STANDARD PARKING CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2004

Commission file number: 000-50796

STANDARD PARKING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý

As of November 12, 2004, there were 10,464,888 shares of common stock of the registrant outstanding.

STANDARD PARKING CORPORATION

FORM 10-Q INDEX

Part I. Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2004 (Unaudited) and December 31, 2003
	Condensed Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 2004 and September 30, 2003 and for the nine months ended September 30, 2004 and September 30, 2003
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2004 and September 30, 2003
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures
Part II. Other Information
Item 6.	Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and per share data)

	September 30, 2004			December 31, 2003
	(Unaudited)			(see Note)
ASSETS
Current assets:
Cash and cash equivalents	$	7,478		$	8,470
Notes and accounts receivable, net	31,221			30,923
Prepaid expenses and supplies	2,926			1,436
Total current assets	41,625			40,829

Leaseholds and equipment, net	14,851			15,959
Long-term receivables, net	7,145			5,431
Advances and deposits	1,803			2,090
Goodwill	118,052			117,390
Intangible and other assets, net	5,621			7,886

Total assets	$	189,097		$	189,585

LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	24,482		$	24,971
Accrued and other current liabilities	18,768			22,261
Current portion of long-term borrowings	2,931			2,840
Total current liabilities	46,181			50,072

Long-term borrowings, excluding current portion	113,598			158,239
Other long-term liabilities	18,784			19,776
Convertible redeemable preferred stock, series D	1			56,399
Redeemable preferred stock, series C	—			60,389
Common stock subject to put/call rights; 5.01 shares issued and outstanding	—			10,712

Common stockholders’ equity (deficit):
Common stock, par value $1 per share; 3,000 shares authorized; 26.3 shares issued and outstanding	—			1
Common stock, par value $.001 per share; 12,000,100 shares authorized; 10,464,888 shares issued and outstanding	10			—
Additional paid-in capital	193,365			15,222
Accumulated other comprehensive income	(215		)	(233		)
Accumulated deficit	(182,627		)	(180,992		)
Total common stockholders’ equity (deficit)	10,533			(166,002		)

Total liabilities and common stockholders’ equity (deficit)	$	189,097		$	189,585

Note: The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

See Notes to Condensed Consolidated Financial Statements.

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share and per share data, unaudited)

	Three Months Ended								Nine Months Ended
	September 30, 2004				September 30, 2003				September 30, 2004				September 30, 2003
Parking services revenue:
Lease contracts	$	37,125			$	31,989			$	109,366			$	103,554
Management contracts	20,089				18,491				62,537				55,589
	57,214				50,480				171,903				159,143
Reimbursement of management contract expense	76,597				84,160				246,525				245,295
Total revenue	133,811				134,640				418,428				404,438

Cost of parking services:
Lease contracts	33,131				28,001				99,103				93,522
Management contracts	8,660				7,097				25,805				21,293
	41,791				35,098				124,908				114,815
Reimbursed management contract expense	76,597				84,160				246,525				245,295
Total cost of parking services	118,388				119,258				371,433				360,110

Gross profit:
Lease contracts	3,994				3,988				10,263				10,032
Management contracts	11,429				11,394				36,732				34,296
Total gross profit	15,423				15,382				46,995				44,328

General and administrative expenses	7,848				8,265				24,997				24,365
Special charges	—				203				—				548
Depreciation and amortization	1,554				1,815				4,724				5,555
Management fee-parent company	—				750				1,500				2,250
Non-cash stock option compensation expense (1)	—				—				2,293				—

Operating income	6,021				4,349				13,481				11,610
Other expenses (income):
Interest expense	2,414				4,061				10,956				12,247
Interest income	(78			)	(51			)	(420			)	(153		)
Net loss (gain) from extinguishment of debt	27				(1,757			)	(3,833			)	(1,757		)
	2,363				2,253				6,703				10,337

Income before minority interest and income taxes	3,658				2,096				6,778				1,273

Minority interest expense	54				81				296				266
Income tax expense	19				148				336				483

Net income before preferred stock dividends and increase in value of common stock subject to put/call rights	3,585				1,867				6,146				524

Preferred stock dividends	—				4,052				7,243				11,567
Increase in value of common stock subject to put/call rights	—				297				538				937
Net income (loss)	$		3,585		$		(2,482	)	$		(1,635	)	$	(11,980	)

Common Stock Data:
Net income (loss) per common share:
Basic	$		.34		$		—		$		(.36	)	$	—
Diluted (2)	$		.33		$		—		$		(.36	)	$	—
Weighted average common shares outstanding:
Basic	10,464,888				—				4,564,902				—
Diluted (2)	10,708,537				—				4,564,902				—

(1) Non-cash stock option compensation expense of $2,293 relates entirely to general and administrative expense

(2) No incremental shares related to options are included for the nine-months ended due to a loss for that period.

See Notes to Condensed Consolidated Financial Statements.

STANDARD PARKING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except for share and per share data, unaudited)

	Nine Months Ended
	September 30, 2004			September 30, 2003

Operating activities:
Net income	$	6,146		$	524
Adjustments to reconcile net income to net cash (used in) provided by operations:
Depreciation and amortization	4,724			5,555
Non-cash interest expense	279			2,287
Amortization of debt issuance costs	836			833
Amortization of carrying value in excess of principal	(1,256		)	(2,189		)
Non-cash stock option compensation expense	2,407			—
Changes in valuation allowance	752			(235		)
Write-off of debt issuance costs	2,385			—
Write-off of carrying value in excess of principal related to the 14% senior subordinated second lien notes	(8,207		)	—
Gain on extinguishments of debt	—			(1,757		)
Change in operating assets and liabilities	(9,070		)	2,332
Net cash (used in) provided by operating activities	(1,004		)	7,350

Investing activities:
Purchase of leaseholds and equipment	(908		)	(591		)
Contingent purchase payments	(557		)	(460		)
Net cash used in investing activities	(1,465		)	(1,051		)

Financing activities:
Net proceeds from initial public offering	46,715			—
Repurchase of common stock subject to put/call rights	(6,250		)	—
Redemption of series C preferred stock	—			(2,413		)
Proceeds from other debt	—			332
Proceeds from senior credit facility	22,350			7,800
Payments on long-term borrowings	(96		)	(33		)
Payments on joint venture borrowings	(410		)	(558		)
Payments of debt issuance costs	(1,402		)	(2,834		)
Payments on capital leases	(1,714		)	(1,656		)
Repurchase of 14% senior subordinated second lien notes	(57,734		)	(5,915		)
Net cash provided by (used in) financing activities	1,459			(5,277		)

Effect of exchange rate changes on cash and cash equivalents	18			335

(Decrease) increase in cash and cash equivalents	(992		)	1,357
Cash and cash equivalents at beginning of period	8,470			6,153

Cash and cash equivalents at end of period	$	7,478		7,510
Supplemental disclosures:
Cash paid during the period for:
Interest	$	13,772		$	11,728
Income taxes	191			565
Supplemental disclosures of non-cash activity:
Debt issued for capital lease obligation	$	2,453		$	682
Issuance of 14% senior subordinated second lien notes	375			1,232

See Notes to Condensed Consolidated Financial Statements.

STANDARD PARKING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Standard Parking Corporation have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results for the three-month and nine-month periods ended September 30, 2004 are not necessarily indicative of the results that might be expected for any other interim period or the fiscal year ending December 31, 2004. The financial statements presented in this report should be read in conjunction with the consolidated financial statements and footnotes thereto included in our 2003 Annual Report on Form 10-K filed March 29, 2004.

2. Recently Issued Accounting Pronouncements

On March 31, 2004, the Financial Accounting Standards Board (FASB) issued an Exposure Draft, “Share-Based Payment”, which is a proposed amendment to SFAS No. 123, “Accounting for Stock-Based Compensation”. In October of 2004, the FASB concluded that Statement 123R, “Share-Based Payments” which would require all companies to measure compensation cost for all share-based payments including employee stock options at fair value would be effective for public companies for interim periods beginning after June 15, 2005. The final standard offers us alternative methods of adopting this final rule. At the present time, we have not yet determined which alternative method we will use.

3. Goodwill and Intangible Assets

As of September 30, 2004 and 2003, our definite lived intangible assets of $1.8 million and $2.4 million, respectively, net of accumulated amortization of $3.9 million and $3.4 million, respectively, which primarily consist of non-compete agreements, continue to be amortized over their useful lives.

The change in the carrying amount of goodwill is summarized as follows (in thousands):

Beginning balance at December 31, 2003	$		117,390
Effect of foreign currency translation	105
Contingency payments related to prior acquisitions	557
Ending balance at September 30, 2004	$	118,052

Amortization expense for intangible assets during the nine months ended September 30, 2004 was $0.5 million. Estimated amortization expense for the remainder of 2004 and the five succeeding fiscal years is as follows (in thousands):

	Estimated Amortization Expense

Remainder of 2004	$	149
2005	572
2006	516
2007	516
2008	141
2009	16

4. Long-term Receivables

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

	Amount Outstanding
	September 30, 2004			December 31, 2003
	(in thousands)
Bradley International Airport
Guarantor payments	$	6,236		$	4,471
Other Bradley related, net	2,491			2,611
Valuation allowance	(2,484		)	(2,650		)
Net amount related to Bradley	6,243			4,432
Other long-term receivables, net	902			999
Total long-term receivables, net	$	7,145		$	5,431

We are the lessee under a 25-year lease with the State of Connecticut that expires on April 6, 2025, under which we lease the surface parking and 3,500 garage parking spaces at Bradley International Airport located in the Hartford, Connecticut metropolitan area. The parking garage was financed on April 6, 2000 through the issuance of $47.7 million of State of Connecticut special facility revenue bonds. The Bradley lease provides that we deposit with a trustee for the bondholders all gross revenues collected from operations of the surface and garage parking, and from these gross revenues, the trustee pays debt service on the special facility revenue bonds, operating and capital maintenance expenses of the surface and garage parking facilities and specific annual guaranteed minimum payments to the State. Principal and interest on the Bradley special facility revenue bonds increased from approximately $3.6 million in lease year 2002 to approximately $4.5 million in lease year 2025. Our annual guaranteed minimum payments to the State increase from approximately $8.3 million in lease year 2002 to approximately $13.2 million in lease year 2024.

To the extent that monthly gross receipts are not sufficient for the trustee to make the required payments we are obligated, pursuant to our guaranty agreement, to deliver the deficiency amount to the trustee within three business days of notice. We are responsible for these deficiency payments regardless of the amount of utilization for the Bradley parking facilities. We made deficiency payments of $1.8 million in the period ended September 30, 2004 and $3.3 million in the year ended December 31, 2003.

We recorded $2.7 million as a valuation allowance related to long-term receivables during the year ended December 31, 2003. The amount was sufficient to cover all net receivables related to Bradley Airport other than the guarantor payments. There was no additional allowance recorded in the period ended September 30, 2004. It is anticipated that we will continue to reflect a valuation allowance against these receivables until the collectibility in the short term is readily apparent. In September 2004, we received payment of approximately $0.2 million which reduced the other Bradley related amount and we reversed an equal amount of the valuation allowance.

5. Special Charges

Included in “Special Charges” in the accompanying condensed consolidated statements of operations are the following:

	Nine Months Ended September 30, 2004		Nine Months Ended September 30, 2003
	(in thousands)

Cost associated with financing alternatives	$	—	$	183
Cost associated with prior year terminated locations	—		67
Parent company expenses	—		298
	$	—	$	548

We recorded no special charges for the first nine months of 2004 compared to $0.5 million for the first nine months of 2003. The 2003 special charges relate primarily to costs associated with our parent company, costs associated with financing alternatives and costs associated with prior year terminated contracts, which were partially offset by a $0.2 million reimbursement from the Wayne County Airport settlement.

6. Net Gain from Extinguishment of Debt

The net gain from extinguishment of debt consists of the following (in thousands):

	Three Months Ended					Nine Months Ended
	September 30, 2004			September 30, 2003		September 30, 2004			September 30, 2003
(Loss) gain:
Pre-payment penalty on former senior credit facility (1)	$	—		$	—	$	(640	)	$	—
Professional fees related to extinguishment of debt (1)	(27		)	—		(309		)	—
Additional premium on 14% Notes (1)	—			—		(740		)	—
Purchase of common stock options (1)	—			—		(300		)	—
Write-off of debt issuance costs related to former senior credit facility (2)	—			—		(2,385		)	—
Write-off of carrying value in excess of principal related to 14% Notes (2)	—			1,172		8,207			1,172
Gain on repurchase of 14% Notes (2)	—			585		—			585
Net (loss) gain from extinguishment of debt	$	(27	)	$	1,757	$	3,833		$	1,757

(1) Cash

(2) Non-cash

7. Borrowing Arrangements

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

	Interest Rate(s)	Due Date	Amount Outstanding
	Interest Rate(s)	Due Date	September 30, 2004		December 31, 2003
			(in thousands)

Senior Credit Facility	Various	June 2007	$	58,450	$	36,100
Senior Subordinated Second Lien Notes	14.00%	December 2006	—		57,455
Senior Subordinated Notes	9 ¼%	March 2008	48,877		48,877
Carrying value in excess of principal	Various	Various	692		10,155
Joint venture debentures	11.00-15.00%	Various	1,452		1,863
Capital lease obligations	Various	Various	4,942		4,418
Obligations on Seller notes and other	Various	Various	2,116		2,211
			116,529		161,079
Less current portion			2,931		2,840

			$	113,598	$	158,239

In conjunction with our initial public offering, on June 2, 2004, we repurchased our outstanding 14% Senior Subordinated Second Lien Notes (“14% Notes”) for $57.7 million.

The 14% Notes were issued in January 2002. Interest accrued at the rate of 14% per annum and was payable semi-annually in a combination of cash and additional registered notes (the “PIK Notes”), in arrears on June 15 and December 15, commencing on June 15, 2002. Interest in the amount of 10% per annum was paid in cash, and interest in the amount of 4% per annum was paid in PIK Notes. We made each interest payment to the holders of record on the immediately preceding June 1 and December 1. PIK Notes were issued in denominations of $100 principal amount and integral multiples of $100. The amount of PIK Notes issued was rounded down to the nearest $100 with any fractional amount refunded to the holder as cash.

The 9¹/₄% Senior Subordinated Notes (the “9¹/₄% Notes”) were issued in September of 1998 and are due in March of 2008. The 9 ¼% Notes are registered with the Securities and Exchange Commission.

A roll-forward schedule of the 14% Notes, 9¹/₄% Notes and carrying value in excess of principal is as follows:

	14% Notes			9¹/₄% Notes		Carrying value in excess of principal
	(in thousands)

Balance at December 31, 2003	$	57,455		$	48,877	$	10,155
Amortization of carrying value	—			—		(1,256		)
PIK Notes issued	279			—		—
Repurchase of 14% Senior Subordinated Second Lien Notes and write off of carrying value in excess of principal	(57,734		)	—		(8,207		)
Balance at September 30, 2004	$	—		$	48,877	$	692

We entered into a new senior credit agreement as of June 2, 2004 with LaSalle Bank National Association, as agent and Wells Fargo Bank, N.A., as syndication agent. LaSalle and Wells Fargo have subsequently assigned a portion of their loans and rights as lender to Fifth Third Bank Chicago and U.S. Bank National Association. This new senior credit agreement represents a refinancing of the prior $65.0 million senior credit facility with LaSalle and certain other lenders.

The new revolving senior credit facility now consists of a $90.0 million revolving credit facility that will expire on June 2, 2007, provided in the following commitments:

• $30.0 million by LaSalle

• $30.0 million by Wells Fargo

• $20.0 million by US Bank

• $10.0 million by Fifth Third

The new credit facility includes a letter of credit sub-facility with a sublimit of $30.0 million provided by Wells Fargo and a swing line sub-facility with a sublimit of $5.0 million.

The new revolving credit facility bears interest, at our option, at either (1) LIBOR plus the applicable LIBOR Margin ranging between 2.50% and 3.25% depending on the ratio of our total funded indebtedness to our EBITDA from time to time (“Total Debt Ratio”) or (2) the Base Rate (as defined below) plus the applicable Base Rate Margin raging between 1.00% and 1.75% depending on our Total Debt Ratio. We may elect interest periods of one, two, three or six months for LIBOR based borrowings. The Base Rate is the greater of (i) the rate publicly announced from time to time by LaSalle as its “prime rate”, or (ii) the overnight federal funds rate plus 0.50%.

The new senior credit facility includes the covenants; fixed charge ratio, senior debt to EBITDA ratio, total debt to EBITDA ratio and a limit on net annual capital expenditures, that limit our ability to incur additional indebtedness, issue preferred stock or pay dividends and contain certain other restrictions on our activities. We are required to repay borrowings under the new senior credit facility out of the proceeds of future issuances of debt or equity securities and asset sales, subject to certain customary exceptions. The new senior credit facility is secured by a first lien on substantially all of our assets and any subsequently acquired assets (including a pledge of 100% of the stock of our existing and future domestic guarantor subsidiaries and 65% of the stock of our existing and future foreign subsidiaries). At September 30, 2004 we were in compliance with all of our covenants.

At September 30, 2004, we had $24.0 million of letters of credit outstanding under the new senior credit facility, borrowings against the senior credit facility aggregated $58.5 million, and we had $7.5 million available under the new senior credit facility.

The 9¹/₄% Notes and new senior credit facility contain covenants that limit Standard from incurring additional indebtedness and issuing preferred stock, restrict dividend payments, limit transactions with affiliates and restrict certain other transactions. Substantially all of Standard’s net assets are restricted under these provisions and covenants (See Note 15).

Consolidated joint ventures have entered into four agreements for stand-alone development projects providing nonrecourse funding. These joint venture debentures are collateralized by the specific contracts that were funded and approximate the net book value of the related assets.

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

8. Redeemable Preferred Stock, Series C

In connection with our IPO, we exchanged a portion of our 11 ¼% Redeemable Preferred Stock (the “Series C preferred stock”), that was owned by Steamboat Industries LLC for 5,789,499 shares of our common stock. Our remaining Series C preferred stock was contributed to us by our parent as a capital contribution. There are no outstanding shares of Series C preferred stock.

In connection with the acquisition of the former Standard Parking and its affiliates on March 30, 1998, we received $40.7 million from AP Holdings in exchange for $70.0 million face amount of Series C preferred stock. Cumulative preferred dividends were payable semi-annually at the rate of 11¹/₄%. Any semi-annual dividend not declared or paid in cash automatically increased the liquidation preference of the stock by the amount of the unpaid dividend. We were required to redeem Series C preferred stock at the election of a holder of Series C preferred stock at any time after AP Holdings redeemed or was required to repurchase, pursuant to the terms of the indenture, dated as of March 30, 1998, by and between AP Holdings, Inc. and State Street Bank and Trust Company, any of its 11¹/₄% senior discount notes due 2008 issued pursuant to the indenture.

The Series C preferred stock had an initial liquidation preference equal to $1.0 million per share or $40.7 million in the aggregate. The Series C preferred stock accrued dividends on a cumulative basis at 11¹/₄% per year. Conversion was fixed by resolution of the Board of Directors and the shares have no voting rights except as to alterations or changes that may adversely affect the holders of the Series C preferred stock.

In January 2002, we redeemed $1.5 million and $0.1 million of the Series C preferred stock held by AP Holdings in two separate transactions for cash of $1.6 million. On June 17, 2002, we redeemed an additional $0.9 million of Series C preferred stock held by AP Holdings for $0.9 million in cash. On September 9, 2003, we redeemed an additional $2.4 million of the Series C preferred stock held by AP Holdings. The proceeds received by AP Holdings were used by it to repurchase, directly or indirectly, its outstanding 11¹/₄% senior discount notes.

	Series C preferred stock 11¹/₄% For the period ended
	September 30, 2004					December 31, 2003
	Shares		Value			Shares		Value
	(in thousands except for share data)

Beginning balance	31.9004		$	60,389		33.2194		$	56,347
Dividends accumulated	—		2,876			—		6,455
Exchange for common stock	(31.9004	)	(63,265		)	(1.319	)	(2,413		)

Ending balance	—		$	—		31.9004		$	60,389

9. Convertible Redeemable Preferred Stock, Series D

In connection with our IPO, Steamboat Industries LLC and its wholly owned subsidiary, Steamboat Industries N.V., acquired all but ten shares of our outstanding 18% Senior Convertible Redeemable Series D Preferred Stock (the “Series D preferred stock”). Steamboat Industries LLC then contributed its Series D preferred stock to us as a capital contribution. We then retired all shares of Series D preferred stock contributed to us and now have only ten shares of Series D preferred stock outstanding. The ten shares were retained in order to effect the recapitalized structure in connection with our IPO. The Series D preferred stock has an initial liquidation preference equal to $100 per share or $1,000 in the aggregate.

Prior to our IPO and, in connection with our recapitalization, we issued 3,500 shares of the Series D preferred stock to Fiducia, Ltd. that had an initial liquidation preference equal to $10,000 per share or $35.0 million in the aggregate. The Series D preferred stock accrued dividends on a cumulative basis at 18% per year. Conversion was upon occurrence of an IPO at a rate related to the IPO price and the shares had no voting rights except as to creation of any class or series of shares ranking senior to the Series D preferred stock. We were required to redeem Series D preferred stock at the election of the holder any time on or after June 15, 2008. The number of shares of Series D preferred stock authorized for issuance was 17,500.

	Series D preferred stock 18% For the period ended
	September 30, 2004					December 31, 2003
	Shares		Value			Shares	Value
	(in thousands except for share data)

Beginning balance	4,000		$	56,399		4,000	$	47,224
Dividends accumulated	—		4,367			—	9,175
Retirement	(3,990	)	(60,765		)	—	—

Ending balance	10		$	1		4,000	$	56,399

10. Stock-Based Compensation

SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure an Amendment of FASB Statement No. 123”, amends the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” to require more prominent disclosures in both interim and annual financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

We account for stock-based awards to employees and directors using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under the intrinsic value method, because the exercise price of the employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company’s Consolidated Statements of Operations.

We are required under SFAS No. 123, to disclose pro forma information regarding option grants made to our employees based on specific valuation techniques that produce estimated compensation charges. The pro forma information is as follows (in thousands, except per-share amounts):

	Three Months Ended							Nine Months Ended
	September 30, 2004				September 30, 2003			September 30, 2004			September 30, 2003

Net income (loss)-as reported	$	3,585			$	(2,482	)	$	(1,635	)	$	(11,980	)
Add: Non-cash stock option compensation expense included in the reported net income, net of related tax effects	—				—			2,293			—
Deduct: Stock-based employee compensation expense using the fair value method net of related tax effects	(81			)	—			(2,401		)	—
Proforma net income (loss)	$		3,504		$	(2,482	)	$	(1,527	)	$	(11,980	)

Basic net income (loss) per common share- as reported	$		.34		—			$	(.36	)	—
Diluted net income (loss) per common share- as reported (1)	$		.33		—			$	(.36	)	—
Basic proforma net income (loss) per common share	$		.33		—			$	(.38	)	—
Diluted proforma net income (loss) per common share (1)	$		.33		—			$	(.38	)	—

(1) No incremental shares related to options are included for the nine-months ended due to a loss for that period.

The fair value of options granted was $6.21 for the three and nine months ended September 30, 2004.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants for the three and nine months ended September 30, 2004.

	Three Months Ended		Nine Months Ended
	September 30, 2004	September 30, 2003	September 30, 2004		September 30, 2003

Risk-free rate	—	—	2.7	%	—
Expected dividend yield	—	—	0	%	—
Expected volatility *	—	—	50	%	—
Expected life	—	—	7 years		—

* note that the volatility of 50% was based upon companies in our industry as our stock is newly issued.

11. Non-Cash Stock Compensation Expense

In accordance with the 2001 Option Plan, outstanding options to purchase 503.86 shares of Series D preferred stock immediately became fully vested and exercisable upon completion of our IPO. The vested Series D preferred stock options were then converted into options to purchase an aggregate of 444,836 shares of our common stock. These options on our common stock became fully vested upon completion of our IPO.

We have elected to follow APB No. 25, and related interpretations in accounting for the stock options granted to employees and directors. Accordingly, employee and director compensation expense is recognized only for those options which price is less than fair market value at the measurement date.

We recorded $2.3 million in non-cash stock compensation expense representing the difference between the fair market value of $11.50 per share and the exercise price of $6.34 per share on the 444,836 shares converted to our common stock.

12. Initial Public Offering

In June 2004, we closed our initial public offering and sale of 4,666,667 shares of common stock, including the underwriters’ exercise of an over-allotment option, at a price of $11.50 per share. A total of $53.7 million in gross proceeds was raised from this offering. After deducting the underwriting discount of $3.8 million, and offering expenses of $3.2 million, net proceeds to us were $46.7 million. In conjunction with this offering, we entered into a new $90.0 million senior credit facility and redeemed our 14% Notes in the amount of $57.7 million. In addition, we paid $1.6 million of interest premium on the 14% Notes, $0.8 million of interest previously deferred on the term loan for the old senior credit facility, $6.6 million to purchase the common stock subject to put/call rights and any remaining existing stock options of the common stock (plus a $5.0 million note assumed by our parent company), $1.4 million in debt issuance costs for the new senior credit facility and $0.3 million for professional fees related to the exchange of debt.

13. Net Income Per Common Share

In accordance with SFAS No.128, “Earnings Per Share,” basic net income per share is computed by dividing net income by the weighted daily average number of shares of common stock outstanding during the period. The weighted daily average number of shares of common stock excludes shares that have been exercised prior to vesting and are subject to repurchase by us. Diluted net income per share is based upon the weighted daily average number of shares of common stock outstanding for the period plus dilutive potential common shares, including stock options using the treasury-stock method.

For the nine months ended September 30, 2004, the reported net income resulted in all options to purchase common shares of 121,825 being excluded from the calculation of diluted common shares since they are anti-dilutive..

The following table sets forth the computation of basic and diluted net income per share:

	Three Months Ended						Nine Months Ended
	September 30, 2004			September 30, 2003			September 30, 2004			September 30, 2003
	(in thousands except share and per share data)

Numerator:
Net income (loss)	$	3,585		$	(2,482	)	$	(1,635	)	$	(11,980	)
Denominator:
Denominator for basic net income (loss) per common share:
Weighted average basic shares outstanding	10,464,888			—			4,564,902			—
Weighted average of diluted shares outstanding (1)	10,708,537			—			4,564,902			—
Basic net income (loss) per common share	$		.34	$	—		$	(.36	)	$	—
Dilutive net income (loss) per common share (1)	$		.33	$	—		$	(.36	)	$	—

(1) No incremental shares related to options are included for the nine-months ended due to a loss for that period.

14. Subsequent Event

On October 3, 2004, a Consulting Agreement dated March 20, 1998 between us and Sidney Warshauer, a former owner of ours, was terminated by its terms as a result of Mr. Warshauer’s death. We will take a one-time non-cash charge to amortization expense in the fourth quarter of 2004 reflecting the write-off of the net unamortized balance of Mr. Warshauer’s covenant not to compete, which will result in a net increase in amortization expense of $0.49 million for the quarter. Beginning in the fourth quarter 2004, our obligation to make quarterly cash payments of $0.14 million to Mr. Warshauer will cease, and beginning in 2005, we will no longer incur any amortization expense related to this Consulting Agreement.

15. Subsidiary Guarantors

Substantially all of our direct or indirect wholly owned active domestic subsidiaries, fully, unconditionally, jointly and severally guarantee the senior credit facility and the 9¹/₄% Notes discussed in Note 7. Separate financial statements of the guarantor subsidiaries are not separately presented because, in our opinion, such financial statements are not material to investors. The non-guarantor subsidiaries include joint ventures, wholly owned subsidiaries organized under the laws of foreign jurisdictions and our inactive subsidiaries, all of which are included in the consolidated financial statements. The following is summarized combining financial information for our guarantor and non-guarantor subsidiaries (in thousands):

	Standard				Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations					Total
Balance Sheet Data:
September 30, 2004
Current assets:
Cash and cash equivalents	$		4,800		$	149		$	2,529		$	—				$		7,478
Notes and accounts receivable, net	24,938				505			5,778			—					31,221
Prepaid expenses and supplies	2,915				—			11			—					2,926
Total current assets	32,653				654			8,318			—					41,625
Leaseholds and equipment, net	13,091				297			1,463			—					14,851
Long term receivables, net	7,145				—			—			—					7,145
Advances and deposits	1,564				—			239			—					1,803
Goodwill	110,551				3,583			3,918			—					118,052
Intangible and other	5,399				65			157			—					5,621
Investment in subsidiaries	9,801				—			—			(9,801				)	—
Total assets	$	180,204			$	4,599		$	14,095		$		(9,801		)	$	189,097
Current liabilities:
Accounts payable	21,936				201			2,345			—					24,482
Accrued and other current liabilities	15,256				619			2,893			—					18,768
Current portion of long-term borrowings	2,122				—			809			—					2,931
Total current liabilities	39,314				820			6,047			—					46,181
Long-term borrowings, excluding current portion	112,293				13			1,292			—					113,598
Other long-term liabilities	18,063				—			721			—					18,784
Convertible redeemable preferred stock, series D	1				—			—			—					1
Common stockholders’ equity (deficit):
Common stock, par value $.001 per share; 12,000,100 shares authorized; 10,464,888 shares issued and outstanding	10				—			—			—					10
Additional paid-in capital	193,362				2			1			—					193,365
Accumulated other comprehensive income	—				—			(215		)	—					(215			)
Accumulated deficit	(182,839			)	3,764			6,249			(9,801				)	(182,627			)
Total common stockholders’ equity (deficit)	10,533				3,766			6,035			(9,801				)	10,533
Total liabilities and common stockholders’ equity (deficit)	$		180,204		$		4,599	$	14,095		$			(9,801	)	$	189,097
December 31, 2003
Current assets:
Cash and cash equivalents	$		6,660		$		78	$	1,732		$			—		$	8,470
Notes and accounts receivable, net	25,889				542			4,492			—					30,923
Prepaid expenses and supplies	1,421				—			15			—					1,436
Total current assets	33,970				620			6,239			—					40,829
Leaseholds and equipment, net	13,518				381			2,060			—					15,959
Long term receivables, net	5,431				—			—			—					5,431
Advances and deposits	1,810				—			280			—					2,090
Goodwill	110,032				3,545			3,813			—					117,390
Intangible and other	7,544				119			223			—					7,886
Investment in subsidiaries	8,573				—			—			(8,573				)	—
Total assets	$		180,878		$		4,665	$	12,615		$			(8,573	)	$	189,585
Current Liabilities:
Accounts payable	23,201				321			1,449			—					24,971
Accrued and other current liabilities	18,825				663			2,773			—					22,261
Current portion of long-term borrowings	1,922				—			918			—					2,840
Total current liabilities	43,948				984			5,140			—					50,072
Long-term borrowings, excluding current portion	156,325				20			1,894			—					158,239
Other long-term liabilities	19,107				—			669			—					19,776
Convertible redeemable preferred stock, series D	56,399				—			—			—					56,399
Redeemable preferred stock, series C	60,389				—			—			—					60,389
Common stock subject to put/call rights; 5.01 shares issued and outstanding	10,712				—			—			—					10,712
Common stockholders’ equity (deficit):
Common stock, par value $1 per share; 3000 shares authorized; 26.3 shares issued and outstanding	1				—			—			—					1
Additional paid-in-capital	15,221				—			1			—					15,222
Accumulated other comprehensive income	—				—			(233		)	—					(233			)
Accumulated deficit	(181,224			)	3,661			5,144			(8,573				)	(180,992			)
Total common stockholders’ (deficit) equity	(166,002			)	3,661			4,912			(8,573				)	(166,002			)
Total liabilities and common stockholders’ (deficit) equity	$		180,878		$		4,665	$	12,615		$			(8,573	)	$	189,585

Income Statement Data:
Nine Months Ended September 30, 2004
Parking services revenue:
Lease contracts	$	84,415		$	16,440	$	8,511		$	—		$	109,366
Management contracts	59,135			123		3,279			—			62,537
	143,550			16,563		11,790			—			171,903
Reimbursement of management contract expense	246,525			—		—			—			246,525
Total revenue	390,075			16,563		11,790			—			418,428
Cost of parking services:
Lease contracts	76,647			15,099		7,357			—			99,103
Management contracts	24,586			53		1,166			—			25,805
	101,233			15,152		8,523			—			124,908
Reimbursement of management contract expense	246,525			—		—			—			246,525
Total cost of parking services	347,758			15,152		8,523			—			371,433
Gross profit:
Lease contracts	7,768			1,341		1,154			—			10,263
Management contracts	34,549			70		2,113			—			36,732
Total gross profit	42,317			1,411		3,267			—			46,995

General and administrative expenses	24,370			—		627			—			24,997
Depreciation and amortization	4,078			161		485			—			4,724
Management fee—parent company	1,500			—		—			—			1,500
Non-cash stock option compensation expense	2,293			—		—			—			2,293
Operating income	10,076			1,250		2,155			—			13,481
Other expenses (income):
Interest expense	10,802			—		154			—			10,956
Interest income	(357		)	—		(63		)	—			(420		)
Net gain from extinguishment of debt	(3,833		)	—		—			—			(3,833		)
	6,612			—		91			—			6,703
Income before minority interest and income taxes	3,464			1,250		2,064			—			6,778
Minority interest expense	129			—		167			—			296
Income tax expense	120			—		216			—			336
Equity in earnings of subsidiaries	2,931			—		—			(2,931		)	—
Net income before preferred stock dividends and increase in value of common stock subject to put/call rights	6,146			1,250		1,681			(2,931		)	6,146
Preferred stock dividends	7,243			—		—			—			7,243
Increase in value of common stock subject to put/call rights	538			—		—			—			$	538
Net (loss) income	$	(1,635	)	$	1,250	$	1,681		$	(2,931	)	$	(1,635	)
Nine Months Ended September 30, 2003
Parking services revenue:
Lease contracts	$	79,558		$	16,428	$	7,568		$	—		$	103,554
Management contracts	52,566			135		2,888			—			55,589
	132,124			16,563		10,456			—			159,143
Reimbursement of management contract expense	245,295			—		—			—			245,295
Total revenue	377,419			16,563		10,456			—			404,438
Cost of parking services:
Lease contracts	71,928			15,005		6,589			—			93,522
Management contracts	20,522			36		735			—			21,293
	92,450			15,041		7,324			—			114,815
Reimbursement of management contract expense	245,295			—		—			—			245,295
Total cost of parking services	337,745			15,041		7,324			—			360,110
Gross profit:
Lease contracts	7,630			1,423		979			—			10,032
Management contracts	32,044			99		2,153			—			34,296
Total gross profit	39,674			1,522		3,132			—			44,328

General and administrative expenses	23,985			—		380			—			24,365
Special Charges	478			—		70			—			548
Depreciation and amortization	4,743			159		653			—			5,555
Management fee—parent company	2,250			—		—			—			2,250
Operating income	8,218			1,363		2,029			—			11,610
Other expenses (income):
Interest expense	12,039			1		207			—			12,247
Interest income	(95		)	—		(58		)	—			(153		)
Net gain from extinguishment of debt	(1,757		)	—		—			—			(1,757		)
	10,187			1		149			—			10,337
Income before minority interest and income taxes	(1,969		)	1,362		1,880			—			1,273
Minority interest expense	118			—		148			—			266
Income tax expense	180			—		303			—			483
Equity in earnings of subsidiaries	2,791			—		—			(2,791		)	—
Net income before preferred stock dividends and increase in value of common stock subject to put/call rights	524			1,362		1,429			(2,791		)	524
Preferred stock dividends	11,567			—		—			—			11,567
Increase in value of common stock subject to put/call rights	937			—		—			—			937
Net (loss) income	$	(11,980	)	$	1,362	$	1,429		$	(2,791	)	$	(11,980	)

Cash Flow Data:
Nine Months Ended September 30, 2004
Operating activities:
Net income (loss)	$	6,146		$	1,250		$	1,681		$	(2,931	)	$	6,146
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Depreciation and amortization	4,078			161			485			—			4,724
Non-cash interest expense	279			—			—			—			279
Amortization of debt issuance costs	836			—			—			—			836
Amortization of carrying value in excess of principal	(1,256		)	—			—			—			(1,256		)
Non-cash stock option compensation expense	2,407			—			—			—			2,407
Changes in valuation allowance	696			28			28			—			752
Write-off of debt issuance costs	2,385			—			—			—			2,385
Write-off of carrying value in excess of principal related to the 14% Notes	(8,207		)	—			—			—			(8,207		)
Change in operating assets and liabilities	(9,669		)	(1,368		)	(965		)	2,931			(9,070		)
Net cash (used in) provided by operating activities	(2,304		)	71			1,229			—			(1,004		)
Investing activities:
Purchase of leaseholds and equipment	(908		)	—			—			—			(908		)
Contingent purchase payments	(557		)	—			—			—			557		)
Net cash used in investing activities	(1,465		)	—			—			—			(1,465		)
Financing activities:
Net proceeds from initial public offering	46,715			—			—			—			46,715
Repurchase of common stock subject to put/call rights	(6,250		)	—			—			—			(6,250		)
Proceeds from senior credit facility	22,350			—			—			—			22,350
Payments on long-term borrowings	(56		)	—			(40		)	—			(96		)
Payments on joint venture borrowings	—			—			(410		)	—			(410		)
Payments on debt issuance costs	(1,402		)	—			—			—			(1,402		)
Payments on capital leases	(1,714		)	—			—			—			(1,714		)
Repurchase of 14% senior subordinated second lien notes	(57,734		)	—			—			—			(57,734		)
Net cash provided by (used in) financing activities	1,909			—			(450		)	—			1,459
Effect of exchange rate changes	—			—			18			—			18
(Decrease) increase in cash and cash equivalents	(1,860		)	71			797			—			(992		)
Cash and cash equivalents at beginning of period	6,660			78			1,732			—			8,470
Cash and cash equivalents at end of period	$	4,800		$	149		$	2,529		$	—		$	7,478

Nine Months Ended September 30, 2003
Operating activities:
Net income (loss)	$	524		$	1,362		$	1,429		$	(2,791	)	$	524
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization	4,743			159			653			—			5,555
Non-cash interest expense	2,287			—			—			—			2,287
Amortization of debt issuance costs	833			—			—			—			833
Amortization of carrying value in excess of principal	(2,189		)	—			—			—			(2,189		)
Changes in valuation allowance	(234		)	—			(1		)	—			(235		)
Gain on extinguishment of debt	(1,757		)	—			—			—			(1,757		)
Change in operating assets and liabilities	3,561			(2,145		)	(1,875		)	2,791			2,332
Net cash provided by (used in) operating activities	7,768			(624		)	206			—			7,350
Investing activities:
Purchase of leaseholds and equipment	(591		)	—			—			—			(591		)
Contingent purchase payments	(460		)	—			—			—			460		)
Net cash used in investing activities	(1,051		)	—			—			—			(1,051		)
Financing activities:
Redemption of series C preferred stock	(2,413		)	—			—			—			(2,413		)
Proceeds from other debt	—			332			—			—			332
Proceeds from senior credit facility	7,800			—			—			—			7,800
Payments on long-term borrowings	(33		)	—			—			—			(33		)
Payments on joint venture borrowings	(528		)	(30		)	—			—			(558		)
Payments of debt issuance costs	(2,834		)	—			—			—			(2,834		)
Payments on capital leases	(1,656		)	—			—			—			(1,656		)
Repurchase of 14% Notes	(5,915		)	—			—			—			(5,915		)
Net cash (used in) provided by financing activities	(5,579		)	302			—			—			(5,277		)
Effect of exchange rate changes	—			335			—			—			335
Increase in cash and cash equivalents	1,138			13			206			—			1,357
Cash and cash equivalents at beginning of period	4,723			97			1,333			—			6,153
Cash and cash equivalents at end of period	$	5,861		$	110		$	1,539		$	—		$	7,510

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

The following discussion will assist in understanding our financial position and results of operations. The information below should be read in conjunction with the consolidated financial statements, the related notes to the consolidated financial statements and our Form 10-K for the year ended December 31, 2003.

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

We continue to be subject to certain factors that could cause our results to differ materially from expected and historical results (see the “Risk Factors” set forth in our 2003 Form 10-K filed on March 29, 2004 and our Form S-1 (333-112652) Registration Statement).

Overview

Our Business

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

We operate our clients’ parking properties through two types of arrangements: management contracts and leases. Under a management contract, we typically receive a base monthly fee for managing the facility, and we may also receive an incentive fee based on the achievement of facility performance objectives. We also receive fees for ancillary services. Typically, all of the underlying revenues and expenses under a standard management contract flow through to our clients rather than to us. However, some management contracts, which are referred to as “reverse” management contracts, usually provide for larger management fees and require us to pay various costs. Under lease arrangements, we generally pay to the property owner either a fixed annual rent, a percentage of gross customer collections, or a combination thereof. We collect all revenues under lease arrangements and we are responsible for most operating expenses, but we are typically not responsible for major maintenance, capital expenditures or real estate taxes. Margins for lease contracts vary significantly, not only due to operating performance, but also due to variability of parking rates in different cities and varying space utilization by parking facility type and location. As of September 30, 2004, we operated 84% of our locations under management contracts and 16% under leases.

In evaluating our financial condition and operating performance, management’s primary focus is on our gross profit, total general and administrative expense and general and administrative expense as a percentage of our gross profit. Although the underlying economics to us of management contracts and leases are similar, the manner in which we are required to account for them differs. Revenue from leases includes all gross customer collections derived from our leased locations (net of parking tax), whereas revenue from management contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management contracts, therefore, are not included in our revenue. Accordingly, while our revenue can fluctuate simply based on the proportion of leases to management contracts, our gross profit will not fluctuate merely because of the structure of our operating agreements. For example, as of September 30, 2004, 84% of our locations were operated under management contracts and 74% of our gross profit for the period ended September 30, 2004 was derived from management contracts. Only 35% of total revenue (excluding reimbursement of management contract expenses), however, was from management contracts because under those contracts the revenue collected from parking customers belongs to our clients. Therefore, gross profit and total general and administrative expense, rather than revenue, are management’s primary focus.

Our Initial Public Offering

In June 2004, we closed our initial public offering and the sale of 4,666,667 shares of common stock, including the underwriters’ exercise of an over-allotment option, at a price of $11.50 per share. We raised a total of $53.7 million in gross proceeds from this offering. After deducting the underwriting discount of $3.8 million, and offering expenses of $3.2 million, net proceeds to us were $46.7 million. In conjunction with this offering, we entered into a new $90.0 million senior credit facility and redeemed our 14% Notes in the amount of $57.7 million. In addition, we paid $1.6 million of interest premium on the 14% Notes, $0.8 million of interest previously deferred on the term loan for the old senior credit facility, $6.6 million to purchase the common stock subject to put/call rights and any remaining existing stock options of the common stock (plus a $5.0 million note assumed by our parent company), $1.4 million in debt

issuance costs for the new senior credit facility and $0.3 million for professional fees related to the exchange of debt.

Summary of Operating Facilities

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

	September 30, 2004	December 31, 2003	September 30, 2003

Managed facilities	1,578	1,566	1,572
Leased facilities	298	295	290

Total facilities	1,876	1,861	1,862

Revenue

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

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

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

Reimbursement of Management Contract Expense

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

Cost of Parking Services

Our cost of parking services consists of the following:

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

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

Gross Profit

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

General and Administrative Expenses

General and administrative expenses include salaries, wages, payroll taxes, insurance, travel and office related expenses for our

headquarters, field offices and supervisory employees.

Special Charges

We have incurred a variety of special charges during the periods discussed. These charges have included costs associated with incremental integration costs and certain expenses of AP Holdings, Inc, our former parent company.

Management Fee

Since 2002, we were a party to a management agreement with AP Holdings that provided for periodic payment of annual management fees of $3.0 million. We paid the management fees through the second quarter of 2004. The fee was terminated upon the closing of the initial public offering in June 2004.

Results of Operations

Three Months ended September 30, 2004 Compared to Three Months ended September 30, 2003

Parking services revenue—lease contracts. Lease contract revenue increased $5.1 million, or 16.1%, to $37.1 million in the third quarter of 2004, compared to $32.0 million in the third quarter of 2003. The majority of this increase resulted from the net addition of 8 contracts from the year ago period, which more than offset those lost through contract expirations and conversions to management contracts. In addition, revenue was negatively impacted by $0.1 million due to the recent hurricanes.

Parking services revenue—management contracts. Management contract revenue increased $1.6 million, or 8.6%, to $20.1 million in the third quarter of 2004 compared to $18.5 million in the third quarter of 2003. This increase resulted from the net addition of 6 contracts from the year ago period, the impact of increased revenue from insurance and other ancillary services, the increase in reverse management type of contracts and conversions from lease contracts which was partially offset by a charge of $0.2 million related to a long term receivable due to the increase in the length of time estimated for collection.

Reimbursement of management contract expense. Reimbursement of management contract expenses decreased $7.6 million, or 9.0 %, to $76.6 million in the third quarter of 2004, as compared to $84.2 million in the third quarter 2003. This decrease resulted from a reduction in costs incurred on the behalf of owners.

Cost of parking services—lease contracts. Cost of parking for lease contracts increased $5.1 million, or 18.3%, to $33.1 million for the third quarter of 2004, from $28.0 million for the third quarter of 2003. The majority of this increase resulted from the net addition of 8 contracts from the year ago period and increased rent expense on contract renewals which more than offset any cost reductions associated with those lost through contract expirations and conversions to management contracts.

Cost of parking services—management contracts. Cost of parking for management contracts increased $1.6 million, or 22.0%, to $8.7 million in the third quarter of 2004, from $7.1 million in the third quarter 2003. This increase resulted primarily from the net addition of 6 contracts from the year ago period, the increase in reverse management type of contracts and increased costs on reverse management contracts. In addition, in the third quarter of 2003, we recorded a one time gain due to a $0.3 million reimbursement from the Wayne County Airport settlement.

Reimbursed management contract expense. Reimbursed management contract expense decreased $7.6, million, or 9.0%, to $76.6 million in the third quarter of 2004, as compared to $84.2 million in the third quarter 2003. This decrease resulted from a reduction in costs incurred on the behalf of owners.

Gross profit—lease contracts. Gross profit for lease contracts was $4.0 million in the third quarter of 2004 and 2003. Gross margin for lease contracts decreased to 10.8% in the third quarter of 2004 as compared to 12.5% for the third quarter of 2003. This decrease in gross margin primarily relates to increased rent and operating expenses on existing contracts and the $0.1 million negative impact from the recent hurricanes.

Gross profit—management contracts. Gross profit for management contracts was $11.4 million in the third quarter of 2004 and 2003 Gross margin for management contracts decreased to 56.9% for the third quarter of 2004 as compared to 61.6% for the third quarter of 2003. The decrease in gross margin was primarily related to the net addition of 6 contracts from the year ago period, the increase in reverse management type of contracts, increased costs on existing reverse management contracts, and a charge of $0.2 million related to a long term receivable due to the increase in the length of time estimated for collection. In addition, in the third quarter of 2003, we recorded a one time gain due to a $0.3 million reimbursement from the Wayne County Airport settlement.

General and administrative expenses. General and administrative expenses decreased $0.4 million, or 5.0%, to $7.9 million for the third quarter of 2004, compared to $8.3 million for the third quarter of 2003. This decrease resulted primarily from a $0.2 million benefit related to a key-man insurance policy and a $0.2 million collection of a receivable that had been previously reserved. Increases in wage

and benefit costs, were offset by cost savings and efficiency gains.

Special charges. We recorded no special charges for the third quarter of 2004 compared to $0.2 million for the third quarter of 2003. The 2003 special charges relate primarily to costs associated with financing alternatives and costs associated with prior year terminated contracts, which were offset by a $0.2 million reimbursement from the Wayne County Airport settlement.

Management fee—parent company. We recorded no management fee for the third quarter of 2004 compared to $0.8 million of management fee for the third quarter of 2003. The fee was paid to AP Holdings, Inc., pursuant to a management agreement that terminated in June 2004 in conjunction with the IPO.

Nine Months ended September 30, 2004 Compared to Nine Months ended September 30, 2003

Parking services revenue—lease contracts. Lease contract revenue increased $5.8 million, or 5.6%, to $109.4 million in the first nine months of 2004, compared to $103.6 million in the first nine months of 2003. The majority of this increase resulted from the net addition of 8 contracts from the year ago period, which more than offset those lost through contract expirations and conversions to management contracts. In addition, revenue was negatively impacted by $0.1 million due to the recent hurricanes.

Parking services revenue—management contracts. Management contract revenue increased $6.9 million, or 12.5%, to $62.5 million in the first nine months of 2004 compared to $55.6 million in the first nine months of 2003. This increase resulted from the net addition of 6 contracts from the year ago period, the impact of increased revenue from insurance and other ancillary services, the increase in reverse management type of contracts and conversions from lease contracts which was partially offset by a charge of $0.4 million related to a long term receivable due to the increase in the length of time estimated for collection.

Reimbursement of management contract expense. Reimbursement of management contract expenses increased $1.2 million, or 0.5%, to $246.5 million in the first nine months of 2004, as compared to $245.3 million in the first nine months of 2003. This increase resulted from additional reimbursements for costs incurred on the behalf of owners.

Cost of parking services—lease contracts. Cost of parking for lease contracts increased $5.6 million, or 6.0%, to $99.1 million for the first nine months of 2004, from $93.5 million for the first nine months of 2003. The majority of this increase resulted from the net addition of 8 contracts from the year ago period and increased rent expense on contract renewals which more than offset any cost reductions associated with those lost through contract expirations and conversions to management contracts.

Cost of parking services—management contracts. Cost of parking for management contracts increased $4.5 million, or 21.2%, to $25.8 million in the first nine months of 2004, from $21.3 million in the first nine months of 2003. This increase resulted primarily from the net addition of 6 contracts from the year ago period, the increase in reverse management type of contracts and increased costs on reverse management contracts. In addition, in the third quarter of 2003, we recorded a one time gain due to a $0.3 million reimbursement from the Wayne County Airport settlement.

Reimbursed management contract expense. Reimbursed management contract expense increased $1.2 million, or 0.5%, to $246.5 million in the first nine months of 2004, as compared to $245.3 million in the first nine months of 2003. This increase resulted from additional reimbursements for costs incurred on the behalf of owners.

Gross profit—lease contracts. Gross profit for lease contracts increased $0.2 million, or 2.3%, to $10.3 million in the first nine months of 2004, as compared to $10.1 million in the first nine months of 2003. Gross margin for lease contracts decreased to 9.4% in the first nine months of 2004 as compared to 9.7% for the first nine months of 2003. The increase in gross profit primarily relates to the net addition of 8 contracts from the year ago period. The decrease in gross margin primarily relates to increased rent expense on contract renewals which more than offset any cost reductions and the $0.1 million negative impact from the recent hurricanes.

Gross profit—management contracts. Gross profit for management contracts increased $2.4 million, or 7.1%, to $36.7 million for the first nine months of 2004, as compared to $34.3 million in the first nine months of 2003. Gross margin for management contracts decreased to 58.7% for the first nine months of 2004 as compared to 61.7% for the first nine months of 2003. The increase in gross profit was primarily related to the net addition of 6 contracts from the year ago period and the impact of increased revenue from insurance and other ancillary services, while the decrease in gross margin was primarily related to the increase in reverse management type of contracts, increased costs on existing reverse management contracts and a charge of $0.4 million related to a long term receivable due to the increase in the length of time estimated for collection. In addition, in the third quarter of 2003, we recorded a one time gain due to a $0.3 million reimbursement from the Wayne County Airport settlement.

General and administrative expenses. General and administrative expenses increased $0.6 million, or 2.6%, to $25.0 million for the first nine months of 2004, compared to $24.4 million for the first nine months of 2003. This increase resulted primarily from increases in wage and benefit costs, professional fees and approximately $0.2 million in additional costs of being a public equity company, which was partially offset by, cost savings and efficiency gains, a $0.2 million benefit related to a key-man insurance policy and a $0.2 million collection of a receivable that had been previously reserved.

Special charges. We recorded no special charges for the first nine months of 2004 compared to $0.5 million for the first nine months of 2003. The 2003 special charges relate primarily to costs associated with our parent company, costs associated with financing alternatives and costs associated with prior year terminated contracts, which were partially offset by a $0.2 million reimbursement from the Wayne County Airport settlement.

Management fee—parent company. We recorded $1.5 million of management fee for the first nine months of 2004 compared to $2.3 million for the first nine months of 2003. The fee was paid to AP Holdings pursuant to our management agreement that terminated in June 2004 in conjunction with the IPO.

Liquidity and Capital Resources

Outstanding Indebtedness

On September 30, 2004, we had total indebtedness of approximately $116.5 million, a reduction of $44.6 million from December 31, 2003. The $116.5 million includes:

• $58.5 million under our new senior credit facility;

• $49.6 million of 9¹/₄% Notes, including $0.7 million in carrying value in excess of principal, which are due in March 2008; and

• $8.4 million of other debt including joint venture debentures, capital lease obligations and obligations on seller notes and other indebtedness.

We believe that our cash flow from operations, combined with additional borrowings under our senior credit facility will be available in an amount sufficient to enable us to pay our indebtedness, or to fund other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the 9¹/₄% Notes, on or before their respective maturities. We believe that we will be able to refinance our indebtedness, including the new senior credit facility and the 9¹/₄% Notes, on commercially reasonable terms.

Senior Credit Facility

We entered into a new credit agreement as of June 2, 2004 with LaSalle Bank National Association, as agent and Wells Fargo Bank, N.A., as syndication agent. LaSalle and Wells Fargo have subsequently assigned a portion of their loans and rights as lender to Fifth Third Bank Chicago and U.S. Bank National Association. This new credit agreement represents a refinancing of the prior $65.0 million senior credit facility with LaSalle and certain other lenders.

The new senior credit facility now consists of a $90.0 million revolving credit facility that will expire on June 2, 2007, provided in the following commitments:

• $30.0 million by LaSalle

• $30.0 million by Wells Fargo

• $20.0 million by US Bank

• $10.0 million by Fifth Third

The new revolving credit facility includes a letter of credit sub-facility with a sublimit of $30.0 million provided by Wells Fargo and a swing line sub-facility with a sublimit of $5.0 million.

The new senior credit facility includes the covenants; fixed charge ratio, senior debt to EBITDA ratio, total debt to EBITDA ratio and a limit on our net annual capital expenditures, that limit our ability to incur additional indebtedness, issue preferred stock or pay dividends and contain certain other restrictions on our activities. We are required to repay borrowings under the new senior credit facility out of the proceeds of future issuances of debt or equity securities and asset sales, subject to certain customary exceptions. The new senior credit facility is secured by substantially all of and after-acquired assets (including a pledge of 100% of the stock of our existing and future domestic guarantor subsidiaries and 65% of the stock of our existing and future foreign subsidiaries). At September 30, 2004 we were in compliance with all of our covenants.

At September 30, 2004, we had $24.0 million of letters of credit outstanding under the new senior credit facility, borrowings against

the new senior credit facility aggregated $58.5 million and we had $7.5 million available under the new senior credit facility.

Letters of Credit

As of September 30, 2004, we had $24.0 million in letters of credit outstanding, which constitute a use of availability under our revolving credit facility.

We are required under certain contracts to provide performance bonds. These bonds are typically renewed on an annual basis. As of September 30, 2004, we provided $4.5 million in letters of credit to collateralize our current performance bond program.

During the first nine months of 2004, we provided letters of credit totaling $7.5 million to our casualty insurance carrier to collateralize our casualty insurance program.

During the first quarter of 2003, our casualty insurance carrier returned funds previously held in trust, in the amount of $12.0 million, which was exchanged for a letter of credit in the same amount.

Lease Commitments

We have lease commitments of $20.5 million for fiscal 2004. The leased properties generate sufficient cash flow to meet the base rent payment.

Guarantor Payments

Pursuant to our obligations with respect to the parking garage operations at Bradley International Airport, we have guaranteed any revenue shortfall and are required to make certain payments for the benefit of the State of Connecticut and for holders of special facility revenue bonds. We made deficiency payments (net of repayments) of $1.2 million in 2002, $3.3 million in 2003 and $1.8 million in the first nine months of 2004. Although we expect to recover all amounts owed to us, we expect that we may have to make material additional deficiency payments in the near term.

Daily Cash Collections

As a result of day-to-day activity 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 according to the terms of the leases. Under management contracts, some clients require us to deposit the daily receipts into one of our local bank accounts, with the cash in excess of our operating expenses and management fees remitted to the clients at negotiated intervals. Other clients require us to deposit the daily receipts into client accounts and the clients then reimburse us for operating expenses and pay our management fee subsequent to month-end. Some clients require a segregated account for the receipts and disbursements at locations. Our working capital and liquidity may be adversely affected if a significant number of our clients require us to deposit all parking revenues into their respective accounts.

Gross daily collections are collected by us and deposited into banks using one of three methods, which impact our investment in working capital:

• locations with revenues deposited into our bank accounts reduce our investment in working capital,

• locations that have segregated accounts generally require no investment in working capital, and

• accounts where the revenues are deposited into the clients’ accounts increase our investment in working capital.

Our average investment in working capital depends on our contract mix. For example, an increase in contracts that require all cash deposited in our bank accounts reduces our investment in working capital and improves our liquidity. During the first nine months of 2004 and the first nine months of 2003, there were no material changes in these types of contracts. In addition, our clients may accelerate monthly distributions to them and have an estimated distribution occur in the current month. During the first nine months of 2004 and the first nine months of 2003, there were no material changes in the timing of current month distributions.

Our liquidity also fluctuates on an intra-month and intra-year basis depending on the contract mix and timing of significant cash payments, such as our scheduled interest payments on our notes. Additionally, our ability to utilize cash deposited into our local accounts is dependent upon the availability and movement of that cash into our corporate account. For all these reasons, we, from time to time, carry a significant cash balance, while also utilizing our senior credit facility.

Net Cash Provided by Operating Activities

Net cash used in operating activities totaled $1.0 million for the first nine months of 2004. Cash used during the first nine months of 2004 included an increase in long-term accounts receivable of $1.7 million, a net increase in prepaid related to our casualty insurance

program of $1.5 million, a net decrease in accrued liabilities of $4.6 million primarily related to the interest payments of $4.6 million on the senior subordinated notes, $2.6 million of interest on the 14% Notes, which was the final interest payment on the 14% Notes, offset by an increase in accounts payable of $0.5 million.

Net cash provided by operating activities totaled $7.4 million for the first nine months of 2003. Cash provided during the first nine months of 2003 included $12.0 million from the return of funds held in a trust by our casualty insurance carrier, which was exchanged for a letter of credit in the same amount, which was offset by the payment of $7.6 million in interest payments on the senior subordinated notes, an increase in accounts receivable of $2.7 million, a decrease in accounts payable of $0.9 million and a decrease in insurance and other accruals of $1.2 million.

Net Cash Used in Investing Activities

Net cash used in investing activities totaled $1.5 million in the first nine months of 2004. Cash used in investing for 2004 included capital expenditures of $0.9 million for capital investments needed to secure and/or extend leased facilities, investment in information system enhancements and infrastructure and $0.6 million for contingent payments on previously acquired contracts.

Net cash used in investing activities totaled $1.1 million for the first nine months of 2003. Cash used in investing for the first nine months of 2003 resulted from capital purchases to secure and/or extend leased facilities and investments in management information system enhancements of $0.6 million and contingent purchase payments on previously acquired contracts of $0.5 million.

Net Cash Used in Financing Activities

Net cash provided by financing activities totaled $1.5 million in the first nine months of 2004. The 2004 activity included $46.7 million in net proceeds from the initial public offering, $22.4 million in borrowings on the senior credit facility offset by cash used of $57.7 million for repurchase of the 14% senior subordinated second lien notes, $6.3 million used for the purchase of common stock subject to put/call rights, $1.4 million used for debt issuance costs on the new senior credit facility, $1.7 million used for payments on capital leases and $0.5 million for cash used on joint venture and other long-term borrowings.

Net cash used in financing activities totaled $5.3 million in the first nine months of 2003. The 2003 activity included $7.8 million in proceeds from the senior credit facility offset by $5.9 million for the repurchase of 14% senior subordinated second lien notes, $2.4 million for the redemption of Series C preferred stock, $1.7 million on capital lease payments, $2.8 million in debt issuance costs and repayments on joint venture borrowings of $0.6 million.

Cash and Cash Equivalents

We had cash and cash equivalents of $7.5 million at September 30, 2004, compared to $8.5 million at December 31, 2003.

Subsequent Event

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rates

Our primary market risk exposure consists of risk related to changes in interest rates. Historically, we have not used derivative financial instruments for speculative or trading purposes.

Our new $90.0 million senior credit facility provides for a $90.0 million revolving variable rate senior credit facility. Interest expense on such borrowing is sensitive to changes in the market rate of interest. If we were to borrow the entire $90.0 million available under the facility, a 1% increase in the average market rate would result in an increase in our annual interest expense of $0.9 million.

This amount is determined by considering the impact of the hypothetical interest rates on our borrowing cost, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Due to the uncertainty of the specific changes and their possible effects, the foregoing sensitivity analysis assumes no changes in our financial structure.

Foreign Currency Risk

Our exposure to foreign exchange risk is minimal. All foreign investments are denominated in U.S. dollars, with the exception of Canada. We had approximately $3.0 million and $0.3 million of Canadian dollar denominated cash and debt instruments, respectively, at September 30, 2004. We do not hold any hedging instruments related to foreign currency transactions. We monitor foreign currency positions and may enter into certain hedging instruments in the future should we determine that exposure to foreign exchange risk has increased.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

There were no significant changes in our internal controls or any other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number		Description

31.1		Section 302 Certification dated November 12, 2004 for James A. Wilhelm, Chief Executive Officer and President
31.2		Section 302 Certification dated November 12, 2004 for G. Marc Baumann, Executive Vice President, Chief Financial Officer and Treasurer
31.3		Section 302 Certification dated November 12, 2004 for Daniel R. Meyer, Senior Vice President, Corporate Controller and Assistant Treasurer
32.1		Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

During the third quarter of 2004, we filed the following current reports on Form 8-K:

Date of Report		Description

July 1, 2004		We announced the promotion of executive officers Herbert W. Anderson and Thomas L. Hagerman.
August 12, 2004		We announced our second quarter 2004 operating results and financial condition.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STANDARD PARKING CORPORATION


Dated: November 12, 2004	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 12, 2004	By:	/s/ G. MARC BAUMANN
		G. Marc Baumann Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

INDEX TO EXHIBITS

Exhibit Number		Description

	31.1	Section 302 Certification dated November 12, 2004 for James A. Wilhelm, Chief Executive Officer and President
	31.2	Section 302 Certification dated November 12, 2004 for G. Marc Baumann, Executive Vice President, Chief Financial Officer and Treasurer
	31.3	Section 302 Certification dated November 12, 2004 for Daniel R. Meyer, Senior Vice President, Corporate Controller and Assistant Treasurer
	32.1	Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002