, 2007, the Company completed four acquisitions andpurchased certain assets of a valet operation in Seattle, Washington.Consideration for all acquisitions was approximately $6,550, ($5,928 paid incash and $622 through the sale of certain contract rights in a non-cashtransaction) with an estimated $1,525 to be paid in the future based uponfinancial performance compared to forecast of which $64 has been paid in 2008.In addition, the Company paid and capitalized $274 in acquisition costs. Asummary of the acquisitions follows:

 

·                  In September 2007, we acquired certain assets of DowntownParking, LLC. a parking operator in Chicago, Illinois.

 

·                  In September 2007, we acquired certain assets of AllianceInternational Security, Inc., a regional security services firm based inLos Angeles, California.

 

·                  In July 2007, we acquired contract rights for certain locations inLos Angeles, California from a related party.

 

·                  In July 2007, we acquired certain valet parking locations inHonolulu, Hawaii.

 

The acquisitionsfor 2008 and 2007 were accounted for using the purchase method ofaccounting.  The Company financed theacquisitions through additional term borrowings under the senior creditfacility and existing cash. The results of operations of these acquisitions areincluded in the Company’s consolidated statement of income from the date ofacquisition. None of the acquisitions, either individually or in the aggregateis considered material to the Company.

 

***7.****    ****LeaseholdImprovements, Equipment and Construction in Progress, Net***

 

A summary ofleasehold improvements, equipment, and construction in progress and relatedaccumulated depreciation and amortization is as follows:

 
| ** **                                                          | ** ** | **Ranges of Estimated useful life** | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                          | ** ** | ** **                                              | ** ** | ** **                       | ** ** | ** **                      | ** ** |
| Equipment                                                           |       | 2-10  years                                             |       | $                                | 30,423     |                            | $          | 30,234 |   |
| Leasehold improvements                                              |       | Shorter  of lease term or economic life up to 10 years  |       | 10,166                           |       | 10,082                          |       |
| Construction in progress                                            |       |                                                    |       | 5,751                            |       | 4,129                           |       |
|                                                                |       |                                                    |       | 46,340                           |       | 44,445                          |       |
| Less accumulated depreciation and amortization                      |       |                                                    |       | (30,353                          | )          | (28,750                         | )          |
| Leasehold improvements, equipment and construction in progress, net |       |                                                    |       | $                                | 15,987     |                            | $          | 15,695 |   |

 

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Depreciation expensewas $1,201 and $3,268 for the three and nine months ended September 30,2008, respectively, and $1,093 and $3,143 for the three and nine months ended September 30,2007, respectively. Depreciation includes losses on abandonments of leaseholdimprovements and equipment of $342 and $89 in 2008 and 2007, respectively.

 

***8.    Cost of Contracts, Net***

 

Cost of contractsrepresents the contractual rights associated with providing parking services ata managed or leased facility. Cost consists of either capitalized payments madeto third parties or the value ascribed to contracts acquired throughacquisition. Cost of contracts are amortized over the estimated life of thecontracts, including anticipated renewals and terminations.

 

The balance ofcost of contracts is comprised of the following:

 
| ** **               | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|--------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **               | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
| Cost of contracts        |       | $                                | 43,548     |                            | $          | 39,953 |   |
| Accumulated amortization |       | (33,241                          | )          | (32,265                         | )          |
| Cost of contracts, net   |       | $                                | 10,307     |                            | $          | 7,688 |   |

 

Amortizationexpense related to cost of contract was $348 and $988 for the three and ninemonths ended September 30, 2008, respectively, and $291 and $758 for thethree and nine months ended September 30, 2007, respectively.  The weighted average useful life is10 years for 2008 and 7 years for 2007.

 

***9.****    **Goodwill and Intangible Assets*

** **

As of September 30,2008 and December 31, 2007, the Company’s finite lived intangible assetsamount to $248 and $193, respectively net of accumulated amortization of $257and $36, which primarily consisted of non-compete agreements amortized overtheir contractual lives.

 

The change in thecarrying amount of goodwill is summarized as follows:

 
| Beginning balance at January 1, 2008         |   | $     | 119,890 |   |
|---------------------------------------------------|--------|-------|---------|--------|
| Effect of foreign currency translation            |   | (304  | )       |
| Purchase price adjustment related to acquisitions |   | 4,711 |    |
| Contingency payments related to acquisitions      |   | 64    |    |
| Ending balance at September 30, 2008         |   | $     | 124,361 |   |

 

Amortizationexpense for intangible assets was $75 and $221 for the three and nine monthsended September 30, 2008, respectively, and $2 and $5 for the three andnine months ended September 30, 2007, respectively.  As a result of the acquisitions whichoccurred during 2007, our contingent payments outstanding as of September 30,2008 total $1,461 and will be paid over time based on performance. Suchcontingent payments will be accounted for as additional purchase price.

 

The followingtable reflects the changes in the carrying amounts of goodwill by reportedsegment for the nine months ended September 30, 2008.

 
| ** **                            | ** ** | **Region  One** | ** ** | **Region  Two** | ** ** | **Region  Three** | ** ** | **Region  Four** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|------------------|------------|-----------|------------|
| Balance as of January 1, 2008    |       | $               | 55,175     |            | $          | 16,367            |       | $                | 25,771     |      | $          | 22,577 |   | $ | 119,890 |   |
| Acquired during the period            |       | 3,507           |       | —          |       | 1,268             |       | —           |       | 4,775     |       |
| Foreign currency translation          |       | —          |       | (304            | )          | —            |       | —           |       | (304      | )          |
| Balance as of September 30, 2008 |       | $               | 58,682     |            | $          | 16,063            |       | $                | 27,039     |      | $          | 22,577 |   | $ | 124,361 |   |

** **

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** **

***10.****    **Long-Term Receivables, Net*

** **

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

 
| ** **                                                     | ** ** | **Amount Outstanding**      | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                     | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
| ** **                                                     | ** ** | **(Unaudited)**                  | ** ** | ** ** | ** ** |
| Bradley International Airport                                  |       |                             |       |   |   |
| Deficiency payments                                            |       | $                                | 5,464      |   | $ | 4,135 |   |
| Other Bradley related, net                                     |       | 3,203                            |       | 3,203 |   |
| Valuation allowance                                            |       | (2,484                           | )          | (2,484 | ) |
| Net amount related to Bradley other long-term receivables, net |       | 6,183                            |       | 4,854 |   |
| Other long-term receivables, net                               |       | 41                               |       | — |   |
| Total long-term receivables, net                               |       | $                                | 6,224      |   | $ | 4,854 |   |

 

Weentered 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 parkingspaces at Bradley International Airport located in the Hartford, Connecticutmetropolitan area. The parking garage was financed on April 6, 2000through the issuance of $53,800 of State of Connecticut special facilityrevenue bonds, representing $47,700 non-taxable Series A bonds and aseparate taxable issuance of $6,100 Series B bonds. The Series Bbonds were retired on July 1, 2006 according to the terms of theindenture. The Bradley agreement provides that we deposit with a trustee forthe bondholders all gross revenues collected from operations of the surface andgarage parking, and from these gross revenues, the trustee pays debt service onthe special facility revenue bonds, operating and capital maintenance expensesof the surface

and garage parkingfacilities and specific annual guaranteed minimum payments to the State.Principal and interest on the Bradley special facility revenue bonds increasefrom approximately $3,600 in lease year 2002 to approximately $4,500 in leaseyear 2025. Our annual guaranteed minimum payments to the State increase fromapproximately $8,300 in lease year 2002 to approximately $13,200 in lease year2024.

 

To the extent thatmonthly gross receipts are not sufficient for the trustee to make the requiredpayments, we are obligated pursuant to our agreement, to deliver the deficiencyamount to the trustee within three business days of being notified. We areresponsible for these deficiency payments regardless of the amount ofutilization for the Bradley parking facilities. The deficiency payments represent contingent interest bearing advancesto the trustee to cover operating cash flow requirements.  In the nine months ended September 30,2008, we made deficiency payments (net of repayments) of $1,329 and did notrecord or receive any interest and premium income related to deficiencyrepayments from the trustee. In the nine months ended September 30, 2007,we received repayments (net of deficiency payments) of $498 and received $331for interest and premium income on deficiency repayments from the trustee. Thetotal receivable from the trustee for interest and premium income related todeficiency repayments as of September 30, 2008 was $52 compared to $25 asof September 30, 2007.

 

Deficiency payments arerecorded as a receivable by us for which we are reimbursed from time to time asprovided in the trust agreement. As of September 30, 2008, we madecumulative deficiency payments to the trustee $5,464, net of reimbursements. Webelieve these advances to be fully recoverable and therefore have not recordeda valuation allowance for them. We do not guarantee the payment of anyprincipal or interest on any debt obligations of the State of Connecticut orthe trustee. We are entitled to collect management fees related to Bradleyprovided all other operating expenses are met. Due to the existence ofoutstanding guarantor payments, $3,450 in cumulative management fees have notbeen recognized as of September 30, 2008, and no management fees wererecognized during the nine months ending September 30, 2008 and 2007.

 

***11.****    **Borrowing Arrangements*

** **

Long-term borrowings, inorder of preference, consist of:

 
| ** **                            | ** ** | ** **        | ** ** | **Amount Outstanding**      | ** ** |
|---------------------------------------|------------|-------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **Due Date** | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
| ** **                            | ** ** | ** **        | ** ** | **(Unaudited)**                  | ** ** | ** ** | ** ** |
| Senior credit facility                |       | June 2013    |       | $                                | 106,600    |   | $ | 74,150 |   |
| Capital lease obligations             |       | Various           |       | 3,356                            |       | 4,649 |   |
| Obligations on Seller notes and other |       | Various           |       | 1,454                            |       | 1,564 |   |
|                                  |       |              |       | 111,410                          |       | 80,363 |   |
| Less current portion                  |       |              |       | 1,215                            |       | 1,938 |   |
|                                  |       |              |       | $                                | 110,195    |   | $ | 78,425 |   |

* *

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* *

*Senior CreditFacility*

* *

On July 15, 2008, weentered into an amended and restated credit agreement with a group of sixbanks:  Bank of America, N.A., asadministrative agent, issuing lender and as a lender; Wells Fargo Bank N.A., assyndication agent, issuing lender and as a lender; Fifth Third Bank, as alender; First Hawaiian Bank, as a lender; JPMorgan Chase Bank, N.A., as alender; and U.S. Bank National Association, as a lender. This credit agreementamended and restated our credit facility dated June 29, 2006.

 

The senior creditfacility was increased from $135,000 to $210,000.  The $210,000 revolving credit facility willexpire in July 2013.  The revolvingcredit facility includes a letter of credit sub-facility with a sublimit of$50,000 and a swing line sub-facility with a sublimit of $10,000.

 

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

 

The senior creditfacility includes a fixed charge ratio covenant, a total debt to EBITDA ratiocovenant, a limit on our ability

to incur additionalindebtedness, issue preferred stock or pay dividends, and certain otherrestrictions on our activities. We are required to repay borrowings under thesenior credit facility out of the proceeds of future issuances of debt orequity securities and asset sales, subject to certain customary exceptions. Thesenior credit facility is secured by substantially all of our assets and allassets acquired in the future (including a pledge of 100% of the stock of ourexisting and future domestic guarantor subsidiaries and 65% of the stock of ourexisting and future foreign subsidiaries).

 

We are in compliance withall of our financial covenants as of September 30, 2008.

 

The weighted averageinterest rate on our senior credit facility at September 30, 2008 and December 31,2007 was 4.7% and

5.4%, respectively. Therate includes all outstanding LIBOR contracts, interest rate cap effect and lettersof credit. The weighted average interest rate on outstanding borrowings, notincluding letters of credit, was 5.2% and 6.5% at September 30, 2008 and December 31,2007, respectively.

 

At September 30,2008, we had $20,813 of letters of credit outstanding under the senior creditfacility, borrowings against the senior credit facility aggregated $106,600,and we had $82,587 available under the senior credit facility.

 

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

 

***12.****    **Stock Repurchases*

** **

***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 inaggregate.  As of December 31, 2007,$22,882 remained available for repurchase under this authorization.

 

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

 

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

 

In July 2008 theBoard of Directors authorized us to repurchase shares of our common stock, onthe open market or through private purchases, up to an additional $60,000 inaggregate.

 

During the third quarterof 2008, we repurchased from third party shareholders 565,447 shares at anaverage price of $21.19 per share, including average commissions of $0.03 pershare, on the open market.  Our majorityshareholder sold to us 580,060 shares in the third quarter at an average priceof $21.16 per share.  In addition, werepurchased 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 openmarket.  The total value of the thirdquarter transactions was $24,586. 994,841 shares were retired during the third quarter of 2008 and theremaining 165,266 shares 

 

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were held as treasury stock at September 30, 2008.

 

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

 

As of September 30,2008, $45,369 remained available for repurchase under the July 2008authorization by the Board of Directors.

 

*2007 Stock Repurchases*

 

In March 2007 theBoard of Directors authorized us to repurchase shares of our common stock, onthe open market or through private purchases, up to $20,000 in aggregate.  This repurchase program was completed duringthe fourth quarter of 2007.

 

During the first quarterof 2007 we repurchased from third party shareholders 95,278 shares at anaverage price of $17.57 per share, including average commissions of $0.01 pershare, on the open market. Our majority shareholder sold to us 100,000 sharesin the first quarter at an average price of $17.56 per share. The total valueof the first quarter transactions was $3,430. All treasury shares were retiredin March 2007.

 

During the second quarterof 2007 we repurchased from third party shareholders 175,600 shares at anaverage price of $18.33 per share, including average commissions of $0.01 pershare, on the open market.  Our majorityshareholder sold to us 182,808 shares in the second quarter at an average priceof $18.32 per share.  The total value ofthe second quarter transactions was $6,568. All treasury shares were retired during the second quarter.

 

During the third quarterof 2007 we repurchased from third party shareholders 135,756 shares at anaverage price of $18.14 per share, including average commission of $0.01 pershare, on the open market.  Our majorityshareholder sold to us 139,772 shares in the third quarter at an average priceof $18.13 per share.  The total value ofthe third quarter transactions was $4,997. 215,012 shares were retired in September 2007 and the remaining60,516 shares were retired in October 2007.

 

***13.    Domesticand Foreign Operations***

** **

Our business activitiesconsist of domestic and foreign operations. Foreign operations are conducted inCanada. Revenue attributable to foreign operations was less than 10% ofconsolidated revenues for each of the periods ended September 30, 2008 andSeptember 30, 2007.

 

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A summary of informationabout our foreign and domestic operations is as follows:

 
| ** **                                                                | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                | ** ** | **September 30, 2008**                   | ** ** | **September 30, 2007**                  | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
| ** **                                                                | ** ** | **(Unaudited)**                                    | ** ** | **(Unaudited)**                                   | ** ** |
| Total revenues, excluding reimbursement of management contract  expenses: |       |                                               |       |                                              |       |   |   |   |   |
| Domestic                                                                  |       | $                                                  | 73,561     |                                              | $          | 66,274 |   | $ | 221,273 |   | $ | 192,246 |   |
| Foreign                                                                   |       | 1,931                                              |       | 1,058                                             |       | 4,211 |   | 3,007 |   |
| Consolidated                                                              |       | $                                                  | 75,492     |                                              | $          | 67,332 |   | $ | 225,484 |   | $ | 195,253 |   |
|                                                                      |       |                                               |       |                                              |       |   |   |   |   |
| Operating income:                                                         |       |                                               |       |                                              |       |   |   |   |   |
| Domestic                                                                  |       | $                                                  | 9,361      |                                              | $          | 9,228 |   | $ | 27,463 |   | $ | 25,274 |   |
| Foreign                                                                   |       | 559                                                |       | 315                                               |       | 1,247 |   | 791 |   |
| Consolidated                                                              |       | $                                                  | 9,920      |                                              | $          | 9,543 |   | $ | 28,710 |   | $ | 26,065 |   |
|                                                                      |       |                                               |       |                                              |       |   |   |   |   |
| Net income before income taxes:                                           |       |                                               |       |                                              |       |   |   |   |   |
| Domestic                                                                  |       | $                                                  | 7,681      |                                              | $          | 7,415 |   | $ | 23,110 |   | $ | 20,062 |   |
| Foreign                                                                   |       | 572                                                |       | 327                                               |       | 1,287 |   | 826 |   |
| Consolidated                                                              |       | $                                                  | 8,253      |                                              | $          | 7,742 |   | $ | 24,397 |   | $ | 20,888 |   |
|                                                                      |       |                                               |       |                                              |       |   |   |   |   |
| ** **                                                                | ** ** | **September 30, 2008**                   | ** ** | **December 31, 2007**                   |       |   |   |   |   |
| Identifiable assets:                                                      |       |                                               |       |                                              |       |   |   |   |   |
| Domestic                                                                  |       | $                                                  | 223,606    |                                              | $          | 207,375 |   |   |   |   |   |
| Foreign                                                                   |       | 9,396                                              |       | 8,013                                             |       |   |   |   |   |
| Consolidated                                                              |       | $                                                  | 233,002    |                                              | $          | 215,388 |   |   |   |   |   |

 

*BusinessUnit Segment Information*

 

SFAS No. 131,*Disclosures about Segments of an Enterprise andRelated Information* (“SFAS 131”), establishes annual andinterim reporting standards for an enterprise’s operating segments and relateddisclosures about its products, services, geographic areas and major customers.An operating segment is defined as a component of an enterprise that engages inbusiness activities from which it may earn revenues and incur expenses, andabout which separate financial information is regularly evaluated by the ChiefOperating Decision Maker (“CODM”) in deciding how to allocate resources. TheCODM, as defined by SFAS 131, is the Company’s President and ChiefExecutive Officer (“CEO”).

 

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

 

The Company ismanaged based on regions administered by executive vice presidents. Threeregions are generally organized geographically with the fourth regionencompassing major airports and transportation operations nationwide. Thefollowing is a summary of revenues (excluding reimbursement of managementcontract expenses) and operating income before depreciation and amortization byregions for the three and nine months ended September 30, 2008 and 2007.Information related to prior periods has been recast to conform to the currentregion alignment.

 

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In accordance withSFAS 131, the Company has provided this business unit segment informationfor all comparable prior periods. Segment information is summarized as follows(in thousands):

 
| ** **                                            | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                            | ** ** | **September 30, 2008**                   | ** ** | **September 30, 2007**                  | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
| ** **                                            | ** ** | **(Unaudited)**                                    | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Revenues(a):                                          |       |                                               |       |                                              |       |   |   |   |   |
| Region One                                            |       | $                                                  | 30,171     |                                              | $          | 26,942 |   | $ | 87,202 |   | $ | 77,278 |   |
| Region Two                                            |       | 8,345                                              |       | 7,114                                             |       | 26,522 |   | 20,524 |   |
| Region Three                                          |       | 16,253                                             |       | 15,463                                            |       | 47,860 |   | 44,394 |   |
| Region Four                                           |       | 17,648                                             |       | 16,968                                            |       | 55,757 |   | 50,903 |   |
| Other                                                 |       | 3,075                                              |       | 845                                               |       | 8,143 |   | 2,154 |   |
| Total revenues                                        |       | $                                                  | 75,492     |                                              | $          | 67,332 |   | $ | 225,484 |   | $ | 195,253 |   |
|                                                  |       |                                               |       |                                              |       |   |   |   |   |
| Operating income (loss):                              |       |                                               |       |                                              |       |   |   |   |   |
| Region One                                            |       | 8,660                                              |       | 8,291                                             |       | 24,772 |   | 23,918 |   |
| Region Two                                            |       | 3,367                                              |       | 2,991                                             |       | 11,216 |   | 8,308 |   |
| Region Three                                          |       | 6,150                                              |       | 6,201                                             |       | 17,732 |   | 16,456 |   |
| Region Four                                           |       | 4,429                                              |       | 4,113                                             |       | 13,543 |   | 12,280 |   |
| Other                                                 |       | (11,147                                            | )          | (10,664                                           | )          | (34,064 | ) | (30,980 | ) |
| Operating income before depreciation and amortization |       | 11,459                                             |       | 10,932                                            |       | 33,199 |   | 29,982 |   |
|                                                  |       |                                               |       |                                              |       |   |   |   |   |
| Depreciation and amortization                         |       | 1,539                                              |       | 1,389                                             |       | 4,489 |   | 3,917 |   |
| Total operating income                                |       | $                                                  | 9,920      |                                              | 9,543      |   | $ | 28,710 |   | $ | 26,065 |   |
| Other expenses (income):                              |       |                                               |       |                                              |       |   |   |   |   |
| Interest expense                                      |       | $                                                  | 1,777      |                                              | $          | 1,739 |   | $ | 4,381 |   | $ | 5,312 |   |
| Interest income                                       |       | (106                                               | )          | (47                                               | )          | (189 | ) | (493 | ) |
|                                                  |       | 1,671                                              |       | 1,692                                             |       | 4,192 |   | 4,819 |   |
| Minority interest                                     |       | (4                                                 | )          | 109                                               |       | 121 |   | 358 |   |
| Income before income taxes                            |       | 8,253                                              |       | 7,742                                             |       | 24,397 |   | 20,888 |   |
| Income tax expense (benefit)                          |       | 3,144                                              |       | 3,213                                             |       | 9,734 |   | 8,526 |   |
| Net income                                            |       | $                                                  | 5,109      |                                              | $          | 4,529 |   | $ | 14,663 |   | $ | 12,362 |   |

 

----

(a)                                  Excludes reimbursement of managementcontract expenses.

 

Region Oneencompasses operations in Delaware, District of Columbia, Illinois, Indiana,Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, NewHampshire, New Jersey, New York, North Carolina, Ohio, Rhode Island, Vermont,Virginia, and Wisconsin, along with regional general and administrativeexpenses.

 

Region Twoencompasses operations in Alabama, British Columbia, Florida, Georgia,Louisiana, Ontario, Tennessee, and Texas, along with regional general andadministrative expenses.

 

Region Three encompassesoperations in Arizona, California, Colorado, Hawaii, Nevada, Utah, Washington,and Wyoming, along with regional general and administrative expenses.

 

Region Fourencompasses all major airport and transportation operations nationwide, alongwith regional general and administrative expenses.

 

Other consists ofancillary revenue that is not specifically identifiable to a region and supportoffice general and administrative expenses.

 

The CODM does notevaluate segments using discrete asset information.

 

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***14.    ComprehensiveIncome***

** **

Comprehensiveincome consists of the following components:

 
| ** **                             | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|----------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                             | ** ** | **September 30, 2008**                   | ** ** | **September 30, 2007**                  | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
| ** **                             | ** ** | **(Unaudited)**                                    | ** ** | **(Unaudited)**                                   | ** ** |
| Net income                             |       | $                                                  | 5,109      |                                              | $          | 4,529 |   | $ | 14,663 |   | $ | 12,362 |   |
| Revaluation of interest rate cap       |       | 62                                                 |       | (18                                               | )          | 95 |   | 58 |   |
| Effect of foreign currency translation |       | (99                                                | )          | 159                                               |       | (159 | ) | 176 |   |
| Comprehensive income                   |       | $                                                  | 5,072      |                                              | $          | 4,670 |   | $ | 14,599 |   | $ | 12,596 |   |

 

***15.    IncomeTaxes***

 

Incometax expense is based on a projected annual effective tax rate of approximately39.9% for the nine months ended September 30, 2008 compared toapproximately 40.8% for the nine months ended September 30, 2007.  The change in the Company’s effective taxrate resulted from a decrease in the Company’s state effective tax rate.

 

In July 2006,FASB issued Statement of Financial Accounting Standards Interpretation No. 48(“FIN 48”), *Accounting for Uncertainty inIncome Taxes.* FIN 48 clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements in accordancewith SFAS 109, *Accounting for Income Taxes*. FIN48 also prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. The Company recognizes potential interestand penalties related to uncertain tax positions, if any, in income taxexpense. Upon adoption, the Company completed a detailed analysis of its taxpositions and determined that the implementation of FIN 48 did not have animpact on the Company’s financial position or results from operations.  As of September 30, 2008, the Companyhas not identified any tax positions that would have a material impact on theCompany’s financial position.

 

The tax years that remainsubject to examination for the Company’s major tax jurisdictions at September 30,2008 are shown below:

 
| 2005 – 2007 |   | United States — federal  income tax         |
|------------------|--------|--------------------------------------------------|
| 2003 – 2007 |   | United States — state  and local income tax |
| 2004 – 2007 |   | Canada                                           |

 

***16.    HurricaneKatrina***

 

On May 2, 2008, weentered into a definitive settlement agreement with our insurance carrier tofinalize all of our open claims with respect to Hurricane Katrina. Thesettlement agreement is for $4,225 of which $2,000 was received previously. Weare required to reimburse the owners of the leased and managed locations forproperty damage of approximately $2,360, of which $2,138 has been paid as of September 30,2008.  After payment of settlement fees, expenses and other amounts dueunder contractual arrangements, we recorded $1,995 in pre-tax income in thesecond quarter of 2008, of which $1,623 was recorded as revenue and $372 wasrecorded as a reduction of general and administrative expenses.

 

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**Item 2.**                          *Management’s Discussion and Analysis of FinancialCondition and Results of Operations*

** **

*Thefollowing discussion will assist in understanding our financial position andresults of operations. The information below should be read in conjunction withthe consolidated financial statements, the related notes to the consolidatedfinancial statements and our Form 10-K for the year ended December 31,2007.*

* *

*Inaddition to historical information, this Quarterly Report on Form 10-Qcontains forward-looking statements that involve risks and uncertainties thatcould cause actual results to differ materially. Factors that might cause orcontribute to such differences include, but are not limited to, those discussedin “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” as well as in this Quarterly Report generally. You should carefullyreview the risks described in this Quarterly Report as well as the risksdescribed in other documents filed by us and from time to time with theSecurities and Exchange Commission. In addition, when used in this QuarterlyReport, the words “anticipates,” “plans,” “believes,” “estimates,” and “expects”and similar expressions are generally intended to identify forward-lookingstatements. Such statements are subject to a number of risks and uncertainties.Our actual results, performance or achievements could differ materially fromthe results expressed in, or implied by these forward-looking statements or us.We undertake no obligation to revise these forward-looking statements toreflect any future events or circumstances.*

* *

*Wecontinue to be subject to certain factors that could cause our results todiffer materially from expected and historical results (see the “Risk Factors”set forth in our 2007 Form 10-K filed on March 14, 2008).*

* *

***Overview***

*** ***

***Our Business***

*** ***

We manage parkingfacilities in urban markets and at airports across the United States and inthree Canadian provinces. We do not own any facilities, but instead enter intocontractual 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 formanaging the facility, and we may also receive an incentive fee based on theachievement of facility performance objectives. We also receive fees forancillary services. Typically, all of the underlying revenues and expensesunder a standard management contract flow through to our clients rather than tous. However, some management contracts, which are referred to as “reverse”management contracts, usually provide for larger management fees and require usto pay various costs. Under lease arrangements, we generally pay to theproperty owner either a fixed annual rent, a percentage of gross customercollections or a combination thereof. We collect all revenues under leasearrangements and we are responsible for most operating expenses, but we aretypically not responsible for major maintenance, capital expenditures or realestate taxes. Margins for lease contracts vary significantly, not only due tooperating performance, but also due to variability of parking rates indifferent cities and varying space utilization by parking facility type andlocation. As of September 30, 2008, we operated 89% of our locations undermanagement contracts and 11% under leases.

 

In evaluating ourfinancial condition and operating performance, management’s primary focus is onour gross profit, total general and administrative expense and general andadministrative expense as a percentage of our gross profit. Although theunderlying economics to us of management contracts and leases are similar, themanner in which we are required to account for them differs. Revenue fromleases includes all gross customer collections derived from our leasedlocations (net of parking tax), whereas revenue from management contracts onlyincludes our contractually agreed upon management fees and amounts attributableto ancillary services. Gross customer collections at facilities undermanagement contracts, therefore, are not included in our revenue. Accordingly,while a change in the proportion of our operating agreements that are structuredas leases versus management contracts may cause significant fluctuations inreported revenue and expense of parking services, that change will notartificially affect our gross profit. For example, as of September 30,2008, 89%****of our locations were operated undermanagement contract and 84%****of our grossprofit for the period ended September 30, 2008 was derived from managementcontracts. Only 48% of total revenue (excluding reimbursement of managementcontract expenses), however, was from management contracts because under thosecontracts the revenue collected from parking customers belongs to our clients.Therefore, gross profit and total general and administrative expense, ratherthan revenue, are management’s primary focus.

 

***General Business Trends***

*** ***

We believe thatsophisticated commercial real estate developers and property managers andowners recognize the potential for parking and related services to be a profitgenerator rather than a cost center. Often, the parking experience makes boththe first and the last impressions on their properties’ tenants and visitors.By outsourcing these services, they are able to capture additional 

 

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profit by leveraging theunique operational skills and controls that an experienced parking managementcompany can offer. Our ability to consistently deliver a uniformly high levelof parking and related services and maximize the profit to our clients improvesour

ability to win contractsand retain existing locations. Our retention rate for the twelve month periodended September 30, 2008 was 90%, compared to 89% for the year-ago period,which also reflects our decision not to renew, or terminate, unprofitablecontracts.

 

For the three monthsended September 30, 2008 compared to the three months ended September 30,2007, average gross profit per location decreased by 0.2% from $10.8 thousandto $10.7 thousand, as a result of acquired businesses with lower gross profitper location.

 

***Summary of OperatingFacilities***

*** ***

We focus our operationsin core markets where a concentration of locations improves customer servicelevels and operating margins. The following table reflects our facilitiesoperated at the end of the periods indicated:

 
| ** **         | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** | **September 30, 2007** | ** ** |
|--------------------|------------|----------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
|               |       |                             |       |                            |       |                             |       |
| Managed facilities |       | 1,947                            |       | 1,893                           |       | 1,837                            |       |
| Leased facilities  |       | 238                              |       | 238                             |       | 234                              |       |
|               |       |                             |       |                            |       |                             |       |
| Total facilities   |       | 2,185                            |       | 2,131                           |       | 2,071                            |       |

 

***Revenue***

*** ***

We recognize parkingservices revenue from lease and management contracts as the related servicesare provided. Substantially all of our revenues come from the following twosources:

 

·                                         *Parking servicesrevenue—lease contracts*. Parking services revenues related to lease contracts consist of allrevenue received at a leased facility, including parking receipts (net ofparking tax), consulting and real estate development fees, gains on sales ofcontracts and payments for exercising termination rights.

 

·                                         *Parking servicesrevenue—management contracts.* Management contract revenue consists of managementfees, including both fixed and performance-based fees, and amounts attributableto ancillary services such as accounting, equipment leasing, payments receivedfor exercising termination rights, consulting, developmental fees, gains onsales of contracts, insurance and other value-added services with respect tomanaged locations. We believe we generally purchase required insurance at lowerrates than our clients can obtain on their own because we effectivelyself-insure for all liability and worker’s compensation claims by maintaining alarge per-claim deductible. As a result, we have generated operating income onthe insurance provided under our management contracts by focusing on our riskmanagement efforts and controlling losses. Management contract revenues do notinclude gross customer collections at the managed locations as this revenue belongsto the property owner rather than to us. Management contracts generally provideus with a management fee regardless of the operating performance of theunderlying facility.

 

***Reimbursement ofManagement Contract Expense***

*** ***

Reimbursement ofmanagement contract expense consists of the direct reimbursement from theproperty owner for operating expenses incurred under a management contract.

 

***Cost of Parking Services***

*** ***

Our cost of parkingservices consists of the following:

 

·     *Cost of parking services—lease contracts.*The cost of parking services under a lease arrangement consists of contractualrental fees paid to the facility owner and all operating expenses incurred inconnection with operating the leased facility. Contractual fees paid to thefacility owner are generally based on either a fixed contractual amount or apercentage of gross revenue or a combination thereof. Generally, under a leasearrangement we are not responsible for major capital expenditures or realestate taxes.

 

·     *Cost of parking services—management contracts.*The cost of parking services under a management contract is generally theresponsibility of the facility owner. As a result, these costs are not includedin our results of operations. However, our reverse management contracts, whichtypically provide for larger management fees, do require us to pay for certaincosts.

 

***Gross Profit***

*** ***

Gross profit equals ourrevenue less the cost of generating such revenue. This is the key metric we useto examine our 

 

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performance because itcaptures the underlying economic benefit to us of both lease contracts andmanagement contracts.

 

***General andAdministrative Expenses***

*** ***

General andadministrative 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 andAmortization***

*** ***

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

 

***ValuationAllowance Related to Long-Term Receivables***

 

Valuationallowance related to long-term receivables is recorded when there is anextended length of time estimated for collection of long-term receivables.

 

***Seasonality***

*** ***

During the first quarterof each year, seasonality impacts our performance with regard to moderatingrevenues, with the reduced levels of travel most clearly reflected in theparking activity associated with our airport and hotel businesses as well asincreases in certain costs of parking services, such as snow removal, both ofwhich negatively affect gross profit. Although our revenues and profitability areaffected by the seasonality of the business, general and administrative costsare relatively stable throughout the fiscal year.

 

**Resultsof Operations**

 

***ThreeMonths ended September 30, 2008 Compared to Three Months ended September 30,2007***

 

*Parking services revenue—leasecontracts.*Leasecontract revenue increased $2.4 million, or 6.8%, to $38.6 million in the thirdquarter of 2008, compared to $36.2 million in the third quarter 2007. Thisincrease resulted from an increase in new location revenue of $4.5 million, anincrease in same location revenue of $0.1 million, partially offset byreductions in revenue related to contract expirations of $1.6 million and $0.6million non-cash gain related to the sale of a contract right in conjunctionwith one of the acquisitions completed during the third quarter 2007 that didnot recur in 2008. The increase in same location revenue was due to increasesin monthly parking revenue of $0.5 million, or 5.0%, offset by decreases inshort-term parking revenue of $0.4 million, or 1.8%.

 

*Parking services revenue—managementcontracts.*Managementcontract revenue increased $5.7 million, or 18.3%, to $36.9 million in thethird quarter of 2008, compared to $31.2 million in the third quarter of 2007.This increase resulted from an increase of $5.6 million in revenues from newlocations, an increase in same location revenue of $3.6 million, partiallyoffset by reductions in revenue attributable to contract expirations of $3.2million and a decrease of $0.3 million primarily related to insuranceadjustments. The increase in same location revenue was primarily due toadditional fees from reverse management locations and ancillary services.

 

*Reimbursement of management contractexpense.*Reimbursementof management contract expenses increased $16.7 million, or 19.7%, to $101.9million in the third quarter of 2008, compared to $85.2 million in the thirdquarter of 2007. This increase resulted from additional reimbursements forcosts incurred on the behalf of owners.

 

*Cost of parking services—leasecontracts.*Costof parking services for lease contracts increased $3.8 million, or 12.1%, to$35.5 million in the third quarter of 2008, compared to $31.7 in the thirdquarter of 2007. This increase resulted from an increase in costs from newlocations of $4.1 million, an increase in same location costs of $0.8 million,an increase of $0.5 million primarily related to insurance costs, partiallyoffset by reductions in costs attributable to contract expirations of $1.6million.  The increase in same locationcosts was due to increases in rent expense of $0.5 million, or 2.1%, whichrelated to percentage rental payments from increased revenue, and an increasein other operating costs of $0.3 million.

 

*Cost of parking services—managementcontracts.*Costof parking services for management contracts increased $3.1 million, or 23.4%,to $16.5 million in the third quarter of 2008, compared to $13.4 million in thethird quarter of 2007. This increase resulted from an increase of $3.0 millionin costs from new reverse management locations, an increase in same locationcosts of $2.8 million, that was partially offset by reductions in costsattributable to contract expirations of $1.8 million and a $0.9 milliondecrease primarily related to insurance costs. The increase in same locationcosts was primarily due to increased costs from reverse management locationsand ancillary services.

 

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*Reimbursed management contractexpense.*Reimbursedmanagement contract expenses increased $16.7 million, or 19.7%, to $101.9million in the third quarter of 2008, compared to $85.2 million in the thirdquarter of 2007. This increase resulted from additional reimbursed costsincurred on the behalf of owners.

 

*Gross profit—lease contracts.*Gross profit for lease contractsdecreased $1.4 million, or 30.7%, to $3.1 million in the third quarter of 2008,compared to $4.5 million in the third quarter of 2007. Gross margin percentagefor lease contracts decreased to 8.1% in the third quarter of 2008, compared to12.5% in the third quarter of 2007. This margin decrease wasprimarily due to increases in costs from new locations.

 

*Gross profit—management contracts.*Gross profit for management contractsincreased $2.6 million, or 14.5%, to $20.3 million in the third quarter of2008, compared to $17.8 million in the third quarter of 2007. Gross marginpercentage for management contracts decreased to 55.2% in the third quarter of2008, compared to 57.1% in the third quarter of 2007. This decrease wasprimarily due to increases in costs from reverse management locations and adecrease in favorable insurance loss experience reserve estimates relating toprior years of $0.3 million.

 

*General and administrative expenses.*General andadministrative expenses increased $0.6 million, or 5.8%, to $12.0 million inthe third quarter of 2008, compared to $11.4 million in the third quarter of2007. This increase resulted primarily from increases in payroll andpayroll-related expenses of $0.6 million.

 

*Interest expense.*Interest expense remained flat at $1.7million in the third quarter of 2008 and 2007.

 

*Interest income.*Interest income remained flat at $0.1million in the third quarter of 2008 and 2007.

 

*Income tax expense.*Income tax expense decreased $0.1million, or 2.1%, to $3.1 million in the third quarter of 2008, compared to$3.2 million in the third quarter of 2007. A decrease in our effective tax rate related to state income taxes,resulted in a $0.3 million decrease in income tax expense that was partiallyoffset by a $0.2 increase in income tax expense due to an increase of our pre-tax income.

 

*Segmentrevenue*

 

SFAS No. 131,*Disclosures about Segments of an Enterprise andRelated Information* (“SFAS 131”), establishes annual andinterim reporting standards for an enterprise’s operating segments and relateddisclosures about its products, services, geographic areas and major customers.An operating segment is defined as a component of an enterprise that engages inbusiness activities from which it may earn revenues and incur expenses, andabout which separate financial information is regularly evaluated by the ChiefOperating Decision Maker (“CODM”) in deciding how to allocate resources. TheCODM, as defined by SFAS 131, is our President and Chief Executive Officer(“CEO”).

 

The Company ismanaged based on regions administered by executive vice presidents. Threeregions are generally organized geographically with the fourth regionencompassing major airports and transportation operations nationwide. Thefollowing is a summary of revenues (excluding reimbursement of managementcontract expenses) by region for the three months ended September 30, 2008and 2007. Information related to prior years has been recast to conform to thecurrent regional alignment.

 

Segment revenueinformation is summarized as follows (in thousands):

 
| ** **     | ** ** | **For the three months  ended** | ** ** |
|----------------|------------|------------------------------------------------|------------|
| ** **     | ** ** | **September 30,  2008**                   | ** ** | **September 30,  2007** | ** ** |
| Revenues(a):   |       |                                           |       |   |   |
| Region One     |       | $                                              | 30,171     |   | $ | 26,942 |   |
| Region Two     |       | 8,345                                          |       | 7,114 |   |
| Region Three   |       | 16,253                                         |       | 15,463 |   |
| Region Four    |       | 17,648                                         |       | 16,968 |   |
| Other          |       | 3,075                                          |       | 845 |   |
| Total revenues |       | $                                              | 75,492     |   | $ | 67,332 |   |

 

----

(a)                                  Excludes reimbursement of managementcontract expenses.

 

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Region Oneencompasses Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas,Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey,New York, North Carolina, Ohio, Rhode Island, Vermont, Virginia, and Wisconsin.

 

Region Twoencompasses Alabama, British Columbia, Florida, Georgia, Louisiana, Ontario,Tennessee, and Texas.

 

Region Threeencompasses Arizona, California, Colorado, Hawaii, Nevada, Utah, Washington,and Wyoming.

 

Region Fourencompasses all major airport and transportation operations nationwide.

 

Other consists ofancillary revenue that is not specifically identifiable to a region.

 

Revenue increased$8.2 million, or 12.1%, to $75.5 million for the third quarter of2008, compared to $67.3 million in the third quarter of 2007. Thisincrease resulted from an increase of $3.3 million in revenue from RegionOne, an increase of $1.2 million in revenue from Region Two, an increaseof $0.8 million in revenue from Region Three, an increase of$0.6 million in revenue from Region Four, and an increase in revenue of$2.3 million in Other.

 

Region One revenueincreased $3.3 million, or 12.0%, to $30.2 million for the thirdquarter of 2008, compared to $26.9 million for the third quarter of 2007.This increase resulted from an increase of $4.8 million in revenue fromnew locations and an increase in same location revenue of $1.0 million,partially offset by reductions in revenue attributable to contract expirationsof $2.5 million.

 

Region Two revenueincreased $1.2 million, or 17.3%, to $8.3 million for the thirdquarter of 2008, compared to $7.1 million for the third quarter of 2007.This increase resulted from an increase of $1.7 million in revenue fromnew locations, an increase in same location revenue of $0.1 million,partially offset by decreases in revenue attributable to contract expirationsof $0.6 million.

 

Region Threerevenue increased $0.8 million, or 5.1%, to $16.3 million for thethird quarter of 2008, compared to $15.5 million for the third quarter of2007. This increase resulted from an increase of $3.0 in revenue from newlocations and an increase in same location revenue of $0.1 million, partiallyoffset by reductions in revenue attributable to contract expirations of$1.7 million and a $0.6 million non-cash gain related to the sale of acontract right in conjunction with one of the acquisitions completed during thethird quarter 2007 that did not recur in 2008.

 

Region Fourrevenue increased $0.6 million, or 4.0%, to $17.6 million for thethird quarter of 2008, compared to $17.0 million for the third quarter of2007. This increase resulted from an increase of $0.7 million in revenuefrom new locations, partially offset by a decrease in same location revenue of$0.1 million.

 

Other revenueincreased $2.3 million to $3.1 million for the third quarter of 2008,compared to $0.8 million for the third quarter of 2007. This increase resultedprimarily from increases in ancillary revenue that is not specificallyidentifiable to a region.

 

***Nine Months ended September 30,2008 Compared to Nine Months ended September 30, 2007***

 

*Parkingservices revenue—lease contracts.*Lease contract revenueincreased $8.9 million, or 8.3%, to $116.3 million in the first nine months of2008, compared to $107.4 million in the first nine months of 2007. Thisincrease resulted from an increase of $12.2 million from new locations, anincrease of $3.3 million in same location revenue, an increase of $1.4 millionrelated to the Katrina settlement, offset by reductions in revenue related tocontract expirations of $7.4 million and $0.6 million non-cash gain related to the sale of acontract right in conjunction with one of the acquisitions completed during thethird quarter 2007 that did not recur in 2008.  The increase in same location revenue was dueto increases in short-term parking revenue of $1.4 million, or 2.1%, and anincrease in monthly parking revenue of $1.9 million, or 6.4%.

 

*Parkingservices revenue—management contracts.*Management contract revenueincreased $21.3 million, or 24.2%, to $109.2 million in the first nine monthsof 2008, compared to $87.9 million in the first nine months of 2007. Thisincrease resulted from an increase of $19.0 million in revenues from newlocations, an increase in same location revenue of $9.5 million, an increase of$0.2 million related to the Katrina settlement, which was partially offset byreductions in revenue attributable to contract expirations of $6.8 million,and a decrease of $0.6 million primarily related to insurance adjustments.  The increase in same location revenue wasprimarily due to additional fees from reverse management locations andancillary services.

 

*Reimbursementof management contract expense.*Reimbursement of managementcontract expenses increased $37.4 million, or 14.2%, to $300.7 million in thefirst nine months of 2008, compared to $263.3 million in the first nine monthsof 2007. This increase resulted from additional reimbursements for costsincurred on the behalf of owners.

 

*Cost ofparking services—lease contracts.*Cost of parking services forlease contracts increased $9.6 million, or 10.1%, to $105.1 million in thefirst nine months of 2008, compared to $95.5 million in the first nine monthsof 2007. This increase resulted from an 

 

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increase in costs of $11.2million from new locations, an increase in same location costs of $4.4 million,an increase of $0.6 million primarily related to insurance costs, offset by reductions incosts attributable to contract expirations of $6.6 million.  The increase in same location costs was dueto increases in rent expense of $2.9 million, or 4.4%, related to percentagerental payments from increased revenue, $0.2 million, or 1.6%, for increases inpayroll and payroll-related expenses, and an increase in other operating costsof $1.3 million.

 

*Cost ofparking services—management contracts.*Cost of parking services formanagement contracts increased $14.9 million, or 40.5%, to $51.7 million in thefirst nine months of 2008, compared to $36.8 million in the first nine monthsof 2007. This increase resulted from an increase of $10.8 million in costs fromnew reverse management locations, an increase in same location costs of$7.3 million, which was partially offset by reductions in costsattributable to contract expirations of $2.7 million and a decrease of $0.5 millionprimarily related to insurance costs. The increase in same location costs wasprimarily due to increased costs from reverse management locations andancillary services.

 

*Reimbursedmanagement contract expense.*Reimbursed managementcontract expenses increased $37.4 million, or 14.2%, to $300.7million in thefirst nine months of 2008, compared to $263.3 million in the first nine monthsof 2007. This increase resulted from additional reimbursed costs incurred onthe behalf of owners.

 

*Grossprofit—lease contracts.*Gross profit for lease contracts decreased$0.7 million, or 5.8%, to $11.2 million in the first nine months of 2008,compared to $11.9 million in the first nine months of 2007.  Gross margin for lease contracts decreased to9.6% in the first nine months of 2008, compared to 11.1% in the first ninemonths of 2007.  This decrease wasprimarily due to decreases in revenue related to contract expirations and adecrease in favorable insurance loss experience reserve estimates relating toprior years of $0.1 million.

 

*Grossprofit—management contracts.*Gross profit for managementcontracts increased $6.3 million, or 12.4%, to $57.4 million in the first ninemonths of 2008, compared to $51.1 million in the first nine months of 2007.Gross margin for management contracts decreased to 52.6% in the first ninemonths of 2008, compared to 58.1% in the first nine months of 2007.  This decrease was primarily due to increases in costsfrom reverse management locations and a decrease in favorable insurance lossexperience reserve estimates relating to prior years of $0.4 million.

 

*Generaland administrative expenses.*General and administrativeexpenses increased $2.5 million, or 7.4%, to $35.5 million in the first ninemonths of 2008, compared to $33.0 million in the first nine months of 2007.This increase resulted from increases in payroll and payroll-related expensesof $1.7 million, an increase in post-retirement benefits of $0.4 million, anincrease of $0.3 million due to stock grants for our Board of Directors, anincrease in rent expense of $0.3 million, an increase in professional fees of$0.2 million, partially offset by $0.4 million related to the Katrinasettlement.

 

*Interestexpense.*Interest expense decreased $0.9 million, or 17.5%,to $4.4 million in the first nine months of 2008, compared to $5.3 million inthe first nine months of 2007. This decrease resulted primarily from a decreasein interest rates.

 

*Interestincome.*Interest income decreased $0.3 million, to $0.2million in the first nine months of 2008, compared to $0.5 million in the firstnine months of 2007. This decrease resulted primarily from a decrease ofrepayments received in 2008 for interest bearing guarantor payments related toBradley International Airport and payment of interest in conjunction with the collectionof an outstanding receivable in 2007, which did not recur in 2008.

 

*Income taxexpense.*Income tax expense increased $1.2 million, or 14.2%,to $9.7 million in the first nine months of 2008, compared to $8.5 million inthe first nine months of 2007.  Anincrease in our pre-tax income resulted in a $1.4 million increase in incometax expense that was partially offset by a $0.2 decrease in income tax expensedue to a decrease in our effective tax rate.

 

*Segmentrevenue*

 

SFAS No. 131,*Disclosures about Segments of an Enterprise andRelated Information* (“SFAS 131”), establishes annual andinterim reporting standards for an enterprise’s operating segments and relateddisclosures about its products, services, geographic areas and major customers.An operating segment is defined as a component of an enterprise that engages inbusiness activities from which it may earn revenues and incur expenses, andabout which separate financial information is regularly evaluated by the ChiefOperating Decision Maker (“CODM”) in deciding how to allocate resources. TheCODM, as defined by SFAS 131, is our President and Chief Executive Officer(“CEO”).

 

The Company ismanaged based on regions administered by executive vice presidents. Threeregions are generally organized geographically with the fourth regionencompassing major airports and transportation operations nationwide. Thefollowing is a summary of revenues (excluding reimbursement of managementcontract expenses) by region for the nine months ended September 30, 2008and 2007. Information related to prior years has been recast to conform to thecurrent regional alignment.

 

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Segment revenueinformation is summarized as follows (in thousands):

 
| ** **     | ** ** | **For the nine months  ended** | ** ** |
|----------------|------------|-----------------------------------------------|------------|
| ** **     | ** ** | **September 30,  2008**                  | ** ** | **September 30,  2007** | ** ** |
| Revenues(a):   |       |                                          |       |   |   |
| Region One     |       | $                                             | 87,202     |   | $ | 77,278 |   |
| Region Two     |       | 26,522                                        |       | 20,524 |   |
| Region Three   |       | 47,860                                        |       | 44,394 |   |
| Region Four    |       | 55,757                                        |       | 50,903 |   |
| Other          |       | 8,143                                         |       | 2,154 |   |
| Total revenues |       | $                                             | 225,484    |   | $ | 195,253 |   |

 

----

(a)                                  Excludes reimbursement of managementcontract expenses.

 

Region Oneencompasses Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas,Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey,New York, North Carolina, Ohio, Rhode Island, Vermont, Virginia, and Wisconsin.

 

Region Twoencompasses Alabama, British Columbia, Florida, Georgia, Louisiana, Ontario,Tennessee, and Texas.

 

Region Threeencompasses Arizona, California, Colorado, Hawaii, Nevada, Utah, Washington,and Wyoming.

 

Region Fourencompasses all major airport and transportation operations nationwide.

 

Other consists ofancillary revenue that is not specifically identifiable to a region.

 

Revenue increased$30.2 million, or 15.5%, to $225.5 million for the first nine monthsof 2008, compared to $195.3 million in the first nine months of 2007. Thisincrease resulted from an increase of $9.9 million in revenue from RegionOne, an increase of $6.0 million in revenue from Region Two, an increaseof $3.5 million in revenue from Region Three, an increase of$4.9 million in revenue from Region Four, and an increase in revenue of$5.9 million in Other.

 

Region One revenueincreased $9.9 million, or 12.8%, to $87.2 million for the first ninemonths of 2008, compared to $77.3 million for the first nine months of 2007.This increase resulted from an increase of $14.6 million in revenue fromnew locations and an increase in same location revenue of $2.7 million,partially offset by reductions in revenue attributable to contract expirationsof $7.4 million.

 

Region Two revenueincreased $6.0 million, or 29.2%, to $26.5 million for the first ninemonths of 2008, compared to $20.5 million for the first nine months of 2007.This increase resulted from an increase of $4.4 million in revenue fromnew locations, an increase of $1.6 million related to the Katrina settlement,an increase in same location revenue of $1.4 million, partially offset bydecreases in revenue attributable to contract expirations of $1.4 million.

 

Region Threerevenue increased $3.5 million, or 7.8% to $47.9 million for thefirst nine months of 2008, compared to $44.4 million for the first nine monthsof 2007. This increase resulted from an increase of $8.0 in revenue from newlocations and an increase in same location revenue of $0.9 million, partiallyoffset by reductions in revenue attributable to contract expirations of $4.8 millionand $0.6 million non-cash gain related to the sale of a contract right inconjunction with one of the acquisitions completed during the third quarter2007 that did not recur in 2008..

 

Region Fourrevenue increased $4.9 million, or 9.5%, to $55.8 million for thefirst nine months of 2008, compared to $50.9 million for the first nine monthsof 2007. This increase resulted from an increase of $4.2 million inrevenue from new locations and an increase in same location revenue of$1.3 million, partially offset by reductions in revenue attributable tocontract expirations of $0.6 million.

 

Other revenueincreased $5.9 million to $8.1 million for the first nine months of2008, compared to $2.2 million for the first nine months of 2007. Thisincrease resulted primarily from increases in ancillary revenue that is notspecifically identifiable to a region.

 

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**Liquidity andCapital Resources**

** **

***Outstanding Indebtedness***

*** ***

On September 30,2008, we had total indebtedness of approximately $111.4 million, an increase of$31.0 million from December 31, 2007. The $111.4 million includes:

 

·                                          $106.6 million under our senior credit facility; and

 

·                                          $4.8 million of other debt including capital leaseobligations and obligations on seller notes and other indebtedness.

 

We believe that our cashflow from operations, combined with additional borrowing capacity under oursenior credit facility, which amounted to $82.6 million at September 30,2008, will be sufficient to enable us to pay our indebtedness, or to fund otherliquidity needs. We may need to refinance all or a portion of our indebtednesson or before their respective maturities. We believe that we will be able torefinance our indebtedness on commercially reasonable terms.

 

***Senior Credit Facility***

 

On July 15, 2008, weentered into an amended and restated credit agreement with a group of sixbanks:  Bank of America, N.A., asadministrative agent, issuing lender and as a lender; Wells Fargo Bank N.A., assyndication agent, issuing lender and as a lender; Fifth Third Bank, as alender; First Hawaiian Bank, as a lender; JPMorgan Chase Bank, N.A., as alender; and U.S. Bank National Association, as a lender.  This credit agreement amended and restatedour credit facility dated June 29, 2006.

 

The senior creditfacility was increased from $135,000 to $210,000.  The $210,000 revolving credit facility willexpire in July 2013.  The revolvingcredit facility includes a letter of credit sub-facility with a sublimit of$50,000 and a swing line sub-facility with a sublimit of $10,000.

 

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

 

The senior creditfacility includes a fixed charge ratio covenant, a total debt to EBITDA ratiocovenant, a limit on our ability to incur additional indebtedness, issuepreferred stock or pay dividends, and certain other restrictions on ouractivities. We are required to repay borrowings under the senior creditfacility out of the proceeds of future issuances of debt or equity securitiesand asset sales, subject to certain customary exceptions. The senior creditfacility is secured by substantially all of our assets and all assets acquiredin the future (including a pledge of 100% of the stock of our existing andfuture domestic guarantor subsidiaries and 65% of the stock of our existing andfuture foreign subsidiaries).

 

We are in compliance withall of our financial covenants.

 

At September 30,2008, we had $20.8 million of letters of credit outstanding under the seniorcredit facility, borrowings against the senior credit facility aggregated$106.6 million and we had $82.3 million available under the senior creditfacility.

 

***Interest Rate CapTransactions***

*** ***

We use a variable ratesenior credit facility to finance our operations. This facility exposes us tovariability in interest payments due to changes in interest rates. If interestrates increase, interest expense increases and conversely, if interest ratesdecrease, interest expense also decreases. We believe that it is prudent tolimit the exposure of an increase in interest rates.

 

In 2006 we entered into aRate Cap Transaction with Bank of America, which allows us to limit ourexposure on a portion of our borrowings under the Credit Agreement. Under theRate Cap Transaction, we receive payments from Bank of America each quarterlyperiod to the extent that the prevailing three month LIBOR during that periodexceeds our cap rate of 5.75%. The Rate Cap Transaction caps our LIBOR interestrate on a notional amount of $50.0 million at 5.75% for a total of 36 months.The Rate Cap Transaction began as of August 4, 2006 and settles eachquarter on a date that coincides with our quarterly interest payment datesunder the Credit Agreement.  This RateCap Transaction is classified as a cash flow hedge, and we calculate the effectivenessof the hedge on a quarterly basis.  Theineffective portion of the cash flow hedge is recognized in current periodearnings as an increase of interest expense.

 

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At September 30,2008, the Rate Cap Transaction was reported at its fair value of $11 thousandand is included in prepaid expenses and other assets on the consolidatedbalance sheet.  Total changes in the fairvalue of the Rate Cap Transaction as of September 30, 2008 was $0.3million, of which $0.2 million was recorded as an increase of interest expensein the consolidated statement of income for the nine months ended September 30,2008.  $73 thousand of this change wasdue to hedge ineffectiveness.

 

At December 31,2007, the fair value of the Rate Cap Transaction was immaterial.  Total changes in the fair value of the RateCap Transaction as of December 31, 2007 was $0.3 million, of which $0.1million has been reflected in accumulated other comprehensive income, net oftax, on the consolidated balance sheet. $0.1 million of this change was recorded as an increase of interestexpense in the consolidated statement of income for the year ended December 31,2007.

 

We do not enter intoderivative instruments for any purpose other than cash flow hedging purposes.

 

***Stock Repurchases***

*** ***

***2008Stock 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 $25.0 million inaggregate.  As of December 31, 2007,$22.9 million remained available for repurchase under this authorization.

 

During the first quarterof 2008, we repurchased from third party shareholders 257,125 shares at anaverage price of $20.79 per share, including average commissions $0.03 pershare, on the open market.  Our majorityshareholder sold to us 120,111 shares in the first quarter at an average priceof $20.76 per share.  The total value ofthe first quarter transactions was $7.8 million.  214,500 shares were retired in March 2008 andthe remaining 162,736 shares were retired in June 2008.

 

During the second quarterof 2008, we repurchased from third party shareholders 120,000 shares at anaverage price of $20.70 per share, including average commissions of $0.03 pershare, on the open market.  Our majorityshareholder sold to us 125,964 shares in the second quarter at an average priceof $20.67 per share.  The total value ofthe second quarter transactions was $5.1 million.  173,701 shares were retired in June 2008and the remaining 72,263 were retired during the third quarter.

 

In July 2008 theBoard of Directors authorized us to repurchase shares of our common stock, onthe open market or through private purchases, up to an additional $60.0 millionin aggregate.

 

During the third quarterof 2008, we repurchased from third party shareholders 565,447 shares at anaverage price of $21.19 per share, including average commissions of $0.03 pershare, on the open market.  Our majorityshareholder sold to us 580,060 shares in the third quarter at an average priceof $21.16 per share.  In addition, werepurchased 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 openmarket.  The total value of the thirdquarter transactions was $24.6 million. 994,841 shares were retired during the third quarter of 2008 and theremaining 165,266 shares were held as treasury stock at September 30,2008.

 

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

 

As of September 30,2008, $45.4 million remained available for repurchase under the July 2008authorization by the Board of Directors.

 

*2007Stock Repurchases*

 

In March 2007 theBoard of Directors authorized us to repurchase shares of our common stock, onthe open market or through private purchases, up to $20.0 million inaggregate.  This repurchase program wascompleted during the fourth quarter of 2007.

 

During the first quarterof 2007 we repurchased from third party shareholders 95,278 shares at anaverage price of $17.57 per share, including average commissions of $0.01 pershare, on the open market. Our majority shareholder sold to us 100,000 sharesin the first quarter at an average price of $17.56 per share. The total valueof the first quarter transactions was $3.4 million. All treasury shares wereretired in March 2007.

 

During the second quarterof 2007 we repurchased from third party shareholders 175,600 shares at anaverage price of $18.33 per share, including average commissions of $0.01 pershare, on the open market.  Our majorityshareholder sold to us 182,808 shares in the second quarter at an average priceof $18.32 per share.  The total value ofthe second quarter transactions was $6.6 million.  All treasury shares were retired during thesecond quarter.

 

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During the third quarterof 2007 we repurchased from third party shareholders 135,756 shares at anaverage price of $18.14 per share, including average commission of $0.01 pershare, on the open market.  Our majorityshareholder sold to us 139,772 shares in the third quarter at an average priceof $18.13 per share.  The total value ofthe third quarter transactions was $5.0 million.  215,012 shares were retired in September 2007and the remaining 60,516 shares were retired in October 2007.

 

***Letters of Credit***

*** ***

***At September 30, 2008, we have provided letters ofcredit totaling $18.4 million to our casualty insurance carriers tocollateralize our casualty insurance program.***

*** ***

***As of September 30, 2008, we provided $2.4 million inletters to collateralize other obligations.***

*** ***

***Deficiency Payments***

*** ***

Pursuant to ourobligations with respect to the parking garage operations at BradleyInternational Airport, we are required to make certain payments for the benefitof the State of Connecticut and for holders of special facility revenue bonds.The deficiency payments represent contingent interest bearing advances to thetrustee to cover operating cash flow requirements. The payments, if any, arerecorded as a receivable by us for which we are reimbursed from time to time asprovided in the trust agreement. As of September 30, 2008, we haveadvanced to the trustee $5.5 million, net of reimbursements. We believe theseadvances to be fully recoverable and therefore have not recorded a valuationallowance for them. We do not guarantee the payment of any principal orinterest on any debt obligations of the State of Connecticut or the trustee.

 

We made deficiencypayments (net of repayments) of $1.3 million in the first nine months of 2008compared to receiving repayments (net of deficiency payments) of $0.5 millionin the first nine months of 2007. We did not receive any payments for interestand premium income related to deficiency payments in the first nine months of2008 and received $0.3 million in the first nine months of 2007.

 

***Daily Cash Collections***

*** ***

As a result of day-to-dayactivity at our parking locations, we collect significant amounts of cash.Lease contract revenue is generally deposited into our local bank accounts,with a portion remitted to our clients in the form of rental payments accordingto the terms of the leases. Under management contracts, some clients require usto deposit the daily receipts into one of our local bank accounts, with thecash in excess of our operating expenses and management fees remitted to theclients at negotiated intervals. Other clients require us to deposit the dailyreceipts into client accounts and the clients then reimburse us for operatingexpenses and pay our management fee subsequent to month-end. Some clientsrequire a segregated account for the receipts and disbursements at locations.Our working capital and liquidity may be adversely affected if a significantnumber of our clients require us to deposit all parking revenues into theirrespective accounts.

 

Our liquidity alsofluctuates on an intra-month and intra-year basis depending on the contract mixand timing of significant cash payments. Additionally, our ability to utilizecash deposited into our local accounts is dependent upon the availability and

movement of that cashinto our corporate account. For all these reasons, from time to time, we carrya significant cash balance, while also utilizing our senior credit facility.

*** ***

***Net Cash Provided byOperating Activities***

*** ***

Netcash provided by operating activities totaled $19.4 million for the first ninemonths of 2008.  Cash provided included$25.8 million from operations and a net decrease in operating assets andliabilities of $6.4 million which was due to an increase in accounts receivableof $4.7 million, an increase in other assets of $1.4 million, an increase inprepaid assets of $0.2 million and a decrease in other liabilities of $0.7million, partially offset by an increase in accounts payable of $0.6 million.

*** ***

***Net cash provided by operating activities totaled $25.4million for the first nine months of 2007. Cash provided included $21.7 million from operations and a net increasein operating assets and liabilities of $3.7 million which was due to an increasein accounts payable of $4.6 million, an increase in other liabilities of $3.1million, partially offset by an increase of $1.7 million in accountsreceivable, an increase of $1.6 million in other assets and an increase of $0.7million in prepaid expenses.***

 

***Net Cash Used inInvesting Activities***

*** ***

Netcash used in investing activities totaled $9.2 million in the first nine monthsof 2008.  Cash used in investingactivities for the first nine months of 2008 included business acquisitions of$5.5 million, capital expenditures of $3.5 million for capital investmentsneeded to secure and/or extend lease facilities, investment in informationsystem enhancements and infrastructure, cost of contract purchases of $0.4million and $0.1 million for contingent payments on previously acquiredcontracts, which was partially offset by $0.3 million of proceeds from the saleof assets.

 

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Net cash used ininvesting activities totaled $8.9 million in the first nine months of2007.  Cash used in investing for thefirst nine months of 2007 included business acquisitions of $5.8 million,capital expenditures of $3.0 million for capital investments needed to secureand/or extend leased facilities, investment in information system enhancementsand infrastructure and $0.1 million for contingent payments on previouslyacquired contracts.

 

***Net Cash Used in Financing Activities***

*** ***

Net cash used infinancing activities totaled $7.1 million in the first nine months of2008.  Cash used in financing activitiesfor 2008 included $37.5 million used to repurchase our common stock, $2.3million used for payments of debt issuance costs, $1.2 million used forpayments on capital leases, $0.1 million used for payments on long-termborrowings, offset by $32.4 million in proceeds from our senior creditfacility, $0.7 million in proceeds from the exercise of stock options and $0.9million in excess tax benefits related to stock option exercises.

*** ***

***Net cash used in financing activities totaled $17.9 millionin the first nine months of 2007.  Cashused in financing activities for 2007 included $15.0 million to repurchase ourcommon stock, $2.9 million in payments on the senior credit facility, $1.7million for payments on capital leases, and $0.1 million for cash used onlong-term borrowings, partially offset by $0.8 million in proceeds from theexercise of stock options and $1.0 million in excess tax benefits related tostock option exercises.***

*** ***

***Cash and Cash Equivalents***

*** ***

We had cash and cashequivalents of $11.4 million at September 30, 2008, compared to $8.5million at December 31, 2007. The cash balances reflect our ability toutilize funds deposited into our local accounts and which based uponavailability, timing of deposits and the subsequent movement of that cash intoour corporate accounts may result in significant changes to our cash balances.

 

**Item 3.**                          *Quantitative and Qualitative Disclosures aboutMarket Risk*

** **

**Interest Rates**

** **

Our primary market riskexposure consists of risk related to changes in interest rates. We use avariable rate senior credit facility to finance our operations. This facilityexposes us to variability in interest payments due to changes in interestrates. If interest rates increase, interest expense increases and conversely,if interest rates decrease, interest expense also decreases. We believe that itis prudent to limit the exposure of an increase in interest rates.

 

In 2006 we entered into aRate Cap Transaction with Bank of America, which allows us to limit ourexposure on a portion of our borrowings under the Credit Agreement. Under theRate Cap Transaction, we receive payments from Bank of America each quarterlyperiod to the extent that the prevailing three month LIBOR during that periodexceeds our cap rate of 5.75%. The Rate Cap Transaction caps our LIBOR interestrate on a notional amount of $50.0 million at 5.75% for a total of 36 months.The Rate Cap Transaction began as of August 4, 2006 and settles eachquarter on a date that coincides with our quarterly interest payment datesunder the Credit Agreement.  This RateCap Transaction is classified as a cash flow hedge, and we calculate theeffectiveness of the hedge on a quarterly basis.  The ineffective portion of the cash flowhedge is recognized in current period earnings as an increase of interest expense.

 

At September 30,2008, the Rate Cap Transaction was reported at its fair value of $11 thousandand is included in prepaid expenses and other assets on the consolidatedbalance sheet.  Total changes in the fairvalue of the Rate Cap Transaction as of September 30, 2008 was $0.3million, of which $0.2 million was recorded as an increase of interest expensein the consolidated statement of income for the nine months ended September 30,2008.  $73 thousand of this change wasdue to hedge ineffectiveness.

 

At December 31,2007, the fair value of the Rate Cap Transaction was immaterial.  Total changes in the fair value of the RateCap Transaction as of December 31, 2007 was $0.3 million, of which $0.1million has been reflected in accumulated other comprehensive income, net oftax, on the consolidated balance sheet. $0.1 million of this change was recorded as an increase of interestexpense in the consolidated statement of income for the year ended December 31,2007.

 

We do not enter intoderivative instruments for any purpose other than cash flow hedging purposes.

 

Our $210.0 million seniorcredit facility provides for a $210.0 million variable rate revolving facility.In addition, the credit facility includes a letter of credit sub-facility witha sublimit of $50.0 million and a swing line sub-facility with a sublimit of$10.0 million.  Interest expense on suchborrowing is sensitive to changes in the market rate of interest. If we were toborrow the entire $220.0 million available under the facility, a 1% increase inthe average market rate would result in an increase in our annual interestexpense of $2.20 million.

 

This amount is determinedby considering the impact of the hypothetical interest rates on our borrowingcost, but does not 

 

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consider the effects ofthe reduced level of overall economic activity that could exist in such anenvironment. Due to the uncertainty of the specific changes and their possibleeffects, the foregoing sensitivity analysis assumes no changes in our financialstructure.

** **

**Foreign CurrencyRisk**

** **

Our exposure to foreignexchange risk is minimal. All foreign investments are denominated in U.S.dollars, with the exception of Canada. We had approximately $2.3 million ofCanadian dollar denominated cash instruments at September 30, 2008. We hadno Canadian dollar denominated debt instruments at September 30,2008.  We do not hold any hedginginstruments related to foreign currency transactions. We monitor foreigncurrency positions and may enter into certain hedging instruments in the futureshould we determine that exposure to foreign exchange risk has increased.

 

**Item 4.**                          *Controls and Procedures*

** **

**Evaluation ofDisclosure Controls and Procedures**

** **

Within the 90-day periodprior to the filing date of this report, our chief executive officer, chieffinancial officer and corporate controller carried out an evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934(the “Exchange Act”). Based upon their evaluation, our chief executive officer,chief financial officer and corporate controller concluded that our disclosurecontrols and procedures were adequate and effective and designed to ensure thatmaterial information relating to us (including our consolidated subsidiaries)required to be disclosed by us in the reports we file under the Exchange Act isrecorded, processed, summarized and reported within the required time periods.

 

**Changes inInternal Controls Over Financial Reporting**

** **

There were no significantchanges in our internal controls over financial reporting or any other factorsthat could significantly affect these controls subsequent to the date of theevaluation referred to above.

 

**Limitations of theEffectiveness of Internal Control**

** **

A control system, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the internal control system are met.Because of the inherent limitations of any internal control system, noevaluation of controls can provide absolute assurance that all control issues,if any, within a company have been detected.

 

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**PART II.OTHER INFORMATION**

** **

**Item 2.**                          *Unregistered Sales of Equity Securities and Use ofProceeds*

 

***Purchasesof Equity Securities by the Company***

*** ***

***The followingtable contains detail related to the repurchase of common stock by us based onthe date of trade during the quarter ended September 30, 2008. (Inthousands except share and per share data)***

*** ***
| **Quarter Ended September 30, 2008** | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Dollar**

**Value of Shares that  May Yet Be Purchased  Under the Plan or  Program** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                               | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **                                                                                                                       | ** ** | ** **                                                                                                                                       | ** ** |
| From July 1 to July 30                         |       | 395,236                                      |       | $                                            | 19.17      |                                                                                                                             | 395,236    |                                                                                                                                             | $          | 62,380 |   |
| From August 1 to August 31                     |       | 339,402                                      |       | 22.26                                        |       | 339,402                                                                                                                          |       | 54,825                                                                                                                                           |       |
| From September 1 to September 30               |       | 425,469                                      |       | 22.23                                        |       | 425,469                                                                                                                          |       | 45,369                                                                                                                                           |       |
|                                                     |       |                                         |       |                                         |       |                                                                                                                             |       |                                                                                                                                             |       |
| Total for the quarter ended September 30            |       | 1,160,107                                    |       | $                                            | 21.19      |                                                                                                                             | 1,160,107  |                                                                                                                                             | $          | 45,369 |   |

 

In December 2007 theBoard of Directors authorized us to repurchase shares of common stock, on theopen market or through private purchases, up to an additional $25.0 million inaggregate.  As of December 31, 2007,$22.9 million remained available for repurchase under this authorization.

 

In July 2008 theBoard of Directors authorized us to repurchase shares of our common stock, onthe open market or through private purchases, up to an additional $60.0million, in aggregate.

 

During the third quarterof 2008, we repurchased from third party shareholders 565,447 shares at anaverage price of $21.19 per share, including average commissions of $0.03 pershare, on the open market.  Our majorityshareholder sold to us 580,060 shares in the third quarter at an average price$21.16 per share.  In addition, werepurchased 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 openmarket.  The total value of the thirdquarter transactions was $24.6 million. 994,841 shares were retired during the third quarter of 2008 and theremaining 165,266 shares were held as treasury stock at September 30,2008.

 

As of September 30,2008, $45.4 million remained available for repurchase under the July 2008authorization by the Board of Directors.

 

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**Item 6.**                *Exhibits*

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                      |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                 |
| 10.1                |       | Standard  Parking Corporation Restricted Stock Unit Agreement dated as of July 1,  2008 (incorporated by reference to exhibit 10.1 of the Company’s Current  Report on Form 8-K filed on July 2, 2008)                                                                           |
| 10.2                |       | Amended  and Restated Credit Agreement dated July 15, 2008 among the Company,  various financial institutions, Bank of America, N.A. and Wells Fargo Bank,  N.A. (incorporated by reference on exhibit 10.1 of the Company’s Current  Report on Form 8-K filed on July 18, 2008) |
| 31.1                |       | Section 302  Certification dated November 7, 2008 for James A. Wilhelm, Director,  President and Chief Executive Officer                                                                                                                                                                   |
| 31.2                |       | Section 302  Certification dated November 7, 2008 for G. Marc Baumann, Executive Vice  President, Chief Financial Officer and Treasurer (Principal Financial  Officer)                                                                                                                     |
| 31.3                |       | Section 302  Certification dated November 7, 2008 for Daniel R. Meyer, Senior Vice  President, Corporate Controller and Assistant Treasurer (Principal Accounting  Officer)                                                                                                                |
| 32.1                |       | Certification  pursuant to 18 USC Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002, dated November 7, 2008                                                                                                                                         |

 

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**SIGNATURES**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                          |     | STANDARD  PARKING CORPORATION |
|-------------------------------|----------|-------------------------------|
|                          |     |                          |   |
|                          |     |                          |   |
| Dated:  November 7, 2008 |     | By:                           | /s/ DANIEL R. MEYER |
|                          |     |                          | Daniel R. Meyer   Senior Vice President, Corporate Controller   and Assistant Treasurer *(Principal Accounting Officer and Duly  Authorized Officer)* |
|                          |     |                          |   |
| * *                      | * * | * *                      | * * |
| Dated:  November 7, 2008 |     | By:                           | /s/ G. MARC BAUMANN |
|                          |     |                          | G. Marc Baumann   Executive Vice President, Chief Financial Officer and Treasurer*(Principal Financial Officer)* |
|                          |     |                          |   |
|                          |     |                          |   |
| Dated:  November 7, 2008 |     | By:                           | /s/ JAMES A. WILHELM |
|                          |     |                          | James A. Wilhelm   Director, President And Chief Executive Officer*(Principal Executive Officer)* |

 

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**INDEX TO EXHIBITS**

** **
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                      |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                 |
| 10.1                |       | Standard  Parking Corporation Restricted Stock Unit Agreement dated as of July 1,  2008 (incorporated by reference to exhibit 10.1 of the Company’s Current  Report on Form 8-K filed on July 2, 2008)                                                                           |
| 10.2                |       | Amended  and Restated Credit Agreement dated July 15, 2008 among the Company,  various financial institutions, Bank of America, N.A. and Wells Fargo Bank,  N.A. (incorporated by reference on exhibit 10.1 of the Company’s Current  Report on Form 8-K filed on July 18, 2008) |
| 31.1                |       | Section 302  Certification dated November 7, 2008 for James A. Wilhelm, Director, President  and Chief Executive Officer                                                                                                                                                                   |
| 31.2                |       | Section 302  Certification dated November 7, 2008 for G. Marc Baumann, Executive Vice  President, Chief Financial Officer and Treasurer (Principal Financial  Officer)                                                                                                                     |
| 31.3                |       | Section 302  Certification dated November 7, 2008 for Daniel R. Meyer, Senior Vice  President, Corporate Controller and Assistant Treasurer (Principal Accounting  Officer)                                                                                                                |
| 32.1                |       | Certification  pursuant to 18 USC Section 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002, dated November 7, 2008                                                                                                                                         |

 

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